An Unsustainable Way of Life
Mar 25th, 2009 | By Byron King | Category: Energy, Featured, Macro Economics, Oil, Personal Investing
Can you believe that winter is officially over? Wow, it was a cold couple of months. Makes you want to say, “So much for global warming.”
Except it’s not global warming anymore. Now it’s called “climate change.” Y’see, the cold winter wasn’t a sign of warming. It was a sign of global climate change. Got that? Mankind is burning too much fossil fuel, goes the thesis. So the cold gets colder. The hot gets hotter. The wet gets wetter. The dry gets dryer. And the confusion gets what? More confusing?
So is this game rigged? No matter what the evidence is, goes the argument, just pay no attention to the man behind the curtain. It’s all climate change. And that, of course, means that the government knows best. Especially when a certain class of people — with the right policy credentials — are running the government. As in the expression, “Trust us. We’re experts from the government. We’re going to help you.” Or as the narrator used to say at the beginning of the show The Outer Limits, “There is nothing wrong with your television set.” Or as the cops say as you drive past a crash scene today, “Move along, folks. There’s nothing to see here.” Yep. No looky-loo. Just climb aboard the Climate Change Railway Express. No peeking while we raise your taxes.
Decades of Malinvestment Become Apparent
Meanwhile, over the past winter, the economy was in the tank. The deep troubles got deeper. It makes me recall many of those hard times stories I used to hear from family and friends about the Great Depression. It makes me glad I listened.
This past winter, it seemed like all those decades of what the Austrian economists call malinvestment finally found a place in the light of day. But it’s not as if the whole tale were some sort of state secret, like the Venona files at the National Security Agency or something. Really, the nation’s industrial and productive decline was fairly clear all along if you knew what you were seeing. The problem has been hiding in plain sight since August 1971, when President Nixon killed any semblance of a gold-backed dollar.
Or it’s kind of like Peak Oil. M. King Hubbert drew the fundamental Peak Oil graph back in the 1950s. Heck, I heard Hubbert give his speech in fall 1977. I saw Peak Oil in action back when I was working at Gulf Oil Co. in the late 1970s. It was no shock to me, at least, when the world’s crude oil output curve finally maxed out in 2006.
What? Nobody told you that the crude curve maxed out? Hey, the world’s marginal oil output is now mostly natural gas liquids. It means that we’re blowing down the gas caps.
It’s why I like resource and energy companies, companies that bring real stuff to the surface. It’s why I’ll keep writing about energy and resources in a publication like ESI.
Obama’s Economic Policy
I try to avoid getting too “political” in these pages, aside from my rants about issues affecting energy policy, resource policy and the like. So today I’m just going to quote my friend James Howard Kunstler, a longtime Democrat and supporter of Barack Obama in the recent election.
Kunstler just published his comments on the Obama appearance on the CBS News show 60 Minutes on Sunday, March 22. According to Kunstler, Obama “may perfectly represent the majority who elected him… because he also appears to be in full-commanding denial of the realities overtaking our American experience. Those realities include the fact that we can’t possibly return to the easy-credit and no-money-down ‘consumer’ economy, no matter how many nominal dollars get shoveled into the fiery furnaces of banks too big to fail.”
After describing the economic policies coming out of Congress and the new presidential administration, Kunstler continues: “Lending on the scale that became normal over the last decade is, for sure, the one thing that we will not recover. We turn around in 2009 to find ourselves a much poorer nation than we thought we were a year ago, especially among that broad range of formerly middle-class wage-earners who lived so luxuriously until yesterday. The public can’t process this reality, and the president, for all his relaxed charm, is either not ready to articulate it, or can’t process it himself.”
Kunstler describes the process of the Fed releasing new currency — created out of thin air — to buy up Treasury debt. He comments: “It would be sententious to explain how this destroys currencies, but wherever ‘monetizing debt’ has been tried before in history, that is the outcome. The result would be ruinous at every level and would lead straight to the second terrible force: social upheaval brought on by the conversion of economic problems into political turbulence.”
In my view, Jim Kunstler is exactly on target with his comments. I’m watching the shenanigans in Washington with something approaching utter fear. It’s why I’m recommending investments in gold and energy plays.
