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People Get Ready
By James Howard Kunstler
In the twilight of the Bush days, in the twilight of the twilight season, a consensus has formed that we are headed into a long, dark passage leading we know not where. Even CNBC's Lawrence Kudlow has been reduced to searching for stray "mustard seeds" of hope on hands and knees in a bleak and tortured financial landscape. Half the enterprises in the land are lined up for some kind of relief bailout and a blizzard of pink slips has cut economic visibility to zero.
The broad American public voted for "change" but they thought that meant a "changing of the guard." Out with the feckless Bush; in with the charismatic Obama... and may this American life now continue just as it ever was. The change actually coming will be much more than they bargained for, namely our transition from a wealthy society to a hardship society. The sharp break is a product of our years-long failure to reckon with the energy realities of our time. We're still confused about that, but it's hard, otherwise, to ignore the massive disappearance of capital, asset values, livelihoods, domiciles, comforts, and necessities.
The price of oil is suddenly down to an astounding $40-odd per barrel. Those of us studying the Peak Oil story have said that the "bumpy plateau" years of peak production would be expressed in tremendous price volatility, and for exactly the reasons now evident -- that the high-price phase would mangle advanced economies, that they would fall back in paralysis, then respond anew to oil price collapses by straggling up again, only to be crushed again when a resumption in demand for oil drove the price back up.
What was not so generally anticipated was the wholesale destruction of global finance in the first phase of this period. This has now occurred so comprehensively that we know the banking business will never be the same again. It has also accelerated other plot-lines in the story. One affects the global oil industry itself: a lack of capital to go forward with the new oil projects that were designed to mitigate the present depletions in old oil fields. The result of this quandary is as likely to be oil shortages in 2009 as much as an extremely sharp snap-back in oil prices. The oil markets themselves are changing in the face of financial disruption. Between pirates lurking off the Horn of Africa, and a shortage in letters-of-credit that enable the shipping of anything for delivery between nations, the allocation system is impaired. This affects poorer nations the most, and when they don't get their oil shipments, conditions in these nations get worse. People lose incomes. Ethnic strife ramps up. All this will make it harder to move oil from the places where it is produced to the importing countries.
So much artificially-generated pixel "money" is being pumped into the system now that it will eventually overtake the quantity of capital currently vanishing in the form of exposed securities swindles, unwinding bad debt, and imploded worthless counter-party contracts. The pixel money will express itself as super or hyper inflation, lagging from 6 to 18 months from the time it was actually introduced in the form of bailouts. For the moment, money is moving into the presumed safety of US Treasury paper. Personally, the safety of this is not something I would presume. But in the current deflationary stage its hard to find any other place to park cash, and when asset values are crashing everywhere, cash is king. Gold is physically unavailable in the form that non-millionaires usually buy it in, ounce and half-ounce coins.
President-elect Obama has announced his intention to kick off a massive "stimulation" program when he hits the White House "running" in January. Early indications are that it will be directed at things like highway repair. If so, we will be investing long-term in infrastructure that we probably won't be using the same way in ten years. But I doubt there is any way around it. The American public can't conceive of living any other way except in a car-centered society. Anyway, some parts of our highway-bridge-and-tunnel system are already so decrepit that they pose a menace right now, and the clamor to direct "stimulation" there is already very strong -- backed by all the fraternities of engineers.
Stimulus aimed at perpetuating mass motoring will be a tragic waste of our dwindling resources. We'd be better off aiming it at fixing the railroads (especially electrifying them), refitting our harbors with piers and warehouses in preparation to move more stuff by boats, and in repairing the electric grid. Unfortunately, our tendency will be to try to rescue the totemic touchstones of everyday life, things familiar and comfortable, regardless of whether they have a future or not.
The ominous forces gathering out there will defeat these efforts and everyday life will reorganize itself some other way consistent with the single greatest trend: the force of contraction. Every sign we see is pointing in that direction, from the inability of the earth's ecology to support more human beings, to the dwindling of mineral and energy resources, to the destruction of farmland, to mischief in the climate. We just don't know how badly things will fall apart in the meantime, or how kind (or cruelly) people will act in the process.
Mr. Obama would be most successful if he could persuade the public how much more severe the required changes are than they currently realize, and inspire them to get with program of retrofitting American life to comply with these realities.
