July 2, 2007
Thuggo and Sluggo
As someone who spends a fair amount of time in airports, I marvel at the way my fellow citizens present themselves in public. I see middle-aged women who appear to have left home in their pajamas. But it's the costume and demeanor of American young men especially that raises interesting questions about who we have become.
The fashion and body language of male youth in 2007 comes from three sources: prison, the nursery, and the pimpmobile. It's an old story now that many conventions of gangster fashion come out of the jail experience, where they take away your belt and shoelaces so you won't hang yourself. Apparently, at some point in US history, they stopped giving the belts and shoelaces back on release, and it became stylish to wear your trousers falling down below the top of your underpants (or butt crack as the case may be). Jail being a kind of accreditation device these days, the message may be: I passed the entrance exam.
Less obvious is the contribution of the nursery. Pants that are ambiguously neither long or short, worn with XX-large T shirts, tend to make grown men look like babies. Babies have short legs and large torsos compared to grown men. They also make big awkward gestures and touch their sex organs a lot. Add a sideways hat and unlaced sneakers and you have the complete kindergarten rig. Why a 20-year-old male would want to look five years old is another interesting question, but it may have a lot to do with the developmental failures of boys raised in households without fathers. They simply don't know how to be men. They only know how to behave like five year old boys. They even give themselves nursery school nicknames. But they are men, and what could be more menacing than the paradox of a child bent on homicide.
Tattoos used to be pretty much the sole fashion statement of merchant seamen or people who have served in the armed forces (or people who live in jungles). Now they are common among career girls. The tattooed guys I see down at the gym are ordinary young men who work in cubicles. Tattoos on sailors used to celebrate places they had been or people they had loved. The tattoos I see now are meant to convey fierce and barbaric statements of superhuman power: look at me, I'm a Power Ranger! It's understandable that someone who spends most of his waking hours in a cubicle wearing a telephone headset in order to swindle old people out of their savings might fantasize about rising above all that. But the tragic thing, of course, is that getting tattooed is not quite the same as accomplishing something with your life. In the end, you're just another loser with a grandiose and ridiculous tattoo.
The pimp connection is too obvious to belabor -- meant to mock normal executive attire while signifying an existence of total leisure and the enjoyment of unearned riches. The trouble is that the worship of unearned riches -- based on the belief that it truly is possible to get something for nothing -- has now become normal at all levels in American life. Everybody from the lowest whoremonger on Hollywood Boulevard to the Wall Street hedge fund managers believes in unearned riches plucked from "suckers." The catch is that men who live by this code almost always come to a bad end. They get their throats cut with razors, or go to prison, or manage to lose all their unearned riches (and the investments of many strangers, too).
The portrait of the young American male in 2007, therefore, is of an impotent, infantalized being lost in grandiose fantasies of power and importance. It's a picture of men without real confidence, and no idea how to achieve it, who wish to project a transcendently ferocious image complete with odds-and-ends of manner taken from comic books and movies based on comic books, in order to be taken seriously.
The rest of the world must tremble to contemplate the picture we present. The Nazi soldiers of 1944 were glamour boys compared to the riff-raff that American young men have become. As for those who actually do make it into the army, you wonder how they appear to the locals overseas -- they're probably taken seriously as exactly what the present themselves to be: manifestly evil beings who really need to be blown up. Back home, I look around at the thugs and sluggos at my gym, and I'm ashamed to be a citizen of the same country they live in.
Showing posts with label kunstler. Show all posts
Showing posts with label kunstler. Show all posts
Tuesday, July 03, 2007
Tuesday, May 29, 2007
We Want Solutions! by Howard Kunstler
May 28, 2007
Wherever the environmentally-informed gather these days (i.e., the clusterfuck-aware), a nervous impatience often mounts, and ends up expressing itself as an outcry for "solutions." For example, at the Telluride Mountain Film Festival, where I happened to be this past weekend, along with a couple of hundred other people who spewed airplane exhaust across the stratosphere to get there. This year's twin themes were the Castor-and-Pollux of Clusterfuck Nation, Global Warming and Peak Oil.
Many frightening documentary films and Powerpoint talks were served up in the opening symposium (including ones by Dennis Dimick, the editor of National Geographic, Daniel Nocera of MIT, and yours truly) and, as the morning wore on, the audience grew visibly impatient, until one speaker dropped the word "solutions," and the audience gave out a big whoop of approbation.
It only made me more nervous, because this longing for "solutions," strikes me as a free-floating wish for magical rescue remedies, for techno-fixes that will allow us to make a hassle-free switch from fossil hydrocarbon power to something less likely to destroy the Earth's ecosystems (and human civilization with it). And I think such a wish is, in itself, at the root of our problem -- certainly at the bottom of our incapacity to think clearly about these things.
I said so, of course, which seemed to piss off a substantial number of my fellow festival attendees.
My position on this can be easily misunderstood. I don't want civilization to collapse (I like Mozart and access to root canal). I don't want Homo sapiens to go extinct, or the planet to parboil. I certainly don't believe in doing nothing in the face of this emergency. But I also don't believe we are going to make any hassle-free switch in the way we run things -- or that we should want to. Would the USA be a better place if we could run Wal-Mart and Las Vegas on wind power? I don't think so. Would the public benefit from another hundred years of suburban living -- and an economy based largely on creating ever more of it? All the Prozac in the universe would not avail to offset the diminishing returns of that bullshit.
In my travels, I have noticed a disturbing theme among the educated minority of eco-advocates: they are every bit as dedicated to the status quo (in their own way) as the NASCAR morons and shopping mall developers. The eco-advocates want cars, too, and all the prerogatives (like free parking and country living) that go with them, just like the WalMart shoppers. If this were not so, then why do the eco-advocates cream in their jeans whenever somebody presents a snazzy new vehicle that runs on a fuel other than gasoline? Indeed, why are some of the eco-friendly pouring all their efforts into the invention of such things instead of into walkable communities and the reform of our stupid land-use laws?
