When The Butterfly Flaps Its Wings...

Authored by James Howard Kunstler via Kunstler.com,

It remains to be seen what the impact will be from Mother Nature putting the nation’s fourth largest city out-of-business. And for how long? It’s possible that Houston will never entirely recover from Hurricane Harvey. The event may exceed the physical damage that Hurricane Katrina did to New Orleans. It may bankrupt large insurance companies and dramatically raise the risk of doing business anywhere along the Gulf and Atlantic coasts of the USA - or at least erase the perceived guarantee that losses are recoverable. It may even turn out to be the black swan that reveals the hyper-fragility of a US-driven financial system.

Houston also happens to be the center of the US oil industry. Offices can be moved elsewhere, of course, but not so easily the nine major oil refineries that sprawl between Buffalo Bayou over to Beaumont, Port Arthur, and then Lake Charles, Louisiana. Harvey is inching back out to the Gulf where it will inhale more energy over the warm ocean waters and then return inland in the direction of those refineries.

The economic damage could be epic. Much of the supply for the Colonial Pipeline system emanates from the region around Houston, running through Atlanta and clear up to Philadelphia and New York. There could be lines at the gas stations along the eastern seaboard in early September.

The event is converging with the US government running out of money this fall without new authority to borrow more by congress voting to raise the US debt ceiling. Perhaps the emergency of Hurricane Harvey and its costly aftermath will bludgeon congress into quickly raising the debt ceiling. If that doesn’t happen, and the debt ceiling is not raised, the federal government might have to pretend that it can pay for emergency assistance to Texas and Louisiana. That pretense can only go so far before government contractors balk and maybe even walk.

Ordinarily, failure to raise the debt ceiling would lead to a government shut-down, including hurricane recovery operations, unless the president invoked some kind of emergency powers. That would be decisive action, but it could also be the beginning of something that looks like a full-out dictatorship. Powers assumed are often not surrendered when the original emergency is over. And what would the president use for money if a substantial enough number of congresspersons and senators are prompted by their distaste for Mr. Trump to drag out the process of financially re-liquefying the government? (And nevermind even passing a budget.)

Meanwhile, two other major sources of aggravation are waiting off-stage: one is North Korea. Why wouldn’t Kim Jong-un use the opportunity of political disarray in the US to create more headaches for a distracted US government? Never let a crisis go to waste. Another potential irritant is the return of students to American college campuses. Imagine how the campus Antifa forces would react to Mr. Trump assuming emergency powers. It’s easy to foresee an acceleration of violence between the extreme Left and the Extreme right during what is shaping up to look like a major crisis in governing. If the campus Left had any tactical brains, they’d stop marching around in black uniforms and instead organize a mass renunciation of college loan debt.

Behind all this political strife will be wobbling financial markets. The message from the debt ceiling stalemate to the bond market would be that the US can no longer be relied on to pay its debts. Interest rates on US Treasury paper would have to go up as the long-lost concept of risk returned to the bond scene. People and institutions will not be induced to hold bonds unless the yield is recalibrated to the actual risk. Of course, in the mysterious world of bonds (i.e. securitized debt), the price of bonds goes down as interest rates rise. Meaning a lot of current holders of bonds would be hammered if they tried to sell. Rates rising would also spell big trouble for corporations and governments who have to make regular interest payments to bond-holders. A rate rise to as little as 3 percent on US Treasury bonds could spin the country into comprehensive bankruptcy.

How might stock markets and currency markets react to the scenario above? To me it would look like a drop of at least 1000 points on the S & P. The US dollar might actually rise initially as a whole lot of debt is renounced — which makes money actually disappear — but then you have the Federal Reserve waiting on another flank to roll out their own emergency response: Quantitative Easing No. 4, flooding the system with new “money” that has all the appearance and none of the mojo of value, tanking the dollar anew. As a wise correspondent of mine wrote a while back: “financialization is nothing more than money with its value removed.” (Graham Reinders.)

A lot can happen when a faraway butterfly flaps its wings and sets a slight current of air in motion.


Xredsx Mon, 08/28/2017 - 13:55 Permalink

America spends sooooo much on its killing machine. but cant afford  the money that is needed to save American lives and rebuild for the survivors during and after disasters. The American dream is a freaking nightmare.

Antifaschistische Stuck on Zero Mon, 08/28/2017 - 14:38 Permalink

Well, it's a great thing that the City of Houston's finances are in great shape with plenty of cash on the sidelines to cover events like this....oh crap!!  I'm wrong AGAIN!!http://watchdog.org/230344/houston-debt-detroit/Maybe we should spend another couple hundred million dollars making sure River Oaks, Piney Point and Hedwig Village (etc) never flood.  

