Daily Impact

Global Recession Accelerating toward Depression

storm-cloudsgc2smOff the keyboard of Thomas Lewis

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storm-clouds

The weather forecast says sunny and mild. Let’s go shopping. (Wikipedia Photo)

Published on The Daily Impact on October 21, 2015


With the mainstream media devoting 80% of their time covering the contest to see what color uniform the captain of the USS Titanic will be wearing in 2017; with the Tea Party Taliban — 40 fundamentalist members of the House of Representatives — bringing the federal government to its knees; the storm clouds of a great global depression are building into our skies from all directions, largely unacknowledged even as they begin to blot out the sun.

Any economy is a pyramid whose broad base is comprised of the middle class — people who have enough money to provide a decent life for themselves. They do this by spending their money on the necessities of life, thus giving life to businesses organized to provide them with those necessities. This activity is called trade, and where there is no trade, there is no economic life.

Even as recession looms there is plenty of trade going on. But it’s not so much trade in the necessities of life, but gambles on the future value of necessities, on short positions and leveraged positions and junk debt and derivatives and indexes, indulged in by riverboat gamblers throwing around other peoples’ money. The one percent of the world’s population who own 50% of the world’s wealth are having a wonderful time at the casino, they’re getting richer by the minute and will tell you that everything is wonderful.

But the trade in the necessities of life, the trade that sustains economies instead of blowing them up, as the gamblers always do, is in desperate trouble, for one overwhelming reason. In most of the world today, the people who must buy the necessities of life don’t have the money to do so. Or to put it another way, the broad foundation of the pyramid is collapsing.

According to one of the world’s largest banks, Britain’s HSBC, global trade volume was down 8.4% in the first half of this year (the latest numbers are for June). That means, sayeth the bankers, that we — all of us, the whole world — are already in a dollar recession.

For decades, the driver of the world economy has been China, as it flooded the world with cheap exports and feverishly imported oil, coal, concrete, steel and dollars.  Now the driver is coasting, rapidly losing power: imports to China were down 20% in September (year-to-year) and exports were off 3.7%. The China Containerized Freight Index, which has been tracking shipping volumes for 17 years, has been dropping precipitously for over a year and has just hit an all time low.

The Masters of the Universe (irony alert: this is the term of art used here to denote the class of hedge fund, equity management shadow bankers who routinely blow up the world for profit) who saw the Chinese decline coming assumed that the world’s other emerging markets, such as Brazil, Turkey, India, Russia and the like, would pick up the slack. Indeed, the Masters turned firehoses of capital on the emerging markets for the past several years, inflating bubble after bubble after bubble in their frantic rush to realize the returns on investment of their dreams.

The dreams have turned to nightmares. The collapse in commodity prices (a consequence of the slowing of the developed economies), among other things, has wrecked the frail emerging markets, and the firehoses of capital are pointing the other way. The International Monetary Fundand the Bank of England, among many others, are warning that the billions of dollars of investment capital now being sucked out of the emerging economies, and trillions of dollars in loans that can never be repaid, pose an existential threat to the economies of the world.

If you think the U.S. is immune from these raging financial fires, think again. Debt, like dry tinder, is everywhere and the hot winds are spreading and fanning embers everywhere:

  • American retail giants that once dominated the world — McDonald’s, Walmart, Sears, Microsoft, Hewlett-Packard, even Facebook and Twitter — are sick and dying, their revenue, profit and stock vital signs weak and thready, as they say in the ICU. The surgeons are hacking off limbs — closing stores and firing people — as fast as they can, trying to save the organism.
  • The shipping of goods within the U.S. — the bedrock measure of buying and selling, has declined every month (year-to-year) since February, and that includes September, the peak month for shipping holiday merchandise to stores for selling in the season in which many stores make their profit for the year.
  • A report from CNBC showing both retail sales and wages flatlining was headlined: “Consumers shutting down as US economy deflates.”

It’s happening all over the world.

This has been a bulletin from The Daily Impact. We now return you to our regular programs: financial advice from Don “I’m really, really rich” Trump and self-defense classes from Dr. Ben “shoot that guy behind the counter” Carson.


Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

The Crash of 2015: It’s Here

Off the keyboard of Thomas Lewis

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panic

A CNBC anchor after trying to explain hedging against the volatility of stocks indexed to the Volatility Index. The end is near now.


Published on the Daily Impact on August 31, 2015

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Screw it, I’m calling it. I’ve been watching the so-called “markets” of China, the United States and a couple dozen other countries fall off a cliff, get up, stagger upward, fall off another cliff, and repeat. I’ve been listening to the chattering class say over and over again, this is normal, seen this before, everybody buy the dip. I’ve been watching the zombie oil-fracking revolution in this country go into spasms, jerking a few feet forward, a few feet back, gasping for breath, while the cheerleaders agree: perfectly normal, blood pressure okay, reflexes good, lend them more money. This is not normal, it is not okay, it is the Crash of 2015.

We will not likely agree on this until we stop using wildly different languages with which to discuss it. First of all, to refer to these things as “stock markets,” as if they were places where equities were bought and sold based on the soundness and prospects of the companies listed, is akin to putting your faith in the tooth fairy and Santa Claus.

These places are casinos filled with gambling addicts using other people’s money to bet, not on the future of a stock but on the popularity of a stock among the greater fools on whom the gambler must unload the shares of Consolidated Aggregators he just bought on the dip. In this casino, trading in shares themselves is like playing the slot machines, there in the lobby of the casino for the amusement of the little people risking their quarters. The real games are played in private rooms with derivatives, futures, hedges, credit default swaps, junk bonds. The master of the universe are even gambling on the outcomes of corporate lawsuits (and for what reason, do we suppose, has that practice alone drawn the disapproving attention of the drones of Washington?). They are buying hedges against the volatility of securities indexed to the volatility of the market. If you can think about that one for more than 30 seconds without your head exploding, your mellowness index is in the stratosphere. Increasingly the gambling is being done by machines, programmed by the Masters to detect the circumstances under which they are to blow up the world.  

The commerce of the world, like the Gulf Stream in the Atlantic Ocean, is slowing down, bestowing unimaginable collateral damage as its does so. The prices of all industrial commodities (not just oil) have tanked, taking down the economies and currencies of the countries who depend for their existence on the exploitation of their natural resources. The volume of stuff being shipped from pace to place has withered. Both commerce and the Gulf Stream are losing the sources of their energy: in the case of the Gulf Stream, it’s temperature differential; in the case of trade, it’s money in the hands of the middle class, being spent on consumer goods.

Money, not credit. The Masters like to pretend they are the same thing but they are not. To issue consumers more credit cards, or more mortgage refi’s, is not the same thing as providing them with a living wage. To inject more money into the equity of banks and corporations, as the central banks have been doing for decades, does not, it turns out, create a tide of well being that lifts all boats. It’s like feeding the cow at the wrong end. No matter how much nutritious food you ram in, it’s just not going to help.

They have got away with this madness — the Masters, the Pundits, the Shills and the Gamblers — largely because decent people cannot believe anyone could possibly be crazy enough to do what they seem to be doing. Decent people tend not to remember the Housing Bubble Crash, the Dot-Com Crash, the Savings and Loan Crash, the Enron Crash, etc. etc.

Even if they’re gambling, surely it’s still true that the house never loses? Yes, that’s still true. As long as there are customers in the house. Look around. The customers are cashing in their chips and leaving China, the emerging markets, the junk-bond markets and the US markets as fast as they can without actually yelling “fire” and trampling each other.

Believe it. They are crazy, and this is the Crash of 2015.

It is not the Crash of the Industrial Age, not yet, although that, too, is ongoing. We will probably emerge from the Crash of 2015 onto the littered, downward slope of depression toward the ultimate collapse, still it seems several uncomfortable years in the future.  But we will have cause to remember the Crash of 2015.


Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

The Crash of 2015: Vancouver! Is This It?

