The Daily Mail account put the blame for these disturbances on Germany’s finance minister, who warned the Greeks that “the German government does not intend to give a cent.” At least Bild, a popular German newspaper, was trying to be helpful. It suggested that Greece sell Corfu…and that Greeks get up earlier and work harder.

Meanwhile, from Iceland comes news that every voter with an IQ above air temperature has cast his ballot against a bailout plan. The Icelanders were slated to make good $5.3 billion in bank losses. But why shackle common voters to the banks’ losses? The plan was so outrageous and so unpopular that Iceland’s normally compliant Prime Minister called for a referendum. Given a chance to vote on it, 93% said no. The other 7% probably read it wrong.

Insurrection is in the air. In England, government employees are preparing the biggest strike since the ‘80s. In America, dissatisfaction with Congress is at record highs; four out of five of those polled say, “Nothing can be accomplished in Washington.”

Herewith, an attempt to deconstruct the rebel yell. By way of preview, it’s not the principle of the thing, we conclude; it’s the money.

There are more clowns in economics than in the circus. They invented an economic model that has been very popular for more than 50 years — particularly in the US and Britain. It began with a bogus insight; John Maynard Keynes thought consumer spending was the key to prosperity; he saw savings as a threat. He had it backwards. Consumer spending is made possible by savings, investment and hard work — not the other way around. Then, William Phillips thought he saw a cause and effect relationship between inflation and employment; increase prices and you increase employment too, he said.

Jacques Rueff had already explained that the Phillips Curve was just a flimflam. Inflation surreptitiously reduced wages. It was lower wages that made it easier to hire people, not enlightened central bank management. But the scam proved attractive. The economy has been biased towards inflation ever since.

Economists enjoyed the illusion of competence; they could hold their heads up at cocktail parties and pretend to know what they were talking about. Now they were movers and shakers, not just observers. The new theories seemed to give everyone what they most wanted. Politicians could spend even more money that didn’t belong to them. Consumers could enjoy a standard of living they couldn’t afford. And the financial industry could earn huge fees by selling debt to people who couldn’t pay it back.

Never before had so many people been so happily engaged in acts of reckless larceny and legerdemain. But as the system aged, its promises increased. Beginning in the ‘30s, the government took it upon itself to guarantee the essentials in life – retirement, employment, and to some extent, health care. These were expanded over the years to include minimum salary levels, unemployment compensation, disability payments, free drugs, food stamps and so forth. Households no longer needed to save.

As time wore on, more and more people lived at someone else’s expense. Lobbying and lawyering became lucrative professions. Bucket shops and banks neared respectability. Every imperfection was a call for legislation. Every traffic accident was an opportunity for wealth redistribution. And every trend was fully leveraged.

If there was anyone still solvent in America or Britain in the 21st century, it was not the fault of the banks. They invented subprime loans and securitizations to profit from segments of the market that had theretofore been spared. By 2005 even jobless people could get themselves into debt. Then, the bankers found ways to hide debt…and ways to allow the public sector to borrow more heavily. Goldman Sachs did for Greece essentially what it had done for the subprime borrowers in the private sector — it helped them to go broke.

As long as people thought they were getting something for nothing, this economic model enjoyed wide support. But now that they are getting nothing for something, the masses are unhappy. Half the US states are insolvent. Nearly all of them are preparing to increase taxes. In Europe too, taxes are going up. Services are going down. And taxpayers are being asked to pay for the banks’ losses…and pay interest on money spent years ago. Until now, they were borrowing money that would have to be repaid sometime in the future. But today is the tomorrow they didn’t worry about yesterday. So, the patsies are in revolt.

Several countries are already past the point of no return. Even if America taxed 100% of all household wealth, it would not be enough to put its balance sheet in the black. And Professors Rogoff and Reinhart show that when external debt passes 73% of GDP or 239% of exports, the result is default, hyperinflation, or both. IMF data show the US already too far gone on both scores, with external debt at 96% of GDP and 748% of exports.

The rioters can go home, in other words. The system will collapse on its own.

