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The
economy that is. Especially the part that consists of swapping paper
certificates. That's the buzz I've gotten the first two weeks of 2010, and forgive
me for not presenting a sheaf of charts and graphs to make the case. Just
about everybody else yakking about these thing on the Web provides plenty of
statistical analysis: Mish, The Automatic Earth, Chris Martenson, Zero Hedge, The
Baseline Scenario.... They're all well worth
visiting.
Bank bonus numbers are due out any day now. The revolt that I expected
around the release of these numbers may come from a different place than I
had imagined earlier -- not from whatever remains of "normal"
working people, but from the thought leaders and middling agents in
administration (including the prosecutors) who, for one reason or another,
have been diverting their attention, or watching and waiting, or making
excuses for a couple of years now. When Frank Rich of The New York Times
starts calling for Robert Rubin's head,
then maybe the great groaning tramp steamer of media opinion is turning in
the water and charting a new course for the port of reality.
Anyway, the grotesque carnival of rackets and lies that the US economy
has become -- held together with the duct tape of stimulus cash, gamed
accounting, mortgage subsidies, carry trades, TBTF bailouts, TARPS, TALFS,
shell-game BLS reports, and MSNBC "green shoots" cheerleading --
gives every sign of tipping into collapse at a moment's notice. There are
just too many obvious things that can go wrong, and that means there are many
less obvious, hidden things that can go wrong, and isn't it tragically
foolish to tempt Murphy's Law, since it operates so
well without any help from us? The call is even going out lately for
criminal prosecution of the current Treasury Secretary, Mr. Geithner, for engineering AIG's $14 billion credit default swap payoff to
Goldman Sachs as part of the AIG bailout.
Okay then, why not Paulson, Bernanke, Blankfein...?
But the other rings of the circus are fully occupied by clowns and
dancing bears, too. Even with sketchy-looking stock market prospects for
2010, it's hard to explain why the world would run into US treasury bonds,
especially a few months from now, after the initial rush-to-safety -- that
is, when you could just as easily buy Canadian or Swiss franc denominated
short-term bills. And then what happens when the Federal Reserve has to eat
all the uneaten treasuries, while it's already choking to death on collateralized
debt obligations and related worthless toxic trash securities? After all, the
greenbacks we swap around are called Federal Reserve Notes.
Why would anybody think that the housing market is going to keep
levitating? A big fat "pig" of adjustable rate mortgages (i.e.
mortgages that will never be "serviced") is about to move through
the "python" of the housing scene, shoving millions more households
into default and foreclosure. Meanwhile, local and regional banks are choking
on real estate already in default that they are afraid to foreclose on and
have been keeping off the market through 2009 in order to not send the price
of houses down further and put even more households "under water"
for houses worth much less than the face value of their mortgage. I doubt
that the banks are doing this out of the goodness of their hearts, but
whatever the motive, this racket of just sucking up bad loans can't go on
forever. At some point, a banking system has to be based on credibility, on
loans actually being paid back, or it will break, and we are close to the
breaking point.
The pathetic truth at the center of the housing fiasco is that prices
have to come down further if any normal wage-earner will ever afford to buy a
house again in America on anything like normal terms. Anyway, sooner or
later the banking system is going to have to upchuck the "phantom
inventory" of un-foreclosed-on houses, and sell them off for whatever
they can get, or else a lot of banks are going to go out of business.
They may go down anyway, because the catastrophe of commercial real
estate is following right on the heels of the fiasco in residential real
estate. The vast oversupply of malls, strip malls, office parks, and other
furnishings of the expiring "consumer" economy is about to become
the biggest liability that any economy in world history has ever seen. Who
will even want to buy these absurd properties cheaply, when they will never
find any retail tenants for the badly-built structures, nor be able to keep up
with the maintenance (think: leaking flat roofs), or retrofit them for
anything? In a really sane world, a lot of these buildings would go
straight to demolition-and-salvage -- except that it costs money to do that,
and who exactly right now will make a market for used cinder blocks and
aluminum window sashes? I expect these places to become squats for the
desperate homeless.
Then there are the bankrupt states, led by the biggest, of
course -- California and New York -- but with plenty more right behind,
whirling around the same drain (probably forty-nine of them with the
exception of that fiscal Nirvana, North Dakota!). Even if they manage to con
bailouts from the bailout-weary federal government, the states are still
going to have to winnow down the ranks of their public employees (throwing
more middle-class households into foreclosure and penury), while they hugely
reduce public services, especially to the poor, the unwell, and the unable.
That alone will redound into very visible realms of daily life from public
safety (rising crime) to the decay of roads and bridges.
Perhaps the most troubling buzz in the air this first month of
2010 are rumors of coming food shortages due to widespread crop failures
around the world in the harvest seasons of 2009 (Emergency Food Supply, Food Crisis For Dummies, 2010 Wall Street Predictions.) If
the US Department of Agriculture hasn't flat-out lied about crop numbers in
2009, the signs are that their statistical reports are at least inconsistent
with real grain storage numbers and commodities prices. And why would the
USDA tell the truth if every other federal agency is reporting gamed numbers?
Given the crisis in capital and lending, one also has to wonder how farmers
will be able to borrow money to get their crops in this year.
Finally there's the global energy scene. The price of oil starts
this week over $83 a barrel. That puts it about $1.50 from the price
"danger zone" where it begins to kill economic activity in the USA.
Things and procedures just start to cost too much. Gasoline. Deisel
fuel (and, by the way, that means another problem for food production going
into the 2010 planting season). One especially eerie situation the past few
weeks has been the de-coupling of moves upward in oil from moves in the value
of the dollar. Lately, oil has been going up whether or not the dollar has
gone up or down. Two weeks ago the dollar went below 1.42 against the
Euro and today it's above 1.45, and oil has been rising steadily from the mid
$70 range all the while. 2010 may be the year that we conclusively
realize that world oil demand exceeds world oil supply -- and that global oil
production cannot hold above 85 million barrels-a-day no matter what we do.
These are the things that trouble my mind at three o'clock in the
morning when the wind rises and things bang around spookily. Gird your loins
out there for a savage season or two.
James
Howard Kunstler
www.kunstler.com/
My new
novel of the post-oil future, World Made By Hand, is
available at all booksellers.
James
Kunstler has worked as a reporter and feature writer for a number of
newspapers, and finally as a staff writer for Rolling Stone Magazine. In
1975, he dropped out to write books on a full-time basis.
His
latest nonfiction book, "The Long Emergency," describes the changes
that American society faces in the 21st century. Discerning an imminent
future of protracted socioeconomic crisis, Kunstler foresees the progressive
dilapidation of subdivisions and strip malls, the depopulation of the
American Southwest, and, amid a world at war over oil, military invasions of
the West Coast; when the convulsion subsides, Americans will live in smaller
places and eat locally grown food.
You
can purchase your own copy here : The Long Emergency
. You can get more from James Howard Kunstler - including his artwork,
information about his other novels, and his blog - at his Web site : http://www.kunstler.com/
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