Off the keyboard of Thomas Lewis

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Published on the Daily Impact on July 7, 2015

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On the last day of his life, May 18, 1980, David Johnston was probably tired of waiting for Mount St. Helens to erupt, much as some of us are sick of waiting for the global bubble economy to blow up. And he was no doubt tired, as are we, of warning people that it was going to blow. Back in March, swarms of earthquakes rising from deep in the earth indicated magma rising and caused volcanologists such as Johnston to proclaim, “It’s going to blow!” It didn’t. Then the mountain burped a 7,000-foot-high plume of ash. “It’s going to blow,” they said. It didn’t. By mid-April the mountain was burping ash and steam a hundred times a day, and bulging massively toward the north. Still it didn’t blow. In fact, in early May, it quieted down. It had become a tourist Mecca.

Then, on May 18, it blew. Not straight up but laterally, to the north, where Johnston was watching from the ridge of a different mountain six miles away. He had time only to grab his radio and shout to his headquarters (in Vancouver, Washington), “Vancouver! Vancouver! This is it!.” Then, in less than a minute, the first pyroclastic flow — hot gases and rock, over 1,000 degrees Fahrenheit, moving at 700 miles per hour — hit him, and he was gone.

Three years later I flew over the ridge in a helicopter. What had been a verdant, forested place had been scrubbed down to bedrock, and gleamed in the sun like a skull. No trace of Johnston or his pickup truck was ever found. Thirteen years later they found a few scraps from his camping trailer.

So back to the global caldera: Now thatChina’s bubble-ized stock market is in mid-crashEurope is suffering a sudden unscheduled disassembly, America’s oil-fracking miracle is imploding, Greece, Puerto Rico, Venezuela, Egypt and others are on the brink of default — now that mainstream, sober Bloomberg Businessis running a headline that says, “Good Luck Finding a Place to Hide as Global Markets Crumble” —  is this it, Vancouver?

Hard to say. Like a volcano, the forces at work here are unimaginably massive and are doing most of what they do underground. We see the occasional steam vent, feel an earthquake shake our shoes now and then, but to predict when it all blows up is not possible. What is undeniable, however, is that when earthquakes swarm and magma rises and mountains burp and swell, something really big is going to happen.

What actually triggered the Mount St. Helens eruption was a landslide that slightly reduced the thickness of a portion of the north face, and hence its ability to resist the pressure building behind it. And that was it, Vancouver.

Three really big takeaways here:

  1. When natural laws ordain that something is going to happen, such as the big San Andreas earthquake or the eruption of the Yellowstone caldera or the crash of an overheated stock market, the likelihood of its happening is not diminished by the passage of time or by the number of false alarms. To the contrary; the longer the wait, the bigger the bang.
  2. It’s not just that we don’t know when it’s going to happen — it is unknowable. We’d rather discuss our own death than even admit that anything in the age of smartphones is unknowable, but we really need to take it into account. What we cannot know can really hurt us.
  3. When you’ve been warned, and you’ve seen and heard and felt the precursors — get more than six miles away. Remember David Johnston.

Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

The Crash of 2015: On Track, Behind Schedule

Off the keyboard of Thomas Lewis

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As demonstrated in Paris in 1895, what matters is not whether the train wreck was on time. What matters is that it’s a wreck. (Wikipedia Photo)

Published on the Daily Impact on June 22, 2015

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The dominoes are toppling, just as we have been expecting for nearly a year now, but slower than we thought. The fact-resistant strain of humans (Thank you, Borowitz Report) now in charge of the world are trying to use vast amounts of money to counteract gravity, and, counterintuitively, succeeded in slowing the dominoes’ fall. But not for long.

To review our expectations of last summer: the hideous decline rate of fracking wells (of up to 90% in three years) was forcing frackers to borrow huge amounts of money to put up large numbers of new wells at a breakneck pace in order to preserve the illusion (it was always an illusion) of a revolution in American oil leading to prosperity and “energy independence.” On average, it cost the frackers over $4 to get $1 of revenue in the door during the first quarter of this year. A year ago, with oil commanding $100 a barrel, they were still spending $2. As the old joke goes, the only way to make any money when you’re losing on every transaction is to make up for it with volume. But since most of the money spent was capital expenditure — i.e. new wells — their operating statements showed profits and nobody looked at the balance sheets.

