Use access key #2 to skip to page content.

Obama will have to start announcing things like bank holidays, nationalizations, possibly even dollar devaluation.



February 16, 2009 – Comments (9)

Kunstler's  President's Day

      A creepy feeling ushers in President's Day this year as the suspicion grows that nobody in charge of anything knows what what to do next. The usual yin-yang consensus has solidified in congress along party lines, both equally idiotic. In the White House, Mr. Obama is under excruciating pressure to "do something" as systems unravel and economies augur into darkness. Amid all the anxiety and raging cluelessness, one thing is clear: we're doing everything possible to evade reality.
     The reality we can't face is that one way of life is over and a new one is waiting to be born. It's been waiting, really, since the early 1970s, when God whacked the USA upside its head to announce that we'd outgrown our once-stupendous domestic supply of oil. I remember those fervid months following the OPEC oil embargo of 1973 (I covered the story as a young newspaper reporter.) The basic message was this: from now on we'll be running this show on other people's oil so we better start doing things differently. Back then, the not-yet-lost-in-a-fog-of-greed Baby Boom generation rolled up its tie-dyed sleeves and got to work doing a lot of forward-looking things: micro hydro-electric, passive solar houses, rural homesteading, the next generation of public transit (BART, the D.C. Metro), the first wave of urban gentrification....
     Then, in 1979, the Ayatollah tossed out the Shah of Iran, we got another dose of oil problems, and a year later, President Jimmy Carter's clear-eyed view of the oil situation as "the moral equivalent of war" got overturned in favor of Ronald Reagan's dreadful Hollywood nostalgia projector. As usual in times of severe social stress, the public got delusional. Mr. Reagan was very lucky. During his tenure, two of the last great non-OPEC oil discoveries came into full production -- Prudhoe Bay, Alaska and the North Sea -- and took the leverage away from the Islamic oil nations who had been making us miserable with their threats, embargos, price-jackings, and hostage-takings.
     Americans drew the false conclusion that Ronald Reagan was an economic genius (a similar thing happened in Great Britain with Margaret Thatcherism). The price of oil went down steeply while they were in office. Britain could kick back and enjoy it's last remaining industry, banking, on a majestic cushion of energy resources. The USA resumed its major post-war industry: suburban sprawl building. Reaganism got elevated to the status of a religion, though it was little more than a twisted version of Eisenhower-on-steroids. Under Reagan, WalMart embarked on its campaign to destroy every main street economy in the nation. The Baby Boomers came back from the land, clipped their pony tails, discovered venture capital, real estate investment trusts, securitization of "consumer" debt, and the Hamptons. Greed was good. (No, really....)
     The first President Bush's Gulf War jolted the oil markets briefly, but Saudi Arabia was demonstrably on our side in that conflict, while the non-OPEC oil supply was goosed up by production from Mexico's giant Cantarell field. The slight economic shudder caused by the Gulf War was enough, though, to unseat Bush Number One in favor of the Boomer Bill Clinton. A puzzling figure in many ways, articulate and magnetic, Bill Clinton was hardly a reformer, surely not in terms of the national lifestyle. He was in so many ways an exemplar of it. He'd been governor of WalMart's home state (and his wife sat on its board of directors). He was a pure product of the New South, the sunbelt, with its economy literally driven by everything connected to cars -- new suburbs, malls, fast food huts, Nascar. He wasn't about to pull a Jimmy Carter and try to prepare the people for some harsh realities.
     Really nobody saw what was going on during the Clinton years. The public was sleepwalking in a Martha Stewart nesting fantasy. Clinton was as lucky as Reagan. The only geopolitical conflict he faced was the Balkan gang-war that attended the collapse of Yugoslavia. Baby Boomer greed went into overdrive during the Clinton years as the former hippies hit their mid-life career strides, epitomized in billionaire-worship and the eventual money-grubbing book deals both Clintons made on departure. Does anyone remember Mr. Clinton saying, even once, that an economy based on suburban sprawl building and car dependency might not be such a good thing? Of course not. Under Clinton, the SUV became our new national bird. The price of oil flat-out crashed while Clinton was in office, sinking to the $10-a-barrel range by the time he handed over the White House keys to Bush Number Two.
     Poor dim "W" rode his generation's last wave of cultural inertia into two terms as little more than custodian of things set into motion by others years before. Reality was shifting starkly "out there" but "W," raised in the protective globe of great wealth, coddled in made-to-order business deals, surrounded by political triumphalists and Jesus Jokers, couldn't see through the brush-piles in his mind. (Maybe it was all that cocaine from the years before.) He paid lip service to a murky notion called "energy independence," but to him that just meant finding a home-grown way to maintain extreme car dependency and all its perilous usufructs. The 9/11 tragedy allowed him to pretend to be a man-of-action, but as the various wars and occupations ground on, "W" more or less disappeared into the deep groove of his own limited programming.
     During those years, more than a few things happened to inform the American people -- not all of whom were dim, of course -- what was up. For one, a cohort of senior geologists retired out of service to the oil industry and started publishing their own dark thoughts about the world's energy future. The discussion of these matters spread to the internet, where it grew in clarity and insight. We began to understand, for instance, the connection between our energy predicament (peak oil, so-called), and the growing parallel fiasco in hypertrophic debt creation that was driving the banking system and threatening to wreck it.
      Now we've arrived at the moment of wreckage. Meanwhile, Barack Obama sailed into the White House on a tide of "hope" for "change." The change was unspecified, by both Mr. Obama and the general public (and the news media that audits its thinking). What is dogging many of us who supported Mr. Obama is the delayed entrance of much-vaunted change. At this moment of "stimulus" and TARP-II, it seems to have been about a desperate attempt to preserve the hypertrophic debt economy of "miracle" mortgages, blue-light-special shopping on credit cards, and endless happy motoring at all costs. And by "all costs" I mean literally bankrupting our society at every level to keep on living as if it were still 1999. This naturally alarms those of us who perceive a need for more drastic reprogramming in American life.
     Mr. Obama is not dim. The euphoria that attended his election was largely about acquiring a leader of first-rate intelligence and sensibility, compared to his lamentable predecessor. I like to think that Mr. Obama really does know what's up -- that "change" means we have to live a lot differently, not mount a campaign to sustain the unsustainable. I suspect that President Obama has learned over the last several weeks that the nation's banking system and economy -- indeed, the whole world's -- are in way worse shape than anyone imagined before January 20. He is faced with the immediate crushing problem of appearing to do something while a tsunami of catastrophic debt deleveraging sweeps away the first outlier nations and their economies and bears down on the G-7. I suspect that in a few weeks, or possibly even a few days, Mr. Obama will have to start announcing all kinds of new and more drastic measures that will shock the stunned American public -- things like bank holidays, nationalizations, possibly even dollar devaluation.
      As I've said more than once, I believe this basically honest and intelligent president will have to take on the role of the nation's hand-holding camp counselor or school teacher. When the time comes that he assumes this role, I think he'll do it pretty well, even though great pain and misery will be abroad in this land. 