I encountered this ethos most strikingly a few years back at Middlebury College in Vermont, where angry biodiesel advocates assailed my lack of enthusiasm for their particular "solution" -- which seemed geared mainly to allow them to continue to drive their dad's old cast-off SUVs to the snowboarding venues of that progressive little state. But the wish to keep running all our cars permeates what little public discussion there is of the global warming / energy crisis issues at all levels. Even the elder statesmen of the eco-movement talk it up incessantly. The first great victory will come when they shut up about it and put their minds to other tasks.
The eco-advocate community is still hooked into the Faustian bargain of technology with little consciousness of its diminishing returns, and to some extent have made themselves unwitting tools of the truly clueless and wicked who run business and politics in our land. With this particular group in Telluride, which was composed heavily of Boomer eco-adventurers (mountain climbers, trekkers, kayakers), the infatuation with ever-cooler adventuring techno-gear extended naturally, it seemed, to their uncritical view of magical techno-fixes aimed at "solving" the climate / oil mess.
And the setting of the festival -- the Rocky Mountain ski resort town of Telluride -- itself induced some eerie moments of reflex nausea as one contemplated the many 10,000 square-foot peeled-log dream palaces built by Hollywood producers, who derive their fortunes by selling violent masturbation fantasies to fourteen-year-olds. One couldn't fail to notice that three-quarters of the storefronts along the little main street were occupied by real estate sales offices.
But I don't want to be doubly or triply misunderstood as appearing to twang on the kind people who invited me there, or to evade the obvious fact that I went (by airplane and shuttle van). I thought it was worth going to carry this one little message: let's stop talking about making better cars and start talking about occupying the landscape differently -- which we're going to have to do anyway.
Wherever the environmentally-informed gather these days (i.e., the clusterfuck-aware), a nervous impatience often mounts, and ends up expressing itself as an outcry for "solutions." For example, at the Telluride Mountain Film Festival, where I happened to be this past weekend, along with a couple of hundred other people who spewed airplane exhaust across the stratosphere to get there. This year's twin themes were the Castor-and-Pollux of Clusterfuck Nation, Global Warming and Peak Oil.
Many frightening documentary films and Powerpoint talks were served up in the opening symposium (including ones by Dennis Dimick, the editor of National Geographic, Daniel Nocera of MIT, and yours truly) and, as the morning wore on, the audience grew visibly impatient, until one speaker dropped the word "solutions," and the audience gave out a big whoop of approbation.
It only made me more nervous, because this longing for "solutions," strikes me as a free-floating wish for magical rescue remedies, for techno-fixes that will allow us to make a hassle-free switch from fossil hydrocarbon power to something less likely to destroy the Earth's ecosystems (and human civilization with it). And I think such a wish is, in itself, at the root of our problem -- certainly at the bottom of our incapacity to think clearly about these things.
I said so, of course, which seemed to piss off a substantial number of my fellow festival attendees.
My position on this can be easily misunderstood. I don't want civilization to collapse (I like Mozart and access to root canal). I don't want Homo sapiens to go extinct, or the planet to parboil. I certainly don't believe in doing nothing in the face of this emergency. But I also don't believe we are going to make any hassle-free switch in the way we run things -- or that we should want to. Would the USA be a better place if we could run Wal-Mart and Las Vegas on wind power? I don't think so. Would the public benefit from another hundred years of suburban living -- and an economy based largely on creating ever more of it? All the Prozac in the universe would not avail to offset the diminishing returns of that bullshit.
In my travels, I have noticed a disturbing theme among the educated minority of eco-advocates: they are every bit as dedicated to the status quo (in their own way) as the NASCAR morons and shopping mall developers. The eco-advocates want cars, too, and all the prerogatives (like free parking and country living) that go with them, just like the WalMart shoppers. If this were not so, then why do the eco-advocates cream in their jeans whenever somebody presents a snazzy new vehicle that runs on a fuel other than gasoline? Indeed, why are some of the eco-friendly pouring all their efforts into the invention of such things instead of into walkable communities and the reform of our stupid land-use laws?
I encountered this ethos most strikingly a few years back at Middlebury College in Vermont, where angry biodiesel advocates assailed my lack of enthusiasm for their particular "solution" -- which seemed geared mainly to allow them to continue to drive their dad's old cast-off SUVs to the snowboarding venues of that progressive little state. But the wish to keep running all our cars permeates what little public discussion there is of the global warming / energy crisis issues at all levels. Even the elder statesmen of the eco-movement talk it up incessantly. The first great victory will come when they shut up about it and put their minds to other tasks.
The eco-advocate community is still hooked into the Faustian bargain of technology with little consciousness of its diminishing returns, and to some extent have made themselves unwitting tools of the truly clueless and wicked who run business and politics in our land. With this particular group in Telluride, which was composed heavily of Boomer eco-adventurers (mountain climbers, trekkers, kayakers), the infatuation with ever-cooler adventuring techno-gear extended naturally, it seemed, to their uncritical view of magical techno-fixes aimed at "solving" the climate / oil mess.
And the setting of the festival -- the Rocky Mountain ski resort town of Telluride -- itself induced some eerie moments of reflex nausea as one contemplated the many 10,000 square-foot peeled-log dream palaces built by Hollywood producers, who derive their fortunes by selling violent masturbation fantasies to fourteen-year-olds. One couldn't fail to notice that three-quarters of the storefronts along the little main street were occupied by real estate sales offices.
But I don't want to be doubly or triply misunderstood as appearing to twang on the kind people who invited me there, or to evade the obvious fact that I went (by airplane and shuttle van). I thought it was worth going to carry this one little message: let's stop talking about making better cars and start talking about occupying the landscape differently -- which we're going to have to do anyway.