Regards,
Bill Bonner, The Daily Reckoning
for Whiskey & Gunpowder

March 15, 2010

Collapse Is Inevitable was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

There was no denying the spectacular weather for us long-suffering northeasterners. A week ago, it was like living in a banana daiquiri around here. Now, it was sixty-two degrees in East Haddam, CT, along a very beautiful stretch of the Connecticut River somehow miraculously unmarred by the usual mutilations of industry or recreation. On a few hillsides facing south, daffodils were already up with blossom heads ready to pop. The mind could go two ways: into the past, when wooden sailing craft were built in yards along the river; or into the future, when it would be easy to imagine wooden sailing craft being built there again, only twenty miles or so from the great sheltered mini-sea of Long Island Sound.

Whatever else one thinks of how we live these days, it’s hard to not see it as temporary, historically anomalous, a peculiar blip in human experience. I’ve spent my whole life riding around in cars, never questioning whether the makings of tomorrow’s supper would be there waiting on the supermarket shelves, never doubting when I entered a room that the lights would go on at the flick of a switch, never worrying about my personal safety. And now hardly a moment goes by when I don’t feel tremors of massive change in these things, as though all life’s comforts and structural certainties rested on a groaning fault line.

It had been one of those eventless weeks when the world pretended to be a settled place. The collapse of Greece seemed like little more than a passing case of geo-financial heartburn. The 36,000-odd newly-unemployed were spun magically into a feel-good story for public consumption, and the stock markets ratified it by levitating over a hundred points. The news media was preoccupied with the Great Question of whether the first woman film director would win a prize, thus settling all accounts in the age-old gender war, and the health care reform bill lumbered around the congressional offices like a zombie in search of a silver bullet that might send it back to the comforts of the tomb.

All in all, it was the sort of quiescent string of days that makes someone like me nervous. I can’t help imagining what it was like in the spring of 1860, for instance, when so many terrible questions of polity hung over the country, and hundreds of thousands of young men still walked behind their plows or stood at their counting desks or turned their wrenches in the exciting new industries — not knowing that destiny was busy preparing a ditch somewhere to receive their shattered corpses in places as-yet-unknown called Spotsylvania, Shiloh, and Cold Harbor. Or else my mind projects to the spring of 1939, when men dressed in neckties and hats sat in a ballpark watching Joe DiMaggio and Charlie Keller play “pepper” in the pregame sunshine, and nobody much thought about the coming beaches of Normandy and the canebrakes of the Solomon Islands.

Everything we know about it seems to indicate that human beings happily go along with the program — whatever the program is — until all of a sudden they can’t, and then they don’t.  It’s like the quote oft-repeated these days (because it’s so apt for these times) by surly old Ernest Hemingway about how the man in a story went broke: slowly, and then all at once. In the background of last week’s reassuring torpor, one ominous little signal flashed perhaps dimly in all that sunshine: the price of oil broke above $81-a-barrel. Of course in that range it becomes impossible for the staggering monster of our so-called “consumer” economy to enter the much-wished-for nirvana of “recovery” — where the orgies of spending on houses and cars and electronic entertainment machines will resume like the force of nature it is presumed to be. Over $80-a-barrel and we’re in the zone where what’s left of this economy cracks and crumbles a little bit more each day, lurching forward to that moment when something life-changing occurs all at once.

I gave a talk down in Connecticut to a roomful of people who are still pretty much preoccupied with such questions as how to fight the landing of the next WalMart UFO, or how best to entice tourists to purchase objets-d’art, or serve up weekend entertainments along with fine dining and accommodations. Meanwhile, I’m thinking: how many of you might be grubbing around the woods six months from now for enough acorns and mushrooms to make something resembling soup…? It’s an extreme fantasy, I know, but it dogs me. Elsewhere in this big nation, I imagine a laid-off engineer — a genial, capable fellow, once valued by his former employer —  tinkering in his Ohio basement with a device designed to blow up the headquarters of the health insurance company that has just denied his wife treatment for cancer of some organ or other. Or my mind ventures into the rank “function room” of a Holiday Inn outside Indianapolis, where Tea Party recruits meet over chicken nuggets to discuss the New World Order, and the Bilderberg conspiracy, and the suspicious numbers of Jews in the bonus-padded upper echelons of the Wall Street banks, and what might be done about that.

