Where Are We Now? - A World View

Tyler Durden's picture

Submitted by James Howard Kunstler via Kunstler.com,

Wondering why the money world got its knickers in a twist last week? The answer is simple: the global economy is breaking apart and its constituent major players are doing face-plants on the downhill slope of a no-longer-cheap-oil way of life.  Let’s look at them case by case.

     The USA slogs deeper into paralysis and decay in a collective mental fog of disbelief that its own exceptionalism can’t overcome the laws of thermodynamics. This general malaise precipitates into a range of specific quandaries. The so-called economy depends on financialization, since it is no longer based on manufacturing things of value. The financialization depends on housing, that is, a particular kind of housing: suburban sprawl housing (and its commercial accessories, the strip malls, the box stores, the burger shacks, etc.). Gasoline is now too expensive to run the suburban living arrangement. It will remain marginally unaffordable. Even if the price of oil goes down, it will be because citizens of the USA will not have enough money to buy it. Lesson: the suburban project is over, along with the economy it drove in on.

     But so is the mega-city project, the giant metroplex of skyscrapers. So, don’t suppose that we can transform the production house-building industry into an apartment-building industry. The end of cheap oil also means we can’t run cities at the 20th century scale. That includes the scale of the buildings as well as the aggregate scale of the whole urban organism. Nobody gets this. For one thing, there will be far fewer jobs in anything connected to financialization because that “industry” is imploding. The recent action around the Federal Reserve illustrates this. When chairman Bernanke’s lips quivered last week, the financial markets had a grand mal seizure. He floated the notion that his organization might “taper” their purchases of US government issued debt and mortgage-backed securities — the latter being mostly bundled debt originated by government-sponsored entities and agencies. That’s the “money” that supports the suburban sprawl industry.

     If the Fed were to reduce its purchases of this debt paper, nobody else would buy it. The reason the Fed buys the quantity it does in the first place ($85 billion-a-month) is that nobody else would touch it at the offered zero interest rates. The US Treasury and the mortgage bundlers could only sell the stuff if they paid higher interest rates. But the US government would choke to death on higher interest rates because its aggregate debt is so huge and the scheduled interest payments so gigantic that a one percent increase would destroy even the fantasy of economic equilibrium.

     Apart from that unhappy equation, entropy never sleeps. Everything in America except the Apple stores and a handful of big banks is falling apart — especially the human habitat and households. Suburbia will only lose value and utility. Big cities will have to get smaller (ouch!). Tar sands, shale oil and shale gas will not ride to the rescue (they cost too much to get out of the ground). The entire declension of government from federal to state to local will be too broke to fix the roads and make “transfer payments” to idle, indigent citizens. This populace will lose faith in their institutions… and disorder will eventually resolve in a new and very different disposition of things on-the-ground. If we’re lucky, this will not include cruel despotic leadership and war.

     If the “taper” talk is empty rhetoric, and the Fed continues sopping up issued debt, it will eventually destroy the credibility of its issued money. That is just another way of going broke, though it might beat a shorter path to the general loss of legitimacy of governments and other institutions.

     Young people, harken: prepare for careers in agriculture and activities that support it. Consider moving to small towns in parts of the country where farming is possible and get ready to rebuild a very different economy.  Also, consider repudiating your college debt en masse, since the fantasy of repayment is but another mental shackle holding you back from your future.

     As for the other parts of the global economy, a digest:

     Europe doesn’t have enough oil and gas to run itself. Its suppliers (Russia, various Islamic states) are all basically hostile to it. As the late, great Tony Soprano might say, “end of story.” Europe has been playing financial pocket pool with itself for five years with credibility ebbing. Soon Europe will descend into painful economic re-set. Its era as the go-to theme park of advanced civilization is ending. Go there while it’s still possible and take some snapshots of what comfort and artistry used to look like.

     China is imploding under the weight of its half-assed crony command economy and banking system. Nice try. Cookie fortune says, “Industrial era entered too late in game.” All else there is desperation: e.g. the idea of moving hundreds of millions of peasants into new cities. As Tony would say, “Fuggeddabowdit.” They’re better off growing bok choy en situ. Anyway, no one should assume that China can remain politically stable. Let’s hope that its economic and political crack-up doesn’t transmute into war.

    Russia’s oil production is in permanent decline. It has a lot, but it gets most of its income from selling it to other people. Hence, Vlad Putin’s notion of finding something else to base Russia’s economy on. Like…what? I don’t think they’re going to replace China in making salad shooters. Farming would be the way to go, and Vlad’s government is hoping that global warming improves Russia’s prospects for doing more of that. In any case, Russia might benefit in the long term by not selling off all of its oil and gas — though Western Europe would surely suffer from that decision. On the plus side, Russia’s government is not crippled by idiot squabbles over abortion, gay marriage, and the Bible in schools.