Friday, February 16, 2007
James Kunstler excerpt
I hasten to add it is a mistake to suppose that the US industrial economy has already been replaced by a so-called “information” economy or a consumer economy. In reality, manufacturing activities have been insidiously replaced over the past twenty years by a suburban-sprawl-building economy – and the mass production of suburban houses, highways, strip malls and big box stores is just a different sort of manufacturing than making hair driers and TV sets. The sprawl industry also drove a reckless debt creation racket and multiple layers of traffic in mortgages and spinoffs of mortgages (such as the derivatives trade based on bundled, securitized debt) which represents, at bottom, hallucinated wealth that in turn has spread false liquidity through the equity markets and is certain to affect them badly sooner or later. All this is what we have been calling the “housing bubble” and it is now beginning to fly apart with deadly effect.
Friday, February 02, 2007
James Kunstler
January29, 2007
Housing Fetish
Martha Stewart was not an accident of history. She came along in the late 20th century as a kind of spirit guide to a society whose bad choices and misinvestments had led to the wholesale destruction of any place in America that people called home. And by this I mean the towns, neighborhoods, and city districts of our land, not just the individual dwellings.
By the 1980s, America had been converted, with monstrous efficiency, into what I have called a geography of nowhere, a panorama of identical highway strips, malls, big box warehouses, fried food out-parcels, and free parking wastelands -- all serving the endless new subdivision pods of single family houses. The ultimate result was a landscape full of places no longer worth caring about.
The program was carried out ruthlessly by big corporations and their hand-maidens, the road-builders, the house-builders, and the brotherhood of traffic engineers, but it was fully supported by the public at large and their elected local officials on the planning and zoning boards. It was both an "emergent" economic ecology -- a systemic response to decades of cheap oil and favorable geopolitics -- and a consciously mapped-out attempt to create a kind of Utopia, in this case a suburban Utopia of Happy Motoring. Whatever it was, nothing like it had ever been seen before.
It had many consequences but one of the worst was the impoverishment of public space. From the social point-of-view, it turned out that housing pods and highway strips lined with strip malls were a poor substitute for main street towns or walkable neighborhoods. Under the insane dictates of single-use zoning, each individual was trapped in a car for hours each day, often in vexing traffic with other isolated individuals, and also often in the company of little children with a low tolerance to being trapped and vexed. Older children lacking drivers' licenses lost access to other social realms beyond the subdivision of houses. The adventurous ones assembled in the bosky berms between the WalMarts and the KMarts to smoke a variety of drugs, worship Satan, and torture kitty cats. The rest were relegated to the room at home with the one-eyed-monster, the television.
The case was not much better for the adults. By the 1980s, both parents had to be out of the house generating income to pay the mortgage and especially to pay for the multiple cars needed to service the family headquarters. Mom went to work not because Betty Friedan said that actuarial science was more fun than managing a house, but because wages were stagnant and Dad could no longer make the family's ends meet.
Out of this sad and desperate circumstance, Martha Stewart arose. The promise of Stewartism was that if the public realm was now inaccessible or meaningless, then one should make the most of the private realm. This was accepted as self-evident by enough people to make Martha extremely wealthy. Luckily for Martha, her job was at home. She didn't have to drive thirty-eight miles to a cubicle in the billing office of Ramjack Medical and spend eight hours each day minutely examining spreadsheets on a computer monitor.
As her wealth and success increased, Martha's resources for doing things in and around the house enabled her to spin a fantasy of uber-homemaking that America found irresistible -- despite the fact that everyone else spent so much time away from the house that it was nearly impossible for them to emulate the goddess of hearth and home. Instead, they devoured her many publications and TV shows, finding consolation in all the beautifully portrayed scenes of Martha enacting the fantasy for them.
History is full of ironies and paradoxes, and one of them is that this avatar of home-making was relentlessly hunted down by federal prosecutors for allegedly scamming $40,000 on an insider stock sale, while true major league corporate CEO grifters walked off legally into their golden sunsets with hundreds of millions in back-dated stock options and other booty winkled out of feckless boards of directors.
It is also an ironic coincidence that at the exact time Martha Stewart went off to jail, the American home fantasy went totally off the rails. The systematic shut-down of America's manufacturing sector led policy-makers to insidiously try to replace it with a hyped-up housing industry. They kicked off the program by dropping the prime interest rate as close to zero as possible, making money extremely cheap to borrow. Everybody need a home, the logic went, including those who ordinarily wouldn't have qualified for regular mortgages that required substantial down payments, proof of employment, and other formalities. So the answer was to engineer a financing modality that would allow anyone to buy a house -- and thereby ramp up the "homebuilding" industry into super-hyper-turbo-overdrive, which would incidentally generate even more potential house-buyers among the many framers, trimmers, plumbers, electricians, painters, real estate agents, and sellers of Corian countertops, who made good wages or commissions on delivering the "product." Meanwhile, the new housing pods in evermore remote locations, where there were no towns, could be accessorized with all the requisite service infrastructure -- new highways, strip malls, Pizza Huts, WalMarts, Best Buys, and video rental joints, all of which had to be built by somebody, making for additional contracts, incomes, and potential house-buyers.
Meanwhile the financial wizards "innovated" methods for dispersing the risk associated with iffy loans (made to people with poor prospects for repayment) by bundling the mortgages into odd-lots and repackaging them as tradable securities, which could be used to "leverage" other finance "plays" yet more exotically abstracted from the actual making-and-selling real things of value. At the same time, the wizards converted the mortgage insurance business into a casino of swappable risk, materializing more fees and profits for themselves out of thin air.
This extremely complex racket worked well for a brief period of time, namely the period when the price of houses steadily increased, year after year, promoting the expectation that rising house "equity" was a permanent condition of life, and that the dependable annual increase in value could be "put to work" in the form of borrowing more money against it. The supposed increase in value protected those trafficking in swappable risk, since increased value banished the risk of loss, and the notion of moral hazard disappeared into the dumpster of history.
The whole racket floundered when several things changed or went awry. One was the sheer saturation of markets. Sooner or later, everybody who might possibly buy a house, got a house. The racket had had the perverse effect of stealing demand from the future by making house-buyers of those who were not really ready to buy -- e.g. very young adults with no savings or people with bad credit records. And not every immigrant from Bangladesh, El Salvador, or the Central African Republic could be positioned as a house buyer -- even under the now nearly nonexistent lending standards.
