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Where Are We Now? - A World View
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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I think we need a devil because there can be no deal made with randomness. Thus, a malevolent power is second best choice to benevolent. Random is a distant third.
Come to terms with random, and one can live a happy life no matter what comes along.
No, you're right. There isn't a conspiracy behind the causes of this. It has been caused by short term thinking, Nixon's stupidity in 70, and a whole other bunch of people too numerous to mention.
But if I have learned anything about the EU (for example) its that they never waste a good emergency. The ultimate aim of the idealists is total integration, the end of the nation state and the democratic experiment, and replacement by an intellectual cabal of benign elites. Every emergency is an excuse for a land grab.
Its not even a conspiracy at that level - the aim has alway been there barely hidden in plain sight. The people who believe in this truly believe that they do it for the good of mankind, and that they are best placed to ensure equal distribution of resources and therefore eternal peace.
If you are refering to the gold window, you are confusing a symptom with the disease itself....
The US oil imports were rocketing as domestic production plateaued... There was ~4 years of gold to buy oil with....
It is a pretty idea.
But building a world where men of power decide who takes, who gives, and who keeps is fraught with peril. Too bad, but that's how humans are. Maybe we will be different some day. But today we are many of us power-mad and thieves, and these are the same ones who like the pretty idea.
Yes, there is a conspiracy. Look at everything that is happening today and tell me it's not all related. You're not paying attention fine Sir. World banks, the Rothchilds, et al. Pay attention. 1913 was no accident, nor 1933, nor 1971, nor the many assasinations of those that have opposed the Fed....
Go away, the adults are trying to have a serious discussion...
I suggest you loosen the chin straps on the foil lined collander, asphyxiation is not a nice way to go....
Judging by the number of gas guzzlers I still see on the road everyday, it appears that reality still escapes many.
Uplifting.
It would be funny, if africa unites and comes out on top.
We went over the cliff sometime ago.
It was just a very high cliff and we havnt hit the bottom yet. Enjoy the freefall.
Deceleration trauma bitchez!
I work in the Utility Business and a company in Washington state called Schweitzer Engineering Laboratories manufactures the worlds best substation control equipment hands down. The Asians will never catch up to this and even the Germans and Swiss are behind. Schweitaer is not a public company because the owner never wanted to go public. Check them out at www.selinc.com.
But some say that effusive speculation about the U.S. energy boom could easily lead to disappointment, if not an outright bust.
Caution is emanating from some unlikely quarters. At an event organized by Columbia University last week, BP's chief economist Christof Ruehl tried to temper some of the exuberance surrounding the U.S. energy story.
"There is a lot of hype" about U.S. production estimates, Ruehl said, adding that "every time I open the newspaper," there appears to be a new story heralding the American energy boom. He cautioned that analysts would do well to be more "conservative" in their forecasts.
"From that standpoint, caution is always advised," Ruehl added.
Others are increasingly skeptical of claims that the U.S. could be on the cusp of ending its dependence on foreign oil. Data suggest a sharp decline in shale ouput takes place after wells' first year in operation—in the case of North Dakota's Bakken Formation, oil harvests at some wells have fallen by as much as 69 percent. In addition, many say the shale extraction process that makes production tougher and more expensive than conventional crude.
Robert Ayres, a scientist and professor at the Paris-based INSEAD business school, wrote recently that a "mini-bubble" is being inflated by shale gas enthusiasts.
"Drilling for oil in the U.S. in 2012 was at the rate of 25,000 new wells per year, just to keep output at the same level as it was in the year 2000, when only 5,000 wells were drilled," Ayers noted in an article on Forbes.com.
Based on those estimates, U.S. producers would have to continually drill new wells—an expensive proposition given that the production cost for a barrel of shale oil can be as high as $95 per barrel. Some argue that shale gas and oil are less suitable for use as an energy source than crude and distillates.
http://www.cnbc.com/id/100825469
"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. "
There is NO global warming!! Quit spouting this bullshit. In the last decade we've been entering a normal, natural COOLING cycle. The earth has always had natural cycles of climate change caused 99% by that yellow molten orb we call the SUN.
