The Long Crisis

Posts Tagged ‘James Howard Kunstler’

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.

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With the stock market well about 9,200 on the Dow and the S&P Index above 1,000 the green shoots con men and cheerleaders are about to pee in their pants from excitement. The recession is over or nearly over they say.

Apparently, none of the team Obama guys who didn’t foresee the popping of the bubble economy and are now so pleased over a second wave recovery move have any knowledge of a third wave. We are probably near the end of the second recovery wave now and the mother of all third waves will soon sweep over the market, much to the surprise and destruction of those still bullish or newly bullish on American stocks and the revival of the consumer driven American dream world economy.

Our cyberspace friend James Howard Kunstler has a few observations of his own to make this week about the neverland dream like vision of the recovery. He and a few other insightful reporters on the true state of America, like Bill Bonner and Robert Prechter, are pretty darn certain that the American dream is about to become a frigging nightmare, one worse than we can now even imagine.

For now I’ll let James Kunstler tell his story in his unique mind bending style.

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Hunky Dory
By James Howard Kunstler
on August 3, 2009 7:36 AM

Whenever the herd mentality lines up along a compass point leading to “permanent prosperity,” or a yellow brick road lined with green shoots, or something like that, I tend to see the edge of a cliff up ahead. We are now completely in the grips of the deadly diminishing returns of information technology. The more information comes to us about How Things Are, especially from TV, the more confused or wrong the conventional view gets it.

A broad consensus has formed in the news media and among government mouthpieces and even some “bearish” investors on the street that “the worst is behind us” in this tortured economy. This view is completely crazy. It will only lead to massive disappointment a few weeks or months from now, and that disappointment might easily transmute to political trouble. One even might call the situation tragic, except a closer look at the sordid spectacle of what American culture has become — a non-stop circus of the seven deadly sins — suggests that we deserve to be punished by history.

The reason behind this mass delusion is not hard to find: it’s based on wishing, especially the wish to retain all the comforts, conveniences, luxuries, and leisure that had become normal in American life. These are now ebbing away in big gobs for most of the population — while a tiny fraction of the well-connected pile on ever larger heaps of swag, enjoying ever more privilege. Those in the broad bottom 95 percent were content as long as there was a chance that they, too, could become members of the top 5 percent — by dint of car-dealing, or house-building, or mortgage-selling, or some other venture enabled by easy credit and a smile. Those days and those ways are now gone. The bottom 95 percent are now left with de-laminating houses they can’t make payments on, no prospects for gainful work, re-po men hiding in the bushes to snatch the PT Cruiser, cut-off cable service, Kraft mac-and-cheese (if they’re lucky), and Larry Summers telling them their troubles are over. (If I were Larry, I’d start thinking about a move to some place like the Canary Islands.)

Too many disastrous things are lined up in the months ahead to insure that we’re entering a new phase of history: The Long Emergency.
Government at every level is worse than broke.
Our currency, the US dollar, is hemorrhaging legitimacy.
Inability to service old debt at all levels or incur new debt.
Bad (toxic) debt lurking off balance sheets everywhere.
The housing bubble fiasco is far from over.
Unemployment rising implaccably.
So-called “consumers” unable to consume consumables.
Crucial energy import supply lines fragile.
Food supply subject to energy problems and climate abnormalities.
A world full of other societies who would enjoy watching us fail and suffer.

When The Long Emergency was published in 2005, I said then that the greatest danger this society faced would be its inclination to gear up a campaign to sustain the unsustainable at all costs — rather than face the need to make new arrangements for daily life. That appears to be exactly what has happened, and it didn’t happen under the rule of some backward-facing, right-wing, Jesus-haunted crypto-fascist, but rather a “progressive” party led by a dynamically affable young man unburdened by deep cultural allegiance to Wall Street. Barack Obama has been sucked in and suckered. “Change you can believe in” has morphed into “a status quo you will bend heaven and earth to hold onto.”

Whatever else you might think or feel about Mr. Obama’s performance so far, this strategy on the broader question of where we go as a nation pulses with tragedy. What’s remarkable to me, to go a step further, is the absence of comprehensive vision — not just in the president, but in all the supposedly able and intelligent people around him, and even those leaders not in government but in business and education and science and the professions.

History is clearly presenting us with a new set of mandates: get local, get finer, downscale, and get going on it right away. Prepare for it now or nature will whack you upside the head with it not too long from now. Attempting to maintain anything on the gigantic scale will turn out to be a losing proposition, whether it is military control of people in Central Asia, or colossal bureaucracies run in the USA, or huge factory farms, or national chain store retail, or hypertrophied state universities, or global energy supply networks.

These imperatives are so outside-the-box of ordinary experience right now, that to drag them into the arena of politics can only evoke blank stares or nervous giggling. But whether we like it or not, these are the things that will really matter in the years ahead — not whether General Motors can ever make a profit again, or what Target Store’s sales figures are next quarter, or whether the latest high-rise condo-and-gambling complex in Las Vegas will be successfully marketed.

Here, in the dog days of summer, it seems to me that the situation in the USA is so fundamentally bad, so unpromising, so booby-trapped for failure, that I wonder if there has ever been a society so badly deluded as ours. We’re prisoners of our wishes, living in a strange dream-time, oblivious to the forces gathering at the margins of our vision, lost in a wilderness of our own making.

