Predictions

A Bloody Week in Doom– March 17, 2019


That-Was-The-Week-That-W-That-Was-The-Week-473964gc2smFrom the keyboard of Surly1
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Prayers for the victims in Christchurch attacks

Originally published on the Doomstead Diner on March 17, 2019

“The old world is dying and the new world struggles to be born. Now is the time of monsters.”

 ― Antonio Gramsci  


The latest monster came to call in Christchurch, New Zealand in a story that dwarfed all others this week. I had some other ideas for what might fill this space this week, then the news from Christchurch, New Zealand, followed by the one-two punch of a Twitler emission rendered all moot. Brenton Tarrant strapped on a helmet camera, loaded a car with weapons, drove to a mosque in Christchurch and began shooting at anyone who came across his line of vision. His helmet-cam helped broadcast the act of mass terror live for the world to watch on social media. As of Sunday, the death toll had reached 50.

Tarrant thus joined the roll call of monsters alongside Stephen Paddock (Las Vegas), Anders Breivik (Norway), Robert Gregory Bowers (Tree of Life Synagogue, Pittsburgh), Omar Mateen (Pulse, Orlando), Adam Lanza (Sandy Hook), Nikolas Cruz (Marjorie Stoneman Douglas high school), Devin Patrick Kelley (Sutherland Springs church in Texas), James Holmes (Aurora), Dylann Roof (Charleston, SC), and, of course, Eric Harris and Dylan Klebold, who kicked off the 21st century with the Columbine massacre.

In ancient Rome, an interregnum was a period between stable governments when anything might happen, and the "the blood-dimmed tide" might be loosed:  civil unrest, competition between warlords, power vacuums, wars of succession. In 1929, in such an interregnum found Italian Marxist philosopher and politician Antonio Gramsci languishing in a fascist prison, writing about the forces tearing Europe  apart. He anticipated civil unrest, war between nations and changing political fault lines.

Interestingly, it was Gramsci who gave us the term "hegemony" now in use. Hegemony is a three dollar word representing a simple idea: the coercion of smaller fish by bigger fish. When the powerful use their influence to convince the less powerful their best interest lies in doing what is actually in the best interest of the powerful, that's hegemony. When we consider the above list of overwhelmingly white terrorists with a nationalist/supremacist bent, we can see terror is one way the powerful preserve their hegemony when they feel their power begin to wane when frightened by demographic changes posed by immigration.

Trump has the sensibility of a spoiled child tearing the wings off of flies. When asked whether white nationalism has anything to do with the tragedy in Christchurch, he replied in the negative. Echoes of “good people on both sides,” a la Charlottesville. The prime minister of New Zealand indicated late Friday coming changes to New Zealand's gun laws. A striking contrast that makes one wonder how many will have to die, again and again and again, until our own politicians, beholden to the NRA and their sea of laundered rubles, are moved to similarly act.

You'll recall that when it was his time to serve in Vietnam, the self proclaimed White House tough guy came up missing like Dick Cheney and his five deferments. Chickenhawks like Cheney always find "other priorities" to service, but are eager to send the disposable sons and daughters of the poor into harm's way, because what else are they for but cannon-fodder? Real military men who have seen battle are loath to commit their fellow citizens to needless battle; but chickenhawks, untroubled by loss or nightmares, send their non-relatives readily into the Valley of Death. 

The mob-boss stylings of Citrus Caligula make a tough sound, especially when talking to the far right media like Breitbart.

Trump said: "I can tell you I have the support of the police, the support of the military, the support of the Bikers for Trump – I have the tough people, but they don’t play it tough — until they go to a certain point, and then it would be very bad, very bad. But the left plays it cuter and tougher. Like with all the nonsense that they do in Congress … with all this investigations]—that’s all they want to do is –you know, they do things that are nasty. Republicans never played this.”

When you can't bully a majority of the people and the House of Representatives into accepting your will as fiat, that is apparently vicious tactics. Especially on the part of Speaker Nancy Pelosi, who Trump refers to as "Nancy."

"So here’s the thing—it’s so terrible what’s happening,” Trump said before discussing his supporters. “You know, the left plays a tougher game, it’s very funny. I actually think that the people on the right are tougher, but they don’t play it tougher. Okay?"

Uh, not OK. This is Trump engaging in stochastic terrorism, or

the public demonization of a person or group resulting in the incitement of a violent act, which is statistically probable but whose specifics cannot be predicted.

Trump is actively encouraging people taking the law into their own hands, in the same way Putin has his Night Riders (see below), as Mussolini had his black shirts, and Hitler his brown shirts. The purpose is unmistakable: to be bullyboys who operate outside of the law and through violent intimidation. For the last two years we've had a president who fundamentally does not believe in democracy, and whose recent utterances show no loyalty to either the Constitution or the traditions of American governance. This IS a time of monsters. And now this: 

Trump’s Breitbart Biker Threat Came From the Putin Playbook—Then Tweet Deleted After Mosque Massacre

Trump told Breitbart there could be biker violence against leftists. It sounded even worse after Brenton Tarrant's mosque massacre manifesto called Trump "a symbol of renewed white identity." It does not get much clearer than that.