We ran this scenario on our abacus and concluded that these guys were going to go broke. And that when they did, not only would U.S. oil production resume its long slide toward zero, begun in 1970, but they would blow up the junk-bond market, almost certainly the bond market, and probably the stock market. These expectations were in place before the price of oil tanked last fall, and set the expectations in concrete.

Now, let’s review the state of play:

Are they broke? Pretty much. As Bloomberg reports (“The Shale Industry Could be Swallowed by its Own Debt”), S&P has so far this year lowered the outlook or downgraded the credit of almost half the exploration and production companies it rates. Amazingly, despite the awful numbers, lenders have continued to pour money into the zombie companies (See “Oil Money: Too Dumb to Fail”) as they struggle to keep pumping so they can turn over their debt so they can keep pumping. Remember the old advice — when you find yourself in a hole, stop drilling? They don’t.

Has the junk-bond market fallen apart yet? Looks like it. “Investors” experiencing sudden attacks of vertigo pulled $5.5 billion out of the junk bond market in the two weeks ending June 17, and $3.6 billion so far this year out of the funds based on high-risk “leveraged” loans.

Is the regular bond market in danger? Oh, yeah. According to Bank of America Merrill Lynch, last week “High grade credit funds suffered their biggest outflow this year, and double the previous week.” Some of this was no doubt related to the hair-on-fire volatility of the European and Asian bond markets during the last month or so, but not all of it.

Is oil fracking production declining? Yes, indeed. According to the U.S. Energy Information Administration, fracking output declined last month, by more this month, and will continue falling off at least through the end of the year. (It’s really a forever thing, but they can’t bring themselves to say it.) [See “It’s Official: The Shale-Oil Boom is Over”]. Worldwide, 150,000 jobs in oil and gas production have vaporized, with the U.S. having the “fastest and steepest decline.”

Is the stock market in trouble? Deeply. On Thursday, the Nasdaq tech-stock index reached its highest number in history, but only the uninformed, the inexperienced and the truly, deviously evil are celebrating it. It’s like having a party because grandma, at 99, just recorded her highest temperature ever. Stocks are hideously over-valued, highly leveraged, and insanely volatile — all sure signs of impending crash. Every day now, you can find some Master of the Universe talking of the need to have at hand a bag of “physical cash” in preparation for what they are referring to as a “systemic event.”

How much more clearly, and with how much more authority, could we possibly be told to brace for impact?


Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

The Crash of 2015: Day 22

From the keyboard of Thomas Lewis
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Hold on a second, we’ve changed our minds. Can you just hold it right there, please? We’ve decided we like it the way it is…..

Hold on a second, we’ve changed our minds. Can you just hold it right there, please? We’ve decided we like it the way it is…..

First published at The Daily Impact  January 21, 2015

The economy of the United States and the world is on fire, and with the flames and smoke visible in any direction one cared to look, the President of the United States declared last night that the worst is over, “the shadow of crisis has passed,” and happy days are here again. In reality (a state that presidents and candidates for president never seem to visit) 2015 is shaping up to be one of the worst any of us have ever seen.

It’s a potent mix of flammable situations, from an unhinged stock market to a drought-ravaged West to the fiscal convulsions of China, Russia and Europe. But for us in America, the collapse of the bogus New American Oil Revolution is the fire that’s burning hottest and spreading fastest. This is how it’s likely to go:

 First, drill rigs are being shut down and workers laid off, especially in the fracking plays; as unemployment rises and income declines, production will start to fall; as fracking-company stock prices tank, their junk bonds will become worthless and their leveraged loans will go into default, their money sources will dry up and fracking production will virtually halt; as similar problems beset the legacy oil business world wide, the entire edifice of energy junk bonds, derivatives, hedges, credit default swaps and rabbits’ feet will collapse and the stock market will crash. Welcome to The Great Recession: the Sequel.

 So, how are the frackers doing on Day 21?

 1. Laying down rigs, shedding people.

 2. Production Reduction

 Those who are pumping oil have to keep pumping oil as long as they can. Simply stopping production and waiting for prices to rise is not an option because they are deeply in debt and mired in contract obligations. They may be only running in place, but if they stop running they vanish. So we won’t be seeing actual drops in production for a few months. But here’s how we know they’re coming.

