The Bottom for Credit Thanks to Peak Oil
May 8th, 2009 | By James Howard Kunstler | Category: Energy, Featured, Macro Economics, Oil
Euphoria managed to out-run swine flu last week as the epidemic-du-jour, with “consumer” confidence jumping and the big bank stocks nudging up. The H1N1 virus fizzled for now, at least in terms of kill ratio, though we’re warned it might boomerang in the fall with a vengeance. No one was surprised to see Chrysler roll over like a possum on a county highway, but the memory of their muscle cars will linger on like a California surfing song. Here in the northeast, where Sundays are not spent at the NASCAR oval, the spring foliage reached the tenderly explosive stage and it was hard to feel bad about anything.
For now, the “bottom” is in — that is, the bottom of this society’s ability to process reality. It may continue for a month of so, even after the “stress test” for banks is finally let out of the massage parlor with a “happy ending.” But events are underway that are beyond the command of personalities. We’re done “doing business” in all the ways that we’ve been used to, but we just can’t get with the new program. Let’s count the ways:
1) The revolving credit economy is over. It’s over because we can’t increase energy inputs to the system, which is one way of saying “peak oil.” Of course hardly anybody believes this right now because the price of oil crashed nine months ago, along with global manufacturing and trade. But nothing has changed on the peak oil scene — except perhaps that ever more new oil projects have been cancelled for lack of financing, which will boomerang on us (even if swine flu doesn’t) in the form of much lower future oil production. In any case, the credit fiesta is over, and the “consumer” economy with it, because industrial growth as we have known it is over. It’s over globally, too, though all regions of the world will not experience its demise the same way at the same rate.
The Asian nations may swap things around a while longer but China is basically screwed. They have less oil left than we have (which is saying, not much at all) and they won’t corner the rest of the global oil market without starting World War Three. Meanwhile, they’re running out of water and food. Good luck becoming the next global hegemon. Oh, and Japan imports 90 percent of its energy; India over 80 percent. Fuggeddabowdit.
Credit will not vanish everywhere overnight — even in the USA — because it is not distributed equally everywhere. But it will vanish in layers, and here in the USA a very broad layer of the lower and middle classes are now losing their access to it in one way or another — personally, in small business — and they will never get it back. Anyone who intends to thrive in the years just ahead had better plan on doing it on the basis of accounts receivable — and what they receive might not even necessarily come in the form of US dollars. It may come in the form of gold or silver or in the promise of reciprocal services rendered.
This has enormous implications for two of the items in which our credit-dispensing operations are most deeply vested: houses and cars. Unfortunately, these are exactly the things that economic life has been based on for decades in our nation, which leads to the next categories:
2) The suburban living arrangement is over, along with all its accessories and furnishings. Taken as “all of a piece,” the suburban expansion was one sixty-year-long orgasm of hypertrophy. We did it because we could. We won a world war and threw a party. We had lots of cheap land and cheap oil. It made lots of people lots of money and all its usufructs have become embedded in our national identity to the dangerous degree that the loss of them will provoke a kind of national psychotic breakdown. In fact, it already has. The completely unrealistic expectation that we can resume this way of life is proof of it.
The immediate problem is that we can’t build anymore of it. The next problem will be the failure of the stuff that already exists. The first stage of that is now palpable in the mortgage foreclosure fiasco and, just beginning now, the tanking of malls, strip centers, office parks and other commercial property investments. The latter will accelerate and become visible very quickly as retail tenants bug out and weeds start growing where the Chryslers and Pontiacs once parked. The next stage, which involves large demographic shifts in how we inhabit the landscape, has not quite gotten underway.
3) The Happy Motoring fiesta is over. You’d think that with Chrysler crawling into the bankruptcy court, and GM just weeks away from the same terminal ceremony, the news media would begin to suspect that the foundation of everyday life in this country was cracking. Instead, all we hear is blather about “market share” shifting to Toyota. News flash: not only will we make fewer automobiles in the USA, but Americans will buy far fewer cars made anywhere. We’ll keep the current fleet moving a while longer, but when it’s too beat to repair, we won’t be changing it out for a new fleet — despite all the fantasies about hybrids, plug-and-drive electrics, and so on. The masses will be too broke to buy these things. What’s more, they will be very resentful of the shrinking economic “elite” who can afford them. And, anyway, our roads and highways are destined to fall apart very quickly because there is no way we can sustain the necessary rate of normal maintenance. Meanwhile, we remain completely un-serious about public transit — even about fixing the vestiges that still exist. The airline industry, of course, will be toast inside of five years.
4) Our food production system is approaching crisis. There’s no way we can continue the petro-agriculture system of farming and the Cheez Doodle and Pepsi Cola diet that it services. The public is absolutely zombified in the face of this problem — perhaps a result of the diet itself. President Obama and Ag Secretary Vilsack have not given a hint that they understand the gravity of the situation. It is probably one of those unfortunate events of history that can only impress a society in the form of a crisis. It also happens to be one of the few problems we face that public policy could affect sharply and broadly — if we underwrote the reactivation of smaller, local farm operations instead of shoveling money to giant “agribusiness” (or Citibank, or Goldman Sachs, or AIG…). I maintain that this may be the year that the crisis gets our attention, because capital is suddenly harder to get than fossil-fuel-based fertilizer.
