Strange Days of Debt, Peak Oil and Stock Rallies
Apr 7th, 2009 | By James Howard Kunstler | Category: Featured, Macro Economics
Even while a wave of reflex nausea washed over America last week, and the unemployment rolls swelled by much more than another half million, the greatest stock market suckers’ rally in seventy years pulled in the last of the credulous. These are strange days. The earth is heaving and the buds swelling again — at least north of the equator, where most of the action is — and the global economy, which was supposed to be a permanent new add-on to the human condition, is sloughing away in big horrid gobs. But no one in charge of anything can believe it. The banking fiasco has introduced so much noise into the system that world leadership can’t think straight.
What they’re missing is real simple: peak oil means no more ability to service debt at all levels, personal, corporate, and government. End of story. All the other exertions being performed in opposition to this basic fact-of-life amount to a spastic soft-shoe performed before a smokescreen concealing a world of hurt. If the “quantitative easing” (money creation) and fiscal legerdemain (TARPs, TARFs, et cetera) happen to jack up the “velocity” of the new funny-money, and the world resumes its previous level of oil use, the price of oil would rise again — this time astronomically because the previous crash of oil prices crushed the development of new oil projects to offset depletion — and the global economy will crash again. Only the next phase of the disease is liable to move beyond the financial and into the social and political realms. Disorder of various kinds will rule — toppled governments, civil unrest, international tension and conflict.
The US is doing everything possible to avoid these awful realities, but probably the worst self-deception is the idea that everything would be okay if we could just “re-start lending.” That’s just not going to happen. There is no more capacity to service the debt we’ve already piled on. Americans borrowed too much, and the bankers who made obscene fortunes in fees and bonuses in fraudulent lending managed to leverage this unpayable debt into the greatest collective swindle the world has ever known. The swindle has sent poison into every cell of the macro socio-economic organism, and further swindles are unlikely to revive it.
The rally in stocks, the financials in particular, could go on for another month or two. In the meantime, banks are striving desperately to avoid calling in more bad loans — especially in commercial real estate, malls, strip malls, Big Box power centers — because they don’t want any more losses on their balance sheets. That can only go on for so long, too. Sooner or later the daisy chain of credibility in the fundamental transactions of business lose legitimacy and something’s got to give.
My guess is it will first take the form, sometime after Memorial Day (but maybe sooner) of wholesale liquidations of everything under the North American sun: companies, households, chattels, US Treasury paper of all kinds, and, of course, the S & P 500. We’ll soon find out whether an organism the size of the United States can run an economy based on one family selling the contents of its garage to the family next door. My guess is that this type of economy won’t support the standards of living previously enjoyed in places like Dallas and Minneapolis.
The socio-political fallout from the inherent anger and disappointment in all this is liable to be severe. The public is already warming up for it, with cheerleaders such as Glen Beck on Fox TV News calling for the formation of militias, and gun sales moving out-of-sight. One mistake that the banking elite and their lawyer paladins made the past decade was their show of conspicuous acquisition — of houses especially — in easy-to-get-to places where anyone can see them, for instance an angry mob in Fairfield County, Connecticut, or Easthampton, New York. Unlike the beleaguered elites of South Africa (where I visited recently), who live behind layers of fortification, the executives of Citibank, Goldman Sachs, J.P. Morgan, and a long list of hedge funds, will be found cringing in their wine-lockers behind a measly layer of privet hedge when the tattooed minions of Glen Beck come a’calling.
This could perhaps be avoided if someone in authority like US Attorney General Eric Holder took an aggressive interest in the multiple swindles of the decade past, and commenced some prosecutions. But the window of opportunity for this sort of meliorating action may close sooner than the government and the mainstream media believe. Social phase-change, as in the formations of mobs, is nothing to screw around with. Once the first window is broken, all bets are off for social stability. My guess is that the various bail-out gifts to the bankers are long past having gone too far in the eyes of this increasingly flammable public.
We have no previous experience with this type of social unrest. The violence of the Vietnam era will look very limited and reasonable in comparison — in the sense that it was an uprising on the grounds of principle, not survival. And the Civil War was a wholly regimented affair between two rival factions. This time, people with little interest in principle beyond some dim idea of economic fairness, will be hoisting the flaming brands out of sheer grievance and malice. By the time Lloyd Blankfein sees the torches flickering through his privet, it will be too late to defend the honor of his cappuccino machine.
As I’ve averred more than a few times in this space before, the standard of living in America has got to come way down. We mortgaged our future and the future has now begun. Tough noogies for us. But the broad public won’t accept the reality of this as long as the grandees of finance and their myrmidons appear to still enjoy the high life. They’ve got to be brought down hard, perhaps even disgraced and humiliated in the courts, and certainly parted from some of their fortunes — if only in lawyer’s fees. Mr. Obama pretty much served notice to this effect last week, telling a delegation of bankers in the White House that he was the only thing standing between them and “the pitchforks.” It’s possible he understands the situation.
Regards,
James Howard Kunstler
April 7, 2009
A Shooter wonders whither and wherefore the price of gold?
“Hi Gary,
“After much contemplation, I finally bought some gold based on your and other OI recommendations that it is still cheap. In view of what is currently going on out there in the financial world, why does this precious metal continue to go lower?”
Dear Shooter, if only it were that easy.