 The Bakken play in North Dakota is about 40% of the “new American oil revolution.” Its production has gone from 500 barrels per day in 2008 to just over a million barrels a day. They had to drill 6,000 wells to do that. The Achilles Heel of the fracking revolution is the hideous decline rate of fracked wells: production declines by about 90% in just three years. So if they drilled another 6,000 wells in the next three years (at an average cost per well of $8-$10 million) all they would do is keep production at a million barrels a day. And that’s assuming they found as many “sweet spots” in the next four years as they did in the last. And you can’t assume that. It’s also assuming they can find the cheap money — the junk bonds and junk stock and junk loans — that financed the first 6,000. And you can’t assume that.

To put it another way, if no new wells were drilled in the Bakken in 2015, by the end of the year its production would be about 550,000 barrels a day, or one half its current production.

3. To follow the money, you have to find it.

 It was possible to satisfy the enormous appetite of the fracking industry for cash (see “decline rate”) as long as oil prices were high, money was cheap, and the Masters of the Universe were delirious about America achieving “energy independence” and becoming “number one in oil” again. The Masters are still delirious, but nothing else is true.

 In the past, the oil companies either sold stock, issued bonds, or took out loans to stay on the drilling treadmill. How’s that working out for them? The Bloomberg index of North American oil producers finds that since last June, their value has declined by over half and their debt has increased by 85% — hardly a sustainable trajectory. Going public, up until last year a sure-fire way to cash in big and finance whatever the hell you wanted to do, is simply not an option in 2015. Not for anybody in the fracking oil business.

 As for debt, interest rates on junk-rated energy bonds are over 10%, double what they were last June. Previously issued bonds are trading on the secondary market for dimes on the dollar. And more than 20 US exploration and production companies have used 60 per cent of their credit lines,according to Bloomberg.

 A financial situation for frackers that could best be described as sour now will turn completely rancid in April (at the latest). That is the month that lenders conduct one of two annual reviews of the collateral they are holding for their lines of credit. Typically, the frackers turn to lenders only after exhausting the possibilities of issuing stock and junk bonds, so by the time they get to banks they need what are politely referred to as leveraged loans, or loans to a company that has all its assets locked up and is hemorrhaging cash. When the bankers review the cinders of the assets they accepted as “security,” there are going to be some cardiac arrests.

At that point the Crash of 2015, if it hasn’t already, will metastasize.

[UPDATE: DAY 22]

According to a story in Bloomberg News, which is not exactly one of your fringe Doomer news sources, not only oilfield service providers but oil drilling companies themselves are going to “begin to die” in the second quarter of 2015 as bigger and bigger dominoes fall toward a crash. The January 22 story begins:

Oil drillers will begin collapsing under the weight of lower crude prices during the second quarter and energy explorers who employ them will shortly follow, according to Conway Mackenzie Inc., the largest U.S. restructuring firm.

Read it and weep, here.

 

***

 

Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

 

 

Brace for Impact: Interview with Thomas Lewis Part 1

logopodcastOff the microphones of Tom Lewis, Surly, Monsta & RE

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Aired on the Doomstead Diner on January 3, 2015

“Save As Many As You Can”

Discuss this Interview at the Podcast Table inside the Diner

Part 1 of our first Podcast with Tom Lewis discusses Tom’s history in the Journalism and how he came to pretty much the same conclusions we here on the Diner have arrived at, which of course is why we regularly cross post his blogs from The Daily Impact.

For those of you unfamiliar with Tom’s work, here is his Sayonara Post to 2014, including a Bonus Podcast on his website, which you can download there.

RE

Holiday Repost: Farewell to 2014

For what we are about to lose, Dear Lord, we thank You. (Photo by Terren in Virginia/Flickr)

 

[The Daily Impact is on hiatus for the holiday season. For your consideration, I leave you with a repost of a meditation on “The Last Good Year,” and a reminder that in 2015 it would be well to Brace for Impact.]

