James Howard Kunstler – This Sucker is Going Down

From James Kunstler’s blog:

“George W. Bush was onto something in the fall of 2008 when he remarked apropos of the Lehman collapse: “…this sucker could go down.”
It’s my serene conviction, by the way, that this sucker actually is going down, right now, even as I clatter away at the keys — perhaps in slow motion, so that not many other bystanders have noticed yet, and the few who have noticed are mostly too crosseyed with nausea to speak.”

Love him or hate him James Howard Kunstler most definitely has a way with words and can turn a mean and colorful phrase. A couple of examples follow from this week’s article entitled “A Still Moment”.

“”Going down” will mean a society with no money and an infrastructure for daily life that requires gobs of money to run, and a populace too dazed, confused, and inflamed to do anything useful in the way of organizing new infrastructures for daily life for their new circumstances. In retrospect, the Great Depression of the 1930s will look like “The Philadelphia Story” compared to what we wake up to ten years from now.”

“President Obama’s speech at Cooper Union last week was a remarkable performance. It managed to appear forceful and serious without containing any really serious or forceful proposals to discipline a banking system that is running a hostage-and-ransom racket on civilization. If this is finally what the Obama Experience is all about than his detractors have been right all along: he is a tool.”

“Personally, I believe that the damage was mostly done during the tenure of poor dim George W. Bush, and his predecessor Bill Clinton. I suspect that Mr. Obama learned at the height of 2008 election campaign — during those days of the Lehman collapse and the TARP — just how completely the government — and the people of the USA — were in fact hostage to the banking system, and that it has been his unfortunate role to pretend that there is some other fate to bargain for besides this sucker going down. It is probably why he continues to smoke so much. He must be lighting one Marlboro off the tip of another, one after another, in whatever inner sanctum he repairs to when the midnight chimes toll around the White House. It’s sad to think of this graceful, still rather young man going down in history as the chump-of-the-century, a reincarnation of Herbert Hoover on steroids, with sugar on top.”

As I said James Kunstler has a way for words. However, it was one of the comments to this week’s article that really grabbed my attention. The comment referred to a story that was told by Christopher Lawford, as reported in the Wall Street Journal on October 27, 2008, of musings made by his uncle, Teddy Kennedy, at a family gathering shortly before Kennedy’s death. The story is as follows:

“Ted Kennedy and a few family members had gathered one night and were having a drink in Mr. Lawford’s mother’s apartment in Manhattan. Teddy was expansive. If he hadn’t gone into politics he would have been an opera singer, he told them, and visited small Italian villages and had pasta every day for lunch. “Singing at la Scala in front of three thousand people throwing flowers at you. Then going out for dinner and having more pasta.” Everyone was laughing. Then, writes Mr. Lawford, Teddy “took a long, slow gulp of his vodka and tonic, thought for a moment, and changed tack. ‘I’m glad I’m not going to be around when you guys are my age.’ I asked him why, and he said, ‘Because when you guys are my age, the whole thing is going to fall apart.’ ”

Mr. Lawford continued, “The statement hung there, suspended in the realm of ‘maybe we shouldn’t go there.’ Nobody wanted to touch it. After a few moments of heavy silence, my uncle moved on.”

Lawford thought his uncle might be referring to their family–that it might “fall apart.” But reading, one gets the strong impression Teddy Kennedy was not talking about his family but about . . . the whole ball of wax, the impossible nature of everything, the realities so daunting it seems the very system is off the tracks.

And–forgive me–I thought: If even Teddy knows . . .”

The big question becomes “how can you save a system that is structurally unsound?”. Unfortunately, the short answer is that you cannot.

Much of the developed world created the Bretton Woods monetary system near the end of World War II. In 1945 after a sufficient number of countries had ratified the agreement the system was activated. Basically, the Bretton Woods system of monetary management established the US dollar as the world reserve currency and the United States was required to back that currency with gold. On August 15, 1971, while Richard Nixon was president, the United States unilaterally terminated convertibility of the dollar to gold. That placed the world on a Fiat monetary system that is backed by only one thing, a very fragile thing called trust.

In the history of civilization Fiat monetary systems have never lasted very long. The monetary system that allowed the issuance by nations, led by the United States, of trillions of dollars of sovereign debt without any real backing other than a promise to repay is now breaking down. The amount of debt created by the United States, the United Kingdom, Japan, Spain, Portugal, Iceland, Italy, Dubai, and the current poster child, Greece, to name a few, is just too great and is no longer sustainable. Even with the effort made by the US Federal Reserve Bank, the Bank of Japan, and other central banks to keep short-term interest rates low sovereign debt can no longer be properly serviced.

The fuse to the ticking time bomb has become much shorter with the situation that is developing in Greece. While a nation may be able to manipulate short-term rates and keep them low for an extended time it is rates in the long-term bond market that cannot be controlled by a central bank. For example, during just the last week ten year bond rates in Greece have more than doubled to above 10% as investors fear that Greece may eventually default and be forced to restructure its debts.

At this stage of the crisis investors are beginning to fear a haircut, which means that they fear they will not even receive all of their principal back much less continue to receive interest payments as originally agreed with their creditors. Investors are no longer willing to lend funds to Greece unless they receive a huge risk premium. This creates a situation that could quickly spin out of control. Should Greece decide to borrow money at extremely high interest rates that makes the debt load just that much more difficult to service and makes an eventual default all the more certain.

A positive feedback loop could be created that in the end leads Greece with only one option, which is to default on its debt. Since Greece is a member nation of the Euro zone even the possibility of default casts a long shadow upon the Euro currency. A worldwide financial panic could easily take place as the contagion from Greece spreads across the Euro zone, and could quickly lead to severe problems in the United States, the United Kingdom, and certainly all of the Euro zone member nations.

The sovereign debt crisis is only one of many that face the developed and developing nations. However, the fallout from sovereign debt not being repaid as originally promised may be enough to trigger an entire series of unfortunate and disastrous consequences that will rock not only Greece but as the world’s largest debtor nation, the United States of America.

As James Howard Kunstler says, and we are told Teddy Kennedy alluded to in 2008,”this sucker is going down”. James Howard Kunstler’s blog Clusterfuck Nation is updated every Monday morning. The blog usually has a fresh article that is of interest to those concerned about the path of self-destruction that the United States and much of the world seems to be on and what, if anything, can be done to change the course or mitigate the consequences of an US federal government led debt bomb disaster that is now spinning madly out of control.