Spend, Borrow, Tax, Inflate
I’m truly worried about our future. The things that are going on in the U.S. economy are not sustainable, and I don’t just mean “happy motoring” into the Peak Oil future. The whole economy is on the edge. I don’t see anything on the political or policy horizon that offers any semblance of hope. Nothing. It’s just spend, spend, spend. Borrow, borrow, borrow. And tax, tax, tax.
What’s in all of this for you? What’s in it for me? A lot of inflation, most likely. That’s why you need to buy gold with 5-10% of your portfolio. And have more of your portfolio in good, solid mining firms.
Building on Kunstler’s comments just a bit more, the Obama economic policy assumes that someone out there will still buy U.S. Treasury paper. But will that happen? The best customers for U.S. debt are distinctly unenthusiastic about adding to their holdings.
The Chinese already own a trillion dollars or so in Treasury bills that are depreciating in value. Besides, China needs a continent full of new infrastructure, plus social spending for 1.3 billion people. And don’t forget the new navy China is planning, with which to police its interests from Africa to the central Pacific Ocean and onto South America. All of this will sop up funds China once used to buy U.S. securities.
Another large traditional customer for U.S. debt is Japan. But Japan is running a current account deficit. It lacks the large numbers of dollars to recycle.
In the Middle East, the petro states are no longer receiving a flood of dollars from high-priced oil ($147 per barrel last July). Don’t count on them to buy up U.S. Treasuries.
The bottom line is I don’t know — and I don’t know anyone else who knows — where the buyers will come from to absorb all the new debt that the Obama and congressional spending plans are going to generate. Something has to give. It’s going to be the long-term value of the dollar. I expect to see a lot of fuel poured onto the fires of inflation.
That’s all for today. Thanks for reading.
Regards,
Byron W. King
March 25, 2009
Lots of responses again, so less from me and right to it…
“Please stop whining about all the great free stuff you give us. We all know that there are no free lunches. Your Whiskey and Gunpowder and other Agora ‘freebies’ are paid for by the subscribers to your paid newsletters (including myself).
“Your daily missives are appreciated for the perspectives they give us readers and the occasional gem which helps us with our investing strategy. For that we thank you but please stop saying that it is ‘free’.
“If you are suggesting that those who do not buy any of your services get W&G for free, consider the costs of having to wade through any of your issues with exposure to the barrage of products for sale. It is the price we pay for the service you offer.”
You’re welcome.
“Dear Gary:
“Perhaps ‘the socialist’ has confused peace of mind and bondage. Or perhaps they are one and the same to him. He seemingly cries out for bondage so that peace of mind is obtained. I’m sorry, fella, you’re worthless – to yourself and to everybody else. You’ve worked for the government – producing nothing (economically speaking) for your entire ‘career’. You’ve been a parasite on the productive masses. You have absolutely no right to open your trap regarding capitalism – you have absolutely no experiential knowledge of it!
“You’re obviously full of fear (find God – it’ll help) and willing to trade your freedom for bondage – for some contrived and false sense of security. I recommend you move to Russia – should be nirvana for someone of your ilk.
“It takes strong MEN of will and courage to live free and strive to live free. Calls for government support and help don’t come from MEN – they come from the weak and cowardly children who haven’t been weaned. GROW UP – it is still available in this country to stand and live free. Grow up and become secure in yourself and stand on your own two feet – and be a MAN. Then maybe you can have an opinion on the economy – and it certainly won’t be the crap you’re spouting now. Have a nice day – and shut up!”
Ouch. That is harsh…but thanks for the backup.
“It is written in the Book of Amos, ‘Can two walk together, except they be agreed?’ The answer should be obvious. (That is why it is called a rhetorical question.) For those who think Socialism is good, might I suggest that we would both be happier if you were move to a socialist country and leave ours alone? If you don’t, then sooner or later we’ll be fighting each other with more than just words.
“And speaking of words let me offer this little bit of common sense. If someone has an idea and turns it into a profitable business, we say that they were able to capitalize on their idea. We don’t say they were able to socialize on it. If you can understand why that is, then you can understand why socialism can never succeed over the long run.
“I close with one of my favorite quotes:
“’When the people fear their government, there is tyranny; when the government fears the people, there is liberty.’”
