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  • From: "Tradingpost" <tradingpost@lobo.net>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] JAMES HOWARD KUNSTLER'S 2009 FORECAST
  • Date: Mon, 29 Dec 2008 22:54:19 -0700


"While the public supposedly voted for "change" this fall, I maintain that
they underestimate the changes really at hand. I voted for "change" myself
in pulling the lever for Barack Obama. I regard him as a figure of
intelligence and sensibility, but I'm far from convinced that he really
sees the kind of change we are in for, and I fret about the measures he'll
promote to rescue the Status Quo when he moves into the White House a few
weeks from now."

"Whatever else happens, 2009 will surely see a massive return to home
gardening as budgets become strained to the extreme"


JAMES HOWARD KUNSTLER'S 2009 FORECAST
Monday, 29 December 2008
http://carolynbaker.net/site/content/view/911/1/

Introduction

There are two realities "out there" now competing for verification among
those who think about national affairs and make things happen. The dominant
one (let's call it the Status Quo) is that our problems of finance and
economy will self-correct and allow the project of a "consumer" economy to
resume in "growth" mode. This view includes the idea that technology will
rescue us from our fossil fuel predicament -- through "innovation," through
the discovery of new techno rescue remedy fuels, and via "drill, baby,
drill" policy. This view assumes an orderly transition through the current
"rough patch" into a vibrant re-energized era of "green" Happy Motoring and
resumed Blue Light Special shopping.

The minority reality (let's call it The Long Emergency) says that it is
necessary to make radically new arrangements for daily life and rather
soon. It says that a campaign to sustain the unsustainable will amount to a
tragic squandering of our dwindling resources. It says that the "consumer"
era of economics is over, that suburbia will lose its value, that the
automobile will be a diminishing presence in daily life, that the major
systems we've come to rely on will founder, and that the transition between
where we are now and where we are going is apt to be tumultuous.

My own view is obviously the one called The Long Emergency.

Since the change it proposes is so severe, it naturally generates exactly
the kind of cognitive dissonance that paradoxically reinforces the Status
Quo view, especially the deep wishes associated with saving all the
familiar, comfortable trappings of life as we have known it. The dialectic
between the two realities can't be sorted out between the stupid and the
bright, or even the altruistic and the selfish. The various tech industries
are full of MIT-certified, high-achiever Status Quo techno-triumphalists
who are convinced that electric cars or diesel-flavored algae excreta will
save suburbia, the three thousand mile Caesar salad, and the theme park
vacation. The environmental movement, especially at the elite levels found
in places like Aspen, is full of Harvard graduates who believe that all the
drive-in espresso stations in America can be run on a combination of solar
and wind power. I quarrel with these people incessantly. It seems
especially tragic to me that some of the brightest people I meet are bent
on mounting the tragic campaign to sustain the unsustainable in one way or
another. But I have long maintained that life is essentially tragic in the
sense that history won't care if we succeed or fail at carrying on the
project of civilization.

While the public supposedly voted for "change" this fall, I maintain that
they underestimate the changes really at hand. I voted for "change" myself
in pulling the lever for Barack Obama. I regard him as a figure of
intelligence and sensibility, but I'm far from convinced that he really
sees the kind of change we are in for, and I fret about the measures he'll
promote to rescue the Status Quo when he moves into the White House a few
weeks from now.

Where We Are Now

Without reviewing all the vertiginous particulars of the year now ending,
suffice it to say that the US economy fell on its ass and that the "global
economy" did a face-plant as well. The American banking sector imploded
spectacularly to the degree that investment banking actually went extinct
-- as if a meteor landed on the corner of Madison Avenue and 51st Street.
The response by our government was to shovel "loans" onto the loading dock
of every organization that pretended to be something like a bank, while
"bailing out" an ever-longer line of corporate claimants with a pitiable
song-and-dance. The oil markets went on a roller coaster ride. The housing
bubble collapse grew to avalanche velocity (taking out whole colonies of
realtors, mortgage brokers, and construction contractors in its path), the
commercial real estate sector developed hemorrhagic fever, retail drove off
a cliff on Christmas Eve, the stock market fell in the toilet, jobs and
incomes went up in a vapor, and tens of millions of ordinary citizens
addicted to revolving credit found themselves in a life-and-death struggle
for the means of existence. None of this is over yet.

The Year Ahead

Much of what has been lost in 2008 will not be recovered: enterprises,
personal fortunes, chattels, reputations.

