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http://kunstler.com/cluster****-nation/commotion/

Commotion

by James Howard Kunstler

Now that Lawrence Summers has removed himself from consideration as Federal Reserve chairman, President Obama is free to launch him into Syria as the first human rehypothecation weapon of mass destruction, where he can sow enough confusion between Assad’s Alawites and the Qaeda opposition to collateralize both factions into contingent convertible capital instruments buried in the back pages of Goldman Sachs’s balance sheet so that the world will never hear of them again — and then the Toll Brothers can be brought in to develop Syria into a casino / assisted living complex that will bring hundreds of good jobs to US contractors in the region.

No doubt the stock markets will fly like eagles today. Nobody knew what monkeyshines Mr. Summers might have pulled over at the Fed and it was making investors nervous, as well as the big banks who employed Mr. Summers occasionally as some kind of policy bagman. So a big sigh of relief blew over the Northeast Region of the nation like the gusts of autumn air that swept away a fetid hump of stale, wet tropical weather that ruined all the ladies’ party hair in the Hamptons this month.

Now that Syria has been disposed of — that is, indefinitely consigned to failed state purgatory — the world can focus its remaining attention on the almighty taper. I’m with those who think we’ll get a taper test. That is, the Fed will cut back ten or fifteen percent on its treasury bond purchases to see what happens. What happens is perfectly predictable: interest rates shoot above 3 percent on the ten-year and holders of US paper all the world round fling them away like bales of smallpox blankets and… Houston, we’ve got a problem. After a month (or less) of havoc in the bond market, and the housing market, Mr. Bernanke will issue an advisory saying (in more words than these) “just kidding.” Then it will be back to business as usual, which is to say QE Forever, which might as well be saying “game over.”

One must feel for poor Mr. Bernanke. He’s tried to run a long-distance foot-race against reality and now it’s breathing down his neck near finish line. The idea was to pump enough artificial “money” into the economy to give it the appearance of motion, but all he accomplished in the words of my recent podcast guest, Eric Zencey, was a commotion of money, and the commotion was pretty much limited to a few blocks of lower Manhattan, two ribbons of real estate running up the East Side and Central Park West, and a subsidiary disturbance out on the South Fork of Long Island. Everybody else in the country was left to stew in a tattoo-and-malt-liquor torpor at the SNAP Card application office.

The Fed can only pretend to try to get out of this self-created hell-hole. The stock market is a proxy for the economy and a handful of giant banks are proxies for the American public, and all they’ve really got going is a hideous high-frequency churn of trades in conjectural debentures that pretend to represent something hidden in the caboose of a choo-choo train of wished-for value — and hardly anyone in the nation, including those with multiple graduate degrees in abstruse crypto-sciences, can even pretend to understand it all.

When reality crosses the finish line ahead of poor, exhausted Mr. Bernanke, havoc must ensue. All the artificial props fall away and the so-called American economy is revealed for what it is: a surreal landscape of ruin with nothing left but salvage value. Very few people will get a living off of the salvage operations, and there will be fights and skirmishes everywhere by one gang or another for control of the pickings. The utility of money itself may be bygone, along with the legitimacy of anyone or anything claiming institutional authority. This is what comes of all attempts to get something for nothing.

By the way, for those of you still watching the charts, notice that gold and silver may bob up and down week-by-week, but the price of oil remains stubbornly above $105-a-barrel no matter what happens. That is the only number you need to know to predict the fate of industrial economies.

Gassy Politics

First: Paul Sabin’s stupid op-ed in The New York Times Saturday shows how intellectually bankrupt and pusillanimous the “newspaper of record” has become, in step with the depraved and decadent empire whose record-keeper it supposedly pretends to be. Sabin is flame-keeper for the theories of the late cornucopian demi-god Julian Simon, a business school professor whose great idea stokes the wishful thinking that has overtaken a class of American leaders who ought to know better, and spread through the public they serve like a fungal infection of the brain. The core of Julian Simon’s great idea is that material resources don’t matter; human ingenuity will overcome all limits.
    
  Maybe that’s a temporarily comforting thought for leaders in business, media, and politics, who don’t want to face the realities of peak resources and climate change, but it guarantees a harsher economic outcome since the wishful public will do nothing to prepare for the very different terms of daily living that are already shoving them into hardship and desperation.