On the trip back to upstate New York, my eyes couldn’t fix on anything in the landscape that seemed even remotely permanent. Even the massiveness of all that steel and concrete deployed in everything from the glass towers to the highway toll booths seemed insubstantial.  I could easily envisage the Mass Pike empty of cars with mulleins and sumacs popping through fissures in the pavement, and sheets of aluminum on the vacant Big Box stores flapping rhythmically in the wind, and something entirely new going on in the hills and valleys along the way, where people labored to bring forth new life.

Regards,
James Howard Kunstler
Whiskey & Gunpowder

March 9, 2010

Oil Prices Will Eventually Change Everything Drastically was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I should admit up front that I am a doom-and-gloom sort through and through. I’m also a fan of spectacular collapses, disasters…and zombie fiction.

Zombies, you see, are the pop culture manifestation of our fears of plague, societal breakdown, and the extinction of our own species. These are the very topics that have consumed my interest and shaped my worldview. Heck, I’ve even managed to parlay writing about them into my visible means of support.

I don’t, however, cheer on death and disaster; I just recognize how woven into the course of events they are. And in addition to this zombies have a very special place in my heart. In modern American lore they are often the result of a virus—quite literally a walking plague. They devour without actual need of nutrition. Each victim they masticate rises again in a ghastly parody of life to join the indefatigable, shambling army.

There’s something reflective about their reproduction and consumption. It’s not just the viral base or their walking corpse shtick that strikes a nerve. Their efficiency at needless, destructive consumption is downright American. We’ve met the enemy…and they look awfully familiar.

Zombies individually really aren’t that scary, however. It’s their amazing efficiency and speed at reproduction combined with the slow but relentless advance of their growing horde. The genre’s power isn’t in the glamour of a single horrible monster; it’s in the horror of the collapse of civilization. Cities fall…life becomes a very uncertain struggle…humanity gives way to much baser behavior. And against it all looms the likelihood of extinction. Good stuff!

Societal order isn’t quite as thick and binding a chain as folks like to believe. Chaos rears its ugliness pretty frequently. The more ordered and complex the system, the more shocking the unwinding when it inevitably occurs. In fact, size and complexity invite monstrous bushwackings by chaos. Chaos is like a Midwest tornado eyeing the Trailer Park of Order. It just can’t stay away.

So we don’t get zombies…this time…and frankly we don’t need them. Fate has always done just fine with the usual four horsemen and can afford to spurn such fiction. I think zombies would be a nice way to spice things up, but I’ll probably have to settle for the run of the mill plague or two. And it will be hard enough to fight my neighbors for food when energy prices squeeze supply lines and drive the price of agricultural inputs through the roof. This could be especially true in urban centers dotted with federal reservations housing wards of the state. Those folks could get especially restive when the going gets rough…and they’d be a lot faster than zombies.

Still, I find it helps to think in terms of a zombie infestation. How would I survive if my post-industrial built environment were to become unserviceable? How would I fare should basics like food and clean water become scarce enough in megalopolis to fight over? Really, how useful would gold be in the thick of collapse?

Well, we make our stand where we can. Most of us won’t be able to secure an escape to a well-prepared countryside retreat. We’ll have to make dothe best we can in our urban or suburban wilds. Some non-perishable food, some soap, toilet paper, water…a little whiskey…some gold if things stay fairly sane, some lead in case they don’t. A bit of philosophy would help, too. As Matt Savinar has written, we should be ready to kiss our asses goodbye.

Times are getting rough and all bets are off. It won’t be zombies, but it’ll be interesting.

Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder

May 4, 2009

Zombie Pandemic Preparation was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I am not trying to be an alarmist, but I am worried about a lot of things.  I just have to imagine what the chain reaction of the current downhill slide of the world’s economies can bring.  Here’s what I imagine can happen in years to come:

Pensions will go bankrupt or be a shadow of what they were before, causing millions of retirees to be broke and maybe even hungry, with no recourse.  Stocks and gold will probably cross at about 3,000.  Robberies of banks and citizens will increase many fold, and make the streets of big cities dangerous.  The danger will cause movie theatres, night clubs and restaurants to do poor business because of citizen fears of venturing out at night.  Cars not in garages or in some way protected, will be subject to theft, break ins or stolen tires and parts, especially in big cities.

With the populace unable to pay millions of mortgages, arson and fires of foreclosed or about to be foreclosed homes will be rampant.  Many of the elderly may resort to arson, in an attempt to become solvent enough to rent an apartment till they die.  Fire and police departments, especially in big cities, will be run ragged.  Insurance companies may refuse to renew in large cities or in certain neighborhoods, as they have done in Florida and New Orleans already, due to the hurricane damage possibilities.  Remember; an insurance company will never insure unless there is little chance of having to pay.

Mexican illegals will continue to go back home, since they will be unable to find work here.  Broke Americans, rather than starving, will gladly do any sort of work in fields or other places, to eat and stay alive.  Unions will find their memberships declining drastically, and many will simply cease to exist.  Travel and tourism will decline to the extent that many attractions, cruise lines, and amusement parks may become bankrupt or cease to exist.  Citizens will arm themselves and not hesitate to shoot robbers breaking into their homes.

Many will grow their own vegetables in home gardens, to save valuable dollars.  Oil consumption will stay low, and maybe even go lower, due to the lack of travel.  Church attendance and offerings will decline, due to the poverty of memberships.  Service club membership, such as Kiwanis, Lions, and Rotary will decline, and many individual clubs will cease to exist.  Travel agents will close their doors by the thousands, as will restaurants, clothing stores, auto dealerships, and chain stores of many things, because of their requiring a percentage of the operator’s gross.  Why pay 7% or 10% of a store’s gross, just to be able to use the parent company’s name?

The big cities, with their large numbers of out of work minorities, will become extremely dangerous places to live, and there will be an exodus to safer, small towns, by those who are able, even if it means selling a big city home at a sacrifice price, just to be safe.  The infrastructure and utility providers in big cities may become insolvent or fraught with vandalism.  Out of work minorities won’t be able to pay utility bills.  Without electricity, gas, or water, even for a short time, life can be extremely difficult, and especially in a high-rise building or multi-storey apartment.

Government size will grow, and grow, and grow.  More and more departments will be formed and bureaucrats hired, in a feeble attempt to ‘fix’ the depression.  It’s doubtful that most will realize that it was government that got us here, and the majority will wrongly think that more government will fix things, rather than make them worse.

How did government get us here?  It didn’t start with George Bush, LBJ, Jimmy Carter, or even Ronnie Reagan.  Lovable Ronnie did his best, but while doing his job, he quadrupled the national debt.  The trouble began with Woodrow Wilson, when he got us into World War One.  It was about over, when Wilson and Colonel House decided to get America involved.  But it was FDR who really started the road to ruin.  I’ve been over this with you readers many times, but when a government begins to subsidize anything, be it farmers, old people, poor people, cold people, minority people, sick people, or any people, business, or other entity, the end is in sight.  The subsidies, no matter how innocent they may seem to be at the beginning, will grow like a cancer, till the entire economy and national life style is destroyed.  Governmental subsidies and handouts, are indeed like a cancer, eating and spreading out of control, and most especially at the federal level.  Once a citizen gets a check from D.C., they are 100% going to depend on their continuance.  Public housing residents are several generations old now, and each subsequent generation is more worthless than the previous.  Public housing occupants believe it is their actual right to have free housing.  All recipients of subsidies and handouts actually come not only to depend on them, but begin to believe they have an unconditional right to them.  The first public housing, Social Security, and various other handouts, are now over seventy years old, and have grown like weeds in springtime.