9 Comments – Post Your Own

#1) On February 16, 2009 at 11:26 AM, ayekappy (< 20) wrote:

I'm confused.  This article was mostly about oil and then loosely associated it with banking and then said out of nowhere deleveraging.  With everyone in super doomsday mode I am starting to become a bull again.  Banks can deleverage by taking on more assets instead of just unloading bad assets.  Credit market is getting healthier.  Lots of speculation that most countries took the biggest blow in Q4 to get it over with, especially Germany.  People are talking more and more like it's going to be the next doomsday.  I bet shit would have gotten like this a lot more in the past if people had in the internet during the last bajillion economic crisises the people of the world have survived through.  

 Reading the silver boards is even funnier, SLV is worthless, get real physical silver and guns and ammunition.  

 This shit is Y2K part two.  Yeah it blows and will be tough for a while, but the level of people thinking that Zeitgeist is coming true need to stop buying so much into the hype.

 Not that you are being too sensationalist, but everyone is talking about this disaster like it was prophesized or plotted out over the last 40 years.  Plus all the young 20 somethings haven't really been through an economic crisis before so the chicken little effect is probably more amplified.

Report this comment
#2) On February 16, 2009 at 11:50 AM, Rehydrogenated (33.31) wrote:

American politicians are some of the most immoral, greedy, two-faced SOBs in the entire world. What makes you think they will let America go back to living a less extravigant lifestyle because of some "dependency" or another without putting up a fight?

We will win the depression. One way or another...

Report this comment
#3) On February 16, 2009 at 2:05 PM, Jimmy2008 (< 20) wrote:

How can we devalue the dollar? We don't use the gold standard anymore. In Forex, currencies are traded freely. How much control would the government have through intervention?