     Japan. Sorry to repeat myself. Going medieval. They have no oil and gas. (Cue Tony Soprano again.) In the event, Japan’s financial hara-kiri will drag down the rest of the world’s banking system — or at least hasten the damage already self-inflicted elsewhere around the globe. I’m also informed that much of the essential computer chip fabrication in the world still happens in Japan, and that will go away, too, as the Japanese engine seizes, smokes, and expels its final belch of CO2.

     What else is there? South America? Think: spreading jungle (or desert, take your pick). Canada? There’s an idea. Maybe Labrador becomes the new Hamptons? Second biggest national land mass… 30 million people (2 percent of China’s population). Only one drawback: the view to the south.

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Flakmeister's picture

JHK on the Hedge...

Stranger bedfellows have rarely ever been seen...

maskone909's picture

all of this shit...  worldwide default risk....  and gold cant catch a fucking bid!?!??!?!  WTF

ndotken's picture

Hey it was a fun ride ...

espirit's picture

I've got my $INDU 14400 hat on.

Which way will it go from there?

jbvtme's picture

how long should i hold my breath waiting for the frat boy with the degree in geography to repudiate his college debt and begin milking goats and growing turnips? so that i can top off my larder for the winter.

Cathartes Aura's picture

there are many, many smart younger folks turning their backs on the "financialised" states, and investing their lives in a return to true values.

if you value your food, and seek to feed yourself and family in a more traditional, healthy way, you might want to contribute to these folks venture.

Farmstead Meatsmith

the videos are true quality, as is their mission for their families. . .and they link them for free.

go on, share.

dontgoforit's picture

Me fears if the author is even half-correct, there won't be much left upon which to grow a turnip.

Shocker's picture

Its just all starting to come together now. Recovery is something the US hasn't been in.

http://www.dailyjobcuts.com

-

franzpick's picture

"Capt'n Bernocchio, Control, what's your flight status?"

"Control, Helo 1, good news and bad"

"What's the bad news?"

"We're lost"

"What's the good news?"

"We're ahead of schedule"

TerminalDebt's picture

All those types running to the hills now to farm will be back when they are 60, begging for free health services.

There's probably 3 billion people on the doom train ahead of any one here.

You'll know years before it happens

Race Car Driver's picture

> All those types running to the hills now to farm will be back when they are 60, begging for free health services.

 

An apple a day ... .

 

Jeezuz - how in the FUCK did we make it to this pinnacle of civilization over the last thousands of years without fucking HEALTH SERVICES?

I junked ya for being a dumbshit douche-bag and thinking we have years to go in this ridiculous cartoon of a system as it is. We don't. It can't. 

And your loser ass prolly couldn't grow dandelions anyhow.

TwoShortPlanks's picture

As money moves, it will eventually circle back to the one place which it knows it can be contained, Real Estate (History shows us this is always the case). I say "contained" and not 'Profited' because even though prices may crash, containment means it is preserved as a physical reality when all else around it burns and turns to ash in the wind. This is when money will be thinking about its’ kids, not short term returns (preservation).

I personally believe 'now' commences the time to go back up the property ladder as other assets get hammered and the wealth pinch builds (before the shift).

I strongly recommend people consider re-entering the Real Estate space just after the next pull-back. Lock in a low rate for a very lengthy period. Quality Estates you will live in, not rentals in slums whose returns are determined by the occupants ability to keep employed (Ba-Bouw!).

Or, you can forego taking a chance of rates rising and take the risk with the pull-back in price, instead (Bird in the hand).

This should be done after you have accumulated and secured your Gold cache'.

You will need a minimum of 20oz Gold for every $1M in Equity/Debt (treat them as the same thing).

When/If real estate prices take another hit, expect that your bank may come knocking on your door if your Investment Property LVR goes south. If they do, disclose that you have hedged with physical Gold and give only figures which allow that hedge to cover the estates/s (no more). Say it's secured elsewhere and that's nonnegotiable. One day you will move to the top of the Cat1 lender list and placed on speed dial for future investment borrowing.

Give your bank lender a call every year, asking to be informed of quality distressed estates which are on the bank’s books. This will really make sure that you’re on speed dial.

Remember this: If you have Freehold Titles you are of no use to the Bank. They want you to owe them. Likewise, you need to owe them to get ahead otherwise you’re working money for time. So, even a small mortgage is better than none (I know it sounds stupid but put yourself into their shoes).

If a property comes up which you cannot let go-buy, renegotiate your current mortgage and lock in an even smaller rate. Declare that you have more Gold as collateral as well as equity. Initially they won’t care and will wonder as to why you even state it, but there is method to the madness.