The Daily Beast Explains the Putinesque origins of Twitler's latest veiled threat: 

"They call themselves The Night Wolves, “a new kind of motorcycle club,” or, sometimes, “Putin’s Angels.” And just as much as the Orthodox Church or the military, the Wolves have become a symbol of Vladimir Putin’s Russia. But the idea that they might be used as his extra-legal enforcers in times of trouble is usually implicit—embedded in their flag-waving Putinized patriotism—never really spelled out….Trump is not so subtle, however, especially when he takes his cues from the Kremlin. Leave it to him to put the potential for violent defense of his interests by a motorcycle gang front and center in the public view."

On Friday morning, as news broke of the massacre, the murderer's manifesto called Trump “a symbol of renewed white identity and common purpose,” the Breitbart tough-guy tweet came down. Note a wider pattern of American racists and white supremacists looking to Russia for both moral and tactical support.


Charlie Warzel noted that the attack marks a grim new age of social media-fueled terrorism.

A 17-minute video of a portion of the attack, which leapt across the internet faster than social media censors could remove it, is one of the most disturbing, high-definition records of a mass casualty attack of the digital age — a grotesque first-person-shooter-like documentation of man’s capacity for inhumanity.

Videos of attacks are designed to amplify the terror, of course. But what makes this atrocity “an extraordinary and unprecedented act of violence,” as Prime Minister Jacinda Ardern described it, is both the methodical nature in which the massacre was conducted and how it was apparently engineered for maximum virality.

Even though Facebook, Twitter, and YouTube scrambled to take down the recording, they were no match for the speed of their users or for their algorithms which make connections for people consuming such content. In minutes, the video was downloaded and mirrored onto additional platforms, and ricocheted around the globe.

Warzel notes,

Internet users dredged up the alleged shooter’s digital history, preserving and sharing images of weapons and body armor. The gunman’s apparent digital footprint — from the rantings of a White Nationalist manifesto to his 8chan message board postings before the murders — was unearthed and, for a time, distributed into far-flung corners of the web.

The killer wanted the world’s attention, and by committing an act of mass terror, he was able to get it.

It was not the first act of violence to be broadcast in real-time. Yet this one was different because ofd the perpetrator's apparent familiarity with the darkest corners of the internet. The recording contains numerous references to online and meme culture, including name-checking a prominent YouTube personality. Tarrant knew his audience.

Tarrent's digital trail depicts a white supremacist motivation for the attack. His 87-page manifesto, for instance, is filled with layers of  commentary apparently written to specifically enrage the communities that appear to have helped radicalize the gunman in the first place. It seems he understands both the platform dynamics that allow misinformation and divisive content to spread but also the way to sow discord.

I recently came across an article by Ezra Klein who identifies an ecosphere of YouTube prophets and avatars who populate the "intellectual dark web:" The rise of YouTube’s reactionary right: How demographic change and YouTube’s algorithms are building a new right. Many right wing publishers benefit from YouTube’s algorithms to build the new right. 

YouTube’s recommendation engine follows the digital footsteps we all make. And it sees connections, not context. It knows when audiences repeatedly come together, but does not grasp why. And it predicts what they’re likely to view next. Thus are the "mainstreams" of conservative thought brought into proximity to the far right fringe.

As Klein has it,

"Many of these YouTubers are less defined by any single ideology than they are by a “reactionary” position: a general opposition to feminism, social justice, or left-wing politics."

On YouTube, tomorrow’s politics are emerging today. Tarrant noted this and made the online community work in the gunman’s favor. Our brown shirts are now digital: not only has their conspiratorial hate spread from the internet to real life, it’s also weaponized to go viral. 


Proof That White Supremacy Is an International Terrorist Threat

It stretches from Christchurch to Pittsburgh and extends out in every direction.

TOPSHOT-NZealand-crime-shooting

The always-dependable Charlie Pierce noted that Anders Breivik, the murderous white-supremacist who killed 72 people in Norway in 2011, has become one of the most significant figures in international terrorism by providing a template for the modern white-supremacist mass murderer.

From Ted Kaczynski, he borrowed the idea of publishing a manifesto. From the Columbine killers, he borrowed the idea of using both bombs and guns. And from the international white-supremacist networks, he borrowed the murderous rage and bloodthirsty rhetoric necessary to carry out acts of mass murder, and to justify his crimes through an elaborate bullshit ideological exoskeleton that he wore like body armor. He put all of this together and created the modern mode of mass political murder, one that was carried out again Thursday in Christchurch, New Zealand.

Pierce notes that Tarrant's latest manifesto

reads like a vicious form of grandiose trolling. But there seems to be little doubt that the crimes themselves speak loudly of the basic truth that this was a right-wing act of war against a target population. And, because of that, we should take the following passage very seriously. The alleged shooter called the President* of the United States "a symbol of renewed white identity and common purpose." 

When asked if the rise of white natonalism or white supremacy posed a rising threat around the world, Trump replied, 

“I don’t, really. I think it’s a small group of people that have very, very serious problems, I guess.  If you look at what happened in New Zealand, perhaps that’s the case. I don’t know enough about it yet. But it’s certainly a terrible thing.”

On Sunday, Mick Mulvaney and other staffers made the rounds and insisted that Trump was "Not a White Supremacist." Which speaks volumes.

