A meltdown still in progress (Headlines from the Meltdown)
GENERAL COMMENT FROM CARDIN:
The meltdown has not been cancelled
America’s economic crash and fall from international supremacy are still proceeding nicely, notwithstanding the proliferation of early calls for “the end of the credit crisis,” which seems to be bandied around as a psychological euphemism for “Everything’s great again!” and also notwithstanding the proliferation of claims that there is no oil and energy crisis beyond prices that are high only because of the supposed mass activity of greedy speculators, and there’s lots of oil in various new and capped off wells anyway, and the whole market’s being manipulated just to drive up prices and hurt the little man, so it’s all just a made-up problem that could be fixed if only somebody would sue the bastards!
Ahem. Like I said, things are still melting down nicely despite early calls for the “all’s clear” signal. People around me in daily life here in southwest Missouri are starting to feel and talk about the definite squeeze they’re feeling from high gasoline prices, high food prices, difficulties with health insurance (something they’ve talked about for years), and more. And if they think the portion of their money that’s currently being eaten up by these things is already proving a bit of a strain, hoo boy, do I cringe to think what’s coming next.
But anyway, this week’s Headlines from the Meltdown post is coming late because of an exceptionally busy week and a half that I recently endured. And also anyway, I’m going to be transitioning back to posting about a wider swath of topics here at The Teeming Brain than just the matter of the mounting economic crisis that has dominated my blogging attention almost completely for maybe six or seven months now.
That said, I certainly encourage you to continue watching good headline aggregator sites (e.g., Prudent Bear), including ones that tend toward the overtly apocalyptic (e.g., the Breaking News page at Life After the Oil Crash, Carolyn Baker’s site, and others). And also watch mainstream financial news sites like Yahoo’s and CNN’s money pages, and like Bloomberg. It’s especially instructive to note how the performance of the financial markets on any given day can be so schizophrenically at odds with the same day’s news, events, and political pronouncements in this new order of things.
So anyway, enjoy the ride. Protect yourself and your loved ones. Brace for massive change. Educate yourself. And keep your wits about you.
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Bill McKibben, The Los Angeles Times, May 11
[Note: This op-ed is primarily about the urgency of addressing the problem of climate change due to mounting levels of carbon dioxide in earth’s atmosphere. In the opening paragraphs, excerpted below, McKibben does a nice job of placing the issue in the context of the wider passel of crises facing us all right now and, via their current pattern of relentless convergence, battering even constitutionally heedless Americans into submission to the fact that Big Problems are afoot.]
Even for Americans — who are constitutionally convinced that there will always be a second act, and a third, and a do-over after that, and, if necessary, a little public repentance and forgiveness and a Brand New Start — even for us, the world looks a little terminal right now.
It’s not just the economy: We’ve gone through swoons before. It’s that gas at $4 a gallon means we’re running out, at least of the cheap stuff that built our sprawling society. It’s that when we try to turn corn into gas, it helps send the price of a loaf of bread shooting upward and helps ignite food riots on three continents. It’s that everything is so tied together. It’s that, all of a sudden, those grim Club of Rome types who, way back in the 1970s, went on and on about the “limits to growth” suddenly seem … how best to put it, right.
All of a sudden it isn’t morning in America, it’s dusk on planet Earth.
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Kevin Phillips, Harper’s Magazine, May 2008
[Note: This excerpt is from a version of the article that is itself an excerpt from the full piece, which is available online only to subscribers.]
If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.
The corruption has tainted the very measures that most shape public perception of the economy — the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances — inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.
The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3–4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?
….The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today’s U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional “Pollyanna Creep,” what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally.
