While America burns

Even as a wave of nausea washed across the US last month, and unemployment rolls swelled by much more than another half million, the greatest stock market rally in seventy years succeeded in pulling in the last of the credulous suckers. These are strange days. 

The earth is heaving and the buds swelling again – at least north of the equator, where most of theaction is – and the global economy, which was supposed to be a permanent add-on to the human condition, is sloughing away in big horrid gobs. But no one in charge of anything can believe it. The banking fiasco has introduced so much noise into the system that world leadership can’t think straight.

What they’re missing is really simple: peak oil (now expected due in 2020) means two things: the supply of oil will start to decline, and its price will begin to rise to the point that it is no longer a viable source of energy for general use. That means no more ability to service debt at any level, personal, corporate, or government. End of story. All exertions being performed in opposition to this basic fact amount to a spastic soft-shoe shuffle performed before a smokescreen concealing a world of hurt. If “quantitative easing” (printing money) and fiscal sleight-ofhand do happen to jack up the “velocity” of the new funny-money, and the world resumes its previous level of oil use, the price of oil would rise again – astronomically, because the previous crash of oil prices crushed the development of new oil projects to offset depletion – and the global economy will crash again. Except that the next phase of the disease is liable to move beyond the financial, and into the social and political realms. Disorder of various kinds will rule – toppled governments, civil unrest, international tension and conflict.

The US is doing everything possible to avoid these awful realities, but probably the worst self-deception is the idea that everything would be okay if we could only “re-start lending”. That’s just not going to happen. There is no more capacity to service the debt we’ve already piled up. Americans borrowed too much, and the bankers who made obscene fortunes in fees and bonuses on fraudulent lending managed to leverage this unpayable debt into the greatest collective swindle the world has ever known. The swindle has sent poison into every cell of the macro socio-economic organism, and further swindles are unlikely to revive it. 

The rally in stocks, the financials in particular, could go on for another month or two at best. In the meantime, banks are striving desperately to avoid calling in more bad loans – especially in commercial real estate, malls, strip malls – because they don’t want more losses on their balance sheets. That, too, can only go on for so long. Sooner or later the fundamental transactions of business lose legitimacy, and something’s got to give.
My guess is that, quite soon, it will take the form, of wholesale liquidations of everything under the North American sun: companies, households, chattels, US Treasury paper of all kinds, and, of course, the S&P 500. We’ll soon find out whether an organism the size of the United States can run an economy based on one family selling the contents of its garage to the family next door. My guess is this type of economy won’t support the standards of living previously enjoyed in places like Dallas and Minneapolis.

The socio-political fallout from the inherent anger and disappointment in all this is liable to be severe. The public is already warming up for it, with cheerleaders such as Glen Beck on Fox TV News calling for the formation of militias, and gun sales moving out of sight. One mistake that the banking elite and their lawyer paladins made in the past decade was their show of conspicuous acquisition – of houses especially – in easy-to-get-to places for
angry mobs, like Fairfield County, Connecticut, or Easthampton, New York. Unlike the beleaguered elites of South Africa (where I visited recently), who live behind layers of fortification, the executives of Citibank, Goldman Sachs, JP Morgan, and a long list of hedge funds, will be found cringing in their wine-cellars behind a measly layer of private hedge when the tattooed minions of Glen Beck come a’calling. 

This could perhaps be avoided if someone in authority, like US Attorney General Eric Holder, took an aggressive interest in the multiple swindles of the decade past, and commenced some prosecutions. But the window of opportunity for this sort of meliorating action may close sooner than government, and the media, believe.
Once the first window is broken, all bets are off for social stability. My guess is that, in the eyes of the increasingly flammable public, the bailout gifts to the bankers already went too far some time back.

The US has no previous experience with this type of social unrest. The violence of the Vietnam era will look limited and reasonable in comparison – in the sense that it was an uprising on the grounds of principle, not survival. And the US Civil War was a wholly regimented affair between two rival factions. This time, people with little interest in
principle, beyond some dim idea of economic fairness, will be hoisting the flaming brands out of sheer grievance and malice. By the time Lloyd Blankfein – Goldman Sachs Group CEO who, in 2007, received a total compensation of $5.4m – sees the torches flickering through his privet, it will be too late to defend the honour of his cappuccino machine.

President Obama will have to change his current game plan starkly if this outcome is to be avoided. I think he’s capable of turning off the mob – of preventing the grasshoppers from turning into ravening locusts – but it may take an extraordinary exercise in authority to do it, such as the true (not pretend) nationalisation of the big banks, engineering the exit of Ben Bernanke from the Federal Reserve, sucking up the ignominy of having to replace
failed regulator Tim Geithner in the Treasury Department, and calling out the dogs on the swindlers who had the gall to play their country for a sucker.

As I’ve averred more than a few times before, the standard of living in America has got to come way down. We mortgaged our future and the future has now begun. Tough noogies for us. But the broad public won’t accept the reality of this as long as the grandees of finance, and their myrmidons, still appear to be enjoying the high life. They’ve got to be brought down hard, perhaps even disgraced and humiliated in the courts, and certainly
parted from some of their fortunes – if only in lawyer’s fees. Mr Obama pretty much served notice to this effect last month, telling a delegation of bankers to the White House that he was the only thing standing between them and “the pitchforks.” It’s just possible he understands the situation. 

Kunstler is a well-known US political commentator whose blogs can be found at www.Kunstler.com