Addicted to booms & cheap energy – Feb 24

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The Abyss Stares Back
James Howard Kunstler, Blog
… Among the questions that disturb the sleep of many casual observers is how come Mr. O doesn’t get that the conventional process of economic growth — based, as it was, on industrial expansion via revolving credit in a cheap-energy-resource era — is over, and why does he keep invoking it at the podium? Dear Mr. President, you are presiding over an epochal contraction, not a pause in the growth epic. Your assignment is to manage that contraction in a way that does not lead to world war, civil disorder or both. Among other things, contraction means that all the activities of everyday life need to be downscaled including standards of living, ranges of commerce, and levels of governance. “Consumerism” is dead. Revolving credit is dead — at least at the scale that became normal the last thirty years. The wealth of several future generations has already been spent and there is no equity left there to re-finance.

If contraction and downscaling are indeed the case, then the better question is: why don’t we get started on it right away instead of flogging rescue plans to restart something that is DOA? Downscaling the price of over-priced houses would be a good place to start. This gets to the heart of Rick Santelli’s crowd-stirring moment. Let the chumps and weasels who over-reached take their lumps and move into rentals. Let the bankers who parlayed these fraudulent mortgages into investment swindles lose their jobs, surrender their perqs, and maybe even go to jail (if attorney general Eric Holder can be induced to investigate their deeds). No good will come of propping up the false values of mis-priced things.

No good, in fact, will come of a campaign to sustain the unsustainable, which is exactly what the Obama program is starting to look like.
(23 February 2009)

Owners must be weaned off the house-price drug
Polly Toynbee, Guardian
Now is the time to be honest about what is needed to avoid another wild boom: taxes geared to discourage inflation
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… The nation is still deeply dependent on house prices rising for ever. We still live in a bubble economy, with no way to live except by reinflating it. The state itself has been mainlining on the house-price drug, as addicted as the happy home-owners.

… So desperate is everyone to get the market moving that first-time buyers are rashly wooed with grants to buy homes that may ruin them if prices keep dropping.

Please can we have our bubble back, clamours just about everyone. The 70% who own homes and those who dashed into buy-to-let property yearn for the magical unearned wealth that came from nowhere. Most people will only judge that the slump is over on the day they see prices rise again in their local estate agent’s windows. Normality returns at last! Everyone knows this fairy money caused the crisis, but since about 2003 real incomes have hardly risen, except among the top 10% of earners. House prices sustained the feelgood spending. Where, many economists ask nervously, is our growth to come from now if not in fantasy finance or property boom?
(24 February 2009)

Bears in the finance-media zoo
Tom Philpott, Gristmill
Two real financial thinkers venture into CNBC fantasy world; comedy ensues
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[VIDEO]

Okay, this is priceless — and anyone who wants to understand not only our economic calamity but also why we’re still screwed has to watch it. Oh, and don’t worry — it’s also absolutely, laugh-out-loud hilarious (in a bittter sort of way).

Nouriel Roubini and Nassim Taleb are two of our most trenchant and learned commenters on finance. It’s time to start listening to them — if Obama is serious about running a centrist administration, it’s a scandal that he tapped Robin Rubin acolytes Summers and Geithner, not Roubini and Taleb, to run economic policy.

For years, the two men have been making the point that the U.S. economy is way too hinged on debt, speculation, obsession with short-term gain, and philistine optimism — the very things raised to the level of fetish by the Rubin crowd. Roubini and Taleb predicted a cataclysmic tumbling of the house of cards built on that shaky foundation. They gained a small following, but were widely ignored — particularly by the TV financial media, which became a craven, self-parodying machine for turning Wall Street and corporate hucksters into folk heroes.

… Now Roubini and Taleb are beling listened to — sort of. Here they are on CNBC — a finance news network that has never seen a financial bubble it didn’t try to puff air into. (Hey guys, I have a hot tip for ya’ — Dutch tulips!) Watch how the network hauls out no fewer than five interlocutors to patronize Roubini and Taleb and treat them like exotic animals — some unheard of species of bear.

Rather than use the opportunity to teach their viewers a thing or two about the unfolding financial mess, they harangue Roubini and Taleb for … stock tips! And signs that “the worst is over” and the cash-grab can begin again.

The segment taught me just how little our financial press, at least the TV side of it, has learned from the lessons of the past year.
(23 February 2009)
link to interview on CNBC

I’m watching it again now. This is a seminal piece of video. You have to see it. I’m not sure I’ve seen anything that captures — albeit unintentionally — the vast disconnect over what is happening today in the US economy.