Initially they won’t care if you have Gold or not and may even give you a strange look, but this mentality will be phased out slowly over time. Establishing this knowledge with your bank at an early stage is critical for your future lending capacity (I have already done this. I declared that I have 10% of the current mortgage value as physical). Later, as Gold soars and the mind-shift progresses, this initially dismissible asset will become important. Your bank lender will/should remember your 10% position, hit that speed dial, and enquire if you wish to purchase another property. This is when you declare you in fact have 20% (let them think you have more when you're only riding the price increase) which you wish to combine with the current equity, and are looking toward another investment purchase.

Use your Gold wisely. Have a Boating accident by all means, but make the stuff work for you. Playing Treasure Island is for fools. As the toxicity circulates through the banking system those with high quality assets, especially Gold, will have sterilised portfolios (mortgages), and will be viewed as such. Work the system and make it work for you!

The politico-financial foreplay period has finished, it's time for sex. Put on two condoms; the system is a cesspool.

tip e. canoe's picture

for those choosing to tackle the dreaded compound interest monster, that's some excellent advice to consider, mate.   

a local bank would be best, no?   not too wise for anyone to let a TBTF know you got a stash o'shiny lying somewhere.

TwoShortPlanks's picture

No, on the contrary, TBTF Banks (JPM, Citi, HSBC) will be the first to recognise the value of a member who hedges with Gold, and, they are still safer by nature. This is their Gig, yeah?!

Remember, it's not YOUR savings here, it's THEIR Fiat being lent to you. So, the bigger the bank the better.

Go with a bank which has been manipulating the Gold space because they know the true value of Gold (today, not when the mind-set changes), and their staff will be re-educated first, and you'll be on speed dial immediately. They will also be the banks which trigger/kick the Gold price back up when the time is right, so, really, they have gone from foe to friend.

Everyone needs to recognise that the game and the players have now shifted. Those who were Short and viewed as the enemy are now long and should be viewed as your friend. They only did that so as to build a vault position, not to target you specifically.

A month ago a Gold Bug had many enemies, now those enemies are many friends. The enemy, NOW, is the general public; you want to use your Gold to buy what they have, at rock-bottom prices, and to do so using money of your former enemy (JPM etc).

Let go of all that you believe, leave them as lessons, and start learning the new game which you are already standing in and has already commemced....which many here cannot yet see.

tip e. canoe's picture

interesting thesis, planks.   vedddy interesting.   thanks for sharing.

rocker's picture

Great Insight TwoShort.  TBTB who have the position and captial to manipulate any market are doing so with purpose for themselves.

Jamie Dimon told us he gets the best price for his clients when liquidating, LOL on that one too.

Jamie, afterall, will either head the FED or the Treasury.  This is his end game which the implications have not been seen yet.

Look Out Above and Below.  Food for thought, What was that vault that JPMorgan took ownership of a year ago for anyway. Hmmmm.

Skateboarder's picture

You don't own shit if you don't pay your property tax. You are and always have been at the mercy of the King (no, not Elvis).

Ctrl_P's picture

TSP. This is posibly one of the most considered and flexible responses to a currency crisis I have ever read. It outlines a dynamic process as the SHTF and gives sound reason to changing assessments.

Is also similar to some ideas that I have come up with. Namely using the stack to purchase priority realestate like farmland. Co-op leasing it out and the rest. Nice to know that I really am as thick as...

 

Cheers.

Moe Hamhead's picture

this message has been brought to you by the NAR

Matt's picture

When he says real estate, does he mean 10+ acres of arable land far away from a city, or does he mean an 1/8 acre lot in Detroit? One is an asset, and the other is a liability ...

tip e. canoe's picture

Skeeter on ZH!  how delicious...

he should do a guest post, yes?

Dadburnitpa's picture

When I was very little I used to pick dandelion leaves in Missouri with my grandad to make a salad with vinegar and oil.  It was good and he lived to be 97. 

duo's picture

dandelion leaves  have 20-50 more vitamins and antioxidants than spinach.

Five8Charlie's picture

Dandelion wine fermenting in the basement as I type....

tip e. canoe's picture

what'd did you use?  

leaves, flowers or roots?

Lost Word's picture

Long on Mass Transit and High Rise Tower Inner city Factories.

NWO Agenda 21 plan ?

Anusocracy's picture

"Big cities will have to get smaller"

Detroit, leading the world to a better future in the 21st century.

Meat Hammer's picture

ZH should just post a Talk Amongst Yourselves article with nothing in the body so I can straight to the comments without feeling like I missed anything.  

true brain's picture

Funny. A man who can laugh especially at himself is a good man.

Lost Word's picture

School Daze guided discussion.