It took me almost six hours to compile this via NSA/FSA monitored digital transmissions but it was well worth the effort and can lead to more interviews. It's not particularly long but if you want to know how many Russians view the West then it is worth the read. They do not think like Westerners do that's for sure.
http://www.boatingaccidentnews.com/interview-with-a-russian-on-snowden/
lol that is awesome. But don't get your hopes up - the Ruskie PTB are the same type of preapproved cocksuckers that we have. They are members of the club George Carlin was talking about.
Thanks Brother but I know who I am interviewing to when it comes to Russia. I have no great hopes about Russia and no illusions either because I have been there and know that people to a degree. The Russians are light years ahead of the west in shedding their nationalism and going about their daily business. They do not give a fuck anymore for the most part. Fucking government ruined that shit for generations. That was the whole point of the interview and it was real and not some shit you hear or read from MSM. I have been saying this for years... if you do not fuck with a Russian they will not fuck with you. No one said they were going to be your friends but sometimes they can be. If you want more, that can be arranged.
I remember one of my Ruskie buds telling me of his first post-commie world venture into capitalism. It was an IT deal that had big money rolling in after a few months (network security). I asked "was the flat tax as good as it appeared?" and he said "it is great until you make money, then to get on the radar, then to not so flat tax." He said his banker was the only source for the info he had held against him. I dig all the former commies I've met because for the most part they know what the situation really is and avoid buying into the western agitprop.
Agree with your observation - don't fuck with them and they won't fuck with you. And they know that govts are the main fucksticks in the mix, not the avg Joe or Boris.
There is also a reason why Russians do not invest in gold and silver coins, it's pretty fucked, and should be commented upon. A pleasure to make your acquaintance Crawdaddy.
I hear ya. The Georgians and the Ukraines I've known all say travel light and don't let your treasure own you. A pleasure to make your aquaintance also.
I for one am glad to see the Kunstler here on the ZH.
Love his writing.
"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."
Just because one puts on the airs of being smart does not make them right.
Yep, that is indeed true...
Now, why don;t you go and read The Long Emergency, note when it was written and report on what you found vis a vis where we are...
I read the Long Emergency back in 2006, and watched the "End of Suburbia" with Kunstler in 2005.
That left a big impression on me, and I changed a lot of things in my life immediately. I'm very grateful to Kunsler for that. I was unloading any debt I had as fast as I could while it seemed everyone else was buying McMansions, high definition TVs and ratcheting up on credit cards.
I then sat on the sidelines and saw many friends and acquaintances go through painful foreclosures, defaults and bankruptcies.
So I don't know if Kunstler is smart, but I know he was right.
Going back to the LAND sounds nice,however it's in a huge price bubble right now.(farmland is oput of reach for most Americans now.)Also,ANYONE here think they are going to be allowed to OWN arable,productive farmland?,DREAM ON.The Fascists will seize every sq ft. of it.
It's already illegal to grow your own damned gardens,(much less livestock)if your in a medium to major size city.
+100 I can't get my kid nephew to help drive a tractor for fuck sakes and forget about anybody taking on farming as a career. Equipment costs alone (even used) will bankrupt anybody at the margin. Something broke? oh yeah, you fix that fucker yourself. It gets so that you can recite the operator's manual. You bust your ass while everybody's "woo hooing" it, and the client still thinks your product costs too much. Don't get me wrong, I love farming, but, the fact is, unless you have experience, patience, mechanical acumen and a strong back, and lots of fucking luck you will soon find farming to be the last thing you'll ever want to do. Little wonder why the kids are leaving for better prospects.
Yeah, I know, the point of the article is that perhaps agriculture will be all that is left. but like DosZap says, arable land is scarce and expensive. More likely local governments will decide current owners and toilers are inappropriate owners and some sort of redistribution will be effected. Either way, there will be nothing romantic about farm life under extreme economic chaos conditions.