The next thing that went wrong was affordability. If absolutely everybody's house rose ten percent in value every year for years and years -- including every "pre-owned" raised ranch shitbox -- then sooner or later every house in America would cost at least half a million dollars. And with wages stagnant among the 90 percent who worked outside the financial services industry, sooner or later no house would be affordable to that 90 percent majority under even the most supernaturally lax lending provisions.
The final problem would come when central bankers had to raise interest rates so that customers for debt would accept the risk of investing in a national economy that was increasingly seen to be based on the engineering of modalities to get something for nothing.
This is the point we're at now. The whole system was greatly underwritten by the final peaking of available energy, chiefly oil, which made it possible in the first place to sell so much real estate in the farthest-flung outlands of the American landscape, including not only desert and swamp, but also prime farmland. The housing bubble began to collapse at exactly the moment that the world reached its all-time oil production peak: the summer of 2005.
Now the house market is both saturated and wildly mis-valued. Most of the new houses were built in places that will be logistically unfavorable as motoring becomes less affordable. Many of them are too large to heat as home heating becomes less affordable. The houses are overpriced. Those who must sell must drop their prices. Many such sellers will have to sell for less than the obligations still owed on their houses. The speculators have necessarily fallen by the wayside, because speculation is not possible in a falling market. Those who expected to sell old houses in older places for a half a million dollars or more to buy new houses in new places will have to stay put. As prices fall, the few potential buyers still left will step back in anticipation of further price drops. This "death spiral" will be self-reinforcing and take years to play out. As it occurs, many of the creatively-engineered contracts will be welshed on. Lenders will choke on "non-performing" mortgages. Mortgage-backed securities will lose their credibility and turn into junk or worse (worse-than-junk being certificates with no value whatsoever, not even pennies on the dollar). Bets, plays, leverages, positions, and hedges based on the idea that all these loans would continue performing will be wiped out.
The final result will be a dashed American Dream -- of a safe life in a happy home. Poor Martha Stewart will be seen as the goddess who failed. Well, she already has, really, having gone to prison and afterward retreated into her omnimedia fortress of corporate refuge (basically joining the enemy). As the middle class chokes and gets crushed under the weight of its unpayable debts and falling standards of living, Martha may be lucky to avoid getting eaten, along with a long list of other celebrity porkchops that an angry and grievance-filled public will turn on.
Finally, the idea that people could live happily ever after in "homes" devoid of any larger community context, or reality-based economic context, will fail. Perhaps we will even stop calling houses "homes" -- as we have been conditioned to do by the realtors hoping to manipulate all our subconscious desires for safety, familiarity, and order in this world of chaos and sorrow.
Housing Fetish
Martha Stewart was not an accident of history. She came along in the late 20th century as a kind of spirit guide to a society whose bad choices and misinvestments had led to the wholesale destruction of any place in America that people called home. And by this I mean the towns, neighborhoods, and city districts of our land, not just the individual dwellings.
By the 1980s, America had been converted, with monstrous efficiency, into what I have called a geography of nowhere, a panorama of identical highway strips, malls, big box warehouses, fried food out-parcels, and free parking wastelands -- all serving the endless new subdivision pods of single family houses. The ultimate result was a landscape full of places no longer worth caring about.
The program was carried out ruthlessly by big corporations and their hand-maidens, the road-builders, the house-builders, and the brotherhood of traffic engineers, but it was fully supported by the public at large and their elected local officials on the planning and zoning boards. It was both an "emergent" economic ecology -- a systemic response to decades of cheap oil and favorable geopolitics -- and a consciously mapped-out attempt to create a kind of Utopia, in this case a suburban Utopia of Happy Motoring. Whatever it was, nothing like it had ever been seen before.
It had many consequences but one of the worst was the impoverishment of public space. From the social point-of-view, it turned out that housing pods and highway strips lined with strip malls were a poor substitute for main street towns or walkable neighborhoods. Under the insane dictates of single-use zoning, each individual was trapped in a car for hours each day, often in vexing traffic with other isolated individuals, and also often in the company of little children with a low tolerance to being trapped and vexed. Older children lacking drivers' licenses lost access to other social realms beyond the subdivision of houses. The adventurous ones assembled in the bosky berms between the WalMarts and the KMarts to smoke a variety of drugs, worship Satan, and torture kitty cats. The rest were relegated to the room at home with the one-eyed-monster, the television.
The case was not much better for the adults. By the 1980s, both parents had to be out of the house generating income to pay the mortgage and especially to pay for the multiple cars needed to service the family headquarters. Mom went to work not because Betty Friedan said that actuarial science was more fun than managing a house, but because wages were stagnant and Dad could no longer make the family's ends meet.
Out of this sad and desperate circumstance, Martha Stewart arose. The promise of Stewartism was that if the public realm was now inaccessible or meaningless, then one should make the most of the private realm. This was accepted as self-evident by enough people to make Martha extremely wealthy. Luckily for Martha, her job was at home. She didn't have to drive thirty-eight miles to a cubicle in the billing office of Ramjack Medical and spend eight hours each day minutely examining spreadsheets on a computer monitor.
As her wealth and success increased, Martha's resources for doing things in and around the house enabled her to spin a fantasy of uber-homemaking that America found irresistible -- despite the fact that everyone else spent so much time away from the house that it was nearly impossible for them to emulate the goddess of hearth and home. Instead, they devoured her many publications and TV shows, finding consolation in all the beautifully portrayed scenes of Martha enacting the fantasy for them.
History is full of ironies and paradoxes, and one of them is that this avatar of home-making was relentlessly hunted down by federal prosecutors for allegedly scamming $40,000 on an insider stock sale, while true major league corporate CEO grifters walked off legally into their golden sunsets with hundreds of millions in back-dated stock options and other booty winkled out of feckless boards of directors.