All these epochal discontinuities present themselves, for the moment, as a season of muted “hope” and general apathy. The days are suddenly mild. We’ve resumed old and happy habits of grilling meat outdoors and motoring to those remaining places that were not blanketed with franchised food huts and discount malls. We have a new, charming president with an appealing family. Newly-minted dollars are flowing to the “shovel-ready.” The new bad news is less bad than the old bad news (or seems to be). And the year just past has been such a bummer that our hard-wired human nature tells us that good things must be just around the corner.
Personally, I think a lot of good things await us, but not the ones we’re expecting — not a return to buying slurpees on credit cards. It will be very salutary to leave behind the junk empire we’ve accumulated and move into an epoch of quality and purpose. For the moment, though, our hopes reside elsewhere.
Regards,
James Howard Kunstler
May 8, 2009
Your editor is feeling a bit beaten up today, Shooters. I am so very weary of arguing against the proponents of collectivism and the nanny state. Thank goodness one of you did the heavy lifting and sent in this fantastic missive…
“Gary,
“Beyond my agreement with the gent from UK, and the quote from Atlas Shrugged, I believe there’s a need to remind our fellow citizens here in America that we’ve been busy making our national health care system a socialistic one for many decades. Of course, Medicare and Medicaid come to mind, both wonderful systems, provided one enjoys funding a giant bureaucracy that uses much of its funds in its own, ineffective administration, imposes rules on one’s health care which are sometimes (often?) in conflict with one’s health or the best strategy of care, and orders the doctors who have spent years in training how they should perform their duties and practice their craft, and of course dictates to these professionals how much they should be paid for their services. But these are the same topics covered by the previous two writers.
“I’m amazed of the failure to recognize how the insurance industry has socialized health care in America. The real emergence of the insurance industry’s socialization of our health care and consequent run up in the costs began in the early 1970s, when Nixon agreed to allow, no, to promote the use of managed care. There’s a recording floating around the net of Nixon listening to the pitch, and agreeing. Bought and paid.
“But even without that, logic quickly points out that by using vast health care insurance in a system, the insurance socializes the industry, failing to provide the best health care for the money spent. Instead, it inflates the costs of health care, dramatically so. If the citizens of the US were to become convinced that health care would dramatically improve while driving costs down, and do away with government programs (Medicare & Medicaid), as well as health care insurance, the industry would indeed dramatically improve and costs would dramatically be reduced.
“If there were no government programs to pay for health care, and no insurance programs to pay for health care, then the health care industry would be forced to bring its costs within market limits. At the same time, competition would force improved care. In such a system, I further believe it advisable to outlaw liability actions. This wouldn’t be popular with the attorneys, but it would dramatically reduce the costs of health care, as well as many unnecessary procedures. It seems reasonable to me, after all, most of us make mistakes while performing our jobs, but we aren’t brought to court on a liability action. Of course, in place of no litigation, I’d strongly recommend criminal action should a health care professional cross a defined threshold, such as performing a procedure under the influence, blatant disregard for the health of a patient, and other such thresholds designed to help protect the health of patients. But in the end, just as auto repair is governed and monitored by the market, so would health care, and more effectively than the government oversight that has been used. Let us keep in mind that the US does not have the best health care in the world, and that the health of US citizens ranks relatively far down the list when compared to that of other industrialized nations. Government oversight and pseudo market driven health care has failed us.
“I don’t have an answer as what to do with those who would be unable to pay for health care even in a system like that described above, where the market truly drives quality and price. Obviously, in such a system, niche markets for serving those with limited ability to pay would certainly spring up, and there will certainly be those who support clinics for those who can’t pay. Beyond that, I’d think that we here in the US would again become responsible, putting aside savings to cover the costs of medical care before we spent those dollars on a new car, new big screen, and other items that actually are luxury items. Being forced to seek health care from niche providers or free clinics provided by philanderers instead of the higher quality, only because one made the decision to spend their money on luxury items instead of a health savings account, would soon cure many. As with all socialized systems, it is disheartening to see folks driv ing much more valuable autos, living in much more valuable homes, wearing jewelry I can’t afford to purchase for my wife, yet entering the hospital emergency room demanding high quality service for a simple ailment that should have been cared for by a family MD, and having Medicare or Medicaid pay the bill, while I am forced to wait longer for a true emergency, because I can’t afford to come to the emergency room for routine treatment, and that goes on and on. And so I say, do away with it all, the government and insurance industry health care systems, and we’ll ALL pay for treatment as needed, making the personal decision what portion of our income we’re willing to use for health care.”
Testify!
Remember that I love you all, even the collectivist loudmouths who send me hate mail (when I offer to unsubscribe those folks, it’s out of love too…so they won’t get a coronary reading my anti-collectivist propaganda).
The weekend’s weather looks pretty promising. Pick up a copy of James Howard Kunstler’s _World Made By Hand_ and read it somewhere quiet and sunny. I’ll be brushing up on my Rothbard.