Anything can happen now. I certainly wouldn’t rule out international mischief as we arc around into fall. The air is so full of black swans that the white swan now seems like the exceptional thing. Whatever else happens, it sure will be interesting to see the public’s reaction to Wall Street’s announcement of Christmas bonuses. The folks at Rockefeller Center better be thinking about getting a fireproof tree.
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James Kunstler’s novel of America’s post-oil future, WORLD MADE BY HAND, is now available in paperback. He is at work on the sequel.

Honestly, until now for most of my life I’ve been an optimistic guy. I grew up in a rah, rah USA military family , was a boy scout, loved baseball and football, served in the US Navy Seabees, had a tour of duty in Vietnam, started my own business while going to college on the GI Bill, and in general have had an adventurous life while often being an expatriate American living in eight nations along the way. Until recently I thought America was a nation that could overcome any set of problems although the Vietnam War did give me reason to question the motives and judgement of our leadership.

No longer do I believe that we will emerge from our present circumstances as a stronger, better nation. The American Empire has peaked and we are on the slippery downhill slope. In order to solve a problem you have to identify the problem and take steps to fix the cause. I do not see that happening at any level of US government. The nation is flying off a cliff and as we have not hit bottom yet the green shooters and the cheerleaders are all saying no problem. They say as with one voice that we will soon fully recover and be in fine shape.

The real question should be “recover” to what? We are in the early stages of a depression with so many depressing factors involved (see Kunstler’s list above) the old American Dream way of life will not be recovered. Far from it. Read Kunstler’s essay again. Let what he is saying sink in. Then be smart and start working on your own survival plan. Don’t expect the same guys who brought you stage one and stage two to save you from the third wave and the long crisis. That is the stage of true destruction and it is not far away from descending upon us.

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Credit default swap contracts are beginning to be better understood by the American public. Those who understand the details of CDS’s are becoming outraged at the audacity of the banking and hedge fund managers who gamed the system by making risky bets camouflaged as AAA rated investments under the cover of CDS’s.

In addition, the public is saying “enough” to a government that has been throwing billions of Dollars at those institutions that used the cover of CDS financial instruments to justify making over sized risky investments. When the underlying investments soured they demanded payment from institutions, like AIG, that were happy to collect up front premiums from writing contracts and serving as counterparties for CDS’s. So happy in fact that they wrote CDS policies far beyond their ability to pay should payout ever be required. To say that risk was mispriced is a gross understatement.

The more that the public understands the use of CDS’s the more they should be enraged. So far AIG has soaked up at least $160 billion of bailout funds and a good bit of that taxpayer money is flowing right out the back door into the grubby hands of those banks that made the over sized risky bets. The banks, like Bank of America, have even used part of the bailout funds to pay huge bonuses to their managers. It is an unholy system that rewards bad behavior and penalizes not only current but future generations of Americans.

James Howard Kunstler is an American writer who has set forth in readable and thought provoking detail where all of this financial meltdown, poor economic management, and misallocation of America’s resources is likely to take us. A portion of one of his posts is given below. James Kunstler thinks that the American public may soon move from shock to rage and a call for prosecution. Read his material and then see what you think.
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March 9, 2009
Forget about “Recovery” by James Howard Kunstler

I maintain that there are countless constructive tasks waiting to occupy us on a long national “to do” list for rebuilding a national economy, but they are way different than the ones currently preoccupying government and the mainstream media. The Obama White House, Congress, and The New York Times are hung up on exercises in futility — “rescuing” banks and insurance companies that cannot be rescued (because they are hopelessly trapped in “black hole” credit default swaps contracts), and re-starting a “consumer” binge that was completely crazy in the first place, based, as it was, on a something-for-nothing standard-of-living.

Meanwhile, if the buzz on the blogosphere is a measure of anything — and I think it is — then a new consensus is forming out there about where to start doing things differently. Unfortunately after less than two months in office, President Obama finds himself awkwardly behind-the-curve on this. It begins with the understanding that a general bank rescue is hopeless and, going a step further, that the people who caused the train wreck of “innovative” securities have to be prosecuted. The public’s collective voice on this is muted but growing. It has been muted by the general air of blackmail that the banks have used to enthrall policy and opinion — the “too big to fail” idea — in effect holding the nation’s future for ransom.

I maintain that there are countless constructive tasks waiting to occupy us on a long national “to do” list for rebuilding a national economy, but they are way different than the ones currently preoccupying government and the mainstream media. The Obama White House, Congress, and The New York Times are hung up on exercises in futility — “rescuing” banks and insurance companies that cannot be rescued (because they are hopelessly trapped in “black hole” credit default swaps contracts), and re-starting a “consumer” binge that was completely crazy in the first place, based, as it was, on a something-for-nothing standard-of-living.

Meanwhile, if the buzz on the blogosphere is a measure of anything — and I think it is — then a new consensus is forming out there about where to start doing things differently. Unfortunately after less than two months in office, President Obama finds himself awkwardly behind-the-curve on this. It begins with the understanding that a general bank rescue is hopeless and, going a step further, that the people who caused the train wreck of “innovative” securities have to be prosecuted. The public’s collective voice on this is muted but growing. It has been muted by the general air of blackmail that the banks have used to enthrall policy and opinion — the “too big to fail” idea — in effect holding the nation’s future for ransom.

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For the completion of this article visit the James Howard Kunstler website under the “The Clusterfuck Nation Chronicle”, March 9th, 2009 posting. You will quickly determine that we have a Long Crisis to try to deal with.

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