Guest Post: We've Dug A Pretty Damn Big Hole For Ourselves

Submitted by James H. Kunstler via Peak Prosperity,

The diminishing returns of technology are insidious, and they are ever with us. By this I mean the slow erosion of the quality of life, despite the impression that technological wonders only make our lives better.

We've Become a Society of Self-Deluded Children

The most obvious example is what happened to the telephone over the past thirty years. We computerized every phone system in America to “improve communications.”  The net effect is that after all that time and expense (billions of capital investment), it is now nearly impossible to get a live human being on the phone, whether you are calling a Fortune 500 corporation, a non-profit charity, or your best friend. Has that improved communication? What you get instead are robots that waste big chunks of your time forcing you to listen to complex call-routing menus – often ending in futility.

Companies and institutions assume that they benefit from the “efficiency” of not having to pay gangs of human receptionists. But they only succeed in annoying their customers and clients, who are treated as pests to be avoided. In effect, phone systems became firewalls, not communication enhancers.

Add to that the more recent phenomenon of cell phones and smart phones, which, for all their charms, 1) don’t work in all locations, 2) drop calls frequently, 3) have lousy sound quality, 4) feature time delays that make people talk over each other constantly, 5) erode real-time social relations with distracting apps and web features, and 6) possibly harm people’s brains by constantly rinsing them in microwaves.

A larger issue of technology’s effect on culture is the erosion of a shared sense of what is going on in the world based on reality. Increasingly and insidiously, the consensus about how the world operates is based on things that constitute unreal cultural constructions, especially TV shows, the daily Web-flow, computer games, and pseudo-informational memes based on gossip, make-believe, and wishes. The self-referential nature of this process, by the way, is what generates the cultural mood of irony, especially among young people, who are the most thoroughly and immersively hostage to a cognitive field of rapidly degenerating show-biz artifacts that become more ridiculous with each iteration, self-reference, or mutation – until daily life seems like little more than a continuous Gong Show of implausible made-up spectacle. You might end up thinking that Federal Reserve Chair Khloe Kardashian is releasing a new cologne which can be used as an alternative fuel one hundred times more powerful than gasoline and exported worldwide to reduce the trade deficit, save Social Security, and make America energy-independent.

This is a time in history when it’s hard to take anything seriously, including our fate.

There remains, however, an age-old relationship between reality and truth, and societies that allow them to become divorced run the risk of collapse. That happens to be exactly the predicament of the USA these days, and hence it is not such a marginal view to anticipate a bug-on-the-windshield moment for a society that has made self-delusion its baseline normal zeitgeist.

It’s especially remarkable that a nation with fairly deep traditions of free thought and speech, with durable institutions for purveying them (a free press), should sleepwalk into a captivity of pervasive, systematic, institutionalized lying and fraud. The people of Nazi Germany and Stalinist Russia suffered under such regimes at gunpoint, with boots on their necks, but in the USA of Bush and now Obama, we have conveyed ourselves to very similar circumstances willingly, like little children skipping through the gates of Disney World, with gleeful disregard for the consequences.

The Hard Truth of the Hole We Dug

For instance there is the current story of our collective financial situation, what the reality-based (and hence widely ridiculed) commentator David Stockman refers to as “the leveraged buyout of America.” The story we get is that the wise hands at the Federal Reserve are engineering an “economic recovery” from some kind of mystifying banking accident that occurred in 2008. The exact nature of the “mess” (as President Obama and others term it) cannot be explained, but it had something to do with rising and then falling house prices, and banks that lent money (i.e., gave mortgages) to unfortunate people who paid too much. The banks then got bailed out by the government in order to “save” the country from a re-run of the 1930s Great Depression.

No doubt, even superficial consideration of this fable makes people’s heads hurt. It’s easier to tune into Here Comes Honey Boo Boo and kick back with a 40 oz. King Cobra malt liquor than puzzle through the latest minutes released by the Federal Open Markets Committee. (Indeed, a truly rational person might learn more from reading the spilled entrails of a Jersey Giant chicken.) Here’s what actually happened to this country leading up to the fiasco of 2008:

Highly paid banking lobbyists (including former federal regulators and elected officials) bought enough influence over lawmakers to get rid of the Glass-Steagall Act, a Great-Depression-vintage law that required the separation of commercial banking (checking and savings accounts plus mortgage and business lending) from speculative investment banking. That allowed large banks to combine their operations and, among other things, turn loans into “innovative financial products” (bonds constructed out of massive quantities of non-performing mortgages and other loans), which they pawned off far and wide on “muppet” clients, including big institutional investors such as pension funds.

The big banks retained pieces (tranches) of these innovative products (called collateralized debt obligations, or CDOs), which they bought insurance on (credit-default swaps, or CDSs), since they were guaranteed to fail and thus generate insurance payouts, covering the costs of the whole racket for the banks. However, the insurers (for instance, AIG) did not really expect to have to pay out, weren’t prepared, and didn’t have the scratch to cover their obligations when the payouts were triggered. These daisy-chained counterparty obligations between financial institutions threatened a systemic cascading bankruptcy of all of them (massive counterparty failure). The then-Treasury Secretary Henry Paulson (former CEO of Goldman Sachs) importuned the U.S. Congress to bail out these banks, which they reluctantly did. And ever since then, the Federal Reserve and its handmaiden “too big to fail” banks have been running an array of scams aimed at concealing the worsening bankruptcy of American society and its government.