Thanksgiving is coming, and Christmas and Kwanzaa and Hanukkah and New Year’s, and we should make the best of them. These are the good old days, and we should celebrate them well, because we are probably not going to see their like again. Gas is cheaper than it was, and we should go to see the relatives this year, because next year will be different. Food is a little more expensive than it was, yet we should eat hearty nevertheless, because next year will be different. We still have plenty of water (if we don’t live in California, or Brazil, or North Africa, or any of a multitude of other places being seared by implacable drought) but, because of changing climate and advancing pollution, next year could be different. The lights are still on, but the aging grid is creaking and groaning with the effort of meeting our burgeoning demand, and next year could well be different. Eat, drink, and be merry, for tomorrow we diet.

Predictions are dicey things, and are more often than not fatal to the credibility of the predictor. Premature declarations of the end of this, or the beginning of that, are legion — and legendary. From the Age of Aquarius to the light at the end of the tunnel, from the Rapture to Armageddon, history is lettered with the remains of discredited prophets. Why would anybody willingly step into their ranks?

First because many prophets are not really discredited. The fact that the big San Andreas earthquakes predicted to decimate Los Angeles and San Francisco have not yet happened, does not mean that the forecasters were wrong or that the quakes are now less likely to occur. To the contrary, they become more likely with each passing day of accumulating strain on the fault, and the prophets will be redeemed in the most unfortunate way. Similarly, those who have predicted that increasing population will exceed the carrying capacity of the planet, or that oil demand would exceed supply, are not wrong because they thought it would have happened by now. It is not the date on which a thing does or does not happen that matters; it is the thing itself, and its causes.

Secondly, there is a moral imperative. As I postulated in Brace for Impact, if you see a child playing on a railroad track in the path of an approaching train, you have no choice but to make a choice — between trying to save him and ignoring him. Basic human morality reduces that choice to one acceptable course of action. Unseeing him is not an option. Nor can you avoid the fact that your choice will affect the rest of your life. (Now, our world is full of people who, when they hear you shout, “That child is in danger!” will say in response “Why must you be so negative? Try to be more cheerful about things.” Ignore them. Though it be obscured by clouds of ignorance, the moral imperative is still there, hard as granite.)

So, because I must, here is a short list of the things that are bearing down on us like runaway trains.

  • Financial collapse. There are so many bubbles reaching maturity in the near term — the subprime auto-loan bubble, the overvalued stock bubble, the China real-estate bubble,  the fracking bubble, to name the biggest — that it is likely that this time, more than one of them will burst at once, with far worse effects that when the housing bubble went up all by itself, or the dot-com bubble, alone.
  • Oil Depletion. The biggest con, and the one with the worst side effects, is the proposition that America is at the beginning of an oil renaissance, when it is in fact at the end of the oil age. When the giddy optimism among investors and the general public is blown up, by events likely to occur next year, this will be the unkindest cut of all, and will likely start, or contribute to, a cascade of crashes. When it happens, everything made from oil will return to its former high prices and keep on going up.
  • The Water Problem. 2015 is probably going to see the first climate refugees in significant numbers leaving California’s Central Valley, and possibly parts of Arizona, Texas and Nevada, as well as Sao Paulo, Brazil and parts of China and India. For America, the loss of confidence in technology and a beneficent God implied by the loss of California agriculture to drought will be crushing.
  • The Rotting Infrastructure. Every physical system in America, from highways and bridges to the electric grid to water and sewer systems to dams, ports and airports — even the credit-card system — has seriously exceeded its design life and its design capacity with no provision having been made for its replacement. Like the big earthquake, it is impossible to predict when any one of them will fail, yet impossible to believe that they will not.

What this prophet sees for next year is not yet The End of the World as We Know It, as in the ultimate crash of the industrial age, but another nasty shock as our economic tectonic plates sink jarringly to a lower level from which they will not rise again, as happened in 2007. That may make the final fall, whenever it comes, shorter, but no more pleasant.

So raise a glass, and hold a feast, in honor of 2014. May we always think fondly of the last good year.

