James Howard Kunstler, Alternet
"Far from normal."
Those were the words that Fed chairman Ben Bernanke has used to describe the
financial markets (and by extension, the economy) these heady spring days when
everybody else with a rostrum, it seems, has pronounced the so-called liquidity
crisis contained. There's a great wish for American finance to return to
business-as-usual -- raking in fantastic fees for innovating new modes of
tradable paper and engineering mergers and buyouts that generate huge fees plus
$100 million kiss-offs for corporate CEOs in the noble struggle to dismantle America's
productive capacity -- but apparently events are still out of hand.
The Federal Reserve itself has been instrumental in promoting abnormality by
doing everything possible to prevent the work-out of bad debts in the system.
Since money is loaned into existence, and loans are debts, the work-out of bad
debt suggests the discovery that a lot of money has disappeared -- which is
exactly the case. The Fed has postponed the work-out by sucking up truckloads
of impaired, untradable securities in exchange for loans to giant banks that
don't have enough cash on hand to pay their janitors.
Personally, my theory has been that the specter of peak oil pretty clearly
implies the inability of industrial economies to continue producing real wealth
in the customary way. In the face of this, either consciously or at a more
mystical level, the worker bees in banking recognize that, in order to maintain
their villas in the Hamptons, money has to be loaned into existence some other
way (than in the service of industrial productivity).
We've tried just about everything else. There was the so-called service
economy, an attempt to replace manufacturing with hamburger sales. Then there
was the information economy, in which work would be replaced with knowing about
stuff. Then there was the tech thing, which was about bringing internet
companies that existed only on the back of cocktail napkins to the initial
public offering stage of capitalization -- which allowed a few hundred or so
30-year-old smoothies to retire to vineyards in the Napa Valley while hundreds
of thousands of retirees lost half the value of their investment portfolios.
Then there was the housing boom, which was all about the creation of more
suburban sprawl under the theory that houses (or "homes," in the
jargon of the Realtors) represent an obvious sort of wealth, and therefore that
using houses as collateral would allow humongous sums of money to be loaned
into existence -- along with massive fees for structuring the loans into
bundles of bond-like thingies.
This has all failed now because the racket went too far. Every possible
candidate for a snookering got snookered. Too much collateral for which there
were no takers went into the ground. The insane run-up in house values made a
downward price movement inevitable, and as soon as the turnaround happened, it
fell into the remorseless algebra of a deflationary death spiral. More
importantly, however, this society ran out of tricks for loaning money into
existence and instead began to experience the pain of money thought to be in
existence being defaulted into a vapor -- and worse, these defaults led to
logarithmic chains of money destruction in its places of origin, the investment
banks that had created the racket.
The important part of this is that the money is gone. What makes matters
truly eerie is that the "bubble" in suburban houses has occurred at
exactly the moment in history when the chief enabling resource for suburban life
-- oil -- has entered its scarcity stage.
The logical conclusion of all this is not what the American public wants to
hear: We have become a much poorer society and are now faced with the
unavoidable task of making major changes in how we live. All the three-card
monte moves at the highest level of finance lately amount to an effort to avoid
the unavoidable, acknowledging our losses. Certainly the political fallout of
all this will be awesome. But it's not about politics, really. It's about the
entire society's inability to form a workable new consensus of reality.
It's hard to predict how long these institutions at the heart of our
economic system can linger in the "far from normal" limbo of
pretending that money has not been defaulted out of existence. Since the same
process is under way in Great Britain and Spain, places beyond the control of
Bernanke, Secretary Henry Paulson and the Boyz on Wall Street, and since
actions and reactions there will affect the destiny of money here, it’s hard to
escape the conclusion that we're at most months away from the brutal
recognition that Wall Street has managed to bankrupt itself (and, by extension,
the United States). This is the dark heart of the matter of which no one dares
speak.
Meantime, on the ground, every mook and minion in the land sees the gas
pumps levitate beyond the $4 hash mark, and notes with bugged-out eyes the
double-digit price stickers on common supermarket items, and feels the rush of
blood from the extremities when some checkout clerk at Wal-Mart declares that a
certain proffered credit card is maxed out, and some strangers in overalls --
the neighbors say -- managed to hot-wire the GMC Sierra in the driveway, and
took it away ...
The candidates for president will have a lot to talk about. I wonder if
they'll dare to.