As each year has passed, more and more handouts and bureaucracies who hand them out have been formed and populated.  Each succeeding handout, such as food stamps, Medicare, and Medicaid, brings more and more on the dole, and more and more think it is their right to have it. Each handout and subsidy destroys a part of our free economy, substituting the marketplace, which is self-regulating, and gives highest quality and lowest prices, with wasteful, expensive, totalitarian bureaucracy.  Obviously, the national debt has grown like Topsy, because there are never enough taxes collected to pay for the handouts.  Taxes have grown thousands of percentages since FDR, and taxes are levied on every single thing a human uses, consumes, produces, or buys, thereby destroying freedom and the marketplace.

Candidates for public office, realizing that they can’t get elected unless they promise more handouts and largess from the public treasury, always do as they promised.  Now, as we are in another deep depression, the spending and handouts will grow more and more, as will the government.  Donald Trump, this morning on Fox News said, “It’s 1929 all over again.” Panic and paranoia will grow, and millions more will buy guns and ammunition to protect themselves.  They should, because I believe that in the big cities, riots will break out, with much physical damage and loss of life.  The jobless, hungry, and homeless, will multiply in big cities, and riots will be the logical result.

With currencies failing around the world, it will become obvious to more and more people, that saving in them is futile, and sure road to bankruptcy.  More and more shysters will be discovered who had been running Ponzi schemes, defrauding millions of people out of billions of dollars.  (Gold and silver require no trust of anyone or anything.) Former wealthy people and families will discover that their former wealth in dollars, has bought less and less, to a point where annuities, and whole life policies will become virtually worthless, as all tangible prices go sky high in currencies, as has always happened with hyper-inflation throughout history.

Government will also become paranoid and attempt to legislate away the Second Amendment under the ruse that it is to ‘protect people,’ or other nonsense.  In reality, millions of guns in the hands of the citizenry will protect them from crooks, robbers, and rapists, but also from government, if it all comes down to that, and it might.  Will American soldiers shoot their own citizens, if ordered to do so by government, under some sort of phony charge?  If a citizen writes or talks against government actions and policies, will they be prosecuted?  Will it be seditious to speak one’s opinion?

Here’s today’s quote from Atlas Shrugged, page 995, and everyone PLEASE buy, read, and pass this book on to your kids.  “The wads of worthless paper money were growing heavier in the pockets of the nation, but there was less and less for that money to buy.  In September, a bushel of wheat had cost eleven dollars; it had cost thirty dollars in November; it had cost one hundred in December; and it was now approaching two hundred, while the printing presses of the government treasury were running a race with starvation, and losing.

“When the workers of a factory beat up their foreman and wrecked the machinery in a fit of despair, no action could be taken against them.  Arrests were futile, the jails were full, the arresting officers winked at their prisoners and let them escape on their way to prison.  Men were going through the motions of the moment, with no thought of the moment to follow.  No action could be taken when mobs of starving people attacked warehouses on the outskirts of the cities.”  Whet your imagination?  I hope so.  If you’ve ever read a book that seemed to come true, this is it.

As a grotesque finale of FDR’s feeble attempts to get America out of the great depression, contrary to his campaign promises, he virtually forced Japan to bomb Pearl Harbor, and we were in a World War, which of course got us out of the depression.  Will a ‘false flag’ attack or some other specious happening, eventually get America into WW III?  We seem to be following FDR in most other ways.  Protect yourself, and buy and read Atlas Shrugged.

Regards,
Don Stott

February 27, 2009

What Could Happen: The Collapse of Big Cities, Big Governments and Subsidies was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

My NTSB friend was good enough to get me past the security and near the aircraft as it floated in the water. It was nighttime. The weather was very cold and windy, so all the physical work was just plain tough. (Pity the frigid divers, placing slings under the fuselage and wings.) The giant cranes were just getting ready to lift the aircraft hulk out of the river and onto a barge. I was taken in by all the personnel and equipment at the scene of the crash — and this was a nonfatal crash, thank God!