The world’s going crazy, right? So the price of gold should march steadily upwards, no?
No.
The crowds keep doing the wrong thing until a breaking point is reached. And there are hills, valleys and stock market suckers’ rallies along the way.
You have to be able to buy the gold even as the crowd mocks you…even as they sell gold off and buy up general stocks…even as they force the price of gold down.
Think of it this way; if everyone acted rationally all the time, we wouldn’t have war, socialism and other crimes of rapine. But people don’t act rationally even a quarter of the time. They believe the dumbest things en masse and then do the dumbest things with the synchronicity of the herd.
Let’s recall another Whiskey credo: mankind’s most salient trait isn’t that big complex brain that can unravel the mysteries of the universe; it’s his limitless capacity for self-delusion.
Perhaps as a side effect of our impressive talent for imagination and reason, we are prey to the darnedest whoppers and rationalizations. Primarily: that it is possible to get something for nothing…and that our neighbors will happily give us the fruits of their labor for free.
We are at heart still just primates trying to deal with the biosphere’s built-in scarcity. The stuff we need to thrive and breed is scarce and competition to get that stuff is fierce. Diligence, production and willing trade work, but deceit and theft are quicker and simpler.
That’s the folly at the heart of government. And we’re on the way to getting even more of the stuff. Dan Denning reports: “…that’s what this G20 meeting was all about. It was about Big Government getting even bigger. It was about Big Government using the crisis as a chance to put the shackles on the free market. And it was about Big Government defending the way it funds itself (through debt and paper money).”
More from Dan on this tomorrow.
As long as you didn’t cut into your monthly funds for food and living space in order to get the gold, then relax. If cost is an issue, then you could buy bits of silver instead or get your gold really cheap here.
I wouldn’t worry about the day-to-day price of the gold you’ve bought. Just when you least expect it, you’ll be very happy you have it…and odds are you’ll feel you got it at a bargain.
Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder
James,
To the contrary, we have seen this before and quite recently, although at a smaller scale as far as geography is concerned. I refer to the race riots in the 1960s and more recently, the WTO riots in Seattle a few years back. The most frightening thing about these recent episodes in the USA is that the police and the national guard were relatively powerless to protect the innocent; they basically stood by and observed the looting and violence. The only parties that survived looting and violence during the race riots were the ones that were heavily armed and organized patrols and guards 24 hours a day; a few shots and the rioters left them alone. That is why the rifles and ammo are being sold out; we know that we will be the only ones who will protect our families and our possessions. And, if it gets very bad – roving bands of thugs looting food in addition to valuables – then our very survival will depend on our weapons.
The Second Amendment to our Constitution was encoded for such emergencies and also for the dreaded emergency of having to take back our government from tyranny should it ever become necessary. I do not feel the latter emergency is “upon us”. But, I am convinced that the former is. So: hide some gold and silver bullion in small coins, hide some cash in small bills, hoard necessities and food for at least a one year stint; plant a victory garden; beef up security. In other words, dig in for the emergency be it inflation or deflation.
In his otherwise well written article, Strange Days, Mr. James H. Kunstler badly mischaracterized broadcast commentator Glenn Beck.
Mr. Kunstler says, “cheerleaders such as Glenn Beck on Fox News calling for the formation of militias….
During the six or so months that I have been listening, Mr. Beck has NOT called for “formation of militias”, He has instead emphasized that we citizens who feel disenfranchised respond to our government’s errors in a peaceful, non- violent manner.
Despite the many errors our politicians- of both parties- have made and are making, despite their steering us into a Fascist society, they need not fear “the tattooed minions of Glenn Beck [will] come a’calling.” In fact, Mr. Beck has roundly criticised the mob mentality that recently led to the demonstrations at the homes of AIG executives!
Mr. Kunstler would do well to check out the facts before writing about anyone. He owes Mr. Beck an apology.
Joe omitted, or may not have known, one pertinent fact. I was living in Tacoma at the time and I didn’t. If you look at news footage it is impossible to avoid concluding that the few causing all of the violence were bully boys there for that purpose, and I have seen a very good case with other news clips made that they had been busy in California before that causing trouble. The police did NOTHING to stop them from turning over garbage cans, smashing windows, and threatening the peaceful protesters. Why? Because they had been ordered to do nothing. Seattle is an ultra-liberal city, and the city council/Mayor’s “solution” was to cordon off down town and refuse to let anyone in who was so much as wearing a protest button! If we will just all think beautiful thoughts there won’t be any problems?
Nice post, Joe. Have you been in an ammo store lately? Prices have risen steadily for the last fifteen months, more and more frequently. These days it is commonplace for the shelves to be pretty empty and the prices are staggering. 18 months ago a brick of .22 (500 rounds) cost $11. It just went to $25. Not long ago, 9 mil was fifty cents a round; it is up to a dollar…if you can find any. Shotguns have tripled in price and they can’t keep “big” rifles in stock. We’re not talking Uzis or anything, just a rifle bigger than a .22. We’re getting to the point where just about any round is at least sixty cents and most of them are a dollar, which does take the shine off plinking, target shooting, and hunting. To non shooters a brick probably sounds like enough to invade a small country, but half a dozen guys having a friendly competition on the range can go through one in a couple of hours. That isn’t Mole Patrol with unlimited shots available for free.