Friday, October 24, 2008

No, it's not over.

James Howard Kunstler
October 20, 2008
What Now?

...let's say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts cancelled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand. Then comes the second stage, the tidal wave itself -- which in this case will be horrific monetary inflation -- roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.
So, that's what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean. There's no question that stage one is underway. But we can be sure the giant wave of money recklessly loaned into existence in just a few weeks time will wash back through the global economy leaving a swath of destruction...

A regrettably apt metaphor, this one.

...And then what? The societies of the world will be faced with the task of rebuilding systems of fruitful activity, i.e., real economies based on productive behavior rather than the smoke-and-mirrors of Frankenstein-finance con games. In fact, excuse me while I switch metaphors again, because the Frankenstein story -- the New Prometheus -- is yet another apt narrative to inform us what we have done. We have "played" with financial fire and brought to life a monster now bent on killing us. One question that this metaphor-narrative raises is: when will the angry peasant mob storm the castle with their flaming brands and cries for blood from the makers of this monster? Rather soon, I think. Perhaps, in some countries (maybe the USA, if we're lucky), this will take the more orderly form of systematic prosecutions, bringing to justice persons who perpetrated swindles involving the alphabet soup of investment "products" that have gone bad in so many accounts (and ruined so many individuals, institutions, and governments)...

Or not. Starving people will start to eyeball the high-end neighborhoods down the street and wonder what sorts of good plunder there might be there. American's think this kind of thing - like what happened in Zimbabwe - can't happen here. That, to put it mildly, is a serious error of judgement.

...Apart from orderly prosecutions (which can certainly turn harsh and cruel), there is the possibility of sociopolitical upheaval -- revolution, violence, civil war, war between nations, the whole menu of monkey-human mischief that afflicts mankind. We are not necessarily immune to it here in the USA, despite our cherished notion of exceptionalism, which would have us inoculated against all the common vicissitudes of history...

Indeed, Jewish communities should be especially concerned about this possibility, even if the don't appear wealthy. Hate and revenge don't have to be logical.

...The energy story and its hand-maiden, the climate change situation, are both lurking out there beyond the immediate spectacle of the financial fiasco. Both these things imply pretty strongly that the economic relations currently unraveling will not be rebuilt -- not the way they were before, or even close to it. The best outcome will be societies that can practice small-scale "process-intensive" organic agriculture and equally small-scale process-intensive modes of manufacture in the context of very local sociopolitical networks. An accompanying hope is that we can remain civilized in the process. Personally, while I recognize the appeal (to others, not me) of the "singularity" narrative, which has the human race making a sudden evolutionary leap into some kind of cyborg-nirvana, I regard it as an utter bull[malarky] fantasy that has zero chance of occurring, given our stark predicament...

Which is why we should be firm in our minds that business as usual cannot continue and we must make some steps now - changes in our economic behavior which may be painful in the short term but will greatly benefit us in the long run. One of those changes we need to make is to invest in mass transit. The first priority should be electric trolleys or streetcars for our immediate neighborhood shopping and commuting needs, which, unfortunately, neighborhoods may very well end up having to buy for themselves instead of relying on county or state funds. Second we need more express streetcars, light commuter rail and high speed rail for longer trips. The government is going to have to stop wasting money on more amenities for automobiles and start seriously funding European style comprehensive mass transit that is not just more diesel and gasoline powered buses that will become far too expensive to operate.

Many people have already made the switch, and the inadequacy of our mass transit is beginning to show:

Who says Americans won't ride mass transit?
With gas prices through the roof, our car-crazy nation showed the love for buses and trains. But there's a glitch.
By Katharine Mieszkowski

...the mini-exodus from driving has exposed significant cracks in the country's mass transit systems, which are struggling to accommodate new riders. Having spent decades forsaking the bus and the train for the convenience and privacy of cars, Americans are now finding that the buses, streetcars, trolleys and trains that they left behind are strapped for cash, if they still exist at all....

Another strategy, of course, is to focus on creating more local small businesses to take care of the community's needs, instead of relying on giant corporations. This is something that will have to happen, if for no other reason than giant corporations are dumping jobs like there's no tomorrow (because for them, there isn't).