There were New York police and firefighters. There were Port Authority cops. There were New York Dept. of Environmental Conservation people and folks from the U.S. Environmental Protection Agency. There were New York City Hazmat people, the Army Corps of Engineers, the U.S. Coast Guard and the Federal Aviation Administration. There were people from the State University of New York scanning the river bottom with sonar.

There were reps from a multitude of private entities like U.S. Airways (naturally), Airbus (ditto), the crane company employees, diving and salvage people, insurance carriers, environmental testing firms and many others. There were lots of news media there as well. There was even a Salvation Army truck on-site, with pots of hot coffee and sandwiches for the many people who were part of the effort.

And then there were lots of spectators, including people working out behind the glass at a gym inside an adjacent building. They were watching the whole scene from the comfort of their StairMasters and Lifecycles.

My take-away thought about this was how complex our society has become. There are layers upon layers of complexity and astonishing levels of technical expertise. There are so many different organizations, agencies, groupings of people and assemblages of equipment. It all costs a lot of money and consumes a lot of energy. When something dramatic happens, like an airplane crash, it all mobilizes and comes on-site. That’s OK when major disasters are one-off incidents. But what if several incidents occur in short order or close proximity? What happens when money, if not energy, gets scarce? The whole process could get overwhelmed.

Dealing with Modern Complexity

Of course, New York knows something about dealing with disasters. After all, we were about three blocks from the site of the former World Trade Center. Still, it takes years to hire and train all of these experts. And more years to acquire all this sophisticated gear. It’s a very laborious and expensive process. Just keeping this level of capability on a standby basis requires a massive commitment of resources. When you need it, you need it now. If you don’t have it, you can’t build it up quickly. And when you have it (like New York has some of everything), you don’t want to get rid of it in some frenzy of so-called cost cutting. But still, it makes me wonder.

Societies develop layers of complexity to solve problems. The thing to keep in mind, however, is the historical fact that every complex civilization that has ever lived on this world has collapsed. Bar none. All societies have come to an end. Cultural anthropologist Joseph Tainter documented this in 1988 in his astonishing book The Collapse of Complex Societies.

That is, as societies become more complex, the costs of meeting new challenges increase. Eventually, every society arrives at a point at which devoting extra resources to meeting new challenges produces diminishing returns. Then negative returns. Along comes a systemic shock. The shock might be internal (resource exhaustion, for example) or external (foreign war, for another example). And the shock triggers collapse. When collapse occurs, it almost always occurs rapidly. Things fall apart and quickly decay to a much lower state of complexity. Societies become less complex by collapsing into smaller, much less complex subgroups.

The Western world — certainly, the U.S. — has spent the past century engaged in an arms race of social complexity. And from where we now stand, there’s no gentle “build-down.” The more people who understand that, the better.

Habemus DOE Chief of Staff

Meanwhile, we have a new U.S. president. You-know-who. And the new president has a new secretary at the Dept. of Energy (DOE), Steven Chu, who received a Nobel Prize in physics. (That’s a refreshing change for the DOE.) And the new DOE secretary has a new chief of staff, Rod O’Connor.

Mr. O’Connor has a master’s degree in public administration from Harvard. And he worked for Al Gore in both the Senate and White House. Mr. O’Connor organized and ran the 2000 Democratic National Convention in Los Angeles as well as the 2004 Democratic National Convention in Boston. And he was chief of staff of the Democratic National Committee.

I’ve never met Mr. O’Connor. But I have met Joseph Tainter (see above). It seems to me that what we need at DOE is a more of a Rickover man (Hyman Rickover being “the Father of the Nuclear Navy”), not a Gore man whose claim to fame is strong political credentials. So is this a sign of the politicization of energy? I’m shocked. I truly want to see the country do well in the next four years. As a nation, we cannot afford to screw up, either with energy in general or at the Energy Dept. We shall see what happens at DOE. Meanwhile, I hope that Mr. O’Connor reads Mr. Tainter’s book. He can even have my copy. It’s underlined.

Until we meet again,
Byron W. King

February 3, 2009

Unwinding Complexity and the Collapse of Societies was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.