I expect a period of euphoria to mark the early weeks, perhaps months, of
the Obama team. It will be a relief to have a president who speaks English
correctly and has experienced something like real life prior to politics.
Restoring credibility and legitimacy in leadership will be a big deal. If
nothing else, we may recover a collective sense of consequence from a
president who tells the truth, even the harsh truth. The age when it was
enough to claim that "mistakes were made" might be over. A sign of this
sort of change may be the commencement of prosecutions for misdeeds in
banking and securities that are now destroying the entire system of
deployable capital. A good place to start will be an investigation of Henry
Paulson for insider trading stemming from Goldman Sachs's shorting of its
own issued mortgage-backed securities when Mr. Paulson was the company's
CEO. Beyond his case, there should be enough work at Attorney General Eric
Holder's office to employ a line of law school graduates stretching from
Brattle Street to the planet Mars. It will be salutary for the nation to
see those who engineered the banking collapse come to greater grief than
the mere surrender of their Gulfstream jets and Hamptons villas. By the
way, being allergic to conspiracy theories, I don't believe for a minute
that there is some kind of shadow elite of "Bilderburgers" standing in the
background to protect these grifters -- and I also believe the reason these
paranoid notions persist is because it is otherwise hard to account for the
extravagant irresponsibility of the Bush circle and its servelings.

Apart from "cleaning up Dodge," so to speak, and from issues of collective
character-and conscience-in-office, I worry that the avalanche of troubles
already ongoing will overwhelm Mr. Obama and his people.It's also well
worth worrying whether they will pursue policies similar in kind to the
ones pursued by Bush, namely throwing money at everything and anything, and
it sure looks like they are planning to do just that. I am especially
concerned about an "infrastructure stimulus" project aimed at highway
improvement at the expense of public transit. This would be the epitome of
a campaign to sustain the unsustainable. We need to begin planning right
away for a transition away from automobiles, not in order be good
socialists but because Happy Motoring is at the core of our
unsustainability trap. The car system is going to fail in manifold ways
whether we like it or not, and it will fail due to circumstances already
underway. For one thing, it will cease to be democratic as the remnants of
the middle class find it impossible to get car loans, or pay for fuel, or
insurance, and that will set in motion a very impressive
politics-of-grievance setting apart those who are still able to enjoy
motoring and those who have been foreclosed from it. Contrary to what you
might make of the the current situation in the oil markets, we are in for a
heap of trouble with both the price and supply of petroleum (more on this
below). And there is no chance in hell that any techno rescue remedy to
keep all the cars running by other means will materialize.

A consensus in the blogoshpere says that the stock markets will rebound
strongly during the first Obama months. This is possible just on the basis
of pure "animal spirits," but the Obama Bounce will occur against a
background of continued dismal business and financial news. It will appear
to defy that news. By May of 2009, the stock markets will resume crashing
with the ultimate destination of a Dow 4000 before the end of the year.
Meanwhile, jobs will vanish by the millions and companies will go bankrupt
by the thousands, especially in the so-called service sector, and in all
the suppliers of such, along with the landlords in all the malls and strip
malls. The desolation will mount quickly and will be obvious in the empty
storefronts and trash-filled parking lagoons. In the event, two things will
become increasingly clear to the nation: that the consumer economy is dead,
and that there is no more available credit of the kind that Americans are
in the habit of enjoying.

We'll turn around early in 2009 and discover that we are a much poorer
nation than we thought because from now on credit will be extremely hard to
get for anyone for anything. The businesses that survive will have to keep
going on the basis of accounts receivable. This is the area where the crash
of giants will be heard. I've been saying since publication of The long
Emergency that comprehensive downscaling in all our activities, from
farming to business to schooling to governance, will be the categorical
imperative of the years ahead. Giant enterprises requiring giant loans to
get from quarter to quarter will tend to not make it. Borrowing from the
future will become a practical impossibility as past bad debts from
previous borrowings continue to unwind, cease performing, and get written
off. This argument implies that the federal government will tend to
flounder just as General Motors, Citicorp, Target Stores and other gigantic
enterprises will tend to flounder. It would be sad to see a President Obama
so hamstrung and helpless, and it is largely why I see his role as largely
symbolic -- as a reassuring presence encouraging the distressed public to
bravely bear their hardships, and to be kind and helpful among their
neighbors.

Households, like businesses, will have to pay as they go from earned
income. The house as ATM is over. Credit cards are maxed out and credit
ceilings are lowering like the ceiling in "The Pit and the Pendulum,"
preparing to slice-and-dice the old "normal" of family life in America.
Bankruptcy will be the new Nascar. A lot of families will lose everything.
They will sift and disperse into the housing owned by other family members
-- parents, siblings -- and a strange new not-altogether comfortable kind
of togetherness will become common. Over time, a lot of people will go
looking for casual work "under-the-table"( and probably low-paying). To
some degree, these workers will begin to look and act like a new servant
class, and before too long they may be absorbed into the households of
people who employ them. There will be plenty of room for them there.