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Global Politician, May 11
Crisis is defined first as a “turning point” and secondly as a “crucial situation.” Currently the world is deep into the latter as it relates to energy and food, though inevitably the present situation will evolve into the former. The international community, and particularly the United States, must be willing to think differently about energy, food, and the environment. The current paradigm, as expressed by consumption and inaction, reflects an underlying belief that there will always be more and that this crisis, and others before it, are temporary. Just as society had to accept that the Earth is not flat and the Sun is the center of the universe, we must now accept that oil is not a renewable resource and that how we live today will determine how our grandchildren live tomorrow. We must think about problems in a new way or we will never generate a new reality; we are, in fact, destroying our current reality.
The gas crisis is primarily the result of demand exceeding supply. The increased consumption of emerging economies in Russia, China, and India are adding pressure to a supply already strained by extreme over-consumption in the United States (which accounts for 25% of all oil and gas used in the world). There are also emerging economies in the Middle East experiencing rapid growth as a result of oil profits, which are in turn withholding greater amounts of produced oil for internal use. The dependence of the Western World on oil allows oil-producing nations to use the price and production of crude oil as a unique form of economic sanction and a highly effective political tool. The U.S. wars in Iraq and Afghanistan, coupled with generally tense relations between the West and Middle East, only serve to exert more stress on the global oil markets. Certainly this is an oversimplified explanation of a complex situation, but one need not be an economist or a geologist to understand that one day, in the not so distant future, the oil will run out.
….Like the gas situation, the food crisis is also chiefly the result of the demand/supply ratio; however, with the gas crisis the pressure is on the demand side of the equation (for now), whereas with the food crisis the pressure is on the supply side. It is true that there is an increased demand on the world’s food supply from swelling populations and incomes in China and India, and the rising gas prices are forcing the cost of producing and transporting crops up, but at the root of the food crisis are more fundamental environmental and agricultural issues.
….Neither the gas crisis nor the food crisis is the real problem. The problem is not the mortgage crisis, the AIDS crisis, or a crisis of economics. The real crisis is one of thought. As a world, a society, as people – we are in the midst of a thinking crisis. Instead of focusing on how to get cheaper gas, we must think about how to fuel our world and our lives without gas. Instead of thinking about feeding the world today, we must figure out how to sustain a larger global population tomorrow. We must accept that once we change our thinking, we must align our behavior accordingly. We must learn to value progress over convenience, life over lifestyle. We must acknowledge that we are citizens of a global community, and realize that neither nature nor natural resources recognize our superficial political boundaries.
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Paul Krugman, The New York Times, May 12
“The Oil Bubble: Set to Burst?” That was the headline of an October 2004 article in National Review, which argued that oil prices, then $50 a barrel, would soon collapse.
Ten months later, oil was selling for $70 a barrel. “It’s a huge bubble,” declared Steve Forbes, the publisher, who warned that the coming crash in oil prices would make the popping of the technology bubble “look like a picnic.”
All through oil’s five-year price surge, which has taken it from $25 a barrel to last week’s close above $125, there have been many voices declaring that it’s all a bubble, unsupported by the fundamentals of supply and demand.
So here are two questions: Are speculators mainly, or even largely, responsible for high oil prices? And if they aren’t, why have so many commentators insisted, year after year, that there’s an oil bubble?
….[T]he rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.
….[A] realistic view of what’s happened over the past few years suggests that we’re heading into an era of increasingly scarce, costly oil.
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BusinessWeek.com, April 29, 2008
Recent headlines — Citigroup’s layoffs, Iceland’s sudden downturn, worldwide food shortages, etc. — suggest serious global turmoil is ahead. All companies, and multinationals in particular, should be prepared to withstand it.
Unfortunately, many are not. Traditional forecasting and budgeting systems produce linear projections insufficient for risky, uncertain times. What’s needed is scenario planning, where companies stress-test their strategies and processes against a wide range of future scenarios to identify their vulnerabilities. Thus informed, the companies can adjust them to be more responsive and resilient.
But scenario planning often takes a backseat to more immediate concerns: developing new products, fighting an aggressive competitor, meeting earnings targets. So when large-scale external events hit, their impact is seismic.