— Thomas Jefferson
Amen. And now the requisite dissenter from our ranks…
“Regarding the letter at the end of this newsletter,
“The industries which created much wealth in the US are or were socialized – agriculture, military and defense, transportation. The idea that the US is ‘marching towards socialism’ is a farce. The US has practiced socialism in one form or another from the beginning of the 20th century. Thank goodness.
“The fact that so many decry the socialization of health care, for instance, simply exposes their ignorance. The reason government is good for certain aspects of civilization (sorry, Gary) is that those aspects are far larger than any one person, family, or city. Think about the US highway system, built on free land (from who? the government, technically the Native Americans but I digress). Health Care. Education. Vaccinations. Mind you, I’m not saying the government always performs these tasks well, but that is often due to the fact that its hands are tied by those that claim they shouldn’t be shouldered with these responsibilities. So the USDA is in charge of regulating the food supply, but is given only a fraction of the funds and manpower necessary to do the job. Then it is conveniently pointed to as an example of a failed government.
“If each and every person was responsible for each and every aspect of our lives, we would only have time to inspect each plant we picked over for bugs. Collective responsibility is inherent in any large society; indeed, it is the defining quality. Only in the United States, with its large swaths of empty land, can citizens delude themselves into believing they are cut off from the rest of society while driving on a road paved by someone else, in a vehicle built somewhere else, using fuel refined from natural materials extracted elsewhere, expelling pollution whose effects will go far beyond the lone driver’s worldview.
“BTW, I enjoy your newsletter for its unique point of view and snappy writing even if I rarely agree with it. Know thy enemies…”
Reader, you misunderstand.
I never conceded that the interstate system, health care, and public education were good things. Allow me to address highways again very briefly.
Rail was expanded by private industry and it was a lot more energy and cost efficient than the current government-propped system of individual car ownership and highways. I’m with our good friend James Howard Kunstler on this one. Highways are the concrete manifestation of collectivist misinvestment. But don’t worry; pretty soon everyone will be clamoring for a decent, working rail system again.
And whence the idea that capitalism means a breakdown in specialization and trade? It nourishes these things.
We agree on this, however; the nation-state and the empires they grow into wouldn’t be possible without the sort of centralized control that is beyond the purview of the capitalism that builds cities and regions. If you want empire, you have to push aside monkey wrenches like capitalism, liberty and justice.
We’ll return to this conversation on Friday with the inestimable Bill Bonner.
A Shooter sent this in just in time for today’s send and to show that I’m not the only one who sees value in the city-state…
“I have a home in South Florida and one in New Mexico. It’s a plane ride through one stop to change planes in DFW. But two distinctly different worlds far as Socialism versus Individual Capitalism are concerned.
“The urban centers of America are definitely collectivist. My theory: the whole system hangs on a thread. One hurricane, one epidemic of the flu brought in with Canadian tourists, even an overly long and large traffic jam because electricity failure shut off the traffic light system and you have total chaos. Hence, urbanites pray for a Nanny State to save them. Urban living has dampened the ability to think fast while standing on one’s own two feet.
“A further theory on the future of America is that those of us who plan on surviving the coming economic crises will be living in City-States, something along the order of Ancient Greece’s Athens and Sparta model. To survive, the City-State will become self-contained and individual, with trading options between the City-States.
“Hey, sounds like shades of the Tenth Amendment”
I love it. Thanks for writing in. And nice timing.
Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder
[...] Whiskey & Gunpowder added an interesting post today on An Unsustainable Way of LifeHere’s a small readingCan you believe that winter is officially over? Wow, it was a cold couple of months. Makes you want to say, “So much for global warming.” Except it’s not global warming anymore. Now it’s called “climate change.” Y’see, the cold winter wasn’t a sign of warming. It was a sign of global climate change. Got that? Mankind is burning too much fossil fuel, goes the thesis. So the cold gets colder. The hot gets hotter. The wet gets wetter. The dry gets dryer. And the confusion gets what? More confusin [...]
I only found this W&G forum rather recently, and I’m glad I did. I tend to agree with the general attitude. But Gary, I do take some umbrage with:
“Highways are the concrete manifestation of collectivist misinvestment”.
