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Stocksplosion - Kunstler
Monday, 23 April 2007 23:08

by James Kunstler

  Whenever somebody complains about "the lies that George Bush & Co. told to get us into the Iraq war" (as Frank Rich did in The New York Times on Sunday), I wonder how those lies compare to the lies that the American public tells itself every day — for example, that we could run America without oil from the Middle East, or that hybrid cars will save Happy Motoring, or that we can have an economy without producing anything of value.

Meanwhile, the Dow Jones index went up over a hundred points the same day that 32 people were massacred on a university campus. And bear in mind that the massacre did not occur late in the day but literally around the same time that the New York Stock Exchange rang its opening bell — so that as the body counts mounted through mid-day, the stock markets only went higher! They must have liked what they saw. Then, the rest of the week, while the cable news Mommy-Daddies went through the familiar rituals of bewildered hand-wringing, and NBC released the trove of farewell videos sent in by shooter Seung-Hui Cho between killings, the Dow piled on another 250 points to close at an all-time record high just under 13,000.

Could the financial markets be more detached from reality, from life on the ground (or in a free-fire-zone classroom) in this nation?

Doug Noland over at Prudent Bear.com is right: we've entered a euphoric phase of financial arbitrage capitalism with extreme Ponzi overtones, a pyramid scheme of revolving credit rackets and percentage spread plays completely abstracted from any reality of fruitful activity. The reason we don't even call "money" by its former name anymore is precisely because we realize at some semi-conscious level that "liquidity" is not really money. Liquidity is a flow of hallucinated surplus wealth. As long as it flows in one direction, into financial markets, valve-keepers along the pipeline, like Goldman Sachs, Citibank, or the hedge funds, can siphon off billions of buckets of liquidity. The trouble will come when the flow stops — or reverses! That will be the point where we will rediscover that liquidity really is different from money, and if we are really unlucky we'll discover that our money (the US dollar) is actually different from real wealth.

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Noland and others recognize the severe distortions in the finance sector, and they are surely correct to flag the implied dangers. But even these clear-eyed observers survey the disturbing finance scene without factoring the global energy situation. In a nutshell: world oil production seems to have peaked about 10 months ago. Being just past peak, there is still a huge amount of oil going into world economies. But being just past peak we are now seeing how complex systems proceed toward instability and breakdown when the underlying energy flow turns toward contraction.

The situation in finance is particularly sensitive and acute because an overall contraction in available energy means the end of industrial expansion (a.k.a. "growth") at "normal" rates of three to seven percent annually. More to the point, it means that certificates, contracts, deals, plays, and rackets pegged to the expectation of growth will lose their legitimacy. Meaning, stocks, bonds, collateralized debt obligations, hedges — anything that represents the hope and expectation for more-of-anything — will no longer be understood to represent real value.

The current euphoric hysteria should therefore be viewed as a form of disorder in its own right. The players in the markets are making their moves based on misunderstood signals. They think the world is awash in energy and prosperity. They believe Cambridge Energy Research Associates (CERA) and the Chairman of the Federal Reserve. They believe that the mortgage fiasco and the associated imploding housing bubble are just a couple of temporary zits on the handsome WASPy face that Wall Street presents to the world. In the background, though, feedback loops are aligning to rock the systems we depend on for daily life in the real world. Capital will become unavailable. Food will grow scarce. Trade will be interrupted. Mobility will be constrained. And an awful lot of pissed-off people will be poised to fight over the table scraps of industrial civilization.

April 16, 2007

Blowing Green Smoke

Tom Friedman, celebrated New York Times columnist and author of The World is Flat, riffed on (or around) the issues of climate change and energy in that newspaper's Sunday Magazine this week ("The Power of Green"), and managed, in the process, to misunderstand just about every implication these conjoined problems present. Friedman's specious thinking is symptomatic of exactly what is wrong with our public discussion of these matters generally, and their presentation in mainstream media in particular.

I'm fond of saying that if America could harness the power it wastes blowing smoke up its own ass, we could magically escape our energy-and-climate-change predicament. I say this repeatedly to counter the increasing volume of lies we tell ourselves in order to maintain the illusion that we can continue living the way we do. Like so many other commentators suffering from cranial-rectosis, Friedman believes that we can keep on running our Happy Motoring utopia if we just switch fuels.

Friedman gives no indication that he understands the fundamentals of the global oil situation. He writes:

People change when they have to — not when we tell them — and falling oil prices make them have to. That is why if we are looking for a Plan B for Iraq — a way of pressing for political reform in the Middle East without going to war again — there is no better tool than bringing down the price of oil.