Man you said it brother. I went through the wagon wheel a while ago and after flood, Jimmy Carter wheat embargo, flood, drought, flood, 21 pct interest rates, I had to say goodbye to living off the land. Have to admit - pride was a motivating factor in my loosing it and having to sell. All my old family land is now owned by a rich european who doesn't think twice about applying for govt cheese handouts. Back when the govt cheeses was viewable online, he always topped the charts in my old county. I'm thinking of moving back there one day :)
What a load of bull this article is.
I'm not quite sure.
Didn't even CNBC's Jim Cramer say tonight on "Mad Money" that the US has the highest cost of labor in the world? (Sorry, "much higher labor costs than any other country?" What did I hear?)
If so, how can this NOT also mean that we are the least competitive at employing our working-aged-people?
Wait, I can guess . . . only if we otherwise provide more value to those who employee us, in the long-term. Hopefully, this is the case: through technological, cultural, or other real improvements (transfers of value).
If not so, this article smells correct to me, at first glance.
'Not so sure things will be quite (if anywhere near) as bad as this article describes, but there seem to be some trends here worthy of watching into the future.
(PS, Dems, won't new carbon emissions costs (or any other such kinds of new taxes or other real costs of having employees) add to these costs of having an employee -- thus making such things (like having an employee) more scarce?)
I use to be more concerned with peak oil. However plugin hybrids combined with domestic electric production will be sufficient to get us off oil.
Step 1: Sustained high prices make plugin hybrids highly attractive. Can run on 80%+ less gas since most trips are under 40 miles.
Step 2: Charging infrastructure springs up, gas usage drops further.
Step 3: Enough infrastructure exists that many people go pure electric. Drops price since an engine is no longer needed for charging.
Middle East fanatics lose funding, so sad :-)
Son, it is very important that you have hope, no matter how misplaced it may be....
I am all in on e-cars, even the new air cars, come on let get this infrastructure up and running! Lets starve the oil feilds.
If you don't understand horsepower and watts and kilowatt hours and joules, you cannot understand this issue.
Trucks bring food the grocery store. Not plugin hybrids.
Ships bring XXXXX from YYYYYY, and they don't run on plugin hybrids.
Airliners move people from one coast to another and they don't do it on plugin hybrids.
The Prius gets good gas mileage, but it's not because of the battery. It's because of the small engine. If it had no battery at all, that car would get better gas mileage because it would weigh less and that tiny engine wouldn't have to work as hard.
The only place these hyped electric cars work is for commutes of 2 or 3 miles. For that distance, they could take the bus or walk. For a 30 mile each direction commute, they die on the way home.
And They Aren't Selling. There are only what, a few thousand of them sold? There are 254 MILLION cars in just the US!
Kunstler should have titled his book "The Long-awaited Emergency". Chicken Littles have been warning about "Peak Oil" since 1973, at least. Civilization has yet to collapse.
I see a lot of used copies of "The Long Emergency" for sale on Amazon for $0.01. Not worth the money, in my opinion.
Okay that's pretty funny.
It's called a "long" emergency for a reason. Not because it is coming for a long time, but because we are in it have been in it and will remain trapped in it for a long time.
Boil the frog boil the frog slowly slowly boiling the frog.
I joined the ZH mainly out of frustration about what I saw about the stupid Peak oil claims. 85% of all oil wells drilled EVER have been drilled in the good old USA.
Jude Wanniski circa 2004
"In the entire history of the world oil industry, a total of 4.6 million wells have been drilled, with the US accounting for 3.2 million of those!
Africa is four times the size of the US (minus Alaska), yet in the last eight years there have been only 6,280 wells drilled on the continent while 209,400 have been drilled in the US.
There is undoubtedly as much oil in Africa undiscovered as there has been produced in the history of the world oil industry.
The same can be said for Latin America. As for the Middle East, Saudi Arabia has drilled only 1,000 wells in the past eight years, almost all of them production wells, not exploratory wells.
Iraq, with the second highest total amount of proven reserves - 110 billion bbl - has drilled only 100 wells over that period.
<ah crap - that link is dead> I'll try to locate a vaid link
Yes, and they were dry.