Please understand, it is my view that we, in this nation, have the very best public transportation system in the world. It, of course, is our highway/road system. Period. The catch is that one simply provides their own personal transport module. It’s the perfect “manifestation” of extreme personal freedom. You can drive any one of a myriad of personal transport modules (PTM). Simply choose the model that fits your needs best. And, drive it anywhere and anytime you want to. My prefered “module” happens to be a Ford Super Duty pick-up truck so I can haul a small “vacation cabin” on the back of it, but I digress.
This wide and vast desire for a PTM in turn drives a huge industrial behemoth (along with many others) that drives the capitalistic tendencies of our civilization. It enables employment to millions, while providing a very useful (if usually expensive) product that most people want and are willing to pay for. This industry is also essential for for our national security, and the desire of most folks to have a PTM keeps the industry in business and tooled up, with experienced workers to do it. Where do you think our military transports, tanks, and other armored vehicles are derived from? In WWII, Ford’s Willow Run plant churned out thousands of B-24 bombers, about one per hour. Massive amounts of tanks, trucks, ships and other war material were manufacured in Detroit as well.
We won WWII due to three major advantages over the rest of the world.
They are:
Good ole’ American ingenuity, the Ultra/Enigma project, and our vast industrial capacity. The latter of which of course is closely related to American ingenuity and capitalism. The absolute heroism and dedication of our fathers and uncles notwithstanding, they couldn’t have done it without these three factors, at least not without losing many, many more of them, and maybe a much different outcome. Literally, we could manufacture ships, tanks and aircraft faster than they could be sunk, blown up or shot down in combat.
If we ever get into it with the Chinese, which I think is quite possible in the future, we are going to need our industrial capacity. It is obvious that the Chinese have become very technologicaly advanced. It wouldn’t suprise me in the least if we rendered each others’ air power null and void in a matter of a few days if TSHTF. This would result in a protracted ground/naval war. We need to preserve our ability to do it.
Now, let me present a little known fact about our interstate highway system. This is something I learned in college, military police school, and while stationed in Germany, applying what I had learned in MP school. Most probably think it a result of Americans desire to travel or to efficiently transport cargo. Not so. The interstate highway system (more correctly called “limited access highways”), were built under the auspices of the Department of Defense, not DOT. While they serve commerce and personal transport extremely well, they were built primarily to quickly transport massive numbers of troops from one end of the country to the other.
President Eisenhower was quite impressed with the German autobahn system and realized how well they could be adapted to our country. Primarily for the transport of troops (the air transport in the 1950’s being woefully deficient), but also for travel/commerce. The interchange design provides for a battalion of MP’s to leapfrog interchanges over a large distance, closing the access to all but military or other authorized traffic. This allows for a massive number of troops to be transported across the country in a minimal amount of time. I would not call this a ” concrete …………misinvestment”.
Now, for the purposes of full disclosure, I am originally from the Detroit area. Yeah, I got a dog in the fight.
I wanted to respond to Bill Bonner’s excellant piece on Baltimore and Detroit, but couldn’t figure out how to write about Detroit and make the subject reasonably polite.
And, we shouldn’t have torn up the railroad tracks.
Dear Mr. Gibson,
First, I want to thank you for the newsletter. Some have complained that it isn’t free if they have to look at all the ads in order to read it. Prrrrrbt! to them. I’ve yet to read a news paper or listen to radio, watch TV without having to endure a lot of ads I’m not interested in. At least here I can choose to scroll down and not read.
Second, regarding Socialism, Communism and Capitalism; your readers do not seem to understand either what these ‘isms’ are nor how they differ. Simply put, a capitalist is a person who accumulates some extra resources that can then be used in new ways. resources above what’s necessary to maintain life and work at a subsistence level. Feudal Europe (and other feudalistic societies) couldn’t develop capitalism because all available surpluses were siphoned off by the ruling classes in the name of “security” or for the “saving of souls”. Church and State caused the Dark Ages by removing the cream from all productive work. Only the Black Death and subsequent labor shortages combined with untaxed private trade through Venice brought about a release of the parasitic grip of those twin blood suckers. five hundred years of moderate capitalism has brought us our modern world after fifteen hundred years of strangulation and leaching.
A Socialist is a person who thinks that nothing important will happen unless we all get together (behind what ever project the socialist thinks is important, at the moment). Socialists point to any great project accomplished by or through Government as proof of their theory but neglect the majority of works that were not performed through those channels and ignore the boondoggles that wasted resources through inefficiency or simply allocating resources on “bridges to nowhere”.
