Hope…Change…

Off the keyboard of Steve from Virginia

Published on Economic Undertow on November 7, 2012

Discuss this article at the Epicurean Delights Smorgasbord inside the Diner

President Obama easily won re-election yesterday: Where do we go from here?

– look for ‘Brand X’ opponent Romney to retreat into what Edward Gibbon called, ‘a well-deserved obscurity’. Smarmy Romney lacks the kooky charisma and media horsepower of a Sarah Palin or Paul Ryan, his TV days are done. He has nothing to say and says it with less conviction than just about anyone in public life. There is little left for Mr. Romney to do but to go back to Wall Street where he can reassure his own customers he is not stealing their money … while he steals their money.

The Tea Party has unraveled as a political phenomenon. The ultra-libertarian/Austrian/liquidationist faction within GOP politic has discredited itself: the public won’t buy social Darwinism no matter how much religion and patriotic moralizing are spackled over it.

– The GOP has no one to blame for the election outcome but themselves. Their primary process — dominated by petroleum industry stooges and ‘missionary evangelists’ — prevented the Republicans from fielding a candidate able to challenge the vulnerable Obama. Who could have beaten him? An ordinary human being … that is, a non-radical Republican automatically excluded from the candidacy … by the extremist-filtering primary process and funding structure.

– From the ‘Welcome to the ironic universe’ department: this is the end of Ron Paul and his son, while there is no end in sight for Ben Bernanke. Gone: Palin, Santorum, Allen (in Virginia), Akin, Mourdock, Perry, Mack. Lost in influence: Bachmann, Ryan, Cantor, Gingrich.

– Libertarian economics do not appeal to Americans who do not want to be thrown to the ‘free-market’ wolves any more than they already have been. Americans want a level playing field with big business. Disappointment with Obama is that he is unwilling to hold powerful interests accountable, not that they are too accountable. The intrusive, overbearing government doesn’t do its job or it does so in ways that protect private interests at the expense of the public.

– A big winner of the election is Occupy movement. They won by not embarrassing themselves and by helping out in New York City with the hurricane relief … where the reactionaries were notably absent. The crumbling Tea Party has left a political vacuum … if the Occupy group has the wit to seize the moment.

– The clock is ticking on the tycoons. They couldn’t buy this election and won’t get a better chance in any conceivable future. The shift is underway … from tycoons being admired and emulated to being loathed. The step after is for tycoons to be hunted down like rats. Credit the timely hurricane Sandy and a rising public awareness of tycoon-driven climate change.

– If I wuz a tycoon I would make like French and get the hell out of Dodge …

– Having fixed his footnote in history at the cost of a billion-plus US dollars look for the president to retreat with some dispatch from the public stage. ‘Hope and Change’ have morphed into hopelessness on one hand and an establishment death-grip on the status quo with the other. The establishment has few choices that allow it to remain the establishment! Conventional economics have run aground. The austerity camp and the stimulus factions both insist their policies will propel the USA waste-monetizing economic machine forward. None of the factions acknowledge that the operation of the machine itself … is what undermines it. The present devours the future faster and faster: the cost of each fill-up becomes more crushing as the machine annihilates with constantly greater scope and efficiency what it needs to run. The only returns are ‘money’ for the despised tycoons while the rest must be satisfied with the thin gruel of ‘We’re Number One’ and other inconsequential generalities. Meanwhile, the life support on our space ship is fed into the furnace.

– Obama is clever enough to know there is nothing conventional policies can do to remedy our current situation: he has access to the ‘input’ of at least a dozen intelligence services. At the same time, he never has to pay for a round of golf for the rest of his life. He can loiter with tycoons which clearly pleases him, he can start writing the obligatory post-presidential memoirs, he can secure places in corporate boardrooms/in places of tycoon exile. When the time comes in 1,515 days he can become a petit-tycoon himself. The office of Lincoln and Roosevelt has devolved into a running-board or ramp to commercial success. Obama is now a ‘Brand’: one day after the election the president has one foot out-the-door, he is a lame duck.

– Obama the Ironic: no doubt airports across the country will be renamed for the president just as the airline industry collapses due to fuel shortages … that are denied by Obama.

– Obama the Ironic part two: sometime within the next four-plus years the president is going to have to tell the American public the truth about energy supplies: we’ve run out and cannot afford to burn any more for endeavors that don’t pay for themselves — which means fuel for agriculture and some basic services and nothing else! Here is something to live for … and watch on live TV.

