Monday, December 28, 2009

JKs 2010 predictions

Jim Kunstler's Blog
Forecast 2010
December 28th, 2009

...we're doing a poor job of constructing a coherent consensus about what is happening to us and what we are going to do about it.

No arguments here.

...what's being clamored for is a set of rescue remedies - miracles even - that will allow us to keep living exactly the way we're accustomed to in the USA, with all the trappings of comfort and convenience now taken as entitlements. I don't believe that this will be remotely possible...

Possible, yes - for a downsized and more reasonable yet 20th century middle class lifestyle for most people. Probable? No. Misplaced priorities, mismanagement of resources, and a total lack of proactive planning and activity to implement reasonable solutions has now made most reasonable solutions impossible to implement either due to time or monetary restrictions now in play.

...our well-being depends on our own behavior and the choices that we make, not on the lucky arrival of just-in-time miracles. It is an active stance, not a passive one. What will we do?

...we would benefit more if we acknowledged what is really happening to us because only that will allow us to respond intelligently...How dysfunctional is our nation? These days, we lie to ourselves perhaps as badly the Soviets did, and in a worse way...


Yes, the obfuscation and book-cooking, both by CEOs and by the government, needs to stop. But I'm not holding my breath on that actually happening.

...2009 was the Year of the Zombie. The system for capital formation and allocation basically died but there was no funeral... The government and the banks (including the Fed) have been playing very complicated games with each other, and the public, trying to pretend that they can all still function, shifting and shuffling losses, cooking their books, hiding losses, and doing everything possible to detach the relation of "money" to the reality of productive activity.

...The underlying reality is that we are a much less affluent society than we pretend to be, or, to put it bluntly, that we are functionally bankrupt at every level: household, corporate enterprise, and government (all levels of that, too).


Debt reduction is going to have to be at the top of every household agenda for personal debts - because eventually it's going to have to be at the top of your local, state, and federal government agendas and their source of debt reduction is to increase their cut of your paycheck. And they will.

...Meanwhile, the major stock indices rallied. What's not clear is whether money is actually going somewhere or only the idea of "money" is appearing to go somewhere...Of course, none of this behavior has anything to do with productive activity...The inertia displayed by our system - especially its manifest ability to keep stock markets levitating in the absence of value creation - is strictly a function of its size and complexity. It is running on fumes.

The so-called stock market rally is a complete fake-out. Those companies have NO reasonable means of improving their product or service sales, decreasing their expenses, or paying off their debts - things that would actually produce a real increase in their value. No, these "increases" in the stock market are phantoms of the falling value of the US dollar - i.e. inflation - not real indicators of any actual increase in these companies' bottom lines.

...A feature of 2009 easily overlooked is what a generally placid year it was around the world. Apart from the election uproar in Iran, there were few events of any size or potency to shove all the various wobbly things - central banks, markets, governments, etc - into failure mode. So things just kept wobbling. I don't think that state of affairs is likely to continue...

Either nothing that would scare people happened or it was kept out of the news if it did - either way, pretending such events won't happen in 2010 either is a bad bet. Some of the things that could and probably will go wrong include:

...it is hard to see how states like California and New York can keep staving off monumental changes in their scale of operations with further budget trickery. Those cans they've been kicking down the street have fallen through the sewer grate. What will they do? They can massively raise taxes or massively lay off employees and default on obligations - or they can do all these things. The net result will be populations with less income, arguably impoverished, suffering, and perhaps very angry about it.

"Perhaps very angry"...? How about ready to spit nails angry?

...My guess is that [holiday season] sales were dismal. Reports of such will start a train of events that sends many retail companies careening into bankruptcy, including some national chains, leading to lost leases in malls and strip malls, leading to a final push off the cliff for commercial real estate...

Not a hard prediction - the commercial real estate markets have been teetering on the edge of their own crisis, as we have posted in recent weeks. Eventually, they will tip over the edge.

...leading to the failure of many local and regional banks, leading to the bankrupt FDIC having to go to congress directly to get more money to bail out the depositors, leading again to rising interest rates for US treasuries, leading to higher mortgage interest rates for whoever out there is crazy enough to venture to buy a house with borrowed money, leading to the probability that there are few of the foregoing, leading to another hard leg down in house values because so few are now crazy enough to buy a house in the face of falling prices...

Not the first time we've heard of this possibility - or should I say probability? - either. The cost of financing mortgages has been predicted by others to shoot through the roof, due to various factors, the CRE tipover into collapse being only one of them.