[Note: The remainder of the article offers advice to companies about scenario planning in the face of the predicted global turmoil.]
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Peter Schiff, Financial Sense University, May 9, 2008
For those holding out hope that the American economy can miraculously avoid a long and deep recession consumer credit is often viewed as the wonder drug that can cure all manner of economic ills. As such, this week’s report showing $15 billion growth in consumer credit was widely heralded as proof of America’s economic strength and resilience. However, we are now suffering the after effects of too much debt, and our salvation cannot be found in more of the same.
Credit card debt, which now stands at whopping $957 billion nationally (approximately $3,000 for every citizen) has, in recent years taken on a different role in American life. While in the past cards were used primarily to purchase big ticket items, spreading out costs over many months, they are now increasingly used to bridge the gap between cost of living and the diminishing purchasing power of Americans who have been taxed mercilessly by inflation. By buying with available credit instead of unavailable cash, consumers are not simply postponing the pain of higher prices, but compounding it by adding interest to the cost of everyday purchases. In addition, as home equity credit is now unavailable to fund large purchases, many consumers are turning to non-deductible, higher cost credit card debt as the last remaining life line. As such, credit card debt compounds steadily, and for many borrowers, becomes increasingly impossible to pay down.
….It should be painfully obvious that expanded consumer credit is not evidence of improvement, but simply, deterioration. Unfortunately, when it comes to understanding the economy, there is little common sense on display. By going even deeper into debt just to make ends meet, American consumers are digging themselves, and our entire economy, into an even greater economic hole and laying the foundation for the next major credit debacle. It’s fitting that just as both Treasury Secretary Paulson and JP Morgan CEO Jamie Dimon declared that the worst of the crisis has past, we are on the verge of kicking the whole thing into a much higher gear!
….Soon, as credit card delinquencies rise and losses on pools of securitized credit card debt mount, those supplying the credit will finally get wise to the fact they will never get their money back. As a result the market for such debt will dry up even more quickly than did the market for subprime mortgages. Cards will therefore be much harder to come by and will have much lower limits then they do today. Limited to only the cash in their wallets, Americans will finally be forced to dramatically curtail their spending, and the recession will finally gather serious momentum.
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The Christian Science Monitor, March 14
Two years ago a leading economist published a study provocatively titled: “What would $120 oil mean for the global economy?” Answer: a global recession, if the price stayed there for a year.
Now the future has arrived, with the United States and other nations getting a double whammy from both the mortgage crisis and oil futures hovering at $120 per barrel. If oil prices stay stratospheric, the cost of fueling cars and planes could slash US economic growth up to 2.3 percent and global growth by 3.6 percent, says Robert Wescott, former chief economist of the president’s council of economic advisers and author of the $120 oil report.
While many energy-security experts worry about a terrorist attack that suddenly crimps global oil supplies and hammers the US economy, Dr. Wescott and other experts say a terror attack is hardly the only, or even the worst, oil threat the nation now faces. “What we are seeing today is more of a slow-motion, rolling oil crisis rather than a sharp shock, yet ultimately we end up with the same sorts of impacts [as a terror attack],” says Wescott, now president of Keybridge Research, a Washington economic-consulting firm.
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James Howard Kunstler, Clusterfuck Nation, May 4
[T]he basic situation is this: the world is awash with bad investment paper. The standard of living in the US can’t be supported on debt anymore. The people of the US don’t produce enough real value to service their debts. Institutions can no longer be supported on debt gone bad. Something’s got to give — meaning something has to bring the US standard of living down to a level consistent with our declining actual wealth.
Everything else going on right now is a dodge. The Fed maneuvers, the “coordinated actions” of the western central banks, the postponements of default, the non-disclosure of contents in bank portfolios, the pretense that risk alone is a kind of fungible resource that can be endlessly traded to generate fees — all this fucking nonsense will only make the eventual unwinding much worse.
