The Clusterfuck Nation Chronicle
Commentary on the Flux of Events
The delusion has now blossomed, like one of those great stinking tropical flowers, that 1.) there never really was a recession, 2.) that the equity markets bottomed last September, 3.) that all the problems and distortions have been wrung out of the US economy, and 4.)that another national shopping binge will commence at any moment. In other words, that everything has no returned to "normal."
I don't think so.
The malinvestments that remain to be "worked out" of the US economic system go way beyond the failures of Enron and Global Crossing. In fact, they are way beyond the fate of individual companies. They are structural and they will not be worked out without the nation going through a frightening wringer.
1. Financial institutions are overextended in abstract speculative "casino style" trading instruments: hedges, swaps, options, in attempts to take advantage of the fluctuating values in currencies and spreads in interest rates -- all exacerbated by the velocity of global currency movements. Institutional debt as well as personal debt remain at catastrophic levels, pegged to a hallucinated pool of global capital that could vanish at the mouse-click of a single electronic transfer.
2. We remain fatally dependent on oil imports and now find ourselves trapped in a hermetic and vicious cycle based on that dependence, which works as follows: as prices rise, the US economy gets battered (because the price of oil affects everything we do). As our economic activity slows in response to rising oil prices, demand for oil eases (we use 25 percent of world production), the price for oil drops and Americans can spend proportionately more money on other things (happy meals, admissions to DisneyWorld). As economic activity picks up, due to cheaper oil, demand for it rises along with price. Our so-called economy appears to recover for a while, but the increased price of oil shoves us into another down cycle. This situation will only get progressively worse because we are crossing the frontier into a post-peak oil production world (See Kenneth Deffeyes: The Coming Global Oil Crisis, Princeton University Press, 2001 ). This means that the oscillations between price swings are apt to grow wider -- and my guess is that we will reach a breaking point -- far sooner than most people realize -- at which many elements of US life cease to function as expected. Which leads to a consideration of the following.
3. The suburban clusterfuck. We're stuck with the infrastructure of daily living that can only operate on the basis of cheap oil, and absolutely reliable supplies of it at absolutely reliable steady prices. Oscillations in price alone, without supply interruptions, will cripple the systems that comprise our way of life: compulsory commuting, WalMart's Warehouse on wheels, etc. Hence, when you next hop in the car and go out to the highway strip, what you are seeing is not just an array of ugly discount marts and fry pits amid excessive pavings, you are seeing a fantastic spectacle of malinvestment -- you're seeing the wealth of your nation squandered on junk buildings that have no future. The same might be said of your house. There will be few buyers for these things when their disutility becomes obvious. It will happened very quickly. Most Americans will be shocked. And the question naturally arises: how are we going to conduct daily life when it does happen?
The answer is that the US is going to be significantly impoverished as well as disabled. A lot of things won't work. Ask yourself how the Sunbelt will work when air-conditioning is no longer cheap? Some classes of Americans are going to get crushed economically when this happens. They're going to be pissed off, especially at their elected officials. Let's hope that we are not at war in several places.
In the meantime, don't believe everything you see on CNN.