A communist is the same as a socialist except he has a gun and doesn’t need to convince anyone.
Agriculture, military and defense and transportation have regularly failed when socialized, in this country and all others. The Russians tried socialized agriculture again and again. Environmental destruction and starvation were the result. The Chinese seem to be learning. American agriculture is and has been predicated on free ownership of the land and it’s produce. Only when the government stepped in to dictate what,how, where and when a farmer would grow or how much he would receive for his work did farms and farmers regularly fail. The “Dust Bowl” was caused by a drought, yes, but it was also caused by Federal agriculture policy that encouraged the plowing and planting of windbreaks and the planting of formerly fallowed fields. Government policy also encouraged farmers to take out loans against their properties in order to fund this expansion of the food supply. My grandfather was one of the unlucky ones who lost everything as a result of trusting the government. So were many many more who migrated to California as paupers. Railroads were indeed the recipients of Federal largess. All existing private rail companies were bought up by the monopolies that Congress brought into existence through the granting of exclusive property rights along their right of ways as well as exclusive contracts for Civil War supplies. The first millionaires and “robber barons” were created by congress, not free enterprise. Perhaps we do need government for a military but I’ll continue to prefer the State’s militia pattern rather than a professional force.
As far as health care is covered by government, all I hear is how much better it would be than the present incompetency if only everyone was forced into the same system. Our health care system got messed up by government providing it to anyone in the first place, the same as employment ceased to be free when government introduced “benefits”. Not so long ago any person or family could have health care through their own doctor. They paid him or the hospital he worked for and credit was extended just as it may be by any business. There were few insurers and no HMO’s. Through government interference the licensing and certification of doctors and hospitals came under government control. Then the financing of medical procedures also got constricted. costs went up and options declined and doctors were distanced from their patients. Eventually hospitals and doctors were forbidden to charge their customers directly and had to go through second and third parties, further increasing costs and extending the professional distance. If we want to “fix” health care we should kick any kind of government out of it. Hospitals and doctors should be free to provide and collect on their own insurance policies, in house, and kick the professional insurers out also. Let us re formulate our health care along the same lines that we run our religious institutions and leave them alone. Thank you for the space to talk. I hope some of what I’ve written can be of use to the news letter.
Samuel, thank you very, very much for posting.
A means to transport troops that encouraged stupid, unsustainable sprawl?
Sorry, but the anarchic cynic in me still calls that a massive concrete misinvestment.
- “Sorry, but the anarchic cynic in me still calls that a massive concrete misinvestment.”
I could not agree more Gary.
The sprawling American Suburbs will become untenable when the next oil shock hits, as fossil energy supplies start to decline at around 3% a year, causing extreme prices at the pump.
We are a long way from replacing oil and gas as energy sources.
Without cheap energy the interstate highway system becomes nothing but useless concrete strips.
[...] Source: An Unsustainable Way of Life Advertisement Tags: Byron King, Fossil Fuel, Global Climate Change, Global Warming By Byron King [...]
I live in Atlantic Canada and this winter has been the most normal of all winters that we’ve had in the last 20 years. Beginning late 80’s and into the 90’s we were experiencing for the first time snowless winters. Snow was sketchy, here and there, nothing to brag about. Come February no snow at all but bitter winds. Come March it was a deluge of the white stuff and that would continue into April which is supposed to be the rainy season, it would remain cold till May. May would bring rain and Summer never really started until July, and the warm weather was shortened to two months instead of four. There seemed to be a returning to normal weather and temperatures in the last 2 years. In the 1970’s we’d meet a wall of snow at the door. We could walk on the snow up to the second story of the barn, that was normal snowfall. Warm weather usually started in May and continue on till October. Snowless winters combined with the bitter cold made the ground less productive and I thank God that the snow has returned starting in the appropriate month of November. Now that it’s Spring, we want to see the green (not the greenbacks).
“Wow!” to Samuel, indeed.
Eisenhower insisted that one mile in every five of the interstate highways had to be straight. He may not have been our most brilliant general, but he certainly saw the advantage of being able to put troops right where they were needed. That is not the consideration it is now because of the capacity of the latest iteration of the cavalry, the hoppity-coptor.