We started drilling over 100 years ago and didn't know what we were doing. We drilled zillions of dry holes. Few are drilled elsewhere because gravimeters arrived on the technology scene and told them there is no oil there, so don't bother.
Then there is the frantic, desperate drilling in North Dakota. They are drilling 120 wells PER MONTH there. That's what they have to do as the holes already drilled start dying so quickly (the nature of shale wells is they are down 40% from initial flow in just one year; a conventional non shale well would take 20 years to lose 40%). So they drill frantically and desperately, and in just 4 years they have drilled more holes in western North Dakota than have been drilled in Saudi Arabia in 60 years.
This is not good news. It is bad news.
dup
Prolly gonna make it cost more for them shiny rocks.
Why does a "KUNTstler" always talk doom about monetary issues? Hey James... here's a real fucking clue for you that you can vibrate your head around... WE DON"T PLAY YOUR PONZI ANYMORE!
Now kindly fuck off and die a slow ponzi death, will ya pleeeease?
Bollocks.
The global warming and global energy deficiency is a scam to get more taxes.
It may be true to say that we all should treat finite resources more carefully. However, big government gets tax anyway it can, and false science obliges.
The only story worthy of attention for traders this week is this:
Fitch just came out and said that China’s credit model is falling apart. The liquidity in China is under tremendous pressure. The shadow banking system is now at $2 trillion and 50% of debt is rolled over every 3 months, and 75% of China’s debt is rolled over every 3 to 6 months, says gold salesman Greyerz.
“Give me control of a nation's money and I care not who makes her laws, “ said Mayer Amschel Rothschild, founder of the world’s wealthiest family, and banker to royalty in Britain and Europe.
Paternalistic and innovative Mr Rothschild the original would be appalled to see how his contempt for politicians has become contempt for money power; a money power that was intended to keep politicians and their fans in check.
His successors got involved in politics; founded zionism which profits off every war, all now failing...contrary to his warnings.
Their intention is to ruin the USA, and the world's only continuous civilisation, China.
For what? Not for their children. Not for their peers. For their sociopathic greed. Inbred insanity.
Is Kunt slur really helping anything with his smarmy self righteous non solution generating diatribes?
I used to think he was amusing but now I see he is just part of the problem, another mouth runner and do nothinger.
So if he doesn't provide you with a nice easy to do solution, he's part of the problem?
What if there ain't a solution?
Best fucking article yet, Mr Durden.
Article was good and entertaining until he had to inject his anti-Christian rhetoric into it.
I ask myself what has Obama done in his presidency that had any value of his own? Has he done anything good for the US? Shotting Osama was an inherited gift. A whole presidency worse than wasted.
The world economy is floating on a glut of hot air. It would certainly collapse without the careful manipulation by the governments around the globe. Without a true and long period of austerity, we will not return to normal and actually get worse as time goes on. Unfortunately austerity will lead to millions of bankruptcies and therefore undesirable. Let see how long we can last.
The financialized bubble economies will pop quickly with austerity, and more slowly but with ever graver consequences if the Fed and other central banks continue on their present course. The likelihood of recovering some semblence of a civilized world post bubble-popping has been and remains on a steady downward path. How long is the Fed prepared to let that ride? It's beyond unconscionable.
The US economy is like a meth addict, and the Fed is the dealer. It will get sicker until it kicks the habit or kicks the bucket. Time is definitely running out.
Politicians and commercial banks wasted every year since 2008, and refused to make adjustments, even given the gift of manipulated interest rates etc.
Enough, already. What people refuse to learn in prosperity, they will most certainly learn in poverty, the consequence of irresponsible behavior at the level of national politics and commercial banks mostly.
Individual households have adjusted. Pity they trust the overfed house cats in politics and commercial banks whose greed will most certainly cause more pain.
So be it.
Buy an old beer brewery that way you can make money and meet a market need while everyone else drowns their sorrows.
An ounce of silver per gallon of the house finest sounds about fair...
i like this guy
Great advice for China, "growing bok choy en situ..."