Jim Kunstler: "We are a much poorer nation than we thought... the reality is just too hard to face"

[El Pinko]

http://jameshowardkunstler.typepad.com/



Still Pretending

The maneuvers that the big banks are making nowadays, along with their enablers at the Federal Reserve and elsewhere in Washington, really amount to little more than the old Polish blanket joke -- in which (excuse my concision) the proverbial Polack wants to make his blanket longer, so he scissors twelve inches off the top and sews it onto the bottom. Only in this case, the banks are shearing x-billions of losses off the top of their blankets and re-attaching x-billions of new debt onto the bottom. This new debt, of course, goes to cover the old losses and only represents further losses-to-be-reported-later, since the banks are basically insolvent. Borrowing more money when you're broke doesn't make you less insolvent.

The banks can probably keep this gag running a little longer, but not without consequences. My guess is that it spins out of control in March sometime when some more hedge funds blow up and at least one big bank, perhaps Citi, rolls belly up like a harpooned whale. The game is really over, and all the playerz know it. The consequence of continuing to pretend the meta-fiasco of Ponzi endgame is fixable will be an even more shattering depression than the one we're already in for.

We are a much poorer nation than we thought we were and the reality is just too hard to face. Nobody from the most august banker (Treasury Secretary Hank Paulson) to the lowliest wanker (the WalMart inventory clerk who "bought" a house outside Phoenix with a no-money-down, payment-option, adjustable rate mortgage) can believe that this is happening. The candidates for president are pretty much assuming that vast financial resources will exist to be deployed against a range of problems. Everybody is going to be hugely disappointed.

When you introduce perversities into an economic system, they invariably end up expressing themselves as distortions. The economy that evolved the past two decades, driven by the perverse securitization of wishes and frauds, will now express itself in a stark cratering of American living standards. Incomes and jobs will vanish, massive quantities of stuff will collect dust on the WalMart shelves, the fragile infrastructures of daily life will go to shit, and there will be political hell to pay. Every attempt to avoid a straight-up workout of our massive losses, will represent another layer of perversity and more consequent destructive distortions.

[JohnyCanuck]

1. Things can get out of control very fast

Along in this process somewhere, there is huge potential for armed conflict with other nations. If the unraveling gets traction while George W. Bush remains in charge, the US may answer bellicosity from oil-exporting nations, or energy-hungry rivals, with truculence of our own. Things can get out of control very fast in such a situation.

Regardless of whether or not George Bush is in charge, the way I see it the world will probably end up at some point by fighting over the remaining oil like 3 four year olds fighting over 2 pieces of candy (actually if you look today in the Middle East, it has already started).

[SharonAnn]

16. It takes a lot less time and money to break things than it does to build things.

[Demagitator]

2. The truth speaks to power n/t

[annabanana]

3. the beams of the National House have been removed to line the media rooms and

construct pool houses & servant's quarters for the uber-rich.

[Birthmark]

4. Well, that's happy.

Will hiding in a shallow hole and covering myself with gravel help?

[elizfeelinggreat]

5. this part sticks out to me

"My guess is that it spins out of control in March sometime when some more hedge funds blow up and at least one big bank, perhaps Citi, rolls belly up like a harpooned whale. The game is really over, and all the playerz know it. The consequence of continuing to pretend the meta-fiasco of Ponzi endgame is fixable will be an even more shattering depression than the one we're already in for."


If they can keep the real reason for this and its consequences from the public eye until they can blame it all on the Democrats, I think those at the very top will be perfectly happy with these circumstances. They've had time to move things elsewhere. Do you hear them screaming? No, it's pension funds we hear taking the hits right now and hey, every guy with a 401k has a piece of the market nowadays!) What BS, those with big stakes have been given reprieve to move their assets.

Already the President is posturing to blame anything and everything on the Congress balking at his demands.

Did you see Bush's face when he learned about $4 a gallon gas yesterday? That guy was counting their winnings in his head in front of the cameras.

[formercia]

6. In a nut shell

that about says it.

The big boys are keeping things going so they can cash out before the crunch.

