In the typhoon of commentary that's
blown around the world a step behind the financial tsunami that's wrecking
everything, two little words have been curiously absent: "fraud"
and "swindle." But aren't they really at the core of what has
happened? Wall Street took the whole world "for a ride" and now a
handful of Wall Street's erstwhile princelings have
shifted ceremoniously into US Government service to "fix" the
problem with a "toolbox" containing a notional two trillion
dollars. This strange exercise in financial kabuki theater
will shut down sometime between the election and inauguration day, when the
inaugurate finds himself president of the Economic Smoking Wreckage of the United States.
What will happen?
I have thought for some time that things could
get dangerously out of hand in America, despite our exceptionalist notion that we are immune to the common
plot-lines of history. For starters, inauguration night will seem more like
Halloween, as those two little words fly in to haunt the new president. So, a
large and looming question is: who will be appointed the next attorney
general of the US (to replace the human sash-weight currently occupying the
office), and how soon will the federal marshals be scouring the wainscoted
hallways of Goldman Sachs, JP Morgan Chase, not to mention a thousand
Greenwich, Connecticut, hedge fund boiler rooms, with man-sized nets?
A
story-line is already emerging to the effect that these birds really didn't
quite know what they were doing in grinding out that multi-trillion dollar
basket of alphabet securities sausage (a theme on Sunday's
"60-Minutes" broadcast). Nobody will buy that line of bullshit,
though -- and certainly not in the courtroom where, for instance, Mr. Hank
Paulson will have to answer why his own firm of Goldman Sachs set up a
special unit to short its own issues. It will be edifying to see how they
answer.
In
the meantime, however, millions of Joe-the-Plumber types will have gotten
their pink slips, slipped helplessly into foreclosure, watched the repo men
hot-wire their Ford pickups, and eaten down the kitchen cupboard to a single
box of Kellogg's All-Bran (which had been sitting there for eleven years
infested with weevils). They will be watching the official proceedings in the
federal courtrooms with jaundiced eyes as they hunch in their tent cities, in
the rain, sipping amateur-brand raisin wine bartered for a few snared rock
doves. How long before the hardier ones among them venture out to Easthampton with long
knives and matches?
It will
bring little satisfaction though, and the disappointment could lead to a more
inchoate outbreak of civil disorder that would be more like a free-for-all of
vengeance and grievance. There will be a great outcry for the new government
to "do something!" Perhaps that will finally bring the troops home
from Iraq -- only for them
to find that the Homeland has become Iraq....
If the
financial system completes its self-destruction -- and that's looking more
and more like a real possibility -- there will be several pretty awful
consequences. One is that the United
States will be forced to declare
bankruptcy by repudiating its own debt. All those who took refuge in US
Treasury bonds and bills will be like folks who sought shelter from a tornado
in their out-house. That would go hand-in-hand with
a massive currency inflation that is likely to follow the current phase of
compressive liquidating deflation -- in which every possible asset is being
sold off for less than its face value. That process is self-limiting due to
the finite supply of real salable assets. The
trillions of dollars injected into system while this is happening must
eventually snap-back as people shed the last fungible article and compete for
necessary commodities like food and fuel with dollars that are suddenly
plentiful but worthless. At some point, the government may have to summon up
a new currency. I don't think it will be anything like the "Amero" which the paranoid fringe incessantly mutters
about as part of their fantasy in which the US, Mexico, and Canada all join
up to become one country. But any "new dollar" would probably have
to be backed by gold.
As we
discover ourselves to be a much poorer nation, one of my
correspondents put it: "the bogus risk-swapping economy must be replaced
by a net value-added economy." That means actually making things,
growing things, and rebuilding things, and that can only begin to happen if
we do not stupidly sucker ourselves into a war with other nations who are
liable to be extremely ticked off at us for destroying the global economy,
but also competing with us for a dwindling supply of resources that are not
equitably distributed around the world.
This
means especially oil. I hope you're enjoying the temporarily cheap prices at
the gas pumps, because this is purely a function of the compressive
deleveraging that is going on right now, as contracts and positions held in
energy markets are being dumped by everybody and his uncle to raise cash to
meet margin calls. My guess is that oil and its byproducts
will become much more difficult to get in the months ahead -- not just more
expensive, but literally not available. The current falling price of oil has
little to do with the real supply and demand fundamentals. It's simply a
function of the markets being in near-total disarray. We're running on
current inventory, and running it down. In the background, all kinds of
peculiar and terrible things are happening. The entire apparatus of
allocation and distribution is being thrown out of whack. The smaller tanker
operations are going bankrupt. The "less-developed" nations are
heading back to the 17th-century level of daily life without electricity. The
oil exploration and development projects that were planned for hard-to-get
oil netting $100-a-barrel minimum -- in places like the deepwater Gulf of
Mexico, Siberia, and Central Asia -- are being shelved, which means the world
has less of a chance to offset coming depletions in old fields.
The bottom
line of all this is that we in the US could find ourselves in a
situation of shortages, hoarding, and rationing. This would pretty much kill
off whatever remains of the previous shuck-and-jive economy -- hamburger
sales, theme park visits, Nascar
weekends -- while it obviates the failures of our suburban living
arrangements (and drives the value of housing there closer to zero).
The new
president will have to be Franklin Roosevelt on steroids, with some Mahatma
Gandhi and Florence Nightingale thrown in. My pet project of restoring the
American passenger railroad system might seem pretty minor in the face of all
this, but it's at least a place to start that will accomplish several things:
allow people and things to get places without cars and trucks; put many
thousands of people to work at many levels doing something of direct,
practical value; and be a small step in rebuilding confidence that we are a
society capable of accomplishing something.
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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