Expensive Energy Complicates Things Further

These calamities of capital mis-management occurred in tandem with trouble in the energy sector of the economy. The shorthand for the trouble was encapsulated in the term “Peak Oil.” For practical purposes, it should have been called “Peak Cheap Oil,” because these years in the mid-2000s marked the end of oil that was affordable under the terms of how American society was set up to run.

At every level of American society – and for Europe and Japan as well – the end of cheap, affordable oil had rather dire implications for all the common operations of life in advanced societies: food production, transportation, commerce, and especially finance. Finance – the management of a society’s accumulated wealth – was the most abstract of these systems and the one most easily upset by the implications of Peak Cheap Oil. The reason was that oil happened to be the “master resource” for generating economic growth and Peak Cheap Oil provoked a particular problem with money: Without continued growth of 3 to 5 percent a year, not enough new wealth could be generated to cover the interest on loans in the financial system. In effect, the whole system of interest became impaired, and without interest you couldn’t have the normal operations of banking.

It was pretty elementary. But the American public was not disposed to understand it, because everything in the U.S. economy worked on revolving credit, including the issuance of money itself (which was loaned into existence by the banks), and the public was addicted to debt. Loaning money into existence, of course, implied the creation of ever more debt, which came burdened with interest payments. It was not a casual coincidence, by the way, that the greatest orgy of debt creation in human history occurred in the very years leading up to Peak Cheap Oil, roughly 1990 to 2005, when relatively cheap oil use reached its zenith. So, by the time Peak Cheap Oil actually hit, the debt burden in American society was crushing at every level: household, business, and government.

Additionally, the problem of Peak Cheap Oil suggested to anyone paying attention that the debt bust was a permanent predicament. It had no remedy other than writing off losses, and, pretty soon, vivid economic contraction. Sometimes the terms “depression” and “recession” were used to describe the evolving situation, but the word “contraction” was more accurate, because a permanent contraction of industrial technological civilization had commenced. The reality of it was too scary for most people to process, especially people with political power. Really, anybody running things in American society – businesses, news media, college economics departments – could not face the implications of a contracting industrial economy. The words “recession” and “depression” were reassuring in the sense that they depicted low phases of a cycle that was sure to turn up eventually in the form of “recovery.”

Lesson Not Learned

Hence “recovery” became the shibboleth constantly invoked by people running things after the crisis of 2008. Unfortunately, no such recovery was underway. It was papered over by the twin Federal Reserve policies of quantitative easing and financial repression – a combination of the nation’s central bank loaning vast new amounts of money into existence at ultra-low interest rates (hardly any interest to pay back) and creating steady monetary inflation to reduce the burden of existing debt by shrinking the dollar value of the debt. The program was a racket in the sense that it was fundamentally dishonest. And it enlisted its handmaiden too-big-to-fail banks (a.k.a. “primary dealers”) into several levels of the racket:

  1. as middlemen purveying U.S. Treasury bonds to the Fed for commissions and fees
  2. as recipients of a bottomless cascade of near-zero interest loans that could be rolled into securities paying a bit more interest, therefore providing a steady creaming-off of profit in what is known as a “carry trade”

Meanwhile, all kinds of games were being played by the government from the simple misreporting of basic economic statistics, to the misrepresentation of revenues and expenditures, and known-to-be-false projections of future indexes. The basic operating system in the USA had moved from the rule of law to pervasive accounting fraud. The U.S. congress was not only deadlocked between two extreme positions on the left-to-right gradient, but both major parties were wholly bought off by their sponsor-contributors, including the shadow army of lobbyists with no political stance other than service-for-pay from the officeholders they shoveled money to. Business played games to stoke the recovery myth, too, like the “channel stuffing” rampant in the car industry, in which new cars were jammed into the dealer lots (delivered on credit) beyond any reasonable expectation of actual sales, but were recorded on the balance sheets of the automakers as sales nonetheless. Voila! Car sales are up this month! After 2011, this was joined by a campaign to provide sub-prime auto loans on the same order as the trash mortgages that had gotten the banks in so much trouble a few years earlier. The practice continues today, along with securitization of trash car loans into asset-backed securities. A similar racket goes on with college loans, which have come to eclipse even credit-card debt in sheer volume.

Plan B? There's No Plan A!

Now, the presumed purpose of these shenanigans from the point of view of the Federal Reserve and the White House was to keep the financial system stable and afloat, and therefore to keep “normal” American daily life going. Unfortunately, it was based on the unreal assumption that the financial norms of, say, 2006 could be ginned back up again, and this premise was just inconsistent with the reality of a post-Peak-Cheap-Oil world. Unfortunately, there was no organized counter-view to this wishful thinking anywhere within the boundaries of the political establishment. Nobody in power or in charge of anything could present a road map of where to lead this society from here – “here” being a realm of hopeless futility. The nation has been mired in this quandary for years and has been hung out to dry with the very feeble guidance from mainstream opinion-makers and leaders that nothing else really matters as long as the stock markets are going up.

At this point, any sane person reading this is asking: How the heck do we get out of this mess?

In Part II: Fixing the Mess We've Made, we look at the largest trends society will need to comply with as the unsustainable economic, financial, and resource pursuits described above collide with reality. Yes, the impact will be painful, as will be the transition to a new, more maintainable way of life. But those who intelligently re-align their lifestyles today, in advance, will experience much less disruption – in fact, thriving is a real option.

So the smart move here is to understand these defining trends, determine where you can best position yourself to take advantage of them, and start taking steps to do so now. Of all your current assets, none is more valuable then time. Don't waste it waiting for direction from above. If it ever does arrive, it will be much too late to be of use. 


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