Report this comment
#4) On February 16, 2009 at 6:32 PM, buildgreen (< 20) wrote:



good post. All this panic is and doomsdaying is crazy. It has a feel of if "I look really hard at a static screen Ill see a dolphin". Its easy to see what you look for.. doesnt mean it’s there. Economies exist so that we can trade for things we want.. Ill be scared when we stop wanting things. Until then it is just about figuring out how to trade for those things we want. 

Moreover I think you are on to something when you speculate that the internet feeds into this hysteria much more... Id bet that a couple days after the S&L crisis there were some really crazy dudes at a bar ranting and raving while getting hammered with their non devalued dollars but being mostly ignored.. Today they find you tube and an overly vocalized crowd like them.  

Report this comment
#5) On February 16, 2009 at 8:17 PM, nuf2bdangrus (< 20) wrote:

So far Obama has squanders his great political capital and allowed nanci Pelisi and the rest of the hard left borrow a TRILLIOJN dollars to fund their pet socialism projects, not the least among them unding the CLinton welfare reform, and more aid to bankrupt states and cities, whichj is just money down the drain.  We refust to acknowledge the bankruptcy of our ways.

Report this comment
#6) On February 17, 2009 at 4:00 AM, AnomaLee (28.90) wrote:

Bank holidays are a possibility...

Nationalization is a better alternative than what our officials are presently doing. How about further globalization(globally coordinated nationalization)?

I'm certain at this point that there will be another Bretton Woods -type system. I've wrote about this several times. At the rate that nation-states are expanding credit(borrowing from the future to sustain today) it is becoming inevitable.That is the jist of this post, but it does wave through many topics.

If the global financial system and particularly the G-7 are unable to come to terms with one another then currency devaluation and greater systemic risk is guaranteed. I'm certain human behavior will repeat itself across the globe and lead politicians to guarantee that their constinuents real estate prices and industries of employment do not continue to adjust to natural rates. 

We're likely to suffer through months and years of systemic patching, deficit expansion, and then monetization until these people decide to sit at the table to discuss reality.

- Plus all the young 20 somethings haven't really been through an economic crisis before so the chicken little effect is probably more amplified.

I'm in my 20's and I would like to know how many times have you seen witnessed a financial situation equal to today?

Economies exist so that we can trade for things we want.. Ill be scared when we stop wanting things. Until then it is just about figuring out how to trade for those things we want.

The reality is that the majority of the 6 billion people on this planet do not individually posses goods or services of value to offer that other people want. Even if this weren't true it wouldn't matter. People may have an "unlimited desire" for something but that is meaningless to demand if they do not have the means to acquire "it". This is where the definition of demand is important.

Report this comment
#7) On February 17, 2009 at 5:33 PM, buildgreen (< 20) wrote:

I would imagine that if you look in your closet you have plenty of things that others want. Ebay it...If you dont have a skill of value to others then you should work on it otherwise How do you provide value to your employer or customers? Do you not have a skill set of value? Of that 6 billion you mentioned half are still subsistence farmers so how will our banking problems impact them?  Point is life goes on. Even in our great depression people bought suites, went to work, ate at diners, listened to radio broadcasts, built dams, mined coal, and on and on.

I maintain that this fear is ridiculous. Life will go on and we will find our way through this. We have been through downturns of all sorts before. now we experience one of this type.. the next one will be from some other ending culprit yet Id wager a great deal that an economic system will march forward. 

Report this comment
#8) On February 18, 2009 at 7:02 PM, Mary953 (85.32) wrote:

We are a nation of consumers, fueled by TV shows, bombarded by ads, in an economic situation that rewards spending and penalizes saving (check your tax forms).  Even the stimulus packages create more incentives to spend. The greatest change between Carter and Reagan was the attitude that accompanied them.  Carter talked about a malaise of the spirit, a defeatest sound to his voice.  He spoke slumped in a wing-chair that was much too large for him, wearing a cardigan sweater (an attempt to encourage Americans to dress more warmly and save energy)  His mood was gray.  Reagan walked in and said, "You are Americans, for God's Sake. Act like it." 

I hope and pray that our President, who is charismatic, personable, and intelligent is not persuaded by the "old guard" around him to spend his political capital on 'agenda' items that do nothing to move his plans or our country's needs forward.  In honesty, we will need for him to be a great deal stronger than that.  I have seen presidents before him be convinced that they were wrong and the crowd around them was right, only to make some terrible mistakes.

Report this comment
#9) On February 19, 2009 at 2:43 PM, abitare (29.59) wrote:


Great replies, good discussion. Nothing to add.

Report this comment

Featured Broker Partners