Counties, municipalities, and states will join in the bankruptcy fiesta. It
would be reasonable to expect collapsing services as a result. This would
be a situation fraught with danger -- of rising crime, of public health
emergencies as water systems are not kept up and sewage treatment becomes
unaffordable. I don't imagine the federal government stepping into every
Podunk or Metropolis from sea to shining sea and propping up these
services. People will have to cope with danger and deprivation.

2009 may be the point where we begin to understand what kinds of places
will be more hospitable to human society further ahead. I maintain that our
giant urban metroplexes have way overshot their sustainable scale and will
contract severely. With all the economic hardship, we ought to expect a lot
of demographic churning, people leaving hopeless places and moving on to
something more promising. I believe we will see them move to smaller towns
and smaller cities. The reorganization of the rural landscape into
smaller-scaled farms has not begun to occur -- though 2009 might be very
hard on agribusiness, given the shortage of capital and if oil begins to
march up in price by late winter. Eventually, the rural landscape will
require the labor of many more people than is currently the case. Whatever
else happens, 2009 will surely see a massive return to home gardening as
budgets become strained to the extreme. As the New Urbanist Andres Duany
said recently, "Gardening is the new Golf!"

The Oil Scene

Many were stunned this year to witness the parabolic rise and fall of oil
prices up to nearly $150 and then back around $36 by Christmas time. Quite
a ride. I said in The Long Emergency that volatility would be the hallmark
of post peak oil because it was obvious that advanced economies could not
absorb super high prices and would crash in response; that at some point
after crashing, these economies would respond to the new lower oil price,
resume their cheap oil habits, and build to another price rise. . . and
crash again. . . in a declension of ever-lower industrial activity.

What I probably didn't realize at the time was how destructive this cycling
between low-high-and-low oil prices would actually be in the first instance
of it, and what a toll it would take right off the bat. We can see now that
our first journey through the cycle took out the most fragile of the
complex systems we depend on: capital finance. As a result, a huge amount
of capital (say $14 trillion) has evaporated out of the system, never to be
seen again (and never to be deployed for productive purposes). It will be
harder for the USA to rebound from the grievous injury to this crucial part
of the overall system, and Europe has foundered similarly -- though the
European nations are not burdened to the same degree by the awful
liabilities of suburbia.

Even if these advanced economies -- throw in Japan too -- remain moribund,
the price and supply prospects for oil look ominous. My own guess is that
the price of oil has overshot on the low end just as it overshot on the
high end, and that, when all is said and done, we'll still see an upwardly
trending price line over the long haul. The plunge, which began right after
the $147 peak in July 2008, was as much the result of banks, hedge funds,
and individuals dumping oil investments and positions to raise cash as it
was a matter of the markets predicting a sharp fall-off in economic
activity (and supposedly oil consumption). The truth is that demand
destruction for oil in the USA has been surprising mild compared to the
drop in price. Jim Hansen's Master Resource Report says that gasoline
consumption dropped from 9.29 million barrels a day in 2007 to 8.99 million
barrels a day for 2008. That's not much of a fall-off, especially compared
to the price drop.

As Julian Darley of the Post Carbon Institute put it recently: "There won't
be any energy bail-out." And, as many other people have noted, the recent
plunge in oil prices strongly implies future supply destruction, since so
many planned oil projects have been suspended or cancelled because they are
economic losers at $40-a-barrel (or even $70). Even projects well underway,
such as Canadian tar sand production, have been scaled back or shut down
because they don't make sense at current prices. Some of these other newer
projects will now never get underway -- they have missed their window of
opportunity with so much capital leaving the system -- and so the hope of
offsetting very-near-future depletions in old giant oil fields looks dimmer
and dimmer.

Those depletions are very serious. For instance, Mexico's super-giant
Cantarell oil field, the second-largest ever discovered after Saudi
Arabia's Ghawar field, has shown a 30 percent depletion rate in the past
year alone. (Pemex had forecast a 15 percent rate entering the year.)
Cantarell provides over 60 percent of Mexico's total production, and Mexico
is America's third largest source of imports -- just after Saudi Arabia
(#2) and Canada (#1). Obviously, Mexico soon will lose its ability to
export oil, and as that occurs, America is going to feel more than pinch --
more like a two-by-four upside the head. In short, remorseless depletion is
underway and we are less likely now than even a year ago, to make up for
it.

