The Economy Has Six Months to Live
Jan 12th, 2010 | By James Howard Kunstler | Category: Economics, Featured
The economy has about six months to live. Especially the part that consists of swapping paper certificates. That’s the buzz I’ve gotten the first two weeks of 2010, and forgive me for not presenting a sheaf of charts and graphs to make the case. Just about everybody else yakking about these thing on the Web provides plenty of statistical analysis: Mish, The Automatic Earth, Chris Martenson, Zero Hedge, The Baseline Scenario… They’re all well worth visiting.
Bank bonus numbers are due out any day now. The revolt that I expected around the release of these numbers may come from a different place than I had imagined earlier — not from whatever remains of “normal” working people, but from the thought leaders and middling agents in administration (including the prosecutors) who, for one reason or another, have been diverting their attention, or watching and waiting, or making excuses for a couple of years now. When Frank Rich of The New York Times starts Calling for Robert Rubin’s Head, then maybe the great groaning tramp steamer of media opinion is turning in the water and charting a new course for the port of reality.
Anyway, the grotesque carnival of rackets and lies that the US economy has become — held together with the duct tape of stimulus cash, gamed accounting, mortgage subsidies, carry trades, TBTF bailouts, TARPS, TALFS, shell-game BLS reports, and MSNBC “green shoots” cheerleading — gives every sign of tipping into collapse at a moment’s notice. There are just too many obvious things that can go wrong, and that means there are many less obvious, hidden things that can go wrong, and isn’t it tragically foolish to tempt Murphy’s Law, since it operates so well without any help from us? The call is even going out lately for criminal prosecution of the current Treasury Secretary, Mr. Geithner, for Engineering AIG’S $14 Billion Credit Default Swap Payoff to Goldman Sachs as part of the AIG bailout. Okay then, why not Paulson, Bernanke, Blankfein…?
But the other rings of the circus are fully occupied by clowns and dancing bears, too. Even with sketchy-looking stock market prospects for 2010, it’s hard to explain why the world would run into US treasury bonds, especially a few months from now, after the initial rush-to-safety — that is, when you could just as easily buy Canadian or Swiss franc denominated short-term bills. And then what happens when the Federal Reserve has to eat all the uneaten treasuries, while it’s already choking to death on collateralized debt obligations and related worthless toxic trash securities? After all, the greenbacks we swap around are called Federal Reserve Notes.
Why would anybody think that the housing market is going to keep levitating? A big fat “pig” of adjustable rate mortgages (i.e. mortgages that will never be “serviced”) is about to move through the “python” of the housing scene, shoving millions more households into default and foreclosure. Meanwhile, local and regional banks are choking on real estate already in default that they are afraid to foreclose on and have been keeping off the market through 2009 in order to not send the price of houses down further and put even more households “under water” for houses worth much less than the face value of their mortgage. I doubt that the banks are doing this out of the goodness of their hearts, but whatever the motive, this racket of just sucking up bad loans can’t go on forever. At some point, a banking system has to be based on credibility, on loans actually being paid back, or it will break, and we are close to the breaking point.
The pathetic truth at the center of the housing fiasco is that prices have to come down further if any normal wage-earner will ever afford to buy a house again in America on anything like normal terms. Anyway, sooner or later the banking system is going to have to upchuck the “phantom inventory” of un-foreclosed-on houses, and sell them off for whatever they can get, or else a lot of banks are going to go out of business.
They may go down anyway, because the catastrophe of commercial real estate is following right on the heels of the fiasco in residential real estate. The vast oversupply of malls, strip malls, office parks, and other furnishings of the expiring “consumer” economy is about to become the biggest liability that any economy in world history has ever seen. Who will even want to buy these absurd properties cheaply, when they will never find any retail tenants for the badly-built structures, nor be able to keep up with the maintenance (think: leaking flat roofs), or retrofit them for anything? In a really sane world, a lot of these buildings would go straight to demolition-and-salvage — except that it costs money to do that, and who exactly right now will make a market for used cinder blocks and aluminum window sashes? I expect these places to become squats for the desperate homeless.
Then there are the bankrupt states, led by the biggest, of course — California and New York — but with plenty more right behind, whirling around the same drain (probably forty-nine of them with the exception of that fiscal Nirvana, North Dakota!). Even if they manage to con bailouts from the bailout-weary federal government, the states are still going to have to winnow down the ranks of their public employees (throwing more middle-class households into foreclosure and penury), while they hugely reduce public services, especially to the poor, the unwell, and the unable. That alone will redound into very visible realms of daily life from public safety (rising crime) to the decay of roads and bridges.