See you next week.
Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder
I would love to believe there are good-hearted souls out there who would fund free/low-cost clinics for those of us unable to afford regular care. (I do hope they would be funded by “philanthropists” rather than “philanderers” as quoted in the letter….or perhaps they are one in the same??? Interesting thought.) However, if healthcare was strictly “pay as you go”, those wealthy philanthropists/philanderers may think it better to save their money to pay for the results of said philandering.
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@2, must take issue with the statement that “most of us make mistakes while performing our jobs, but we aren’t brought to court on a liability action.”
To the contrary, if the mistake has consequences as serious as do most medical errors resulting in malpractice litigation, then the mistake generally will result in liability action – whether against the drunken assembly worker who drops the bolts out of a helicopter turbine casing, or against the worker’s employer under the venerable doctrine of respondeat superior; whether against the garage mechanic who fails to torque the c-v joint, or against the business insurer of the house painter who ignites the siding during his spliff break. (That’s why “bonded and insured” is such an important thing to check for when hiring casual contractors).
While you may hate lawyers and the possibility of being sued for a mere “mistake”, look at it this way – would you rather start your morning facing a process server, or a group of well-armed citizens looking to seize your property as recompense for an injury? Comparatively speaking, “civil” litigation really is a lot nicer than a weregeld collection.
Dear Jim:
“Old sins cast long shadows” and the punishment is being meted out with ever-increasing ferocity. Those of us best-positioned to face what is coming are characterized more by what we don’t have and didn’t do than the other way around. The biggest assets the ordinary person could use right now are NO mortgage and NO car payments, with NO children needing college expenses or NO children at all in close pursuit.. I have no idea how to arrange such a thing and don’t intend to contemplate the impossible.
We never bought into the yuppie dreams of the last quarter of a century. You couldn’t stuff us into a MacMansion if you gave us one we couldn’t sell and had to live in and come up with running expenses. Sure, we like big, nice houses, but we know that one of life’s most basic rules is never to be ANY kind of “poor.” One should never spend more than 25% on shelter, and I have always tried to make that cover all utilities as well.
We have NEVER wanted a new car every year, and in our personal case don’t want one at all. We’re far happier with well-maintained older cars that we enjoy driving and being able to locate easily in parking lots.
How drab those are, these days, with endless rows of bread boxes and shoe boxes, almost all of them white, black, dark grey, or silver. Unless I can find an emblem or some words, I find it almost impossible to distinguish one tiny car from another, one SUV from the next, even one truck from any other truck, unless I see a Scion, a VW beetle, or a one of the boxes that looks as though it came out of a 1935 British film.
Charles and I love cars and collect them, and I guarantee you that every last one we have is comfortable, distinguished, easy to distinguish on the road or parked in front of a grocery store, and free from at least some restrictions newer cars face. They have what we regard as sensible gas mileage, in the 25 mph range. We’re into handling, performance, luxury, safety, and economy, and we find those in the vehicles of the past.
I commented last year how few old cars there seemed to be on the road; almost everyone was driving a new or “newer” one. A good plan, even in these hard times, is to go find a nice piece of enjoyable transportation that will retain its value, be easier to keep up, and has at least another hundred or two thousand miles in it. There are a great many out there. You can buy a REAL Jaguar for between $1200 and $5,000, and it will always be a Jag-u-ar. It won’t cost any more to repair, will be supremely comfortable, and even add a lot more to perceived “status” than a new car. There are many fine old pickups good for a lot more miles with engines that older men can repair themselves. If you don’t drive far, indulge yourself with a grand old Mercedes sedan that LOOKS like a Mercedes, or a flamboyant Cadillac that makes you feel like Elvis in his prime. Sometimes we have to eat the elephant one bite at a time, and a good place to start would be cleaning up the transportation problem. Get rid of those heavy drains on income and higher insurance rates by buying an older car you plan to keep for years. .
More lifestyle choices. We don’t drive much because we don’t have to. We save up our errands until something becomes urgent, arrange them neatly in a circle/square/oval, and run them all at once. We aren’t forever running into town for movies, milk running out, or club meetings, and every hour we don’t spend in traffic is one spent doing things we like or which must be done..
I think “down-sizing” is as filthy an expression as the English language contains, but simplifying our lives in basic ways not only makes splendid sense economically, but it provides more precious leisure time. In the frantic “My wife has to work, and can I find a part-time job as well as my full-time one” mentality, how many have run a basic economic check recently? By the time you add up gas, upkeep on the car, child care, cleaning, wardrobe, lunch money, taxes, and the difference the wife’s income makes in a tax bracket…it just could be that the sum left over isn’t worth the wear and tear on her nerves, children growing up without a full-time mother, and other pleasures of having Donna Reed around. What would a lucky family have to “give up” for such a benefit? Blackberries? Multiple cell ‘phones? Country club and gym memberships?
I don’t know, but in many instances I would look if it were our lives. I’m not willing to trade things that matter to us for things we don’t want and don’t need. Some people are, and it will be interesting to watch them continue scrambling to do it.
Regards,
Linda Brady Traynham
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