At some point, then, demand, even if slightly lower, will catch up with
declining supply. My prediction for 2009 is that we will see two things
occur, possibly at the same time: a resumption of rising prices, and spot
shortages. I say this because the global economic fiasco is sure to produce
geopolitical friction, and inasmuch as America has to import almost
three-quarters of the oil we use, the prospect for trouble is great.

The tragic part of all this, of course, is that the temporary plunge in oil
prices has prompted an incurious American public to assume, once again,
that the global oil predicament is some kind of a fraud. Given the flood
tide of fraud they have been subject to in banking and investment matters,
I suppose you can't blame them from thinking that everything is some kind
of a scam. Given feeble car sales this season, there are reports that an
increasing percentage of those sold now are are trucks and SUVs.

Though I give Boone Pickens high marks for stepping up to the leadership
plate, I'm not altogether on board with his energy proposal for swapping
natural gas for gasoline in motor fuels while we swap out wind power for
natural gas in electric power generation. I don't believe that the
ballyhooed shale-gas-plays of the last few years will prove-out long-term,
as some huckster's claim. They are expensive to drill and run, and they all
tend to deplete very quickly -- around one year. I'm not convinced we have
the capital or the resources even to come up with the steel necessary to
drill for it.

In the meantime, there are still those who hope (as described above) that
various alt.energy systems will insure the continuation of our Happy
Motoring habits. This is an idle hope, and 2009 will be very sobering for
those who imagine that hybrid cars, or electric cars, or "air" cars, or any
other kind of car technology are going to save the day. Even if President
Obama mounts an "infrastructure stimulus" program, it will not keep up with
all the necessary routine road repair that our highway system requires. The
extreme financial hardship faced by localities and states insures that they
will have to postpone a lot of expensive highway maintenance -- even if the
federal government fixes a big bunch of bridges and tunnels -- and so we
face the interesting prospect that our roadway systems will enter their own
deadly zone of systemic failure even before the whole car issue is settled.

I am waiting to see whether Mr. Obama will undertake a restoration of
passenger railroad service. I've said enough about this in the past, but
it's worth reiterating that a failure to get comprehensive passenger rail
service going will be a sign of how fundamentally unserious we are as a
nation.

The Specter of Inflation

This is the "other shoe" that a lot of people are waiting to drop. Right
now we are caught up in a compressive debt deflation as mortgages stop
"performing" and loans of all kinds are welshed on. Since money is loaned
into existence, and a great many loans are not being repaid, then a lot of
money is going out of existence. That's what I mean when I say that capital
is leaving the system. At the same time, the Federal Reserve has made good
on its promise to drop money from helicopters if necessary to prevent an
implosion of the banking system (as all that older money goes out of
existence), and so it's now a question as to when the amount of new money
will exceed the disappeared old money. (Of course when I say money, I mean
"money," because we are dealing here in a shadow realm of assumed value.)
In any case, there is bound to be a lag period between the time that the
Fed's money is dropped from the choppers and the time it actually filters
through the banks and other recipients to the so-called "real economy" of
people who buy and sell real things. The credible estimates I hear run
between six and 18 months.

I'll only venture to guess that we could see the start of serious inflation
sometime in 2009. To some extent, all currencies are now free-falling
together, some at slightly faster rates than others, but the situation of
the US dollar is so grotesquely dire, and our structural imbalances so
monumental, that it is hard to imagine that our currency will not win the
international race to the bottom. Gold resumed its movement upward against
the dollar a week before Christmas, and that may be an early sign. The
government -- and anyone badly in debt -- benefits much more from inflation
than deflation, so every effort will be made to avert the latter. The
trouble lies in the government's dumb incapacity to control dangerous
things that it sets in motion, so that an inflationary campaign to avoid
compressive deflation can so easily lead to a fiasco of super or hyper
inflation -- the kind that kills governments and turns societies into
murderous monsters. I'll forecast the that the US dollar is worth 40
percent of its current value by next Christmas.

Geopolitics

Well, now, who the hell knows what's in store. Aside from a few bombs here
and there, and pirates skulking around the horn of Africa, the world scene
was miraculously free of major incidents in 2008 -- perhaps the worst being
a toss up between the September Mumbai bombings and the fiasco in Georgia,
where the US prompted Georgia President Mikheil Saakashvili to send troops
into the South Ossetia region and the move was answered by overwhelming
force from neighboring Russia, leaving the US looking feckless and retarded
for our troubles. But otherwise, there wasn't a whole lot of action out
there.