In reply to by Stuck on Zero

Flounder Mon, 08/28/2017 - 13:57 Permalink

uh-huh, said the same thing about the superdome after Katrina, the shelter of last resort, well look at the before and after during saints homecoming Sep 06, from shithole to nice shiny shithole in about a year

August Muddy1 Mon, 08/28/2017 - 15:05 Permalink

I'm using my brother-in-law's computer to visit ZH today, and the levels of crappy ads and pop-up videos at the New ZH have become simply astounding.Together with the all-too-obvious New ZH policy of limiting read-worthy articles to no more than 1.5 per day, there is no longer any compelling reason to visit the site.Condolences to all.  ZH was good for a number of years, but it's turned into 98% crap.  Here's hoping the New ZH Owners go bankrupt....

In reply to by Muddy1

yogibear Mon, 08/28/2017 - 14:01 Permalink

Fighting is just beginning as the Democrats join with the RINOs to fight Trump's tax cuts. Soros and Moore's RESIST is determined to take Trump down. The deep-state is throwing everything it can at Trump.Not even looking at the debt ceiling. It's getting uglier by the moment.

duo Mon, 08/28/2017 - 14:01 Permalink

A preview of this is downtown Hilo, HI.  In the "Tsunami zone" next to the harbor nobody can get insurance so everything is slowly decaying.

DavidFL Mon, 08/28/2017 - 14:01 Permalink

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Whoever wrote this article has no idea of what it means to wield power. Colleges campuses & Antifa - why do you think the police of this nation have militarized? Toward what end?

Crazy Or Not Mon, 08/28/2017 - 14:01 Permalink

James Kunstler is fishing for doom iand how it's coming, the crash of 2008 unfolded by lack of understanding of Financial markets'  integration with foreign counterparts and different legal systems. AIG London (A legally seperate business) shut down with immediate effect at the closure of AIG NY. and the loss of all business transactions on their books at that point.Aircraft Insurance, Tanker insurance....etc etc, It's THAT KIND of PANIC Kunstler is fishing for, and not finding it.

garcam123 Winston Churchill Mon, 08/28/2017 - 14:50 Permalink

I hope it actrs kile a big dose of castor oil on the financial markets......I hope it shits fake value like the runny shits.  I'd love to see the monied class lowered down to the level of the PO FOKS, like da niggas and the Messicans!Bitch, you wanna talk about divine JUSTICE?  I'll laugh and laugh and laugh!Imagine them motherfuckers eatin bolona with stale bread, dry!

In reply to by Winston Churchill

ET (not verified) Mon, 08/28/2017 - 14:09 Permalink

Time to get Gold as in physical Gold, not fool's gold made of paper. Some Silver is good, too. You need Silver to make change for Gold transactions.

Bitcoins stored on memory cards might have been destroyed from the flooding in Houston. Gold and Silver cannot be destroyed from a little water.

ThePhantom Mon, 08/28/2017 - 14:34 Permalink

is it just me or did the Nazis do kinda the same thing as we are doing with our drug war? In God we trust ( but that platns illegal..) and Freedom and Justice for All? and Religious freedom ... (if we say so) bullshit... I know that every tribal society that had access to psychoactive compounds used them centrally in their religious practice... but instead now you can sit in a pew and have a cracker and some juice while listening to a long winded blowhard thats just as likely to rape your kid as the crackhead on the street given the chance... I wonder where we went wrong. ? of the 12 men who were tasked with deciphering the dead sea scrolls, one was not a Catholic priest... his name was John M Aleggro. Alleggro said the scrolls were describing a Mushroom Cult... . I am not at all surprised, having myself experienced mushrooms... i wont even try to explain it to you but I will say.. its something you need to see. and then perhaps you will see for yourself...and understand completely and instantly . consciousness ... is a huge "issue" for mankind. perhaps THE issue? peace. ps do a semi-circle around the top of the christian Cross..... and what do you see? use a circle too. of course you would have to talk in code during certain periods of time and why not code your symbols too.. that way only those in the know know.

VideoEng_NC Mon, 08/28/2017 - 14:48 Permalink

Amazingly pessimistic article, Texans have an ability & history of rebounding. I'll hedge my bet that says the good folks of Houston like making money right where they're currently located.

ThePhantom Mon, 08/28/2017 - 14:55 Permalink

also , i hate to pigeon hole myself as some sort of freak but... I always thought UFO's were probably real... then a couple years back I had four "diamonds made of light" with a hole in the front corner as determined by direction of flight. these were not human craft.. i filmed one of them for 2 minutes.. its on youtube and my phone. ... the video didn't turn out all that well, but you can tell with the slo-mo and zoom that this shit ain't normal for being in the sky... I personally have fucking seen "them", who ever or whatever they are. we are certainly being kept in the dark! certainly AI already exists in the universe... interesting place we live when you have the blinders taken off