ATM's picture

Where are the 700.000 Detroit residents going to go?

What are they going to do when they get there? They are already a lawless, dangerous bunch. I don't suspect when they go looking for something better that they're willing to work for it.

But perhaps that's the plan.

Ignorance is bliss's picture

Let's send them to California.

Ness.'s picture

They should come to Chicago.  Real Estate is BOOMING Dawg.  Check out this "Fixer-upper"?  Only steps from President Obama's house.  You're practically Royalty!  Serious offers only.

http://www.illinoisproperty.com/remaxil/modules/internet/search/includes/mapsearch/listingpopup.asp?mlsid=271&mlsnumber=8284231

cougar_w's picture

Los Angeles will swallow them up and you'll never hear from Detroit again.

spekulatn's picture

Thanks for sharing Cathartes Aura.

Cathartes Aura's picture

my pleasure - their vision is so creative, inspiring, it's hard not to share it with others.

this is how we survive the crazy - supporting community, even virtual ones.

PKF's picture

I really need to stop eating meat.

Renewable Life's picture

The laugh I got from this one, is the reason I read ZH!!

Whats no laughing matter, is the underlying truth in this statement! Whats this bitch going to look like when millions of little "wolf of wall street" wannabe's realize its all bullshit and they missed their window at glory??  I dont think farming for a living, will make them happy!  And the rest of us, who farming does seem like a good idea, better have lots of ammo!

Lore's picture

Kunt gets too much credit. His snide, sassy eloquence may be suited for collapse porn, but his stubborn ignorance of the corrective action of markets is like fertilizer to a new generation of aspiring lobbyists and control freaks in junior government positions. Attend one of his lectures and see: communitarians love him.  Token disclaimors notwithstanding, Kunt pushes for a command economy, just what the big government doctor ordered to implement "sustainability" Agenda 21.  Kunt is a herald for Big Green Brother. In his way, he's no better than the groups that he mocks for profit. 

He dates himself with archaic references to "global warming." Backed into a corner by scandals and junk science, purveyors are resorting to the more nondescript "climate change."

"Tar sands, shale oil and shale gas...cost too much to get out of the ground." MARKETS WILL DECIDE, NOT HIM. 

"Suburbia will only lose value and utility." MARKETS WILL DECIDE, NOT HIM.

Enviropaths see the future of America in banks of Chinese-style government-subsidized "Stack 'Em And Pack 'Em" apartments. It should be interesting to revisit some of these "densified" neighborhoods in a few decades and see whether traditional homes or "Green" diktats do a better job of reflecting and retaining the qualities of a "livable" community.

Meat Hammer's picture

As soon as I saw "global warming" I stopped reading.  Doesn't he know the cool kids call it climate change now since the warming aspect is no longer selling?  

It's cool and rainy in Northern California today.  Please tax me more and make it stop!  Fucking bizarro world....stop the ride I want to get off!

Treason Season's picture

"As soon as I saw..."  James Howard Kunstler..." I stopped reading."

Dr. Sandi's picture

But thank god you stuck around for the comments.

Flakmeister's picture

Quit making shit up:

Google Frank Luntz for how the term climate change came into vogue..

http://en.wikipedia.org/wiki/Frank_Luntz

fxrxexexdxoxmx's picture

So it is your position that those who still advocate AGW allowed a fucking Republican to make them call their belief system Climate Change. I have spoken to adherents of AGW who refer to it as Climate Change and not Global Warming and they do this because of fucking Bush and his paid advisers?????

You sound like Obama== AGW is Bush's fault because we let him change  the name to Climate Change.

By the way Wiki never talks about many Democratic Senators are millionaires so I quess there are not any.

Flakmeister's picture

Anyone who is serious about the science refers to it as AGW, however, scientists when discussing the variations in pre- Anthropecene climate will use climate change....

BTW, as far as the public discourse goes, Climate Change won out, Luntz is a smart calculating puppy, what can I say....

Does that help you with your confusion?

Do you have anything of real content regarding the science or are you limited like the rest here to ideological claptrap and thoroughly debunked and discredited alternate explanations?

There are after all reasons why would deny AGW: either you are paid to or you lack the scientific education to understand what the data means. You have to throw away thermodynamics and the all our understanding of IR spectroscopy (which is sort of embarrasing since all our neat military tools based on that science do work) which in turns brings quantum mechanics into question in order to make AGW wrong...

So what is it? Are you a liar or a fool?

NidStyles's picture

THe public is mostly stupid, as you have proven with your own commentary.

 

AGW is nothing more than a fucking religion to modern communists.

 

Half the science relies on people not understanding basic chemistry and physics.

 

My first degree is in physics and my minor was in chemistry.