[formercia]

10. The new US economic model:

Sell short on Friday and have a great weekend knowing you can buy back in on Monday at a hefty profit.

[ixion]

7. in the world of the working class, what the banks are doing is called 'kiting'

as in kiting checks. It is a little game you play when you're broke. You right a check for 'cash', just a little bit more than the money you're over-drawn. You then deposit the money in the back to cover the last check, and a couple days later you have to write another check for greater than the previous amount. It's a painful little game that usually ends up with you owing massive amounts in overdraft charges.

This is precisely what the banks are doing now, and the end result will be the same.

[gratuitous]

8. Where'd all that money go?

Let's see, worker productivity is up and up and up over the last few decades. Yet workers are toiling more hours for less money, and less spending power. Banks have overextended themselves badly, and now the limb they're out on the end of is cracking and about to break. All that money plundered from the workers and paid out by the banks went somewhere. Now, where might that be? Where, where, where? It's a puzzler, it is.

[El Pinko]

9. A lot of the money that kept the economy running was foreign investment...

...they invested in CDO's - subprime loans bundled up and renamed "mortgage-backed securities". Now that they see they won't get a return on their investment, they're pulling out of the US like gangbusters, and the dropping dollar and low interest rates are only making it worse.

There has been a paucity of new capital generated within the US because wages have been stagnant and millions of good jobs sent overseas.

Where did all the money go? Well a lot of the flippers made a pretty penny, and the smart ones moved to cheaper markets, the dumb ones bought again at the peak.

Oh, then there was the HELOC's - those were also resold as "rock-solid CDOs". What did joe 6 pack use his home equity loans for? Plasma screens & SUVs. But now the equity's gone, so's the money, and suddenly joe 6-pack's job installing granite countertops is a lot less lucrative than it was a couple of years ago, and now he's paying trouble paying back the Chinese...


Oh what a tangled web we weave, when first we practice to deceive...

[Sock Puppet]

11. this guy strikes me as something of an alarmist

I'll go stick my head back in the sand now.

[ProfessorGAC]

12. You Can Take It Out Of The Sand

While we're in for as rough ride, i would concur that this is alarmism. The scope of the economy is so profoundly broad and so large that the shifts occur glacially. The kind of catastrophe described here seems to require more speed than the economy can provide.
The Professor

[dmallind]

13. Just a tad

I repeat my (tellingly, never accepted) offer to anyone predicting 1929 style economic collapse (and many on DU are predicting worse).

Pick any major broad stock index you like. Let's draw up a legal contract that I will pay you, three years from now, 25% of its value today, in any $5000 increment up to about $100K, for index fund shares YOU choose today. DJIA, NASDAQ, S&P, whatever.

I can place funds in escrow so no option for welching.

If you REALLY believed what you are predicting you would make a killing by buying that fund at that time and selling it to me at 25% of its current value, because if you're right it would be worth only about 10-15% of its current value by then

Unfortunately for me, it seems nobody is being honest when they say they see massive economic disaster ahead.

[El Pinko]

14. I honestly hope that you're right.

But the thing is that the stock market's performance in recent years seems to have little bearing on the financial fortunes of average Americans in recent years. The bottom half or more have fallen further and further behind over the last decade, many getting into massive debt, even as the stock market has done well.

I'm more concerned about the massive job losses and hyperinflation than I am about the stock market, to be honest. It isn't enough that we've undergone decades of wage stagnation and offshoring, and now this?

And of course the repukes want even MORE tax cuts. For the rich. Of course.

[dmallind]

15. In recent (Bush) years median income has indeed dropped in real terms

but not so precipitously as you may think. Median income is pretty much by definition a measure of the average American's income, since half will make more and half will make less than it.

Poverty rates measure the have nots quite well and we've seen a mirror there - some worsesning in the Bush years but nothing dramatic on an aggregate scale - although that 12.7% compared to 11.3% under Clinton obviously means 5 million more people. Again there is a difference between human and statistical significance, but still it means one in eight as opposed to one in nine.

