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Wondering why the money world got its knickers in a
twist last week? The answer is simple: the global economy is breaking apart
and its constituent major players are doing face-plants on the downhill slope
of a no-longer-cheap-oil way of life. Let’s look at them case by
case.
The USA slogs deeper into
paralysis and decay in a collective mental fog of disbelief that its own exceptionalism can’t overcome the laws of
thermodynamics. This general malaise precipitates into a range of specific
quandaries. The so-called economy depends on financialization,
since it is no longer based on manufacturing things of value. The financialization depends on housing, that is, a
particular kind of housing: suburban sprawl housing (and its commercial
accessories, the strip malls, the box stores, the burger shacks, etc.).
Gasoline is now too expensive to run the suburban living arrangement. It will
remain marginally unaffordable. Even if the price of oil goes down, it will be
because citizens of the USA will not have enough money to buy it. Lesson: the
suburban project is over, along with the economy it drove in on.
But so is the mega-city
project, the giant metroplex of skyscrapers. So,
don’t suppose that we can transform the production house-building
industry into an apartment-building industry. The end of cheap oil also means
we can’t run cities at the 20th century scale. That includes
the scale of the buildings as well as the aggregate scale of the whole urban
organism. Nobody gets this. For one thing, there will be far fewer jobs in
anything connected to financialization because that
“industry” is imploding. The recent action around the Federal
Reserve illustrates this. When chairman Bernanke’s lips quivered last
week, the financial markets had a grand mal seizure. He floated the notion
that his organization might “taper” their purchases of US
government issued debt and mortgage-backed securities — the latter
being mostly bundled debt originated by government-sponsored entities and
agencies. That’s the “money” that supports the suburban
sprawl industry.
If the Fed were to reduce
its purchases of this debt paper, nobody else would buy it. The reason the
Fed buys the quantity it does in the first place ($85 billion-a-month) is
that nobody else would touch it at the offered zero interest rates. The US
Treasury and the mortgage bundlers could only sell the stuff if they paid
higher interest rates. But the US government would choke to death on higher
interest rates because its aggregate debt is so huge and the scheduled
interest payments so gigantic that a one percent increase would destroy even
the fantasy of economic equilibrium.
Apart from that unhappy
equation, entropy never sleeps. Everything in America except the Apple stores
and a handful of big banks is falling apart — especially the human
habitat and households. Suburbia will only lose value and utility. Big cities
will have to get smaller (ouch!). Tar sands, shale oil and shale gas will not
ride to the rescue (they cost too much to get out of the ground). The entire
declension of government from federal to state to local will be too broke to
fix the roads and make “transfer payments” to idle, indigent
citizens. This populace will lose faith in their institutions… and
disorder will eventually resolve in a new and very different disposition of
things on-the-ground. If we’re lucky, this will not include cruel
despotic leadership and war.
If the “taper”
talk is empty rhetoric, and the Fed continues sopping up issued debt, it will
eventually destroy the credibility of its issued money. That is just another
way of going broke, though it might beat a shorter path to the general loss
of legitimacy of governments and other institutions.
Young people, harken: prepare
for careers in agriculture and activities that support it. Consider moving to
small towns in parts of the country where farming is possible and get ready
to rebuild a very different economy. Also, consider repudiating your
college debt en masse, since the fantasy of repayment is but another mental
shackle holding you back from your future.
As for the other parts of
the global economy, a digest:
Europe doesn’t have
enough oil and gas to run itself. Its suppliers (Russia, various Islamic states)
are all basically hostile to it. As the late, great Tony Soprano might say,
“end of story.” Europe has been playing financial pocket pool
with itself for five years with credibility ebbing. Soon Europe will descend
into painful economic re-set. Its era as the go-to theme park of advanced
civilization is ending. Go there while it’s still possible and take
some snapshots of what comfort and artistry used to look like.
China is imploding under
the weight of its half-assed crony command economy and banking system. Nice
try. Cookie fortune says, “Industrial era entered too late in
game.” All else there is desperation: e.g. the idea of moving hundreds
of millions of peasants into new cities. As Tony would say,
“Fuggeddabowdit.” They’re better off growing bok choy en
situ. Anyway, no one should assume that China can remain politically
stable. Let’s hope that its economic and political crack-up
doesn’t transmute into war.
Russia’s oil production is
in permanent decline. It has a lot, but it gets most of its income from
selling it to other people. Hence, Vlad Putin’s notion of finding
something else to base Russia’s economy on. Like…what? I
don’t think they’re going to replace China in making salad
shooters. Farming would be the way to go, and Vlad’s government is
hoping that global warming improves Russia’s prospects for doing more
of that. In any case, Russia might benefit in the long term by not selling
off all of its oil and gas — though Western Europe would surely suffer
from that decision. On the plus side, Russia’s government is not
crippled by idiot squabbles over abortion, gay marriage, and the Bible in
schools.
Japan. Sorry to repeat
myself. Going medieval. They have no oil and gas. (Cue Tony Soprano again.)
In the event, Japan’s financial hara-kiri will drag down the rest of
the world’s banking system — or at least hasten the damage
already self-inflicted elsewhere around the globe. I’m also informed
that much of the essential computer chip fabrication in the world still
happens in Japan, and that will go away, too, as the Japanese engine seizes,
smokes, and expels its final belch of CO2.
What else is there? South
America? Think: spreading jungle (or desert, take your pick). Canada?
There’s an idea. Maybe Labrador becomes the new Hamptons? Second
biggest national land mass… 30 million people (2 percent of
China’s population). Only
one drawback: the view to the south
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