China and India: Accelerating to the Finish Line

From the keyboard of Thomas Lewis
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The air in Delhi, shown here in 2011, like the air in Beijing, is barely breathable by humans. Yet these two countries, with their 2.6 billion people, have just begun to burn fossil fuels. (Photo by je poirrier/Flickr)

The air in Delhi, shown here in 2011, like the air in Beijing, is barely breathable by humans. Yet these two countries, with their 2.6 billion people, have just begun to burn fossil fuels. (Photo by je poirrier/Flickr)

First published at The Daily Impact  December 5, 2014

Hopium addicts and a few novelists nurture the convenient belief that while the 1.4 billion people of China and the 1.2 billion people of India struggle lustfully to live as luxuriously as do the 300 million people of the United States, they will manage to do so in a manner somehow less wasteful of energy and natural resources, less destructive of the living web of life, than we have done. The belief is convenient because, while there is not a whisker of evidence to suggest it is true, holding it permits the believer to carry on with business as usual.

Much has been made of the “historic” agreement reached between China and the United States at the recent APEC meeting in Beijing, stipulating that in the next 10 years or so, both countries are going to do something or other about carbon emissions (i.e. pollution), so help them. Yet the Chinese did not begin to attack the air pollution in Beijing, which may be the worst in the world, until the eve of the meeting; then and only then did it become a national priority, not because it was bad but because it looked bad.

They ordered factories upwind of the capital shut down, closed businesses and schools in the city and banned half the region’s cars from driving, all to look good, knowing that as soon as the meeting was over, so were the restrictions. It did not work very well, of course, the world is not a machine that responds immediately to the pulling of a few levers. And one of the reasons it did not work was that, as an investigating committee discovered on venturing into the region where the factories had been ordered to close, they did not. Screw Beijing, there were targets to meet, bonuses to be made, orders to fill. So much for how much better they are going to be at regulating pollution.

China still pretends that it is cracking down on pollution, even while building dirty, coal-burning electric plants as fast as it can — it opens a new one every seven to 10 days and as of two years ago had 363 projects under way. It already burns six times as much coal as does the United States, is the world’s largest importer of coal, and coal is the source of the majority of its air pollution.

India, on the other hand, is in the process of dropping all pretenses that it is combatting pollution. Within days of the election last summer of the new pro-business, pro-growth prime minister Narendra Modi (who was almost immediately received and extolled in a state visit to Washington), India’s industrialists got the word: environmental rules were about to be relaxed and in the meantime, feel free to ignore them.

Since then a government commission has recommended that government inspections of the performance of factories in controlling pollution be replaced with a system of voluntary compliance in which everyone promises to obey the rules and report themselves if they don’t. Approval of new projects, no matter how destructive, has become not only virtually automatic, but has been accelerated to warp speed: a recent meeting of the National Board for Wildlife smiled upon 150 wildlife-threatening  applications in two days, spending up to 30 minutes on each.

Neither China nor India has any intention of improving upon the path to prosperity that we have shown them. As we seem to believe that God has favored us, so they seem to believe that Krishna and Mao have bestowed upon them the right to burn and degrade and destroy anything that can contribute to their temporary well being.

The problem is that there is not that much left to burn. Hoping that the world’s two largest and poorest populations are going to be more restrained in their instant gratification. more successful in reining in greed, than we have been, well, that is hopium indeed.

 

***

 

Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

 

 

It’s Deja Vu All Over Again: Recession Redux

Off the Keyboard of Thomas Lewis
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This was then (2009), but retail stores are right now closing at a rate not seen since then. Just one of many signs that the recovery is not recovering. (Photo by Ed Yourdon/Flickr)

First published at The Daily Impact May 27, 2014

This was then (2009), but retail stores are right now closing at a rate not seen since then. Just one of many signs that the recovery is not recovering. (Photo by Ed Yourdon/Flickr)

Would it not be a hoot if we who expect the crash of industrial civilization, while we are staring intently at the usual suspects (peak oil, climate change, food shortages, grid failure, the San Andreas Fault) and waiting for one of them to start the avalanche, get sucker-punched by the Masters of the Universe? Would it not be excruciatingly funny if the very same people who almost burned the world alive in the first decade of this century managed not only to escape repercussions but to incinerate it in the second? The dial is moving from possible to likely as the ethically challenged whiz kids of Wall Street continue to play, unsupervised by adults, with the same matches in the same gasoline-soaked structure. Here’s what they’re doing, compared with what they did.