White supremacy now poses an international terrorist threat stretching from Norway to Pittsburgh, from Christchurch to Las Vegas, sharing objectives with the Night Riders or the Bikers for Trump, but better armed and more purposeful. Brownshirts used to intimidate; the new generation attacks to sow terror in targeted groups. This poses an existential threat to the very notion of liberal democracy. Today the target is Muslims; Tomorrow's target will be…?

For our purposes this week, Charlie Pierce gets the last word:

From [white supremacist terrorism] runs on a parallel track with the rise of a xenophobic rightwing nationalist politics that is conspicuously successful in a number of putatively democratic nations. Liberal democracy is under attack and, like any revolution, this one has both a respectable political front and a violent auxiliary that operates on its own imperatives. That one of those auxiliaries cites both a Norwegian mass murderer and the President* of the United States as inspiration for killing 49 people is not only evidence of the width of the threat, but also the depth of its commitment to the cause. This is the everyday al Qaeda of the angry white soul, and it's growing.

Now is the time of monsters.


banksy 07-flower-thrower-wallpaperSurly1 is an administrator and contributing author to Doomstead Diner. He is the author of numerous rants, screeds and spittle-flecked invective here and elsewhere. He lives a quiet domestic existence in Southeastern Virginia with his wife Contrary. Descended from a long line of people to whom one could never tell anything, all opinions are his and his alone, because he paid full retail for everything he has managed to learn.

A Look to 2016

TriangleofDoomgc2reddit-logoOff the keyboard of Steve Ludlum

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Published on the Economic Undertow on January 4, 2016

No doubt a lot of people are happy to see 2015 in the rear view mirror: refugees, their ‘hosts’ in Europe, bond investors, frackers and Brazilians, it is likely that 2016 will bring more of the same, challenges and idiocy … and a ray of light!

— Energy deflation to take hold in 2016

Triangle of Doom 123115

Figure 1 (above): The $64 trillion dollar question: ‘Is energy deflation under way’? If it is, get ready. It will be the biggest story of 2016 and years decades to come. (TFC Charts, click for big)

Discuss this article at the Economics Table inside the Diner

Energy deflation is similar to Irving Fisher’s debt deflation: a premium or ‘scarcity rent’ is attached to the price of crude. This manifests itself as a reduction in customer borrowing power; the price of crude cannot fall fast enough to offset the ballooning scarcity rent! In energy deflation, fuel prices are always too high for customers while the same prices are too low the drillers. The outcome is a vicious cycle: increased scarcity rent and self-compounding fuel shortages => greater scarcity rent!

If oil prices happen to rise for any reason — such as a war between Saudi Arabia and Iran — the scarcity rent doesn’t go away, the entire combined price becomes even less affordable causing the price to crash again.

America’s waste-based economic infrastructure has been built assuming endless supply of sub- $20 crude into perpetuity. The inflated prices the world has endured since the turn of the millennium have left this ‘investment’ hopelessly underwater. The prices have also done a number on the credit-worthiness of ordinary customers. This is why declining prices for crude oil have so far been unable to reboot economic growth … current lower prices are still too high to offer much in the way of (debt) relief. This means more price drops to come; more driller pain.

Right now it is hard to tell whether the current ‘action’ in crude- and other markets is a trading phenomenon or something more, but we are soon to find out one way or the other. The inevitable outcome of energy deflation is the supply of fuel shrinking to the level that can be supported by productive, remunerative use … rather than the current wasteful level supported by access to credit. Because remunerative use of our fuel supply is a (very) modest fraction of overall consumption … a modest fraction of our current fuel supply is what we will be able to afford.
 

— Dollar Preference emerges as an economic factor in 2016

fredgraph velocity

Figure 2: Hoarding much? M2 money velocity (chart by St. Louis Federal Reserve). While the actual supply of M2 funds is increasing, the volume of transaction taking place with those funds has been shrinking (plummeting).

A component of energy deflation is the effect of constrained energy supply on money. When priced in crude, money — particularly dollars — have real worth (money never has value, otherwise it would never be spent). It turns out a very modest (flow) constraint has an out-sized effect on money-worth. Right now, dollars are exchanged on demand for a valuable physical good millions of times every single at gas stations around the world. Because of this exchange, the dollar can be considered a quasi-hard currency … similar to the way exchanging dollars for gold rendered the buck a hard currency during the early 1930s. What keeps the dollar somewhat ‘soft’ despite exchangeability has been the flood of fuel into markets and gas stations. There is no obvious reason to prefer dollars or make an effort to gain them vs. something else; little in the way of ‘scarcity rent’ to distort the worth of dollars.

Given the appearance of a fuel supply constraint and the scarcity rent, the perceived character of money shifts: dollars cease to be near-worthless proxies for commerce, becoming instead proxies for scarce and valuable fuel. They are then hoarded out of circulation … as is starting to take place around the world right this minute!

Commerce withers as the economic activity is reduced to currency arbitrage; trading different forms of money back and forth so es to gain the fuel ‘bargain’ dollars represent … This is what ‘dollar preference’ means: the buck is preferred to all other kinds of money because of its relationship to fuel.