Job Losses Accelerate, Signaling Deeper Distress
By Neil Irwin and Michael S. Rosenwald
Washington Post Staff Writers
Thursday, October 23, 2008; Page A01

...Employers are moving to aggressively cut jobs nd reduce costs in the face of the nation's economic crisis, preparing for what many fear will be a long and painful recession. The labor market has been weak all year, with a slow drip of workers losing their jobs each month. But the deterioration of the job market is now emerging as a driver of economic distress, according to a wide range of data and anecdotal reports from corporate America. In September, there were more mass layoffs -- instances in which employers slashed 50 or more jobs at one time -- than in any month since September 2001 . . . Anecdotal reports suggest that the hemorrhaging has only begun. Companies that announced plans this week to cut jobs include Internet company Yahoo (1,500 positions), pharmaceutical company Merck (7,200), National City bank (4,000) and Comcast, the cable company (300)...

Indeed, many companies are imposing hiring freezes. Such moves don't often get the kind of headlines that layoffs do, but because they shrink the number of places people can turn to for jobs, they still hurt the economy...

...As reports of layoffs continue to pile up around the country, executives at Randstad said they have noticed a shift in psychology among job seekers.

"Employees are much more willing to work extra hours and to take on additional duties to enhance job security and improve their employability," said Eric Buntin, managing director for marketing and operations at Randstad. "In a changing market, they know that's a valuable resource."

They are also willing to make less money, even as the cost of living goes up. Cline said some call center jobs that were paying $9 an hour in the Tucson area last year are now paying $8.50. "Their option becomes to take the job or not have the job," she said.

With workers losing their leverage to negotiate raises, there could be greater downward pressure on wages, which in turn could drive down overall economic growth. Workers are already having a hard time getting raises; inflation-adjusted pay for non-managerial workers fell 1.9 percent in the year ended in September, according to the Labor Department.

With so many people becoming unemployed and seeking jobs, it will be a "buyer's market," so to speak, with corporations taking shameless advantage of people to avoid paying living wages and reduce their benefits. Ultimately, depriving their customers of income will do nothing but make the financial situation worse. Unfortunately, they're too stupid to see this.

Grim shopping season ahead
Malls are decked, but who's buying?
By Penni Crabtree
October 22, 2008

...Though retail forecasts by economists and industry analysts differ – some look narrowly at apparel and department stores sales while others track a grouping known as GAFO, which includes general merchandise, apparel, furniture and other retailers – all the numbers point to the same thing, experts agreed.

“No matter what statistic you use, we're looking at the weakest holiday shopping season since 2002,” said Michael Niemira, chief economist for the shopping center council. “There is a financial crisis, an economic crisis and a consumer confidence crisis. They are all intertwined, and they will take time to correct. And that's not something that will happen in the next two months.”

Historically, November and December account for about a quarter of annual retail sales, though the importance of those two months has slipped slightly – to 22 percent of sales in 2007 – as retailers bring out holiday merchandise earlier and extend sales into January.

This year, retail analysts predict a short, intense shopping season because there are only 27 days between Thanksgiving Day and Christmas, instead of last year's 32-day run. Consumers can expect smaller inventory to choose from and fewer clerks to wait on them as retailers try to control costs and avoid deep discounting on unmoved merchandise...

“Consumers are feeling a lot of pain and pressure . . . It's a scary time, and when they are scared they back off from spending,” said Richard Jaffe, a retail apparel analyst with investment bank Stifel Nicolaus. “I don't think people will walk away from the holiday, but they will shift from big-ticket to smaller-ticket purchases...”

I have already informed the kids that Chanukkah is going to be very sparse this year. I have asked them to give me a list of paperbacks and candy and not-new-release music and movies they would like, but I told them I couldn't promise even that. Grocery prices and elevated energy costs (both at home and for the car) have wreaked havoc with our budget, and I have made sure to keep them informed, showing them the bills and comparing them with years past. They get it.

People just can't spend money they don't have.

Until businesses realize they have to pay their employees a living wage if they want them to have shopping money, that little annoying fact is going to be a thorn in their side. Until people realize they need to spend their dollars supporting their own communities instead of sending their dollars off to the coffers of Robber Barons elsewhere, our communities' financial situations will continue to deteriorate. It's a viscous cycle - and only some sacrifices on our part and some advance strategizing can forestall a very, very bleak future.

So - will you?

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