My house is my ATM: Back in the day, by which I mean ten years ago, people who owned houses were persuaded by financial jackals to treat their house as if it were an ATM, and take money out of it whenever they wanted. Housing prices would never go down, they were told, so they could always refinance. Today, investors who want a ten per cent return on their investment have been persuaded by financial jackals to treat houses as if they were ATMs, buying them cheaply (because ordinary people can’t afford them, or can’t get financing) for cash and renting them out.

Just as the jackals of old seemed really to believe that people who could not afford mortgages would be able to keep refinancing them, and that the music would never stop; so do today’s jackals seem to believe that being a landlord is a slam dunk. Gradually, they are learning that renters sometimes depart in the night; trash the houses that they don’t own; lose their jobs, or get sick, or have too many children; and far from being a slam dunk, landlordhood often sucks, financially. There are now signs that the smartest guys in this room are looking quietly but frantically for the exits, and when they find them — pop goes the bubble and the weasels.

As for real people in homes? Twenty per cent of American homeowners are under water (they owe more than their house is worth), and cannot refinance or sell. The number of people applying for mortgages with JPMorgan Chase and Citibank in the first quarter of 2014 was70% lower than the number one year ago. The rate of home ownership in the country is at its lowest in 19 years. The lesson: when the institutions bail, there will be no one else to prop up the bubble.

From “No-doc loans” to “Covenant-Lite.” Back in the day, the jackals were handing out “liar” loans (containing unverified and untrue statements about qualifications of the applicant), “Ninja” loans (applicant has no income, no job, no assets), “No-doc” loans (applicant has no documentation of anything). The jackals didn’t care: if they were originators, they sold the loan as soon as they closed it, collecting all their fees and waving it goodbye. If they were conglomeraters, they bundled the loans, issued derivatives on them, and got them out the door, first collecting all their fees. No one gave much of a thought to where they would sit when the music stopped, as it always does.

Now, the action is in commercial lending, with the money flowing to subprime companies, not individuals. The loan flavour du jour is now “covenant-lite” loans, meaning loans made without the usual stipulation that the business use the proceeds for business, not to enrich the business owners. These loans are beloved by private equity firms that like to buy a company, mortgage all its assets, suck out the cash in fees and dividends, then let the company go into bankruptcy and screw the lenders. A record $238 billion worth of these puppies were issued in 2013, according to Reuters, and the pace is accelerating in 2014.

Never mind things, we want derivatives of things. What broke the back of the system in the 2009 era (the contraction actually began in the fall of 2005) was not just subprime debt and overvalued assets, it was the enormous bets placed on the system by institutions acting is if they were drunk in a casino. These bets are called derivatives. For example, slices and dices (called “tranches”) of securitized packages of looney-tunes loans, which constituted bets for the success of the Ponzi scheme; and credit default swaps, bogus insurance that constituted a bet against the success of the scheme. Back in the day, collapsing derivatives brought down some of the biggest players, and very nearly the world’s economy.

Today, the derivatives market is 20 per cent larger than it was just before the music stopped the last time. The International Bank of Settlements estimates that the notional value (notional value: that is, the value of all the bets if everyone won) of outstanding derivatives is $710 trillion, or 44 times the gross domestic product of the United States. If J.P. Morgan Chase, with total assets of $2 trillion, lost all its derivative gambles, it would owe the casino more than $70 trillion.  In Vegas, that kind of loss would get you a one-way ride into the desert; on Wall Street, it gets you a bailout because you’re too big to fail.

Bottom line: as long as the Masters of the Universe are allowed to play their firehoses of money on whatever they deem to be the Next Big Thing (“It’s rental houses! No, wait, farmland! In Iowa! or Africa! No, check that, it’s fracking wells!), they will continue to blow up and deflate bubbles until they blow up the world. Where can I get a credit default swap to cover me for that?

***

 

Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

 

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