...all of this leading to the recognition that we have entered a serious depression...This depression will be a classic deleveraging, or resolution of debt. Debt will either be paid back or defaulted on...

Mostly the latter, I'm thinking, since most people are up to their eyeballs in variable rate credit cards, consumer loans, etc. and there are still some millions of residential variable rate mortgages which have yet to reset to higher levels in 2010 and 2011.

...President Obama will be faced with a basic choice. He can either make the situation worse...or he can recognize the larger trends...and begin marshalling our remaining collective resources to restructure the economy along less complex and more local lines. Don't count on that.

I'm not and you shouldn't, either. The only viable solutions are going to be locally designed and locally implemented, with only local resources to depend upon. In the immortal words of Queen Amidala, "the republic no longer functions." And when it does, it will function in favor of its rich fat-cat benefactors and not in favor of the common man. The helping hand we're all looking for is at the end of our own arms - either we implement relocalization and sustainable living strategies or we don't. Nobody is going to do it for us.

...Of course, this downscaling will happen whether we want it or not. It's really a matter of whether we go along with it consciously and intelligently - or just let things slide...

As readers of this blog know, I'm very much in favor of being proactive, not reactive. Being reactive means many good options are no longer on the table by the time you get around to reacting.

...One wild card is how angry the American people might get. Unlike the 1930s, we are no longer a nation who call each other "Mister" and "Ma'am," where even the down-and-out wear neckties and speak a discernible variant of regular English, where hoboes say "thank you," and where, in short, there is something like a common culture of shared values...The sheer weight of demoralization now is so titanic that it is very hard to imagine the people of the USA pulling together for anything beyond the most superficial ceremonies - placing teddy bears on a crash site. And forget about discipline and fortitude in a nation of ADD victims and self-esteem seekers...

...I believe we will see the outbreak of civil disturbance at many levels in 2010. One will be plain old crime against property and persons, especially where the sense of community is flimsy-to-nonexistent, and that includes most of suburban America.


Take a wild guess what communities will be most targeted.

...No amount of jive-talking will convince the public that they are experiencing "recovery." Everything familiar and comforting will begin receding toward the horizon...

People are already starting to doubt the bull they're being force-fed by the "official" numbers being touted by the mainstream media sources. When people's distrust of the government reaches rock bottom, it's hard to tell which will happen: complete despair or violent anger. I actually lean a bit more toward despair than violence, though I'm apparently in the minority on that call.

...I'm with those who see the dollar strengthening for at least the first half of 2010, and other assets falling in value, especially the stock markets. The dollar could wither later on in the year and maybe take a turn into high inflation as US treasury interest rates shoot up in an environment of a global bond glut. That doesn't mean the stock markets will bounce back because the US economy will only sink into greater disorder when interest rates rise...

I am firmly of the opinion that trying to time the market now is insanely dangerous - some crazy event could happen any day now that would plunge the market into chaos and wipe out whatever pathetic percentage is left of your investments.

...As one wag said on the Net: sovereign debt is the new sub-prime! The Euro is in a deeper slog right now than the US dollar (even with our fantastic problems), so I see the dollar rising in relation to the Euro, at least for a while. I'd park cash in three month treasury bills - don't expect any return - for safety in the first half of 2010. I wouldn't touch long-term US debt paper with a carbon-fiber sixty foot pole...

This of course is in complete accord with other analysts we've reviewed recently.

...There are too many pissed off people with too many guns out there - and I'm sure there is a correlation between owners of guns with owners of gold and levels of pissed-offness. A botched attempt to take gold away from citizens would only emphasize the impotence of the federal government, leading to further erosion of legitimacy...

Others have also speculated along these lines but I don't agree - their very monetary system hinges on the fact that they claimed currency didn't NEED any sort of commodity backing. They won't be willing to have that kind of egg on their face, to admit the entire floating currency idea was stupid to begin with.

...Oil priced above $75 begins to squeeze the US economy; oil priced over $85 tends to crush the US economy. You can see where we are now with oil prices closing on Christmas Eve at $78/barrel...Among the many wishful delusions operating currently is the idea that the Bakken oil play in Dakota / Montana will save Happy Motoring for America...At best, Bakken is predicted to produce around 400,000 barrels of oil a day. That's not much in a nation that uses close to 20 million barrels a day...[And] oil export rates continue to decline more steeply than oil field depletion rates. Is there any public discussion about this in the USA? No. Do we have a plan? No.

