nostalgia for the present

This week's helping of Kunstler ...

Revolving Debt Cheap Energy Economy on Its Knees

Through the tangle of green shoots and sprouting mustard seeds, a certain nervous view persists that the arc of events is taking us to places unimaginable. The collapse of General Motors and Chrysler signifies more than the collapse of US car manufacturing. It spells the end of the motoring era in America per se and the puerile fantasy of personal liberation that allowed it to become such a curse to us.
Of course, many Nobel prize-winning economists would argue that it has only been a blessing for us, but that only shows how the newspapers are committing suicide-by-irrelevance. And if other societies, such as China’s late-entry industrial start-up, want to adopt a similar fantasy, they will only find themselves all the sooner in history’s garage with a tailpipe in their mouths.

Here in the USA, we will mount the most strenuous campaign to keep the motoring system going — in fact, we’re already doing it — but it will fail just as surely as two (so far) of the “big three” automakers have failed. It will fail because car-making is only one facet of a larger network of systems that is coming undone, namely a revolving debt cheap energy economy.

Americans will never again buy as many new cars as they were able to do before 2008 on the terms that were normal until then: installment loans. Our credit system is completely broken. It choked to death on securitized debt engineered by computer magic and business school hubris. That complex of frauds and swindles coincided with the background force of peak oil, which meant, among other things, that economic growth based on ever-increasing energy resources was over, and along with it ever-increasing credit. What it boils down to now is that we can’t service our debt at any level, personal, corporate, or government — and that translates into comprehensive societal bankruptcy.

The efforts of our federal government to work around this now, to cover up the “non-performing” debt and to generate the new lending necessary to keep the old system going, is a tragic exercise in futility. I’m not saying this to be “pessimistic” grandstanding doomer pain-in-the-ass, but because I would like to see my country make more intelligent choices that would permit us to continue being civilized, to move into the next phase of our history without a horrible self-destructive convulsion.

Another consequence of the debt problem is that we won’t be able to maintain the network of gold-plated highways and lesser roads that was as necessary as the cars themselves to make the motoring system work. The trouble is you have to keep gold-plating it, year after year. Traffic engineers refer to this as “level-of-service.” They’ve learned that if the level-of-service is less than immaculate, the highways quickly enter a spiral of disintegration. In fact, the American Society of Civil Engineers reported several years ago that the condition of many highway bridges and tunnels was at the “D-minus” level, so we had already fallen far behind on a highway system that had simply grown too large to fix even when we thought we were wealthy enough to keep up. Right now, we’re pretending that the “stimulus” program will carry us over long enough to resume the old method of state-and-federal spending based largely on bonding (that is, debt).

The political dimension of the collapse of motoring is the least discussed part of problem: as fewer and fewer citizens find themselves able to buy and run cars, they will feel increasingly aggrieved at the system set up to make motoring virtually mandatory for all the chores of everyday life, and their resentments will rise against the elite that can still manage to enjoy it. Because our car-dependency is so extreme, the reaction of the dis-entitled classes is liable to be extreme and probably delusional to an extreme, too.

You can already see it being baked in the cake. Happy Motoring is so entangled in our national identity that the loss of it is bound to cause a national identity crisis. In places like the American south, the old Dixie states, motoring lifted more than half the population out of the dust, and became the basis of the New South economy. The sons and grandsons of starving sharecroppers became Chevy dealers and developers of suburban housing tracts, malls, and strip malls. They don’t have any nostalgia for the historical reality of hookworm and 14-hour-days of serf labor in hundred-degree heat. Theirs is a nostalgia for the present, for air-conditioned comfort and convenience and the groaning all-you-can-eat Shoney’s breakfast buffet off the freeway ramp. When it is withdrawn from them by the mandate of events, they will be furious.

Given the history of the region and the predilections of its dominant ethnic group, one might imagine that they will want to take out their gall and grievance on the half-African politician who presides over the situation. Among the ever-expanding classes dis-entitled from the so-called American Dream, the crisis is only marginally different in other regions of the nation. Mr. Obama faces a range of awful dilemmas, and it is painful to see them go unrecognized and unacknowledged by his White House. It’s hard to imagine that the president and his elite advisors are blind to these equations, but as the weeks tick by they seem stuck in a box of limited perception.

We’re in a strange hiatus for now. “Hope” levitates the legitimacy of the dollar, the stock markets, and the authority of leadership. In the background, implosion continues, debt goes unpaid, banks ignore bad loans to keep them off their books, jobs and incomes vanish, cars and other things go unsold, and a tragic wishfulness strains to sustain the unsustainable. Our expectations are inconsistent with what is happening to us.

It will be very painful for us to walk away from the car-centered life. Half the population faces the ugly obstacle of being hopelessly over-invested in a suburban house and all the life-ways associated with it. There will be no easy way out for them, whatever they chose to do politically, whatever noise they make, whomever they scapegoat, whatever fantasies they cultivate about what the world owes them, or who they think they are.

