The credit meltdown continues with the occasional temporary break in the action. Looking at the 5-day Dow(n), it looks like the shorts temporarily took over yesterday — running prices down through the day, with a partial recovery in the last hour or so as they unwind their positions and get out. Today, though, the minor blip up turned the other way and down she went. Another 500-point drop. OUCH.
The bailout package, as I expected, has done little to fix the problem — or even calm the “markets,” which I expected it would for a couple of weeks. It seems that CEOs don’t like the restrictions on their salaries or golden parachutes, so many have decided to “tough it out” and not take the bailout money. After all, the companies they run can go to hell as long as their own prosperity is ensured. The occasional punch in the face is small potatoes compared to leeching $300 million out of the company treasury, right?
In 1969, we fought the Vietnam war, sent some people to the moon and back — and balanced the budget. Of course, the highest income tax bracket at the time was 70%. If you look back, the most prosperous years of American history (that is, low unemployment, high savings, the most good for the most people) coincide with high taxes on excessive incomes. We lost our way, partly because we reached national peak oil in 1970–1 and became a net oil importer about the same time, and partly because we embraced this Randroid notion that wealth somehow equates to virtue. Then Reagan blew “morning in America” sunshine up our pants, and we took our eye off the energy ball.
Over the next few decades, wages essentially stagnated (except for the top execs, of course) and debt became a way of life for both individuals and the government. There was a brief period in the 1990s (the Clinton years), when the tax structure temporarily got saner, wages and employment improved markedly, and we had several years of budget surpluses. But that blip was followed by Bush-league and his record deficits and declining wages (almost as if he was trying to make up for lost time). So now we’re facing a huge glut of debt.
There are essentially two ways to destroy the excessive debt clogging the economic pipes: hyperinflation and outright cancellation (we can assume, probably correctly, that expansion is no longer an option). I don’t expect hyperinflation, as it’s a good way to destroy the wealth of rich and poor alike. Cancelling debt sounds like a messy affair, but in fact it can be done with much precision. It’s quite likely that they will cancel some debt (theirs) while leaving some other debt (ours) intact.
The guerilla war that the rich have been waging on the middle and lower classes is about to become an all-out war. Fortunately, some people have found a way to fight back: when you get the foreclosure notice, pay a lawyer $100 to write a letter asking for proof that they hold the note. Several people have said after that, they haven’t even been contacted for over two years! I suspect that, barring legislation that is extremely unlikely under an Obama administration, this ploy will work for a long time — to defeat it, they would have to detach the loan from the CDOs and all the other instruments that it’s a part of, which would mean all the mortgages would likely have to be unwound, and they don't want to do that.
At least for right now though, peak oil is no longer an issue. The entire world is staring at an oncoming major recession, maybe even a depression. Fewer jobs → fewer people commuting → less fuel being used → falling oil demand. We’ll go from just barely having what we need to having plenty, although most of us won’t be able to enjoy it. The question is, do we go down; and if so, how fast? Can we forestall, or even slow down, the decline by putting an end to telephone-number salaries?
James Howard Kunstler thinks we’ll go quickly now that (in his opinion) the decline has started. His theory is “The Long Emergency” — the combination of declining energy resources and the suburban lifestyle (long solo commutes from “McMansions” in oversized, inefficient vehicles) has irrevocably sent us over a cliff, where we’ll land with a messy splat in a de-industrial world. On the other hand, John Michael Greer espouses a theory of “catabolic collapse,” and backs it up with several historical examples. The word “catabolic” means to break down from a complex to simpler state; he envisions a long decline with occasional partial recoveries, or a drop to a level that might come to be thought of as “the new normal” until the next crisis sends the world down another stairstep. Eventually, we could (after several centuries) recover and invent an “ecotechnic society” in which technology combines with sustainable sources of energy and material. Such a society would support much fewer people than the current one, which is partly why it would take several centuries… the population would have to decline to a sustainable level first.
Crisis brings predictable folks out of the woodwork:
• The “imminent Rapture” crowd — but there’s no mention of the US in the Bible, unless you reeaaaaaaally stretch the interpretation. Nothing about “from across the Sea,” or “the uttermost west,” or any such. So if you buy the literalist End Times interpretation, we pretty much have to be removed from the scene before the Tribulation.
• Gold bugs — their disdain for “fiat money” is so obvious you can almost see them sneer as they type the phrase. Which is silly. Gold & silver have been one form of money — but so have pretty pieces of paper, cattle, and big stone discs with a hole in the middle. Money is basically whatever enough people say it is; if things collapse suddenly I’d rather have the food than the gold… if I really wanted gold for something, I could trade some food for it.
• Survivalists — beans and bullets, all too often with a terrible attitude about community.
Most of these folks tend to be “doomers” — the type who say disaster is imminent, billions of dead, etc. Whatever floats their boat, I guess. Doomers are saying that this is the week where “it all begins,” but I would have to disagree. It all began in the latter half of the 19th century, when we became dependent on fossil fuels to run our civilization. “It will run out some day, certainly,” they might have said, “but we’ll find something else long before then.” This might be the week that it becomes obvious, but I rather expect that “bargain hunters” will create a minor rally later this week or early next.