Agreed. A huge reduction in oil usage is the only thing that will make the US oil-self-sufficient. Eventually, government will decide not to compete for domestic production. And while that won't happen soon, perhaps not this coming decade - it will happen. Government needs the oil for police, military, EMS, etc. and they are not going to compete with the private automobiles of the average Joe for it. They will bring the prices down to something reasonably affordable for themselves by the expedient of demand destruction - by law.

...The sad truth of the matter is that we face the need to fundamentally restructure the way we live and what we do in North America, and probably along the lines of much more modest expectations, and with very different practical arrangements in everything from the very nature of work to household configurations, transportation, farming, capital formation, and the shape-and-scale of our settlements. This is not just a matter of re-tuning what we have now. It means letting go of much of it, especially our investments in suburbia and motoring - something that the American public still isn't ready to face...

And probably won't be, even when the government decides to solve the problem by Executive Fiat. That's when you'll see violence, I guarantee it. Let's say 2020. Or, as some others believe, the system will wind down of an inherent inertia caused by the financial crisis.

...The crisis of capital is making car loans much harder to get, and if Americans can't buy cars on installment loans, they are not going to buy cars, and eventually they will not be driving cars they can't buy. The same crisis of capital is now depriving the states, counties, and municipalities of the means to maintain the massive paved highway and street system in this country. Just a few years of not attending to that will leave the system unworkable....

But with no viable electric mass transit ready to take its place, because American's won't invest in it until it's absolutely too late to get started.

...As far as the USA is concerned, I think we have more to worry about from Mexico than Afghanistan. In 2009, the Mexican government slipped ever deeper into impotence against the giant criminal cartels there. As the Cantarell oil field waters out, revenue from Pemex to the national government will wither away and so will the government's ability to control anything there. The next president of Mexico may be an ambitious gangster straight out of the drug cartels, Pancho Villa on steroids...

You might recall we mentioned this a few months ago - the exhaustion of the Cantarell oil field will send millions more illegal aliens flooding across our borders, at a time when we can least afford to take care of other country's citizens.

...One big new subplot in world politics this year may be the global food shortage that is shaping up as a result of spectacular crop failures in most of the major farming regions of the world. The American grain belt was hit by cold and wet weather and the harvest was a disaster, especially for soybeans, of which the USA produces at least three-quarters of the world's supply. Crops have also failed in Northern China's wheat-growing region, in Australia, Argentina, and India. The result may range from extremely high food prices in the developed world to starvation in other places, leading to grave political instability and desperate fights over resources. We'll have an idea where this is leading by springtime. It maybe the most potent sub-plot in the story for 2010....

Alas, not news to us. In conclusion:

...Reality is telling us very clearly to prepare for a new way of life in the USA. We're in desperate need of decomplexifying, re-localizing, downscaling, and re-humanizing American life. It doesn't mean that we will be a lesser people or that we will not recognize our own culture. In some respects, I think it means we must return to some traditional American life-ways that we abandoned for the cheap oil life of convenience, comfort, obesity, and social atomization.

The successful people in America moving forward will be those who attach themselves to cohesive local communities, places with integral local economies and sturdy social networks, especially places that can produce a significant amount of their own food...Good luck to readers in 2010. To paraphrase Tiny Tim: God help us, every one.


Amein.

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2 comments:

renuka said...

There's a movement to radically change California government, by getting rid of career politicians and chopping their salaries in half. A group known as Citizens for California Reform wants to make the California legislature a part time time job, just like it was until 1966.
www.onlineuniversalwork.com

Ahavah Gayle said...

Having part-time politicians is a step in the right direction, I agree. But the main problem would still be that part-timers of both parties would be bought and paid for by the same fat cat ceos who own them now. Driving out corporate lobbyists will simply make them disguise themselves as citizen lobbyists - and there's no constitutional way to prevent any group, really, from organizing and presenting their views to politicians. The only way to stop the monetary influence is to completely remove money from the equation - and that would end up being welfare for anyone and everyone who wanted to run for office. There's no good answer.

In the meantime, there doesn't seem to be any way to bring the USA up to the standards of the civilized world. We are no longer a first world country by any measure - education, healthcare, income disparity, etc. - because corporations have so entrenched themselves that people don't realize that corporate control of government is a far worse evil than "socialism" ever was. (It's especially amazing to me that so called "christian" protestants are opposed to single-payer national healthcare when their bible clearly states that the early church members "sold" their excess possessions to bring everyone up to a reasonable standard of living and they clearly "had all things in common.") It shows how much corporations have re-defined democracy to suit themselves so that American citizens can't get the protections for basic human rights in this day and age that real First World countries enjoy.