This is a fascinating statement. It's predicated on the idea that the US can achieve "energy independence," which is itself predicated on the further idea that we can accomplish this by switching out gasoline for ethanol. This is such an elementary error in thinking that it would be funny if it wasn't the lead story in the flagship of the mainstream media. As a Pennsylvania farmer put it to me in February: "It looks like we're going to burn up the last remaining six inches of Midwest topsoil in our gas-tanks." Friedman's statement also ignores the facts that running cars on ethanol would make no material difference in the amount of carbon dioxide released into the atmosphere, or that ethanol is 20 percent less efficient than gasoline, meaning we would have to produce and use that much more of the stuff just to stay where we are.

Where climate change is concerned, this is a variation of the "Red Queen syndrome" (from Alice in Wonderland) in which one has to run faster and faster to stay in place. It also fails to take into account the tragic ramifications of setting up competition between food for humans and crops for motor fuels just at the point when a growing scarcity of oil-and-gas-based soil "inputs" (as well increasing climate problems in the grain belt) will drastically lower American crop yields. The symptoms of this unintended consequence have already begun to present themselves — for instance, January's food riots in Mexico, which resulted from Mexican corn being sold to American ethanol distillers rather than Mexican cornmeal millers, who couldn't match their bids.

Friedman goes on to tout Wal-Mart's mendacious campaign to "green" up its operations by, among other things, improving the mileage of its truck fleet from 6-mpg to 12-mpg. He writes:

Take Wal-Mart. The world's biggest retailer woke up several years ago, its CEO Lee Scott told me, and realized with regard to the environment its customers "had higher expectations for us than we had for ourselves." So Scott hired a sustainability expert, Jib Ellison, to tutor his company. The first lesson Ellison preached was that going green was a whole new way for Wal-Mart to cut costs and drive its profits.

The smoke Mr. Scott blew up Friedman's ass is leaking out of the columnist's pie-hole here. I've been to dozens of permitting battles over Wal-Mart in the planning boards of America, writing on suburban sprawl, and I can assure you that the the pro Wal-Mart factions in these fights uniformly couldn't give a fuck about anything except saving five bucks on a plastic salad shooter ("we want bargain shopping!!!"). Not to put too fine a point on it, but these are precisely the members of the American public who sold their own local economies down the river, who led their towns into destitution, and who believe with all their hearts that it is possible to get something for nothing (which is why this large cohort of citizens spends so much of its meager income on lottery tickets, trips to Las Vegas, and gets suckered into ruinous "miracle" mortgages).

Friedman's invocation of Wal-Mart here offers another layer of misunderstanding from the work he is best-known for, his best-selling book, The World is Flat, which asserts that globalism is now a permanent feature of the human condition. I demur from this view. I think we will discover (probably painfully) that globalism was a set of transient economic relations made possible by a half century of cheap oil and relative peace between the great powers, and that enterprises that rely on these transient mechanisms — such Wal-Mart, with its 12,000-mile merchandise supply chain to China, and its "warehouse on wheels" of tractor-trailor trucks circulating incessantly on America's interstate highways — will be on their knees in a few years as we enter the export crisis phase of post-peak terminal oil depletion and the great powers of the world act with increasing desperation to compete over the remaining supplies.

For someone operating at the top of journalism's food chain, Friedman is astoundingly ignorant. He asserts at another point in this article that climate change will require us to "[r]eplace 1,400 large coal-fired plants with gas-fired plants." Earth to Tom: America's natural gas supply is arguably more tenuous and problematic than its oil supply. To put it bluntly, over the next five years, we will fall off a cliff with natural gas. Apparently Friedman hasn't heard. Nor are we going to make up for this loss by importing liquid natural gas from distant lands. Nor would it make any sense to burn expensive imported methane gas to run power generation turbines. So, you see, there is no chance whatsoever that we will do what Friedman suggests. In fact, the 17 percent of all electric power that we currently get from gas will be lost to us in the near future, which could leave us with Third World style electric service. (Incidentally, the terminal decline of our natural gas supply also means we will lose control of the crucial resource used for making nitrogenous fertilizers, with self-evident further implications for our crop yields and our ability to feed ourselves or manufacture alternative motor fuels.)

Friedman's equations regarding continued industrial expansion in China and India are based on the assumption that they somehow will be immune to the global energy crisis and to the ecological catastrophes entailed by climate change. More likely: both nations will be overwhelmed by these things and the only question will be how desperate their political convulsions will be in response (or how rapidly they devolve back to twelfth century living standards).