Perhaps the most troubling buzz in the air this first month of 2010 are rumors of coming food shortages due to widespread crop failures around the world in the harvest seasons of 2009 (Emergency Food Supply, Food Crisis for Dummies, 2010 Wall Street Predictions). If the US Department of Agriculture hasn’t flat-out lied about crop numbers in 2009, the signs are that their statistical reports are at least inconsistent with real grain storage numbers and commodities prices. And why would the USDA tell the truth if every other federal agency is reporting gamed numbers? Given the crisis in capital and lending, one also has to wonder how farmers will be able to borrow money to get their crops in this year.
Finally there’s the global energy scene. The price of oil starts this week over $83 a barrel. That puts it about $1.50 from the price “danger zone” where it begins to kill economic activity in the USA. Things and procedures just start to cost too much. Gasoline. Deisel fuel (and, by the way, that means another problem for food production going into the 2010 planting season). One especially eerie situation the past few weeks has been the de-coupling of moves upward in oil from moves in the value of the dollar. Lately, oil has been going up whether or not the dollar has gone up or down. Two weeks ago the dollar went below 1.42 against the Euro and today it’s above 1.45, and oil has been rising steadily from the mid $70 range all the while. 2010 may be the year that we conclusively realize that world oil demand exceeds world oil supply — and that global oil production cannot hold above 85 million barrels-a-day no matter what we do.
These are the things that trouble my mind at three o’clock in the morning when the wind rises and things bang around spookily. Gird your loins out there for a savage season or two.
Regards,
James Howard Kunstler
January 12, 2010
James Howard Kunstler
James Howard Kunstler is perhaps best known for The Long Emergency, which predicted the financial meltdown and the implications of the peak oil problem. The Geography of Nowhere , about the fiasco of suburbia, is a campus cult classic among the architecture and urban planning students. It was followed by a sequel, Home From Nowhere and The City in Mind: Notes on the Urban Condition . Mr. Kunstler has also authored 10 novels including World Made By Hand, a story set in America's post-oil future. His articles have appeared in The New York Times, The Washington Post, Rolling Stone and The Atlantic Monthly.
ShareThis
[...] See the rest here: The Economy Has Six Months to Live [...]
For what it is worth, the pecan harvest in Texas was bad and the corn harvest was poor again. 30% of the corn grown in the US is slated to be sacrificed on the sacred alter of Ethanol, and that’s 12% of the corn grown anywhere in the world. Since Ethanol costs more energy to produce than it delivers this is certainly a slight problem. How hard can it be to determine what crops are like elsewhere? Aussie Alex, how are things down under? Canada North, same question about Canada? Sorry I can’t remember your handle, reader in South Africa, but have you anything interesting to add?
[...] This post was mentioned on Twitter by Ron Simon and caermon, Garrett Mossberg. Garrett Mossberg said: The Economy Has Six Months to Live http://bit.ly/7O8iHx [...]
I’d never miss one of Jim’s Monday morning blogs, particularly since I’m sure to learn a new word or two from his time with his Thesaurus the previous week, I’m sure to have a laugh or two at something witty, and I’m sure to find out what absolutely will not happen in the world next week, month, year, decade, or century. In this case, it’s another “prediction” that will not happen, not now, not in July. Have a great day, Jim! See you next week.
[...] The Economy Has Six Months to Live The Economy Has Six Months to Live [...]
James Howard Kunstler,
Only 6 months left, you are an optimist!
Government, lefty media and many, many clueless still believe the recovery is underway.
A massive dope slap of reality is coming. What a blow to the ego to realize that one’s beliefs are built on false premise. Of course some go from creating castles in the sky to living in them.
So good to read this one, I do not feel so alone when I get on W&G.
The real test comes when the bear comes knocking at the door.
You got it — here is a portion of a USDA report of January 12. Crops are counted that are not in the barn! Winter losses of unharvested crops tend to be large–particularly beans. The central government has expended zero effort on the looming farm capital problem.
“When producers were surveyed in late November and early December, there was significant unharvested acreage of corn in Illinois, Michigan, Minnesota, North Dakota, South Dakota and Wisconsin; and significant unharvested acreage of soybeans in Georgia, North Carolina, South Carolina and Virginia. The unharvested area and expected production were included in the totals released on January 12.
NASS will re-contact respondents who previously reported acreage not yet harvested in these states. If the newly collected data justifies any changes, NASS will update the January 12 estimates in the March 10 report, except for South Dakota and North Dakota. Since the inclement weather has persisted in those two states, producers there will be re-interviewed at a later time.”
Ha ha ha, you gotta love this guy…
On the Ethanol issue, there is an alternative that looks very promising. It is Global Clean Energy Holdings, they produce biodiesel from a tree that once you plant it, you will produce for about 30 years and it does not compete with agriculture. Some countries are now pouring millions of dollars into Jatropha plantations as fast as they can. Web site is: http://www.gceholdings.com
Optimist!