Will it get worse? Probably. Food prices are increasiung faster than inflation, and unless we get serious about adopting new technology in increasing yields and reducing crop loss, and stop pandering to superstitious worries, they will continue to. Especially if we continue to chase false hopes of corn ethanol as a meaningful petroleum substitute.

Oil and gas we all know about. That's not likely to get better either in the short term until either demand drops or a valid substitute technology is widely adopted (which will probably mean it needs to be mandated).

But food and fuel have been bigger chunks of our expenditure before, and are bigger chunks in other countries too, and not just poor ones. Anyone who has traveled much in Europe lately can attest to that. If we go that way it doesn't mean 20% unemployment and hyperinflation is on the way.

Worst case probability? Late 70s revisited I guess. Not early 30s. And remember we have another boom coming pretty soon as we start seeing all the alternative energy options compete to see who wins. Those companies will need capital, will need workers, will offer IPOs, will buy from suppliers, etc etc. The problem with doom and gloom scenarios is they assume that everything bad remains while nothing good comes into the picture, and with technology just a wee bit more rapid in changing than it was in the 30s, that's just unrealistic.

[El Pinko]

17. Oh please, "poverty rates?"

What is the poverty rate now, $17K for a family of 4? The fact that the number of people living at that low of an income has gone up AT ALL is STUNNING, given how much prices have risen. It's the biggest group of people, those between the $17K and the middle-class folks with household incomes of $50K and up who have been squeezed the most. In addition to negative income growth, they've been hammered by food and energy prices which have been soaring for many years (and left out of the CPI) and priced out of all but the worst ghetto hovels in the major metro areas, esp. near the coasts.

As for countries where gas prices are higher, they're not stuctured on a suburban/exurban model where working people have to commute 45 minutes or more from far-flung suburbs for their kids to go to a decent school. They also have mass transit as an option.

I have no idea whether it will be late 70s or 1930s coming, but I do know there are a bunch of people woefully unprepared to deal with it. In the 70s, we were a nation of savers with nest eggs to tide us through tough times. Now most people are in hock and have no savings at all. The displacement that will be caused by the job losses of even a 70's style recession would be much more disastrous today, since millions of people are now forced to spend more than half their paychecks on just RENT.



I'm sorry if my tone seems coarse here. It's just that I have to deal with this struggle every day, so it is a bit personal to me.

I can BARELY afford rent, food and an occasional pair of shoes at a cheapo store for the kids, and I'm nowhere near the "poverty level" or elegibility for any kind of government benefits.

The fact that I have to struggle so much to get by on what I make makes me ache that much more for the millions who actually are considered "poor" by our government.

Jeezus, $17K was poor in the 1980s. It's DESTITUTE now.

[dmallind]

18. But what you're missing is it doesn't matter

As long as you are consistent in measuring poverty rates, then they are relevant when compared to themselves. We could make the poverty rate 50K and massively increase the ratio but would it make people any poorer? Of course not! We could make the pverty rate $3K and have very few people indeed in the ratio and would it make people richer? Of course not! But the change in any of those rates would be significant as a relative measure. Ideally, a poverty rate adjusted for constant dollars every year and based on an agreed upon standardization of housing, food, and heat etc would be most accurate, but all we'd be doing then is getting a little bit more realistic subjective definition. It wouldn't do diddly to change the direction of how many people live above or below it.

And again poverty is relative. What is subsistence level in San Francisco may be quite comfy in exurban Mississippi. There can be no REAL poverty number that is universally applicable, so any number is useful only when compared to itself in real terms.

BTW it was 19.3K for family fo 4 in 2004. Not sure if it's been updated since then. Where I live that would be of course far from rich, but quite liveable.

[hunter]

21. You wanna buy my medical debts?

I also got an old truck, but it's not running.

What do you think the price of gasoline will be three years from now?

Or the price of milk?

How far will the minimum wage get a person in three years?

The stock market doesn't mean anything to me.

[dmallind]

23. Why would I want to?

It's people using financial market data to predict a massive market crash who I think are silly and credulous.

I think people who suspect milk and gas will go up in price, and do so faster than minimum wage, are correct.