It is also an ironic coincidence that at the exact time Martha Stewart went off to jail, the American home fantasy went totally off the rails. The systematic shut-down of America's manufacturing sector led policy-makers to insidiously try to replace it with a hyped-up housing industry. They kicked off the program by dropping the prime interest rate as close to zero as possible, making money extremely cheap to borrow. Everybody need a home, the logic went, including those who ordinarily wouldn't have qualified for regular mortgages that required substantial down payments, proof of employment, and other formalities. So the answer was to engineer a financing modality that would allow anyone to buy a house -- and thereby ramp up the "homebuilding" industry into super-hyper-turbo-overdrive, which would incidentally generate even more potential house-buyers among the many framers, trimmers, plumbers, electricians, painters, real estate agents, and sellers of Corian countertops, who made good wages or commissions on delivering the "product." Meanwhile, the new housing pods in evermore remote locations, where there were no towns, could be accessorized with all the requisite service infrastructure -- new highways, strip malls, Pizza Huts, WalMarts, Best Buys, and video rental joints, all of which had to be built by somebody, making for additional contracts, incomes, and potential house-buyers.
Meanwhile the financial wizards "innovated" methods for dispersing the risk associated with iffy loans (made to people with poor prospects for repayment) by bundling the mortgages into odd-lots and repackaging them as tradable securities, which could be used to "leverage" other finance "plays" yet more exotically abstracted from the actual making-and-selling real things of value. At the same time, the wizards converted the mortgage insurance business into a casino of swappable risk, materializing more fees and profits for themselves out of thin air.
This extremely complex racket worked well for a brief period of time, namely the period when the price of houses steadily increased, year after year, promoting the expectation that rising house "equity" was a permanent condition of life, and that the dependable annual increase in value could be "put to work" in the form of borrowing more money against it. The supposed increase in value protected those trafficking in swappable risk, since increased value banished the risk of loss, and the notion of moral hazard disappeared into the dumpster of history.
The whole racket floundered when several things changed or went awry. One was the sheer saturation of markets. Sooner or later, everybody who might possibly buy a house, got a house. The racket had had the perverse effect of stealing demand from the future by making house-buyers of those who were not really ready to buy -- e.g. very young adults with no savings or people with bad credit records. And not every immigrant from Bangladesh, El Salvador, or the Central African Republic could be positioned as a house buyer -- even under the now nearly nonexistent lending standards.
The next thing that went wrong was affordability. If absolutely everybody's house rose ten percent in value every year for years and years -- including every "pre-owned" raised ranch shitbox -- then sooner or later every house in America would cost at least half a million dollars. And with wages stagnant among the 90 percent who worked outside the financial services industry, sooner or later no house would be affordable to that 90 percent majority under even the most supernaturally lax lending provisions.
The final problem would come when central bankers had to raise interest rates so that customers for debt would accept the risk of investing in a national economy that was increasingly seen to be based on the engineering of modalities to get something for nothing.
This is the point we're at now. The whole system was greatly underwritten by the final peaking of available energy, chiefly oil, which made it possible in the first place to sell so much real estate in the farthest-flung outlands of the American landscape, including not only desert and swamp, but also prime farmland. The housing bubble began to collapse at exactly the moment that the world reached its all-time oil production peak: the summer of 2005.
Now the house market is both saturated and wildly mis-valued. Most of the new houses were built in places that will be logistically unfavorable as motoring becomes less affordable. Many of them are too large to heat as home heating becomes less affordable. The houses are overpriced. Those who must sell must drop their prices. Many such sellers will have to sell for less than the obligations still owed on their houses. The speculators have necessarily fallen by the wayside, because speculation is not possible in a falling market. Those who expected to sell old houses in older places for a half a million dollars or more to buy new houses in new places will have to stay put. As prices fall, the few potential buyers still left will step back in anticipation of further price drops. This "death spiral" will be self-reinforcing and take years to play out. As it occurs, many of the creatively-engineered contracts will be welshed on. Lenders will choke on "non-performing" mortgages. Mortgage-backed securities will lose their credibility and turn into junk or worse (worse-than-junk being certificates with no value whatsoever, not even pennies on the dollar). Bets, plays, leverages, positions, and hedges based on the idea that all these loans would continue performing will be wiped out.
The final result will be a dashed American Dream -- of a safe life in a happy home. Poor Martha Stewart will be seen as the goddess who failed. Well, she already has, really, having gone to prison and afterward retreated into her omnimedia fortress of corporate refuge (basically joining the enemy). As the middle class chokes and gets crushed under the weight of its unpayable debts and falling standards of living, Martha may be lucky to avoid getting eaten, along with a long list of other celebrity porkchops that an angry and grievance-filled public will turn on.
Finally, the idea that people could live happily ever after in "homes" devoid of any larger community context, or reality-based economic context, will fail. Perhaps we will even stop calling houses "homes" -- as we have been conditioned to do by the realtors hoping to manipulate all our subconscious desires for safety, familiarity, and order in this world of chaos and sorrow.
Tuesday, January 02, 2007
07 Predictions: James Kunstler
I will be so bold to say that I called the housing crash correctly last year, though the worst symptoms are slow to present for technical reasons. There's no question that the action on the real estate scene changed drastically in mid-year. The implosion of this mighty structure of fraud, folly, and misinvestment so far has taken place in such breathtaking slow-motion that its victims have not really felt the pain from the falling bricks yet. By late summer, buyers started evaporating. Real estate signs planted in lawns last June are still sitting there on New Years. Prices have come down a bit in many markets, including most of the hotties such as Florida, Phoenix, Las Vegas, San Diego, and Boston. But the buyers are still not bidding. Meanwhile, the sellers have dug in, determined to get something at least close to their wished-for inflated prices, egged on by their representatives, the realtors. This mutually reinforcing psychology cannot hold indefinitely. Many of these sellers don't have the luxury to wait around forever. Some have had to move to other houses in other places because of job changes, and are stuck paying two mortgages. Many are stuck with "creative" mortgages that all the evil ingenuity of the human mind conjured in recent years to enable the feckless to live above their means -- adjustable rate, payment optional, no money down contracts that suckered buyers into booby-trapped obligations whose initial low-interest terms lured them in and are now set to blow up in their faces as terms automatically re-set upwards to higher rates and "optional" deferred payments get backloaded onto the principal, putting the mortgage holders so far underwater on their contracts that a tour of the Titanic would feel like a day at the beach.