Mr. Obama should not waste another week pretending that we can keep this old system going. The public needs to know that we will be making our livings differently, inhabiting the landscape differently, and spending our days and nights differently — even while we suffer our losses. The public needs to hear this from more figures than Mr. Obama, too, from leaders in the state capitals, and the agencies, and business and education and what remains of the clergy. But somebody has to set in motion the chain of recognition, or events will soon do it for us.

from our friends across the sea

More insight from James Howard Kunstler -


Waking Up from the Happy Motoring Dream

Something like a week remains before General Motors is reduced to lunchmeat on industrial-capital's All-You-Can-Eat buffet spread. The wish is that its deconstructed pieces will re-organize into a "lean, mean machine" for producing "cars that Americans want to buy," and that, by extension, the American Dream of a Happy Motoring economy may be extended a while longer.

This fantasy rests on some assumptions that just don't "pencil out." One is that the broad American car-owning public can continue to buy their cars the usual way, on credit. The biggest emerging new class in America is the "former middle class." Credit kept the remnants of the middle class going for decades after their incomes stopped growing in the 1970s. Now, their incomes have stopped coming in altogether and they are sinking into swamp of entropy already occupied by the tattoo- for-lunch-bunch. Of course, this has plenty of dire sociopolitical implications.

Unfortunately, the big American banks did their biggest volume business in their biggest loans at the very time that that the middle class was on its way to becoming former. Now that the former middle class is arriving at its destination, the banks are so damaged by bad paper that they won't make loans to even the remnant of the remnant of the middle class. In other words, the entire model for financing Happy Motoring is now out-of-order, probably permanently.

Even assuming some Americans can continue buying cars one way or another, I'm not convinced that we can make the kinds we fantasize about. Notice, nobody talks about hydrogen-powered fuel cell cars anymore. Why not? Because the technicalities and logistics could not be overcome at the scale required -- i.e. at the current scale of mass highway motoring and commuting. Sure, you could build a demonstration vehicle and run it around a test track a few times, but could you build a mass production car by the tens of millions that would run for 150,000 miles without a hugely expensive fuel cell change-out? No, at least not within the time-window that the liquid hydrocarbon fuel problem presented. Or could you construct a hydrogen fuel station (and product delivery) network replacing the old gasoline stations? Fuggeddabowdit. Hydrogen, as an element, was just too hard to move and contain. It's teeny-weeny atoms leaked out of valves and gaskets remorselessly and you couldn't pack enough into a tanker truck to make the trip to its destination worthwhile. Schemes to generate hydrogen on-board all ended up in the "perpetual motion" sink.

The current wish is that the dregs of GM and Chrysler will hire low- paid elves with no pension or health benefits and pump out hybrid and/or electric cars. It's conceivable that we could "reverse-engineer" a Prius or an Insight, but considering what a lousy job American car companies did on reverse-engineering everything that Japan or Germany pumped out over the past thirty-five years, the odds are pretty high that these new products will be just lame enough to fail against the established competition. What's more, they also present logistical and technical problems. For the hybrid, gasoline is still an issue (and Jevon's Paradox comes into play: the more efficient you make a means for using a resource, the more of that resource you will use). For both the hybrid and the electric car, the issue of how to get enough lithium for the batteries obtains, at least for now, given the current state- of-the-art battery technology. Most of this rare metal now comes from one place, Bolivia, and everybody wants "a piece" of it. Electric vehicles in large numbers depend on either coal or nuclear powered electric generation, each presenting special hazards. Both hybrids and electric cars would depend on the old installment loan purchase system -- at least to work in the current mode of suburban living, long-range commuting, and interstate highway travel.

Boone Pickens's plan of last year for converting the US car fleet to natural gas was another fantasy with wide appeal. But it depended on the companion fantasy of building massive wind-farm infrastructure on the great plains to shift natural gas use from power plants to vehicles, and the financial crisis has destroyed the capital necessary to even begin planning that project -- it even destroyed a large part of Mr. Pickens own capital reserves. Anyway, I would not be so sanguine about the long-term future of the shale gas plays that this scheme was based on. The depletion rates of these wells is horrendous and the amount of steel needed to keep production up is not consistent with the realities of the available infrastructure.

All the technologies under consideration are not likely to extend the Happy Motoring era. A prayerful reflection on them can only reinforce the specialness of oil and its byproducts -- cheap oil double-specially -- as well as reinforcing the reality that the cheap energy era itself is over. And, of course, in the play of events over the past several years we can see the relationship between cheap energy and easy credit, and how our entire economy has run aground, one way or another, on resource limits.

The implications of all this in the sociopolitical and geopolitical realms are pretty daunting. As long as we maintain Happy Motoring as the normal mode of existence in this country, we are going to see an ever-growing class of very resentful citizens pissed off at being foreclosed from it. In my oft-repeated scheme-of-things, this leads very quickly to the trap of political extremism, perhaps even corn-pone Nazism, as the system becomes increasingly difficult to prop up except by force. In geopolitical terms it leads to ever more dangerous international contests over the world's remaining oil reserves.

All this leads to two conclusions.