[hunter]

25. I don't think the market will crash...

... I think that they will simply blow so much hot air into it that it will become irrelevant to most people.

Financial markets have already shot themselves in the foot by destroying the credit market for low and middle income people. When the majority of people in the United States simply stop giving a damn about their personal credit ratings because they can't, then there's going to be hell to pay.

In my own case I'm always nice to medical debt collectors because I simply don't give a shit anymore. There's one person with a crappy job on one end of the phone line, and a guy who can't pay on the other. Both parties have come to the realization that the situation is unfair and utterly absurd.

When everyone is walking away from the game, what then?

[gasperc]

19. Kunstler also supported Edwards

I read several of his essays and I was intrigued to learn that he favored Edwards as I did. Although Kunstler does sound alarmist he did correctly warn of the impending real estate diaster over a year before it began unfolding. Whether the capital extraction of the Iraq war or as he puts it, the current crisis a indirect consequence of peak oil distorting the markets. Americans would be well served to listen, small tweaks now may avert diaster next year but sadly it appears we have gone far past that point.

[A HERETIC I AM]

20. James Howard Kunstler majored in THEATER in college. I'll listen to his critiques of Hamlet,

NOT economics.

From his own website

I was born in New York City, grew up in Manhattan, attended the High School of Music & Art (1966) and then went off to college upstate at SUNY Brockport, where I majored in Theater (1971)

Here's the Wikipedia entry on this guy which includes this section;

Charles Bensinger, co-founder of Renewable Energy Partners of New Mexico, describes Kunstler's views as "fashionably fear-mongering" and uninformed regarding the potential of renewable energy, biofuels, energy efficiency and smart-growth policies to eliminate the need for fossil fuels.<2> Contrarily, Paul Salopek of The Chicago Tribune finds that, "Kunstler has plotted energy starvation to its logical extremes" and points to the US Department of Energy Hirsch report as drawing similar conclusions<3> while David Ehrenfeld writing for American Scientist sees Kunstler delivering a "powerful integration of science, technology, economics, finance, international politics and social change" with a "lengthy discussion of the alternatives to cheap oil."<4>

Kunstler, who majored in Theater at college and has no formal training in the fields in which he prognosticates, made similar predictions for Y2K as he makes for peak oil.<5><6> Kunstler responds to this criticism by saying that a Y2K catastrophe was averted by the hundreds of billions of dollars that were spent fixing the problem, a lot of it in secret, he claims.<7>

In June 2005 and again in early 2006, Kunstler predicted that the Dow would crash to 4,000 by the end of the year.<8> <9> The Dow in fact reached a new peak by 2007. In his predictions for 2007, however, Kunstler admitted his mistake stating "Let's get this out of the way up front: the worst call I made last year was for the Dow to crumble down to 4000 when, in fact, it melted up to a new all-time record high of about 12,500. The reason we saw this, in my opinion, was that inertia combined with sheer luck to keep the finance sector decoupled from reality…". He also predicted, however, that in 2006 the United States housing bubble would start to deflate, which appears to be borne out by latest data. <10> However, unlike Kunstler's Dow predictions, which were uniquely his, the bursting of the United States housing bubble was widely forecast before Kunstler began discussing it. <11>

He's unoriginal and taking this guy seriously as an economic pundit is pointless.

[El Pinko]

22. And I suppose we should believe the mainstream pundits who said tech was a "new paradigm"...

...and that real estate would always go up, up, up and that we had better buy now before we're priced out.

Now we've got people like that idiot Cramer on CNBC assuring us that this will be a mild recession at most.

Most of those economists have massive conflicts of interests depending on their employer, and for the most point, their job is to make cheerleading sound plausible.

It is fair to point out his academic background, but the fact that he majored in theater doesn't make him an idiot or mean that he hasn't boned up a bit on the topic.

He's got at least 3 books out on peak oil & related topics. And when you're done pointing out his lack of credentials, how about addressing the merits of his arguments?


Even if he is an "alarmist", I don't think that's any worse than being a sold-out corporate cheerleader.

[LynnTheDem]

24. and how both that US infrastructure!

oops, can't face that fact either!