The trouble is, when both the sellers and their agents decide to get with the reality program and lower their prices, they will only stimulate a massive death spiral of house price deflation as buyers see the numbers go lower and hold out longer in the expectation that prices will go down even further. That would, of course, put more sellers into gross distress and lead them either to dump their properties or enter the cold waters of default and foreclosure. The whole process could run for a couple of decades, and as that occurs it will be made much much worse by oil depletion -- as so many suburban houses drastically lose locational value, combined with the consequences of poor construction carried out in cheap materials like vinyl and chipboard.
Add to this that the late stages of the hyper-boom caused so much "product" to be brought onto the market by the "production home builders" that there now exists an unprecedented oversupply of exactly the kind of crappy suburban houses (in all price ranges) that are bound to lose value going just a little bit forward. Foreclosures will only add more to the oversupply. In the subprime mortgage niche, defaults are officially reported to be running at 20 percent. Foreclosures are trailing because the process is so awkward, and many have not yet shown up in the housing markets. I predict that foreclosures on subprime mortgages will run above the 50 percent range when all is said and done.
As the music stops in the lending rackets, liquidity in the form of mortgage backed securities and other sources of hallucinated "money" will dry up, and will start to make itself felt in all the other arenas and regions that "money" has been migrating to. Jobs associated with house-building and all those ancillary enterprises -- big box shopping, chain restaurant revenues, car sales -- will disappear and incomes with them. Many home sales in past decade were made to people benefiting directly from the housing bubble. (The sheer number of real estate agents in America more than doubled since 2001.) This evaporation of both credit and incomes will impact the so-called "consumer economy", said to make up 70 percent of the total US economy. In other words, the term "depression" might be applicable as this economy lurches into actual contraction of more than a few percentage points.
This scenario suggests that earnings in corporations listed on the public stock exchanges -- the companies that elude acquisition by "private equity" -- would necessarily see severe drops in earnings, and therefore in stock value. While many commentators view the rise in the Dow as just another symptom of inflation -- asset inflation -- the activity in these assets -- companies making, doing, and selling things -- must be reported on a quarterly basis. And if that activity is trending strongly downward, then stock prices will trend down even if the value of the dollar is going down and it takes more dollars to buy an equivalent share of stock year-over-year. So I would conclude by again predicting a substantial drop in the Dow and other equity markets. To some extent, it seems to me that the 2006 blow off in stock prices was just another symptom of the finance sector being decoupled from economic reality since real GDP probably contracted one percent in the second half of the year while misreporting and delusional thinking drove stock prices up.
One would think that the US dollar is poised to take a beating, and indeed the signs have been abundant that this is underway -- especially when the value of the dollar started to implode against the Euro around Thanksgiving. It has leveled off since then. But since then there have been other moves around the world to de-link commodity prices from the US dollar and restate them in Euros, especially oil, and the dollar's plunge will probably continue. A lot of commentators around the web have pointed out the side benefit for the US government to promote dollar inflation: to inflate itself out of crushing debt. But the government can't accomplish this without destroying the purchasing power of ordinary Americans and whatever remains of their meager savings. I'd have to conclude that the Federal Reserve is out of tricks for goosing economic activity. Their last major trick was hitching a jive economy to a real estate bubble by making loan money available to any jabonie with a pulse and promoting the demise of lending standards. The gambit lasted five years and is now blowing up in America's face.
The Energy Predicament
Oil ended 2006 roughly where it began, at just over $60 a barrel. This reassured the public that all talk about Peak Oil was hysterical blather from a lunatic fringe. It was reinforced by publication of the mendacious Cambridge Energy Research Associates (CERA) report issued this fall -- a tragic document put out by a giant public relations firm representing the oil industry -- with the mission of staving off windfall profits taxes and other regulatory moves that a true resource emergency might recommend.
But beyond this debate, in the background, another ominous trend can account for the stalling of oil prices in 2006 -- totally unrecognized by the public and ignored by the news media: prices on the oil futures market leveled off because the Third World has effectively dropped out of bidding for it -- and using it. They cannot afford it at $60-a-barrel. The Third World has entered an era of energy destitution and it is manifesting in symptoms such as local resource wars, genocides, falling life expectancies, and in many places a near-total unraveling of the sociopolitical order. American mall-walkers and theme park visitors are oblivious to this tragic process, but it is perhaps the major reason why we are not now suffering from $100-per-barrel (or greater) oil prices (with the consequent unraveling of our sociopolitical and economic order).
The major trend on the oil scene the past 12 months is the apparent inability of the world to lift total production above 85 million barrels a day -- with demand now rising above that line. It is unclear how much more demand destruction will come out of the Third World before bidding intensifies between the developed nations. One commentator in particular, Dallas geologist Jeffrey Brown --a frequent contributor on the web's best oil debate site, TheOilDrum.com -- is advancing the idea that we are entering an oil export crisis that will presage a more general permanent world-wide oil emergency. Brown holds that the major oil exporting nations are using so much of their own product, because of rising populations, that their net exports are falling at an alarming rate, perhaps as much as 9 percent annually. This trend combines with general depletion rates now said to be around 3 percent a year.
The question of total oil reserves around the world remains somewhat murky, but Brown, Kenneth Deffeyes of Princeton, and others using a straightforward mathematical model, have stated that the world is roughly at the same point in all-time production as the Lower-48 United States was at in 1970, when America passed its all-time production peak. We know for certain that three of the four super giant oil fields (Daqing in China; Cantarell in Mexico; Burgan in Kuwait) are past peak and there is plenty of evidence that the greatest of them all, 50-year-old Ghawar in Saudi Arabia is not only past peak but perhaps "crashing" into a super-steep decline.