     Julian Simon, who died in 1998, is best remembered now for a bet he made in 1980 with biologist Paul Ehrlich, author of The Population Bomb. The bet was supposed to determine whether the converging difficulties of our time should be taken seriously. The two men picked a menu of commodity metals and bet whether the price would rise or fall by 1990. Ehrlich bet that scarcity would drive the price up; Simon bet that they would go down. Simon won the bet only for temporary circumstantial reasons, namely that the last great discoveries of cheap, easy-to-get oil ramped into full production by the mid-1980s and pushed a final orgy of global industrial development until 2008, when things really started falling apart. By then, Julian Simon has been dead for a decade.
     Simon’s idea lives on in the wishful thinking around shale oil and gas, which have led the American public and their leaders to believe that we’re in an “energy renaissance” that will lead to “energy independence.” Just the other day, Senator John McCain made the inexcusably dumb remark that the US is now a net oil exporter. This is a man who ran for president five years ago, talking completely out of his ass.

     Now oil is well over $100 a barrel, a price that the American economy, as currently configured, cannot endure. That price is crushing the kind of activity we have depended on lately: the house-building and lending rackets associated with the creation of suburban sprawl. $100 oil is especially corrosive to the problems of capital formation, because without more racket-driven “growth,” we can neither generate new credit, nor pay the interest on old credit. We’ve used accounting fraud in banking and government to cover up this failed equation. But it has only led to greater deformities in markets and a general fiasco in the management of money all around the world, and it is spinning out of control right now. If these conditions were to crash the global economy and the price of everything fell in a deflationary depression, with oil back under $60 a barrel  — then it would not pay enough to frack the shale rock, or drill miles under the ocean, or do any of the very expensive operations of what’s called unconventional oil recovery.

     For The New York Times to keep hauling out the sorry-ass figure of Julian Simon to “prove” a specious and dangerous point surely shows the limits of one thing: intelligence in the media. Because of that and other related failures in the transmission of ideas, this is now a nation that cannot construct a coherent narrative about what is happening to it.

     Now, second: Syria. The world has pretty much lined up against President Obama’s proposal to issue a cruise missile spanking to Syria for supposedly gassing its own citizens. Nobody thinks this is a good idea, some for reasons of tactical advantage and some on the idea’s basic merit, or lack of. Mr. Obama pulled his punch over a week ago by standing down and taking the issue to congress for approval. I’m convinced he did that because he would have been impeached for launching an overt act of war — despite similar actions by his recent predecessors. The proposed spanking was a bad idea from the start. There was no visible threat to the national interest from Syria’s bad behavior within its own borders. The gas attack was a terrible act of depravity, but firing missiles into Syria wasn’t going to bring back the dead. It was only going to cause more death. There’s no advantage to the US for supporting either side in the Syrian civil war. The spread or deepening of any kind of disorder in that region will threaten a critical portion of America’s oil imports.

     In the background of this, things are becoming unstuck in the seriously ill and constipated realm of international banking. The aforementioned deformities caused by central bank interventions, market manipulations, Too Big To Fail carry-trade rackets, and misreporting of financial data have begun to shred currencies in nations at the margin (India, Brazil, Indonesia) and that illness may prove contagious. The global economy depends on some basic faith that major financial institutions are sound, and that they trade in sound instruments that represent real wealth. That is all being called into question now, and how long will it be before a general paralysis freezes the entire letters-of-credit system that underlies global  commerce?

     The Syria soap opera has also managed to upstage the imminent mud-wrestling match between congress and the executive branch over the national debt limit and related matters of government spending. These problems appear for now to be completely intractable.  If the government overcomes the latest version of this recurring dilemma, it will only be due to generating even more layers of accounting fraud to an already well-papered piñata that is just waiting to be smashed. While this goes on, the American public gets pushed deeper and deeper into a financial abyss, haunted by re-po men, lying bank officers, verminous lawyers, and chiseling hospital administrators.

      All this is a recipe for a political explosion. What happens if the US Government starts gassing its own citizens? It happened in 1967. That one only made people cry. Maybe next time, they’ll use a different kind of gas.

http://kunstler.com/clusterfuck-nation/gassy-politics/ 

Along the roadside on way to Torrey, Utah...