Personally, I doubt that it can go on more than a few more months. The velocity of everything is going up past the “red line” where things really fly apart. The increased velocity of non-performing mortgages and deadbeat credit card accounts is one thing that can’t be hidden or escaped. America will feel and see very vividly when the repossession teams rush families from their homes, when the pickup truck is taken away, and when the pink slip appears in the pay envelope. Meanwhile all the higher-end banking shenanigans will only debase the dollar and make it more difficult for people already in distress to buy gasoline and food.
If the bankers and treasury officials collude to prop up one more failing big bank a la Bear Stearns, the political fallout for Wall Street could be lethal. In any case, I think we will have a way different sense of ourselves as a society by the time the election comes.
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John Michael Greer, The Archdruid Report, May 7
The current round of global troubles — the peak of conventional petroleum production worldwide, soaring prices and incipient shortages in other commodities, spiraling breakdowns in the international debt market, and the fraying of America’s global empire — marks, in this analysis, the onset of one of the periods of crisis mentioned above. If this is the case, we face several decades of serious social, economic, and political turmoil, with a high likelihood that many of these troubles will spill over onto the battlefield. As I’ve suggested elsewhere, the period between 1929 and 1945, with its economic crises, political horrors, and global power struggles ending in a brutal world war, may make a tolerably good model for the period now dawning around us.
If I’m right — and every discussion of the future needs to start with those unpopular words — the future for which we have to prepare has two aspects, one overarching, one immediate. The overarching aspect is the slow curve of decline I’ve called the Long Descent, the final trajectory of industrial civilization toward its death. The immediate aspect is the need to deal with the particular round of crises breaking over us just now.
….[I]t’s problematic to insist, as a number of internet bloggers did recently, that the discovery of a new oil resource in North Dakota means that peak oil is no longer a problem. On a global scale, with most of the world’s oil producing countries and most of its supergiant fields already in decline, the Bakken shale simply doesn’t make that much difference, and planning for a future that will allow us to keep up the extravagant energy-wasting lifestyles of the recent past will likely have disastrous results.
Yet it’s just as problematic to insist that the current wave of crises will inevitably spin out of control into a fast crash that will bring industrial civilization to its knees. That claim carries its own agenda of actions for the future, and if the claim turns out to be inaccurate, many elements of that agenda could all too easily prove to be dysfunctional. Moving to an isolated rural area and making a go of subsistence farming is not a viable strategy for everyone, for example, and even those who are well suited to that life might turn out to have made a dysfunctional choice if the fast crash fails to arrive on schedule.
If the end of the industrial age turns out to be a longer and more complex process than fast-crash advocates suggest, in fact, isolated rural areas may not be the best places to start small farms at all. Truck gardens and organic food production on the outskirts of small and mid-sized cities will be much better positioned to thrive in a world where markets still exist but transport costs are a major limiting factor. In some areas this is already happening; the explosive growth of farmers markets, community-supported agriculture schemes, and direct sales of local produce to local restaurants have put down the foundations on which local and regional food production networks could easily grow. Fostering the emergence of such networks could contribute much to the future. So could the evolution of many other economic specialties that are irrelevant in the context of a fast crash, but not in the more complex terrain I suspect the future holds for us.
….[Y]ou won’t find many people preparing to make the transition from today’s high-tech economy to the less complex, more impoverished, more fragmented, but still industrial economies that I expect to emerge from the Great Recession and global troubles of 2010-2030 or thereabouts. Nor will you find many people seriously taking on the role of cultural conserver that will be desperately needed if many things of value are to get through the deindustrial dark ages of 2200-2600 or thereabouts, and reach the successor cultures that will emerge beyond it. As I see it, these are among the crucial tasks before us; they could make the long road to the deindustrial future more bearable, and pass on important gifts to the future; but…they will not happen if the people who could make them happen get caught up in premature proclamations of triumph or catastrophe.