The only way to escape the depression that results from this preference is to break the bond between dollars and petroleum the same way the Roosevelt administration severed the connection between dollars and gold in 1933. The US must ‘go off oil’ the same way it- and the rest of the world went off gold in the middle-1930s.

fredgraph-gasoline sales

Figure 3: Along with M2 velocity, gasoline sales have been declining. (chart by St. Louis Federal Reserve). When customer are broke — or tight-fisted — they don’t buy gas. Low prices can’t fix broke.

— The Kurds will destroy the Islamic State in Syria in early 2016.

The sharp decline in fuel prices since 2014 has severely dented the Islamic State which is not possessed of the material means of support: it has no economy to speak of, no industry, finance or organic credit. It must swap goods such as stolen fuel and antiquities with donor states by way of Turkey to gain materiel. Low oil prices means less funds to be spent on war-making, medical supplies and salaries.

Just days before Christmas, with little fuss and less warning, the Kurdish military force captured a vital road crossing over the Euphrates River, putting the Kurds astride ISIS supply lines and issuing the death-sentence for the group, (DW):

Syrian Kurds take strategic dam from ‘Islamic State’

 

 

 

 

 

An alliance of US-backed Syrian Kurdish and Arab rebels has taken a key dam on the Euphrates River from the so-called “Islamic State.” The alliance has pushed back “IS” from large swaths of territory.

The Syrian Democratic Forces (SDF), a rebel alliance that includes the powerful YPG Kurdish militia and Arab rebel groups, wrested control of the strategic Tishreen Dam from Islamic State on Saturday after making rapid advances south earlier this week, Kurdish media reported.

 

 

 

 

Tishrin 2

Figure 4: In war — as with finance — leverage matters: Tishrin dam on the Euphrates carries the highway from Jarabulus to Manbij- to points south and east including Raqqa and Mosul in Iraq. (Washington Post/Institute for the Study of War). Taking the dam (intact) and establishing a bridgehead on the western side of the Euphrates leaves the landlocked ISIS group at the mercy of the Kurds.

The road connection with Turkey is the only way in- or out of the Islamic State caliphate with Jarabulus-Manbij as the main thoroughfare. Leaders, recruiters, wounded fighters traveling to- and through Turkey, troop replacements from the rest of the Middle East and elsewhere, all ISIS military supplies must travel through this territory; trucks carrying purloined crude travel the other direction. As of now there is no scheduled airline service to/from anywhere in the Islamic State.

The group is responding to the existential threat by adopting a lifeboat strategy: upping efforts to organize in Libya and elsewhere in Africa. Stripped of its precious caliphate heartland and its leadership dead, captured or on the run, the group will lose relevance, becoming target practice for other ‘Brand X’ militant groups and Western commandos. In our current Islamic world without pity, every sign of weakness is an invitation to murder. At the same time, ISIS ‘threat’ will be unmasked as to a large degree a US-media creation, a fashionable ‘flavor of the month’; the ‘New al-Qaeda’ (as opposed to ‘Classic’ version), a militarily inept criminal group with violent tendencies but little else; an instrument to mold US public opinion into an appropriately warlike form.

syria-ISIS-7-15

Figure 5: Syrian zones of control along with gains by Kurdish forces since November, 2015. Islamic State supply lines extend through the area claimed by Turkey as a ‘safe zone’. The weight of strategic necessity draws the Kurds toward Manbij and al-Bab. When these towns are captured the rout will be on. The only surprise will be how quickly the IS group collapses. It will be entertaining to watch the group’s ’emirs’ on YouTube in women’s clothes filter through Kurdish territories toward Turkey in small groups … and being found out; to see them jumping beardlessly into dented Toyota pickup trucks to race like rats across the countryside in every direction looking for a way out.

Fleeing to Iraq offers no hope of escape: there are Kurds in Iraq, too. They all have very long memories …

That the Kurds aim to close Manbij gap is indicated by heavy fighting between Kurds and non-ISIS militants near Azaz and US bombing in and around Manbij. The tactical cat is already out of the bag, there is nothing to gain for the Kurds by waiting … unless they hope to lure more IS fighters into the town so that they might be killed more efficiently.

Islamic State’s primary supporter is Turkey, a Nato member with all the military bells and whistles. It might be expected for the Turks defend their interests and send troops across the border to push the Kurds back. Not this time: they won’t risk stepping into Syria or attacking on the ground without air superiority, something they threw away without thinking … by shooting down a Russian aircraft that was doing them no harm.

 

In early November, a combined Iraqi-Syrian Kurdish offensive in Northern Iraq dislodged ISIS forces from Sinjar town in Northern Iraq, at the same time Kurdish led Syrian Democratic Force (now QSD) overran al-Hawl a few miles away across the border in Syria. This action cut the road running between Raqqa and Mosul. In December, Iraqi security forces attacked the Islamic State in Ramadi, pushing them out of the center of the city.

 

The patient Kurds torment the Islamic State in the east, causing them to pull in what reserves they possess, then attack in force in the west. The ISIS group is left with many widely separate places that must be held at all cost including Raqqa, Ash Shaddadi, the oil-producing region near Deir al-Zour and Manbij. This means that none of these place will be held at all.