At the heart of Friedman's thesis is his notion that the current incarnation of "the American Dream" is a good thing and can continue. By American Dream he apparently means membership in the Happy Motoring Utopia, with all its accessories, furnishings, and usufructs — the system broadly known as suburban sprawl. Here's the truth, Tom: suburban sprawl is a living arrangement with no future. It was a tragic mistake to squander the post World War Two wealth of our society to build it. It will come to represent an immense liability for this country's future, as it loses both monetary and practical value. And we will have to make comprehensive arrangements for living differently, if we want to continue this project of American civilization.

A telling omission in this article, by the way, is any mention of public transit. It's especially significant because the one thing we really could do right away to reduce our oil consumption would be to get passenger rail going again in this country. But this blind spot in Friedman's vision is only the flip side to his stupid belief that we can just keep all the cars running by other means.

Tom Friedman has no idea what the implications are of all these things. His fatuous advice to the nation — served up by a confused and cowardly Times editorial staff — will only spur more delusional thinking, which is, of course, the last thing we need. The showcasing of Friedman's article may represent an inflection point in the fate of the mainstream media — the moment when it demonstrates most clearly its failure to make current events comprehensible, the moment when its lost legitimacy is finally recognized. That legitimacy has been passing to the Internet, where commentators have no advertisers to pander to and no need to defend any status quo.
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Comments (3)add comment

a guest said:

Why in the world should the stock market respond to the horrible tragedy at Virginia Tech? The stock market is a business entity, not a social one. It's incredibly distasteful, and more than a little intellectually dishonest, to use that massacre to make a cheap point about economics.

Or is the writer still upset that his predictions of the DOW dropping to 4,000 two years running never came true?
April 24, 2007
Votes: +0

a guest said:

V-tech Comments
I have to agree with you there. Citing the VT tragedy as evidence of Wall Street's detachment from reality wasn't a very good example. There are plenty of other points that could be made that indicate that the free market is pulling us blindly over a cliff and has little regard for the crises we face. The rest of the article is essentially on target: people just can't seem to even conceptualize the idea that our infinitely expanding consumption economy could ever run up against any limitations.
April 24, 2007
Votes: +0

a guest said:

Wall Street explained by novelist
Hey, Mr. Kunstler!

Regarding your lament about Wall Street being in denial -- author Tom Robbins explains it all in his novel "Villa Incognito," which features a character named Stubblefield. On page 141, Stubblefield cuts loose:

"Dickie and Dern looked at Stubblefield. It was his turn, and they expected nothing less than a torrent of verbiage from the man who frequently spoke as if his brain was a rodeo champion and his tongue a bucking bronco. To their surprise, Stubblefield merely shook his large, voluptuous head and mumbled something. They thought they heard him say, "Vine ripe tomatoes.”
"What was that?" In Dickie's mind there was a rush of images: Wonder Bread and Best Foods mayonnaise. Was Stubblefield dreaming of those fine things, as well?
"Vine ripe tomatoes." He pronounced it more clearly. "You'll see that sign - which, grammatically, ought to say ‘vine-ripened’ - in every produce department in every supermarket in America. You'll see it in the winter when the vines are under a foot of snow. Yet even in July and August, the tomatoes in the bin aren't really ripe. They're pinkish and hard and bereft of flavor. Not only did they not ripen on the vine, they’ve never ripened at all. But does anybody object? Does anybody shout, ‘Who are you kidding - these fucking tasteless tomatoes were picked when they were green!'? Or do they rip their menu in half when it says 'farm fresh eggs,' knowing, as even the dimmest ignoramus must, that the eggs in that restaurant have been in cold storage for weeks and that they've never been anywhere near an actual farm? A country that practices and condones such blatant, systematic fakery is a country capable of any thing - even of nominating Henry Kissinger for the Nobel Peace Prize.” He sighed, and it was a thick, wet sigh. "Those who willingly accept being conned are as corrupt as those who con them. Umm. Yes. Just as my wife was as culpable as I when I mouthed my counterfeit vows. She was my accomplice.”

I've never heard our United States of America explained more rationally than that.

"Thanks" for your good column and "Yer welcome" for this high-class, literary response. 8-)

Peaches are my personal pet peeve. I believe a feller could chain a California peach to the bumper of a truck and drag that peach behind the truck from Fresno to New York City, and that peach would arrive in pristine condition. The log chain would be worn out, but the peach would be unscathed.

Jimmy Montague
April 26, 2007 | url
Votes: +0

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