As for rails…I haven’t ridden on one in thirty years, but those I did here and in Europe were miserably uncomfortable and very slow. Trains are great for moving cargo, but they aren’t ever going to be a solution to moving people around other than the way Germans did it during WWII, always a possibility. We gloomy types think we are approaching fast a time when there won’t be anyplace to go or anything to do once you get there for most of the population.
Rick, good on you, too. There is a bit of ingenuity left, but the “vast industrial capacity” is long gone. Being a nation of consumers is dangerous enough, but being consumers of “goods” produced elsewhere is far worse. “Service industries” will be among the first casualties.
This all sounds like a classic confidence game, doesn’t it? Pretty harmless step by not quite wrong step to slightly foolish step the mark is lead to a place so far out on the limb that it is moot whether the branch breaks beneath him or he simply cannot maintain his balance any longer. The mark is going to hit the ground with a nasty splat.
There aren’t any solutions which can save the bulk of Americans. They have already arrived at the place where there is nowhere to go and nothing to do once they get there. Short of a feudal society capable of absorbing the undereducated, those hooked on entitlements, those with no job skills, and those with no character skills, what is to become of them? Their care and feeding has exceeded the capacity of the nation for many years. They cannot be trained to do jobs in factories, and there aren’t many factories left anyway. They don’t know how to produce anything except messes and expenses; they can’t farm, dig ditches (that’s what machines are for; human labor is a very inefficient way to construct a canal or a sewer line), or be teachers. Most refuse to start at the bottom in an attempt to work their ways up, maids refuse to work for less than twenty dollars an hour, nobody wants to pick strawberries, and the underclass has been taught that it is ENTITLED to free food, housing, medical care, education, and a “living wage.”
We could start feeling like Thidwicke, the Big-Hearted Moose. Trouble is…when Thidwicke shed his horns he could walk away, free, happy, and (pun coming) enlightened. The frail supports propping this mess up are being battered daily in Washington. As Gary closed, “My theory: the whole system hangs on a thread. One hurricane, one epidemic of the flu brought in with Canadian tourists, even an overly long and large traffic jam because electricity failure shut off the traffic light system and you have total chaos. Hence, urbanites pray for a Nanny State “A further theory on the future of America is that those of us who plan on surviving the coming economic crises will be living in City-States, something along the order of Ancient Greece’s Athens and Sparta model. To survive, the City-State will become self-contained and individual, with trading options between the City-States.” Yes, and no. Yes, the whole mess could blow at any time, and is just as likely to be triggered by something trivial as by an announcement that Social Security and pension checks have been reduced by fifty per cent.
No, because…stray cats go feral. This is the same problem with James Howard Kunstler’s model; it is not possible to dilute the urban sprawl by exporting it to Junction, Texas, or Mercersburg, Pennsylvania. There are no jobs, there are no needs the community has not already made adequate arrangements for, there is no housing, and all that would happen would be ruining small town America and raising the cost of transportation enormously. How are you going to keep the barbarians out of the city states? Those gated communities aren’t all that secure, and they require deliveries. Perhaps seige engines will come back in vogue.
Malthus was right; it just took longer than he expected. There comes a point at which the population is not sustainable. THIS time what we are going to throw off the sleigh is our toys. What will have to go next time?
Already the answer is appearing: the elderly. We are told that we will just have to live with the aches and pains of aging because “our” medical care is needed for others. The man who wasn’t going to raise taxes is tinkering with the meager benefits Granny has…raising the cost of mandatory Medicare “benefits” (You don’t have to give back a hundred a month, you can let them keep the whole check.) and raising the costs of prescriptions. That’s today. What happens tomorrow? Despite your instructions, bureaucrats can already pull the plug. One of the states on the West coast, I read, will give you your choice of dehydration or assisted suicide!
The 28% who still smoke are in general, but far from always, among those with the fewest means, but smokers just got a nasty tax hike, for their own good and the children, of course. Two packs a day means fifty after tax dollars a month. Alcohol taxes were raised, again. How many stresses can be put on those who have never been required to support themselves, abide by the rules, or even be grateful? They no longer know they live on charity. How many stresses can be put on the rest of us? There is no limit to how many can be, other than the fact that we all have snapping points.