Until the last few days of the year, that is. I'm sure the ever-growing
cohort of American anti-semites who send me emails will be tickled when I
assert that the Hamas rocket attacks against Israel of recent days
guaranteed a sharp response from Israel -- and now, of course, Hamas is
playing the crybaby card: "... what'd we do to deserve this...?" Well, you
fucking fired a bunch rockets into Israel. Did you ever hear of
cause-and-effect? This matter requires no further elucidation, except that
it seems to suggest a ramping back up of hostilities. I wonder if it is the
beginning of a new coordinated offensive by Islamic extremism aimed at
taking advantage of the West's current economic plight (and the West's
probable aversion to anything that will complicate its desired recovery).
We'll know in a month or so, I think, since any coordinated campaign (if
such a thing were possible) might well be aimed at confounding the new
American president.

The other hot corner of the world right now is the India-Pakistan border
where the 60-year-old rivalry, which has already produced three wars, looks
to be gearing up for yet another round. I'm not the first one to say that
Pakistan is an extremely dangerous regional player, being an economic
basket case, possessing a score or so of nuclear bombs, harboring more
Islamic fundamentalist maniacs than any other place in the world, and
having a government held together with duct tape and twine. The caper in
Mumbai last September could well have been construed as an act of war, but
somehow India kept its head. Who knows where this is going . . . .

So far I have only described what is already obviously going on. Add to
this the likelihood that Iran is closer to achieving membership in the
atomic weapon club. They've been spinning their centrifuges all year and
nobody has done anything about it. My guess is that neither the US nor
Israel will attempt to take out their facilities in the year ahead. If Iran
used a nuclear device against Israel, or anybody else, they would be asking
to become, in turn, the world's largest ashtray. End of story. A different
story, though, is how Iran might behave if and when the US Military
presence in Iraq is reduced. I can imagine Iran doing anything possible
surreptitiously to gain control over Iraq's southern oil regions around
Basra, but even the Iraqi Shia don't like the Iranian Shia that much.
Anyway, iran's economy has suffered hugely from the fall in oil prices.
That nation may be in for more internal trouble than they have seen in
thirty years since the Shah was tossed out by the minions of Ayatollah
Khomeini.

There's been a lot of sentiment the past year that as the US and the Europe
fall into economic disarray, China would emerge as the great new hegemonic
superpower. While it's come a long way in a quarter-century, China's
internal problems are still enormous and worsening. They're in trouble with
water, food imports, mass unemployment, and energy. They have locked in
some oil contracts around the world, but they are still susceptible to
vagaries in the oil markets and Black Swan events. As the US consumer
economy falls into a coma, and the shipping containers from China to
WalMart get sparser, the Chinese government will face the wrath of millions
of unemployed workers. I believe they will struggle through 2009, perhaps
growing more surly as the US dollar inflates and their holdings of treasury
bills begins to look more like a swindle.

Russia may be suffering economically for the moment due to the crash of oil
prices, but they are energy resource-rich -- at least for the next couple
of decades -- and if they don't like the current price, they can keep more
of their oil in the ground until the price looks more attractive. I think
Mr. Putin has the confidence of the Russian people and will survive the
current malaise.

Japan remains a riddle wrapped in toasted nori. They're beggaring their own
factory workers to stay solvent. Their banking sector has been zombified
for a generation. They import 95 percent of the energy they use. Do they
have a plan? One can imagine them sliding in resignation back to something
like the sixteenth century, giving up the whole industrial circus as more
trouble than it's worth, just as they once gave up on firearms.

The over-arching geopolitical theme of 2009 will be the end of robust
globalism as we've known it for some time. Reduced trade, competition for
energy resources, sore feelings over debts and currencies will drive the
nations inward or, at least, direct their energies toward their own
regions. Note to Tom Friedman: the world turned out to be round after all.

Conclusion

The big theme for 2009 economically will be contraction. The end of the
cheap energy era will announce itself as the end of conventional "growth"
and the shrinking back of activity, wealth, and populations. Contraction
will come as a great shock to a world of conventionally programmed
economists. They will toil and sweat to account for it, and they will
probably be wrong. Unfortunately, this contraction will do its work in
unpleasant ways, driving down standards of living, shearing away hopes and
expectations for a particular life of comfort, and introducing disorder to
so many of the systems we have depended on for so long. People will starve,
lose their homes, lose incomes and status, and lose the security of living
in peaceful societies. It will become clear that the Long Emergency is
underway.

My hope for the year, at least for my own society, is that we will
transition away from being a nation of complacent, distracted, over-fed
clowns, to become a purposeful and responsible people willing to put their
shoulders to the wheel to get some things done. My motto for the new year:
"no more crybabies!"





  • [Livingontheland] JAMES HOWARD KUNSTLER'S 2009 FORECAST, Tradingpost, 12/30/2008

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