Turkish blunder and Russian air defense means a Kurdish ‘cordon sanitaire’ along the northern Syria border connecting all the Rojava cantons. This gives Kurds an influence greater than their numbers would suggest. Their control over supply flows would constrain other rebel groups such as al-Nusra. They would be seen to ‘pick winners’, which in turn offers a potential a way out of the endless auto-destructive warfare between the irreconcilable factions. Kurds have demonstrated the ability to coexist with Syrian Arab Army, to collaborate on the ground with Sunni, Arab even Turkmen groups which are otherwise represented by extra-Syrian jihadi extremists. Kurds’ military capability and success increasingly renders Assad irrelevant regardless of Russian commitments … of all the groups involved in Syria the Kurds come across as most reasonable … grown up.

Islamic State — like Ashley Madison — has had a nice little run. Time for them to go, so also:

— Turkish strongman, Recep Erdogan, man of many blunders, to be removed from office by military coup.

The war that keeps on giving in the Middle East reaches out to touch everyone in the region. No escape for Erdogan who has lost his sense of balance. His approach to winning over Kurdish hearts and minds in Turkey is not to embrace them but to shoot. The inevitable outcome: a civil war leading to a belligerent Kurdistan carved out of southeastern Turkey, something the Turkish military — which is charged with the actual winning over part — views with alarm. Who gets the axe? 20+ million Kurds or one deluded mad man in an ill-fitting suit?

Prior to Erdogan and AK Party, the powerful military was the final political arbiter in Turkey. Prime ministers served at the pleasure of the command. If the Generals believed official policy was destructive or would lead to war there was a coup … as in 1960, 1971 and 1980. Erdogan purged the Turkish command by way of kangaroo corruption trials; the army has been a Stepin Fetchit fool-for-Erdogan ever since.

Undertow observes the Turkish military to be resentful and awaiting its chance … Turkish generals understand the army cannot defeat Kurdish militants in urban settings without destroying the country. The key is what the Kurds do over the next few months; as they defeat ISIS, they also defeat Erdogan at the same time. The emergence of ‘protection brigades’ like YPG in Kurdish areas will force the military’s hand. This is the Kurds’ moment, they will not be denied. Erdogan will be ejected and replaced with a national council until new elections can be held. The clue to this outcome is the exposure of Erdogan involvement in the smuggled oil trade with Islamic State. Corruption being the instrument by which the military is purged, corruption will also be the hammer to dismantle the Erdogan regime.

— The China economy will crash … who could have guessed?

Ho hum, who cares! Old news … Oops. The China stock market is crashing already. What took it so long? The cause is excess Chinese leverage + dollar preference, the flight of dollars from China and the stripping Chinese finance of collateral. Turns out China is not a credit provider but depends on millions of Americans borrowing from Capital One to buy stinky China-Brand Poison Dog Food and lead-painted baby toys.

Collapse of China’s economy is ironically best evidence of dollar preference! Said economy has been built on a foundation of borrowed dollars; repayment outside of China makes the dollars which remain in China that much more desirable. The bidding of dollars in China means the unbidding of everything else: China RMB depreciates, real estate stumbles, stocks are socked, the only thing certain in China is smog.

— The ‘Widowmaker Trade’ finally unravels.

Shorting Japanese bonds is called ‘the widowmaker’ because the prices never plunge … even when fundamentals such as the vast overhang of debt-relative to GDP suggest they must. The short-sellers wind up being fed to the pigs … Endless monetization and balance sheet expansion by Bank of Japan and reluctance (good sense) of Japanese themselves to spend has pushed bond prices high as possible and kept them there. (Bond yields are inverse to prices; yields decline and prices increase.) Beginning this year, dollar preference will undermine whatever worth the bonds represent as the yen will (continue to) depreciate relative to the dollar. A problem is the massive position accumulated by BoJ. Should it becomes necessary to sell some of its bonds, the Bank will find there are few buyers because they have been elbowed out of the market by the BoJ!

— Migrants will flood into the US as Puerto Rico defaults leaving millions of US citizens with no means of support.

The island has overspent and cannot retire its loans. Its ambiguous administrative status within the United States and inept leadership does not offer much hope for ordinary Puerto Ricans who will make their way in great numbers to the mainland.

— War between Iran and Saudi Arabia …

Both countries are fighting an all-out proxy war in Iraq, Syria, Yemen and elsewhere; the recent execution of a Shiite imam by the Saudis has inflamed tensions to the breaking point. Reality rules: despite the status of both countries as (wealthy) petroleum suppliers, both countries are actually too poor to afford a general war, particularly one that might adversely affect exports … or propel energy deflation.

— Economic uncertainties will cause world- industry leaders to shelve ambitious plans to combat climate change

Instead: ‘Conservation by Other MeansTM‘ … Entropy always wins, always.