Up in Zion National Park...

Between a Rock and a Laugh Track

After the British parliament put the kibosh on following the American punishment brigade to Syria, and then NATO, and the UN wrinkled their noses at the project, well, that pretty much left President Obama to twist slowly, slowly in the wind — washed, rinsed, and hung out to dry. It looks like a watershed moment in the USA’s increasingly klutzy career as the world’s hall monitor. International power relations are suddenly in flux. A phase change has occurred causing all that was solid a few days ago to melt into liquid.

     The Iranians are having a good laugh, for now. Mr. Assad of Syria responded with a beaming smirk. However, any sentient observer can see this region of the world for what it is, a political demolition derby which, left to its own blundering devices, would blow up the whole arena when the last player sputters to a standstill.

     First of all, it seems to me that extremists in the Republican-dominated US House of Representatives have been quietly searching for a pretext to impeach President Obama. Committing an overt act of war without congressional approval would have been a good case, legally, despite the fact that executive branch war-making has been absolutely the rule for decades in Washington. The British parliamentary move against the avid David Cameron pretty much begged the question for American legislators. The foggy part is whether they would actually come back to Washington from the fried dough alleys of their state fairs and mount a “debate” about whether it would be a good or bad thing to whack Syria for gassing more than a thousand of its own citizens.

     Lately when America mounts a high moral horse about how other nations behave, we have gone into these places and smashed things up, bringing much more death and destruction than we anticipated. The hope is always that some surgical military operation can correct a political illness, but a cruise missile is not exactly a scalpel and once the patient is blown to pieces it is rather hard to patch up the body politic again. You’re just left, as in Iraq and Afghanistan, with a lot of bloody fragments fought over by political rats and cockroaches.

     Syria is a real crossroads both for America’s policy in the region and for its position on the world stage. The region is in a state of destructive turmoil that is likely to lead to the further fall of regimes and the breakup of states. Many of these states are figment nations anyway, with boundaries drawn in the 20^th century by the winners of the two world wars. The discovery of oil from North Africa to Iran and beyond has been catastrophic for everybody in the world, but most vividly for the exploding populations of these mostly desert states, which could not have supported so many people without the artificial support of petro-money. Now, faced with the specter of peak oil production, the whole region is flying apart from the stress of population overshoot, including countries like Syria which never produced much oil itself.

    But the drama over the trade in the oil remaining only becomes more intense. For instance, the position of Saudi Arabia, pretending to sit quietly on the sidelines through all this, is curious. There are rumors, unverified, that the gas incident in Syria happened because Saudi Arabia sent canisters of Sarin to the Syrian rebels, who then mishandled them and gassed their own neighborhood. The world’s recent experience with so-called “intel reports” about weapons has made everybody skeptical of claims made by politicians that a particular country poses a danger to others.

     Otherwise, there is a whole other strategic realm of concerns around the petro trade and its financing that is totally off the radar screen of the mainstream media. For instance, the sometimes erratic but brilliant blogger Jim Willie describes the larger struggle of Russia, Iran, China, and other interested parties to displace the US dollar dominance in oil trade — in particular a dollar based on increasingly sketchy US Treasury bonds, which has deformed global banking, roiled currencies, and made the settling of international accounts problematical for everybody else in the world. The opposition to the US, and its client / partner Saudi Arabia, the story goes, would replace the dollar with gold-backed oil trade and a logistical work-around based on a growing pipeline system from Iran and beyond, in Asia, to desperate customers in Europe. The implications are a collapse of the dollar (and the US bond market), a wedge between European and American interests, and a dominant partnership of oil-and-gas rich Russia with China — that is, a major power shift from west-to-east.

    Who knows how much of this has informed President Obama’s decision process. The stall in the American whack-attack against Syria may itself be a symptom of the swirling new conditions in world finance and power relations. In any case, a great empire — which we have been — can’t afford to make idle threats. The outcome of the Syria melodrama may be that the US has been knocked down a big step in its ability to project power without terrible consequences to itself.

http://kunstler.com/clusterfuck-nation/between-a-rock-and-a-laugh-track/