One is to accept the fact that the Happy Motoring era is over and to devote our remaining resources to re-localization, walkable communities, and public transit. It obviously requires a very drastic revision of our current collective self-image, of what we aspire to and who we are. If the car companies have any future at all, it should be based on making the rolling stock for public transit -- and for now the most intelligent choice for us is to fix the existing passenger railroad lines instead of venturing into grandiose new transit systems requiring stupendous capital outlays. Let the car era wind down gracefully. Triage and prioritize the highway maintenance agenda -- we won't be affluent enough to keep repaving the whole existing system -- and let other nations meet the diminishing demand for cars in the USA. This would be a "best case" scenario. (Other nations may decide to go further up the Happy Motoring road at their own eventual peril.)

My second conclusion is not so appetizing, namely that the bankruptcy of General Motors may set in motion a chain of events that will accelerate the destructive unwind of the bad credit economy, the damage to our bond values, the loss of faith in our currency, and the authority and legitimacy of our leaders. This last dire outcome might be allayed if, say, President Obama directed his policy efforts to the items in the paragraph above, that is, a reality-based agenda for true change in how we live -- but who can feel confident about that happening these days? Maybe it will take a horrifying chain of events to get Mr. Obama there. And then, tragically, he may be overwhelmed by the chain of events itself. I hope not.

the tangentiality of Peak Oil

I'm posting the item below without comment, except to say don't expect Peak Oil to be straightforward, don't expect it to manifest itself in the most obvious way and do read James Howard Kunstler whenever you can!


Peak Oil: The Collapse of Banking

What next? Isn’t that a question, though...

The Peak Oil story was never about running out of oil. It was about the collapse of complex systems in a world economy faced by the prospect of no further oil-fueled growth. It was something of a shock to many that the first complex system to fail would be banking, but the process is obvious: no more growth means no more ability to pay interest on credit... end of story, as Tony Soprano used to say.

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), collateralized debt obligations (CDOs), structured investment vehicles (SIVs), and, of course, the basic filler, mortgage backed securities. The banking system is now choking to death on these delicacies.The trouble is that the EMT squad brought in to rescue the banking system — that is, governments — can’t remove these obstructions from the patient’s craw. They don’t want to drown in a mighty upchuck of the alphabet soup.

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. Every week, the failure to recognize the nature of our predicament thrusts us further into the uncharted territory of hardship. The task of government right now is not to prop up doomed systems at their current scales of failure, but to prepare the public to rebuild our systems at smaller scales.The net effect of the failures in banking is that a lot of people have less money than they expected they would have a year ago. This is bad enough, given our habits and practices of modern life. But what happens when farming collapses? The prospect for that is closer than most of us might realize. The way we produce our food has been organized at a scale that has ruinous consequences, not least its addiction to capital. Now that banking is in collapse, capital will be extremely scarce. Nobody in the cities reads farm news, or listens to farm reports on the radio. Guess what, though: we are entering the planting season. It will be interesting to learn how many farmers "out there" in the Cheez Doodle belt are not able to secure loans for this year’s crop.

My guess is that the disorder in agriculture will be pretty severe this year, especially since some of the world’s most productive places — California, northern China, Argentina, the Australian grain belt — are caught in extremes of drought on top of capital shortages. If the US government is going to try to make remedial policy for anything, it better start with agriculture, to promote local, smaller-scaled farming using methods that are much less dependent on oil byproducts and capital injections. This will, of course, require a re-allocation of lands suitable for growing food. Our real estate market mechanisms could conceivably enable this to happen, but not without a coherent consensus that it is imperative to do so. If agri-business as currently practiced doesn’t founder on capital shortages, it will surely collapse on disruptions in the oil markets. President Obama at least made a start in the right direction by proposing to eliminate further subsidies to farmers above the $250,000 level. But the situation is really more acute. Surely the US Department of Agriculture already knows about it, but the public may not be interested until the shelves in the Piggly-Wiggly are bare — and then, of course, they’ll go apeshit.

The recent huge drop in oil prices has left the public once again convinced that the world is drowning in oil — if only the scoundrelly oil companies were forced to deliver it at reasonable prices. The public has been consistently deluded about this for decades. What’s missing so far is for the president of the US to lay out the reality of the situation in a dedicated TV address. I know a lot of you think that Jimmy Carter already tried this and failed to make an impression (and ruined his presidency in the process). I guarantee you that Mr. Obama will have to do this sometime in the next few years whether he likes or not, and he’d be well-advised to get it done sooner rather than later. And by this I don’t mean just vague allusions to "energy independence" or "renewables" in speeches devoted to many other issues. I mean telling the public the plain truth that we’ll never offset oil depletion and the intelligent response i s to do everything possible to transition to walkable towns and public transit, not to sustain the unsustainable.

The alternatives — i.e. what we’re trying now — is to further delude ourselves into thinking that we can run WalMart and the suburbs by some other means than oil. Despite all our investments in these things, we won’t be able to run them by other means, and the news about this had better get out before enormous disappointment turns into titanic rage. If Americans think they’ve been grifted by Goldman Sachs and Bernie Madoff, wait until they find out what a swindle the so-called "American Dream" of suburban life turns out to be.