Discovery of new oil to replace the production from declining fields remains paltry. Chevron announced it's "Jack" discovery in the deepwater Gulf of Mexico with great fanfare this year, but neither conclusively demonstrated that all the wished-for oil was down there (between 3 and 15 billion barrels, Chevron said) or that they could get it out of there in a way that made sense economically, since the oil was extraordinarily deep and difficult to lift up.
Meanwhile, companies developing tar sand production in Alberta announced that their costs of production were rising substantially, while a reckoning lay ahead as to how much of Canada's fast-disappearing natural gas reserves will be squandered in melting tar. The oil shale project is going nowhere. American corporate farmers have entered into a racket with congress to subsidize ethanol production from corn and biodiesel fuel from soybeans. The American public remains ignorant of the tragic futility of this project, which depends on oil-and-gas "inputs" to keep the crop yields up and ultimately is a net energy "loser." As the world crosses into the uncharted territory of "The Long Emergency," Americans will find themselves having to chose between eating food and making fuel to keep the car engines running.
The signal failure of public debate in this country is embodied in our obsession with this particular theme -- how to keep the cars running by other means at all costs. Everybody from the greenest enviros to the hoariest neoliberal free market pimps believe that this is the only thing we need to worry about or talk about. The truth, of course, is that we have to make other arrangements for virtually all the major activities of everyday life -- farming, commerce, transport, settlement patterns -- but we are so over-invested in our
suburban infrastructure that we cannot face this reality.
The bottom line for oil in 2007: expect the bidding on the futures markets to regain intensity between the US, China, Europe, and Japan. A contracting US economy could take some demand out of the picture, but the sad truth is that we burn up most of the oil we use in cars, and American life is now so hopelessly based on incessant motoring that citizens cannot even go down to the unemployment office without driving. Geopolitical events can only make the oil supply situation worse and probably will. (See ahead.)
We are probably also in the early stages of a natural gas crisis in the US. Over the next decade, the gap between US demand for natural gas and dwindling supply may amount to one-and-a-half times the current equivalent of our oil imports. This is a staggering deficit. Natural gas is used for heating in more than half the houses in the US and accounts for just under 20 percent of our total electricity production. Domestic supply is crashing. We are drilling as fast as we can, with more and more rigs each year, just to to keep up. To make matters worse, the means of gas delivery -- through a vast web of pipeline networks around the nation -- makes "just-in-time" delivery the norm and, tragically, also makes "just-in-time" pricing normal, too. Thus, gas prices are responding only to the shortest-term signals -- for instance, unusually mild winter weather -- rather than to the catastrophic long-term reserve picture. Finally, we are unlikely to solve our natural gas problems with imports for technical reasons having to do with the cost and difficulty of moving the stuff by means other than pipelines and for geopolitical reasons, namely that most of the remaining gas in the world is in Asia. Bottom line: we could enter a home heating and electricity production crisis anytime. Massive price increases are likely to be required in order to reduce demand to the level of available supplies. This will be one of the major factors in the disabling of suburbia -- which is to say, normal American life.
The trouble is, when both the sellers and their agents decide to get with the reality program and lower their prices, they will only stimulate a massive death spiral of house price deflation as buyers see the numbers go lower and hold out longer in the expectation that prices will go down even further. That would, of course, put more sellers into gross distress and lead them either to dump their properties or enter the cold waters of default and foreclosure. The whole process could run for a couple of decades, and as that occurs it will be made much much worse by oil depletion -- as so many suburban houses drastically lose locational value, combined with the consequences of poor construction carried out in cheap materials like vinyl and chipboard.
Add to this that the late stages of the hyper-boom caused so much "product" to be brought onto the market by the "production home builders" that there now exists an unprecedented oversupply of exactly the kind of crappy suburban houses (in all price ranges) that are bound to lose value going just a little bit forward. Foreclosures will only add more to the oversupply. In the subprime mortgage niche, defaults are officially reported to be running at 20 percent. Foreclosures are trailing because the process is so awkward, and many have not yet shown up in the housing markets. I predict that foreclosures on subprime mortgages will run above the 50 percent range when all is said and done.
As the music stops in the lending rackets, liquidity in the form of mortgage backed securities and other sources of hallucinated "money" will dry up, and will start to make itself felt in all the other arenas and regions that "money" has been migrating to. Jobs associated with house-building and all those ancillary enterprises -- big box shopping, chain restaurant revenues, car sales -- will disappear and incomes with them. Many home sales in past decade were made to people benefiting directly from the housing bubble. (The sheer number of real estate agents in America more than doubled since 2001.) This evaporation of both credit and incomes will impact the so-called "consumer economy", said to make up 70 percent of the total US economy. In other words, the term "depression" might be applicable as this economy lurches into actual contraction of more than a few percentage points.
This scenario suggests that earnings in corporations listed on the public stock exchanges -- the companies that elude acquisition by "private equity" -- would necessarily see severe drops in earnings, and therefore in stock value. While many commentators view the rise in the Dow as just another symptom of inflation -- asset inflation -- the activity in these assets -- companies making, doing, and selling things -- must be reported on a quarterly basis. And if that activity is trending strongly downward, then stock prices will trend down even if the value of the dollar is going down and it takes more dollars to buy an equivalent share of stock year-over-year. So I would conclude by again predicting a substantial drop in the Dow and other equity markets. To some extent, it seems to me that the 2006 blow off in stock prices was just another symptom of the finance sector being decoupled from economic reality since real GDP probably contracted one percent in the second half of the year while misreporting and delusional thinking drove stock prices up.