Goofiness is not confined to America, the Europeans have similar problems facing reality:

 


Worst of the Eurozone Crisis Is Not Over Yet
 Megan Greene (Economonitor)Greece released its 2013 budget last week, indicating that public debt will surge to 189 per cent of GDP by the end of next year. If Greece’s debt burden cannot be deemed to be on a sustainable path, the IMF cannot release more money.

The only way to reduce Greece’s debt burden effectively and sufficiently is to write down some of its debt. So far, Germany, the ECB and the IMF have all indicated they would refuse to take a hit on their Greek government bond holdings.

… even if Germany wants to give Greece more time and money to achieve a swingeing fiscal adjustment, Greece might not have any interest in doing so, particularly not after five years of economic recession.

A model student

In contrast to Greece, Ireland has been identified by creditor countries as a shining example of how Europe will emerge from the crisis.

It is true that Ireland has stood apart from the other bailout countries in a few important ways. For starters, Ireland has dipped a toe back in the bond markets, despite being in a bailout programme. Investors also seem relatively confident that Ireland will not default, as exhibited by lower, long-term Irish bond yields than its Greek, Portuguese, Spanish and Italian counterparts.

According to the Purchasing Manager’s Index (PMI), Ireland has seen its manufacturing activity expand over the past eight months. This is in sharp contrast with the eurozone, which has, on average, seen manufacturing activity contract for 15 consecutive months.

Ireland’s PMI data is encouraging, with new foreign orders particularly buoyant in recent months. This is a positive indicator for Ireland’s export sector, which should keep expanding.

But here’s the big problem in Ireland: there is no economic growth.

 

It’s hard not to come away from articles like this perplexed. What are the Irish or the Greeks supposed to do over the longer term … like 1000 years or so? How about 100 years? How about 10 years? Where is the ‘reality plan’?

There is the usual ‘growth’ mantra but what is supposed to grow? More auto sales? More vacation ‘villas’ around more miles of Mediterranean coast? More McDonald’s and Tescos? Right now the European auto industry is collapsing. Real estate is a bust. Retail margins are narrowing or gone. The European fuel consumption is almost 15 million barrels per day … most of this is imported from Africa and the Middle East. It is paid for with massive and unaffordable borrowing. The waste-based machine has been backfiring since 2008, the complete breakdown is heaving into view.

From whom are the Europeans borrowing? Ireland and the rest cannot borrow against their own accounts — they are shackled to the euro — they must borrow from financiers in City of London and Wall Street. Currently, credit terms are onerous … what comes next? If Europe cannot pay its bills its fuel consumption is exportable to the United States which can borrow against its own account at all levels. There is a reason why the US president is claiming the country is ‘energy independent’.

How is Ireland supposed to cope with the current state of affairs for more than a few months? Ireland has no domestic fuel production to speak of. It MUST borrow or go onto a severe — and permanent — energy diet. Can Ireland borrow for another year? It must, obviously. How deep a the hole will creditors allow Ireland to dig? How can the country repay- or service its debts when it cannot borrow more fuel? The Irish corporate tax shelter is not very useful to corporations that aren’t earning much. Eire can be the gateway for flight capital to exit Europe but that lasts only until the euro is done away with. At that point Ireland descends toward failed-state status like Serbia … or Yemen.

Figure 1: Irish oil consumption plummets because Ireland cannot afford to borrow. As it wastes more it falls further into debt. Even if the Irish gain new credit today, they certainly cannot do so forever.

This is the debt-energy trap that has enmeshed all the world’s modern nations. The idea is that something magical will turn up in the next decade or so and ‘solve all the problems’ in the meantime, the entire European Enterprise hinges on whether the ECB can keep offering rear-guard actions: making loans … that are more dubious every month! At some point, organic returns are needed … these never arrive. Sadly, there are no returns on consumption … simple waste for its own sake. The West has nothing in the way of real goods or services to offer in exchange for the petroleum they burn up … except for petroleum burning gadgets! Here is the most vicious of all vicious circles.

One outcome of this dynamic is fuel poverty … something that occurring right now across the euro-zone and in the UK. What the Europeans need to do pronto is to rethink the ‘business as usual’ concept and ditch growth. Cheap natural resource capital does not exist any more. What remains is worth too much to waste. The economy built around monetizing waste is a loser. Europe needs to power down and figure out how to provide decent lives for citizens without consumption. Unfortunately, there is little time remaining to figure out how to do this. The ongoing Euro-calm is an eye in the hurricane, the next phase will see Europe cut off from fuel supplies and structural shortages that cannot be dealt with.

Conservation by other means …

Knarf plays the Doomer Blues

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