 

 

 

 

 

 

 

 

 

An Interview with Cassandra

Off the keyboard of Ugo Bardi

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Published on Chimera Myth on April 9, 2015

cassandra_retouched

Discuss this Story at the Collapse Narratives Table inside the Diner

The prophetess Cassandra was cursed to be always right in her prophecies, but never to be believed. That places her on a par with modern climate scientists. (image: Cassandra as interpreted by Marvel comics)

I don’t have to tell you that this story is a work of fantasy, but several details are taken from modern historiography, for instance the Hittite king Mutawalli, the possible contemporary events of the battle of Kadesh and the fall of Troy, the habits of the Babylonian temple priestesses, and more, including a little attempt of inventing a Sumerian root for the name “Cassandra”, whose etymology is unknown. You may also like to know that this story came to my mind, nearly complete, while I was mounting some bookshelves at home; maybe I have to consider it as a gift from the Goddess Ikea.

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After that I had googled “summoning spells” on the web, I found one that I liked. I needed some peculiar stuff to perform it, including crocodile liver, platypus’ whiskers, bat’s earwax and more. But once I got all that (via Amazon.com), I thought I could try. And, immediately, there materialized in front of me, right in my office, a translucent image of a dark haired lady wearing gold jewels and a curious dress. No less than the ghost of Cassandra, the Trojan prophetess. And I could interview her!


Ahem….. Lady Cassandra, I humbly welcome you here….

Oh…. Where am I?

I summoned you, Lady Cassandra…. you are far in the future. More than three thousand years.

Three thousand years in the future, you say? You must have some really powerful magic, here. Where did you learn it?

Well, we have something we call the “Internet”

A library? Plenty of scrolls you must have in there.

Not exactly scrolls, lady Cassandra, but you can find a lot of things in it. But I must say that I am not a great expert at summoning ghosts; it is the first time I try.

You have to be careful with these spells, you know? It is dangerous stuff. You could have summoned some Galla demons of the underworld and they would have shred you to pieces. You are lucky that you summoned me in your first try. But the Gods of the underworld must like you – really! They even granted me the gift of being able to speak your language. A curious language, by the way; it doesn’t sound like anything I knew before. Where does it come from?

We call it ‘English’, lady. It comes, well, it comes from the lands of the North. 

Oh…. from those barbarian lands? No wonder that it sounds so weird, Well, never mind that; evidently the Gods like me to speak this language. But enough with this “Lady Cassandra”. Why do you call me like that?

Well, after all, you are the daughter of King Priam.

The daughter of King Priam? You believe in that story?

Well, it is what is said about you. Are you that Cassandra…. ?

Oh, yes, I am that Cassandra – the one they say was the daughter of King Priam of Troy. A lot of things have been said about me, I know; some are even true. But the daughter of King Priam? No, no…. It is just a legend, one of the many. Actually, I came to know Priam very well; and I was in Troy when the Achaeans destroyed it. But I am not Priam’s daughter. You see, I was born in Babylon…..

Born in Babylon? Really? Lady Cassandra, this is surprising!

Well, Babylon is where I was born. And I was born as Kasanna before those silly Greeks mangled my name turning it into “Cassandra”. But I wasn’t born as Lady Cassandra. I mean, I have been in the underworld long enough that I can drop all those silly titles. But if you really like to call me Lady Cassandra, it is fine for me. So, who are you, by the way?

Oh.. you see, I am nobody of any importance. I was just reading about you, and I was curious.

Enough that you risked to be shred to pieces by a Galla demon? You have to be a very curious person.

It is my job to be curious. I am called, well…. we say, “scientist”

Something like a priest? You make prophecies?

Sometimes I make prophecies about climate….. you know, how climate will change in the future.

And are you believed?

Oh… well, that’s a big problem.

I know, I know! It happens all the time. Anyway, if you are so curious, I figure I could tell you a few things about me. I don’t think that the demons of the underworld will leave me chatting with you for a long time. But as long as the spell lasts, why not?

Thank you, Lady Cassandra. It is an honor to be told this story

So, Let me see…. I have to start from the beginning. As I told you, I was born in Babylon. And I became a shamhatu of the temple of Ishtar. You probably don’t know what a shamhatu is; well, she is a hierodule of the temple. A temple girl, just that. It was my job. The job of the temple girls is to celebrate the goddess of love, Ishtar. We also call her “Inanna” in the old language, in Sumerian, that is. And we do that, you know, it means to have sex with the king, celebrate the sacred marriage of Tammuz and Ishtar – or, as they said in the times of our Sumerian ancestors, Dummuzi and Inanna.

So, I was studying to become a priestess. It was my career, to learn the old language of the Sumerians, to recite the hymns, to perform the sacrifices. It is a complicated job, you know? You have to study a lot and then, when it is time to perform the sacred marriage rite, you have to look all coquettish with the king, wear jewels, sexy clothes, all that….. Ouf…. Not all kings are nice… But all kings like a lot to play the role of Dummuzi in the sacred marriage rite. And a priestess plays the role of Inanna, the goddess. In a way, it is fun.

Now, in my times, the big man, the king, was someone called Muwatalli the second, an Hittite. His father had conquered Babylon earlier on and, at that time, in Babylon we were part of the Hittite Empire. So, the king of the Hittites would come to Babylon once in a while, just to make sure that everything was quiet and that everybody pays their taxes to him.

So, he came to Babylon, this king Muwatalli, from the capital of the Empire, from Tarhuntassa. Quite a retinue he carried with him. Soldiers, slaves, ladies in waiting, concubines, servants, cooks, all the rest. And he arrived in time for the rite of the sacred marriage. And you can imagine who was the hierodule who had the task of performing the rite that year. Just the modest me; Cassandra – or rather, as I said, Kasanna.