To quote the Mighty Mogambo Guru, “We are Doomed!”
No way out unless people see the light, become honest and have discipline.
What other explanation of what will happen can there be?
Will we become another Haiti, unable to help ourselves?
Pray for those people, pray for us.
If you believe in God than you have to believe in the devil.
Hello Linda
Regarding the crops in the area where I live, the quantity is certainly down but the quality is good. The reason for this is because of the dry summer that we had in the Peace River Region last summer. However other parts of the Canadian prairies received enough rain at the right time to end up with very good crops. As you know from reading the Whiskey Post, Saskatchewan is the largest producer of lentils & peas as well as wheat. So the farmers here are doing okay but the best thing is there is more than enough food to go around and export the large balance. You know Linda I drove through southern California a few years ago heading north through farm country on the I-5, the vegetable growing crops are quite amazing. On the other hand the cattle ranchers there look kind of poorly compared to the density of our cattle herds in the Peace Region of British Columbia and Alberta.
So how are the cattle ranchers doing in your part of Texas? What about the wheat crop of last summer?
Best Regards, CanadaNorth
Dear Canada:
Wa’al, about th’ cattle…this time of year a hundred head are consuming four bags of high-protein feed and 16 square bales a day, since the grass died in the first big freeze and won’t be back until spring, but ours get away with that “little” because they browse on brush in the woods. You’ll be happier not knowing what this costs. I haven’t seen my friend, Glen, recently, so I don’t know how his wheat crop did. He grows hundreds of thousands of bushels of wheat and corn every year–and supports himself with trucking! I keep quoting Daddy, “You can’t afford to run cattle unless you have a private income!” Being a “big” farmer but not Agribiz is a pretty chancy business, too. People don’t realize how fragile our food supply is. 2% are feeding 98%, and the Food “Safety” Act is aimed squarely at driving the last 2.1 million small farmers (and ranchers) out of business. Agribiz has increasing problems with the costs of fuel, labor, feed, electricity, taxes, and so forth. I am more concerned with “peak food” than I am with “peak oil.” I’m sure I would rather not know what Haiti is going to cost us. The problem in California is that more and more water is being flushed away uselessly purportedly to help “endangered” species; that water is needed to produce electrical power and irrigate crops. Most of the crop in Southern California was lost for that reason, I read. Individually we can plant gardens, but that is only a small stop gap. Regards, Linda
Dear NY Farmer: Thanks for the amusing info. It is NEVER safe to count your crop until it is safely in a barn, a silo, or a grain warehouse. There are too many ways it can be ruined. Like counting your chickens before they hatch. I always thought that was like “A watched pot never boils,” but it means just what it says: even with fertile eggs the hatch rate can be very, very low. 70% is a pretty good hatch, and one journal commented recently that the “motherly” instinct has been bred out of modern chickens. Only TWO hens set this year, with four chicks each. One managed to raise two, the other one, one. We produce our through incubation, but a sad truth is that even chickens need mothers; the artificially hatched chicks don’t do as well. It is commonplace to lose at least 10% of the hatchlings. I have a feeling that all of the genetic modifications bode far worst. Your cheery friend, Linda
First Target in town built in ’70s vacant for last several years just getting demolished. Two or three new Super Targets in better locations are thriving despite our “Depression”. First K-Mart from ’60s now shuttered, New Super Wal-Mart nearby, five or six more scattered around the city. Only one K-Mart left, several others converted to alternate use or destroyed. Oh my God, a change is gonna come. Winners, losers. The first shall be last. The destruction shall spread far and wide and many will suffer so that a few may reap their reward. From him who has little, it shall be taken away and given to him who has much. Beg forgiveness for him who has added or taken away.
Social comments and analytics for this post…
This post was mentioned on Twitter by ronsimon: The Economy Has Six Months to Live: The economy has about six months to live. Especially the part that consists of… http://bit.ly/6xOkld...
Dear Canada: I have the answer on wheat, and it isn’t good. I ought to go write an article on it. When any crop is off 30% the government declares it a “disaster,” which is nothing compared to what the wheat grower says. Lots and lots of that going on in several areas. What is far worse overall is how many crops came in at 20-25% below expected, all of which bodes very ill for commodity prices in the near future. We all know I am not allowed to give investment advice, but I can sure tell you the facts I find. It’s looking bad world-wide, and my other rancher friends and I are having a very grim early season. Perhaps too many believed the “global warming” nonsense and the prediction of the National Weather Service call for a mild winter. I went with the Farmers’ Almanac, but I bought four goats due to kid this month. Everyone I talk to is losing stock shortly after birth and seeing a lot of spontaneous abortions. Probably lack of carbon dixoide in the air! Linda
[...] [...]