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Kunstler: What next?
James Howard Kunstler,
… There was a popular theory among Peak Oilers the last decade that the world would enter a “bumpy plateau” period when the global economy would get beaten down by peak oil, would then revive as “demand destruction” drove down oil prices, and would be beaten down again as oil prices shot up in response — with serial repetitions of the cycle, each beat-down taking economies lower — the only imaginable outcome being some sort of quiet homeostasis. This scenario did not play out as expected. It was predicated on a mistaken assumption that all systems would retain some kind of operational resilience while ratcheting down. Anyway, the banking system was mortally wounded in the first go-round and the behemoth is dying hard.
The last desperate act of the banking system in the face of Peak Oil’s no-more-growth equation was to engineer species of tradable securities that could produce wealth out of thin air rather than productive activity. This was the alphabet soup of algorithm-derived frauds with vague and confounding names such as credit default swaps (CDSs),
… The collapse of complex systems is actually predicated on the idea that the systems would mutually reinforce each other’s failures. This is now plain to see as the collapse of banking (that is, of both lending and debt service), has led to the collapse of commerce and manufacturing. The next systems to go will probably be farming, transportation, and the oil markets themselves (which constitute the system for allocating and distributing world energy resources). As these things seize up, the final system to go will be governance, at least at the highest levels.
If we’re really lucky, human affairs will eventually reorganize at a lower scale of activity, governance, civility, and economy
(2 March 2009)
There are quite a few ways that societies can react to challenges like the financial meltdown. In The Five Stages of Collapse Dmitry Orlov describes one process based on the experience of the Former Soviet Union. I think political change is much more likely to occur than breakdown. Already the governments of Iceland and Latvia have fallen. Some argue that the economy was the key factor in Barack Obama winning the U.S. election. -BA
We need shock and awe policies to halt depression
Ambrose Evans-Pritchard, UK Telegraph
As ordinary citizens with no power over the levers of policy, we watch from the sidelines, and weep. The whole global economy has tipped into a downward spiral. Trade and output are contracting at rates that outstrip the leisurely depression of the 1930s. Debt deflation has simply washed over the drastic measures taken by governments everywhere.
… This terrifying fall has been concentrated in the last five months. The job slaughter has barely begun. Social mayhem comes with a 12-month lag. By comparison, industrial output in core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932, according to RBS.
Stephen Lewis, from Monument Securities, says we have been lulled into a false sense of security by the lack of “soup kitchens”. The visual cues from Steinbeck’s America are missing. “The temptation for investors is to see this as just another recession, over by the end of the year. But this is not a normal cycle. It is a cataclysmic structural breakdown,” he said.
… Graham Turner, from GFC Economics, fears the Dow could crash to 4,000 by summer unless there is a “quantum reduction” in mortgage rates. The Fed should swoop in to the market – armed with Ben Bernanke’s “printing press” – and mop up enough Treasuries to force 10-year yields down to 1pc and mortgage rates to 2.5pc. Monetary shock and awe.
This remedy is fraught with risk, but all options are ghastly at this point. That is the legacy we have been left by the Greenspan doctrine. We are at the moment of extreme danger in Irving Fisher’s “Debt Deflation Theory” (1933) where the ship fails to right itself by natural buoyancy, and capsizes instead.
From all accounts, the Fed was ready to launch its bond blitz in January. Something happened. Perhaps the hawks awoke in cold sweats at night, fretting about Weimar.
Perhaps they feared that China and the world will pull the plug on the US bond market. If so, it is time for Washington to get a grip. America remains the hegemonic global power. The Obama team should let it be known – and perhaps Hillary Clinton did just that on her trip to Asia – that any country playing games with the US bond market in this crisis will be treated as an enemy and pay a crushing price.
(28 February 2009)
Island Economies in a Globalized World
Alan Atkisson, Worldchanging
The actual islands of our world are similarly self-contained and yet dependent, beautifully isolated and yet in need of contact, a combination that contributes to that hazy quality of specialness that seems to hover over nearly all of them, especially to the visitor. Island ecologies, fenced off by water, are known for their propensity to exert unique evolutionary conditions on the species who live there, producing pygmy elephants and other radical variations in phenotype. Smallness of scale, distance from “the rest of the world,” and firm-yet-crossable boundaries define the island experience for nature and humans alike.
Island economies, on the other hand, are very different, especially in today’s globalized world. Modernity has caused a wrenching transformation in island economies, which were once dependent on the trading and brokering acumen of their citizens, not to mention their ability to hunt, fish and farm. Island economies have always had the potential to “punch beyond their weight,” using their smaller scale, highly developed social capital (supported by greater demands for mutual trust), and distance from greater powers to leveraged advantage. The histories of islands like Gotland, which grew wealthy as a Hanseatic trading center in the 1200’s, and Nantucket, which concentrated Kuwait-like wealth onto its shores in the 1600s thanks to its mastery of the whaling business, are illustrative.
But modern technology has amplified these potentials to new, and increasingly risky, extremes. Frequently enjoying some level of autonomy, or at least a psychological sense that they can “go their own way,” true island economies can more easily establish unusual policy frameworks and concentrated competence clusters, mirroring in a fascinating way their ecological systems’ propensity for exaggeration and uniqueness. As banking centers, as tourism destinations, as home bases for shipping companies or insurance managers, island economies now often appear as unexpectedly weighty distortions in the overall gravitational field of the global economy. Like some unusually small interstellar phenomenon that nonetheless glows brightly and exerts surprising force, islands can draw in and spit back out astonishingly large flows of money. By then skimming off tiny percentages of those flows, their balance sheets can grow wildly.
But such high flow-volumes and pressures do not touch the island’s shores without risks. The recent case of Iceland, whose glories in the financial markets were followed by the first and the worst of travails among nations in the aftermath of the financial collapses of late 2008, provides a crystalline case in point.
(27 February 2009)