So, I performed this rite with King Mutawalli. Not a bad guy, I’d say, although he had this idea that everyone should call him Nergal, which means the God of War, but kings have these bizarre ideas. Anyway, he must have been impressed by our rituals. You know, in Babylon, at that time, we knew how to impress people! Fancy dresses, songs, harps playing, all the rest. But I think he was more impressed by the way the priestesses could perform divinations. Kings are always interested in divinations – they must feel very insecure all the time. Or so I think.

Anyway, King Muwatalli was impressed enough by the whole circus that he wanted to take me to Tarhuntassa. People used to say that I was a nice looking girl at that time, but I am not sure that he wanted me for my looks. I think he was thrilled by the idea of having a personal Babylonian priestess at his court – available any time. Whatever, I had no choice, anyway. I remember that my Ensi, the high priestess of the temple, told me that I had to be careful, because I had learned a lot of things in the temple, even how to make prophecies, but that of prophetizing is not an easy job and that I had not learned yet how to make myself believed, and so I risked to be misunderstood all the time. She was right, of course. But I was young and I must say that I was excited at the idea to go with king Muwatalli. You know, I could have given a son to the king, then he would have married me and I would have become Queen, or Empress, or something like that. I knew that it wasn’t likely that it would happen; and it didn’t happen. But – you know – a girl can always dream!

So, let me keep going. I went with King Muwatalli to Tarhuntassa and I became one of his concubines; he had a lot of them, as kings use to have. He also had a wife, or perhaps more than one – I am not sure. Anyway, I was not to be his wife. Just a concubine. Which is fine, after all; you know, the job of the concubine is not very difficult. You just have to be ready when the king wants you, which is not so often, because the king has a lot of concubines. It was little boring, sure, but after a while you get used to that; you spend a lot of time chatting with the other concubines, eating, drinking, and laughing. So, that could have been all of my story; to get old in the king’s harem; it is the lot of concubines, But, instead, my destiny was to be completely different.

As a concubine, I was a little special, because I was from Babylon, and I had been a hierodule of the temple of Ishtar and the priests and the priestesses of Babylon have this fame of being able to make prophecies. So, one day, the king summoned me, and I went to see him all dressed up nice, kohl on my eyes, good perfume all over, and gold jewels on my wrists and ankles. But that day I found that that he didn’t want to play Dummuzi and Inanna with me. I saw right away that he was worried, very worried. So, he told me that messengers had come from Egypt and had told him that the Egyptian army was marching North in full strength, toward the lands of the Hittites, led by the young Pharaoh Ramses the second. So, he asked me to make a prophecy for him. A prophecy about this battle.

What could I do? When a king asks you something, you can’t refuse. So, I wore the dress of the prophetess, had a liver from a freshly killed goat brought to me and I made this prophecy for him. And it was not a good prophecy. I saw a lot of dead people, plenty of smashed chariots, and the remains of the Hittite army retreating. I told him this, and he got angry at me. He said that he didn’t believe me and that he was going to lick these Egyptians as they deserved. And that he would teach this stupid Ramses a good lesson. And that he didn’t believe a word of my prophecy.

It was what my Ensi had said. That nobody would believe my prophecies; actually she had said it was a curse, and maybe it was true. But what could I do about that? King Muwatalli assembled the whole Hittite army, all the chariots and the infantry, and he marched south, to meet the Egyptian army at the city of Kadesh.

From Tarhuntassa, we saw the king leaving and, a couple of months later, coming back. But half of the army was not there and the king was not happy, not happy at all. Of course he told everyone that it had been a big victory for him, at Kadesh; that he had really licked those Egyptians and taught a big lesson to that young Egyptian Pharaoh, Ramses the second. But the survivors told different stories of people being hacked to piece and drowning while trying to swim across the Orontes river, pursued by the Egyptians. Later on, there came messengers from Egypt, who said that king Ramses had come back home telling of the great victory he had won against the Hittites.

So, you can understand how things were at the court of Tarhuntassa after the battle. The king was worried that the Egyptians would attack again, that the provinces would rebel, that the nobles would try to overthrow him… a mess. And about me…. ow… you can imagine that. It is no good having been right about a king’s disgrace. I was afraid that King Mutawalli would kill me; he didn’t, but for sure he didn’t care any more for me as a concubine. But at this point there happened something special.

Not that I was supposed to be told about these political things, I was just a concubine. But everything becomes known in court after a while, and so I learned that there had come a messenger from King Alaksandu of Wilusa. You probably never hear of these names, but you can surely understand if I say, instead “king Priam of Troy”. So let me call him Priam, even though the Hittites called him Alaksandu.

Now, this messenger arrived, and he said that King Priam was in trouble because this king Akagamunash, ruler of the Ahhiyawa was planning to attack the city of Troy. Even these names, you probably never heard of. But they are known also as king Agamemnon and the Achaeans; people living across the sea from Anatolia. So, this messenger said that King Priam had always been a faithful vassal of king Mutawalli, and that he would remain a faithful servant forever, and that his sons would be forever faithful servants of King Muwatalli, too, and he kept going like that for quite a long time. Then, while still paying homage to the victorious king of the Hittites, he – king Priam – said that he badly needed some help from King Muwatalli and that the great Hittite ruler was surely able to chase away these barbarian Achaeans with his powerful army as if they were ants pushed away by fire.