One would think that the US dollar is poised to take a beating, and indeed the signs have been abundant that this is underway -- especially when the value of the dollar started to implode against the Euro around Thanksgiving. It has leveled off since then. But since then there have been other moves around the world to de-link commodity prices from the US dollar and restate them in Euros, especially oil, and the dollar's plunge will probably continue. A lot of commentators around the web have pointed out the side benefit for the US government to promote dollar inflation: to inflate itself out of crushing debt. But the government can't accomplish this without destroying the purchasing power of ordinary Americans and whatever remains of their meager savings. I'd have to conclude that the Federal Reserve is out of tricks for goosing economic activity. Their last major trick was hitching a jive economy to a real estate bubble by making loan money available to any jabonie with a pulse and promoting the demise of lending standards. The gambit lasted five years and is now blowing up in America's face.
The Energy Predicament
Oil ended 2006 roughly where it began, at just over $60 a barrel. This reassured the public that all talk about Peak Oil was hysterical blather from a lunatic fringe. It was reinforced by publication of the mendacious Cambridge Energy Research Associates (CERA) report issued this fall -- a tragic document put out by a giant public relations firm representing the oil industry -- with the mission of staving off windfall profits taxes and other regulatory moves that a true resource emergency might recommend.
But beyond this debate, in the background, another ominous trend can account for the stalling of oil prices in 2006 -- totally unrecognized by the public and ignored by the news media: prices on the oil futures market leveled off because the Third World has effectively dropped out of bidding for it -- and using it. They cannot afford it at $60-a-barrel. The Third World has entered an era of energy destitution and it is manifesting in symptoms such as local resource wars, genocides, falling life expectancies, and in many places a near-total unraveling of the sociopolitical order. American mall-walkers and theme park visitors are oblivious to this tragic process, but it is perhaps the major reason why we are not now suffering from $100-per-barrel (or greater) oil prices (with the consequent unraveling of our sociopolitical and economic order).
The major trend on the oil scene the past 12 months is the apparent inability of the world to lift total production above 85 million barrels a day -- with demand now rising above that line. It is unclear how much more demand destruction will come out of the Third World before bidding intensifies between the developed nations. One commentator in particular, Dallas geologist Jeffrey Brown --a frequent contributor on the web's best oil debate site, TheOilDrum.com -- is advancing the idea that we are entering an oil export crisis that will presage a more general permanent world-wide oil emergency. Brown holds that the major oil exporting nations are using so much of their own product, because of rising populations, that their net exports are falling at an alarming rate, perhaps as much as 9 percent annually. This trend combines with general depletion rates now said to be around 3 percent a year.
The question of total oil reserves around the world remains somewhat murky, but Brown, Kenneth Deffeyes of Princeton, and others using a straightforward mathematical model, have stated that the world is roughly at the same point in all-time production as the Lower-48 United States was at in 1970, when America passed its all-time production peak. We know for certain that three of the four super giant oil fields (Daqing in China; Cantarell in Mexico; Burgan in Kuwait) are past peak and there is plenty of evidence that the greatest of them all, 50-year-old Ghawar in Saudi Arabia is not only past peak but perhaps "crashing" into a super-steep decline.
Discovery of new oil to replace the production from declining fields remains paltry. Chevron announced it's "Jack" discovery in the deepwater Gulf of Mexico with great fanfare this year, but neither conclusively demonstrated that all the wished-for oil was down there (between 3 and 15 billion barrels, Chevron said) or that they could get it out of there in a way that made sense economically, since the oil was extraordinarily deep and difficult to lift up.
Meanwhile, companies developing tar sand production in Alberta announced that their costs of production were rising substantially, while a reckoning lay ahead as to how much of Canada's fast-disappearing natural gas reserves will be squandered in melting tar. The oil shale project is going nowhere. American corporate farmers have entered into a racket with congress to subsidize ethanol production from corn and biodiesel fuel from soybeans. The American public remains ignorant of the tragic futility of this project, which depends on oil-and-gas "inputs" to keep the crop yields up and ultimately is a net energy "loser." As the world crosses into the uncharted territory of "The Long Emergency," Americans will find themselves having to chose between eating food and making fuel to keep the car engines running.
The signal failure of public debate in this country is embodied in our obsession with this particular theme -- how to keep the cars running by other means at all costs. Everybody from the greenest enviros to the hoariest neoliberal free market pimps believe that this is the only thing we need to worry about or talk about. The truth, of course, is that we have to make other arrangements for virtually all the major activities of everyday life -- farming, commerce, transport, settlement patterns -- but we are so over-invested in our
suburban infrastructure that we cannot face this reality.
The bottom line for oil in 2007: expect the bidding on the futures markets to regain intensity between the US, China, Europe, and Japan. A contracting US economy could take some demand out of the picture, but the sad truth is that we burn up most of the oil we use in cars, and American life is now so hopelessly based on incessant motoring that citizens cannot even go down to the unemployment office without driving. Geopolitical events can only make the oil supply situation worse and probably will. (See ahead.)
We are probably also in the early stages of a natural gas crisis in the US. Over the next decade, the gap between US demand for natural gas and dwindling supply may amount to one-and-a-half times the current equivalent of our oil imports. This is a staggering deficit. Natural gas is used for heating in more than half the houses in the US and accounts for just under 20 percent of our total electricity production. Domestic supply is crashing. We are drilling as fast as we can, with more and more rigs each year, just to to keep up. To make matters worse, the means of gas delivery -- through a vast web of pipeline networks around the nation -- makes "just-in-time" delivery the norm and, tragically, also makes "just-in-time" pricing normal, too. Thus, gas prices are responding only to the shortest-term signals -- for instance, unusually mild winter weather -- rather than to the catastrophic long-term reserve picture. Finally, we are unlikely to solve our natural gas problems with imports for technical reasons having to do with the cost and difficulty of moving the stuff by means other than pipelines and for geopolitical reasons, namely that most of the remaining gas in the world is in Asia. Bottom line: we could enter a home heating and electricity production crisis anytime. Massive price increases are likely to be required in order to reduce demand to the level of available supplies. This will be one of the major factors in the disabling of suburbia -- which is to say, normal American life.
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