That message made king Mutawalli even angrier and more worried than before. And that came to be known all over the court of Tarhuntassa. He had no army that he could send West to defend Troy. And if he tried to defend Troy, he would risk another defeat, or to leave the Eastern provinces unguarded, and that would have been truly the end of him. But if he did nothing, he risked the whole left flank of the Hittite Empire. So, he had this idea: to send me to king Priam. I don’t know if that was to be taken as a joke or if he really thought I could help the Trojans – maybe yes, you know, these Babylonian priestesses have strange powers. Anyway, the king had his scribes write a pompous letter to Priam, saying that because of his faithful service he wanted to reward him with a precious gift, a gift of great value. And he was sending him this wise woman, Cassandra from Babylon, prophetess of renown and that he – king Muwatalli – was sure that King Priam would appreciate the gift for what it was worth.

All that I came to know later. What happened is that the king summoned me in front of him and he told me “Cassandra, you are going to Wilusa” – And I couldn’t understand Hittite so well, so I said, “What?” And he laughed and he said, “Aren’t you a prophetess, Cassandra? You should know!” Silly humor of kings, but let me say nothing about that.

One month later, I was there, in front of the walls of Troy, with a caravan that had traveled all the way from Tarhuntassa. And I was in front of King Priam, who came out of the door of the city to meet me. I still remember his face. He was expecting an army to help him, and all what he got was a dressed up concubine escorted by eunuchs and slaves. Oh, that he was disappointed!! But he put on a brave face, and he escorted me into the city with all the pomp of the occasion.

Now, King Priam was too old to be interested in playing Dummuzi and Inanna with me. But his sons were young enough, and I was the new girl in town, and I think that Priam didn’t want anyone to quarrel because of me. There was a war that was going to start, and he didn’t want Trojans to kill each other. So, he placed me in the temple of the Goddess they had in Troy; Athena Parthenos; who was supposed to be a virgin. And the hierodules, there, were also supposed to be virgins. Now, it is a bit strange for a hierodule of Isthar to be said to be a virgin. It would be like saying that Nergal, the God of War, fears blood! And about all the other hierodules; virgins? Well, let me say nothing about that. But, anyway, the king placed me there, and there I had to stay. And not just that. He adopted me, telling everyone that from then on I was supposed to be his daughter and that any offense against me, just an attempt to jeopardize my virginity, was supposed to be an insult to the king and to the whole royal court. At least I didn’t have to worry about too many things.

So, while staying in the temple, I learned a little about the city and about all the buzz there was about this woman, Helen. One of the sons of King Priam, Paris, had snatched her away from her husband, a big Achaean boss called Menelaus. This Helen was supposed to be extremely beautiful, but I can tell you that she was kind of overrated. Anyway, it was none of my business about whether this Paris and Helen were playing Dummuzi and Inanna together. But it didn’t seem to me that it was such a good idea to steal this woman from her husband, who was a powerful Achaean King. Now the Achaeans were buzzing like angry bees and that was the reason why Priam was expecting an invasion.

Sure enough, not long after I had arrived, there appeared a big fleet of those Achaeans, right in front ot the city of Troy. They landed, and out of the ships they came with chariots, swords, and all what is needed for war. And all Trojans, including the hierodules of the temple, went up the walls and looked down to the plain in front of the city and – my gosh – there was a huge band of those Achaeans there. Truly an awful lot of them.

Later on, that day, King Priam summoned me and he asked me to perform a divination for him. And I told him, “King, I don’t need to make a prophecy for you; haven’t you seen how many of these Achaeans there are?” And he told me not to be silly and to make this divination. So, I got a goat liver and I performed the ritual and I told him what I saw. Which was a lot of blood and the city in flames. And, of course, he wasn’t happy. He got angry at me and he started screaming things I didn’t understand. So, I told him, “king, don’t you think it was a silly idea that your son, Paris, snatched away this girl, this Helen, from her husband? Now he is here with all his friends and he wants her back. So, why don’t you give her back to him, and so you save the city?” But he muttered something like “the honor of Trojans is not negotiable!” And he left, angry, saying that he didn’t believe a word of my prophecies. As if that was new.

Not that Priam was especially stupid. He was old, he couldn’t really tell people what to do. But there was this idea in Troy that the honor of the city was at stake and that they had to fight, even though they might have avoided it. I know this because I spoke with other people of the city, including one of Priam’s sons, a guy called Hector. He seemed to be smarter than the average, but still he didn’t budge from that position. So, what could I do about that? I didn’t insist, because they had started looking at me askance, as if I was a traitor or a spy; after all I was a foreigner. Don’t misunderstand me. These Trojans were not bad people – actually I liked them. But they had this idea that there is no other way to solve problems than hacking at each other using swords. I told them that swords create problems, don’t solve them, but they looked at me as if I had been a Galla demon, just materialized in front of them.

So, there started the this war. In the temple, with the other hierodules, we couldn’t see what was going on, out there, but every evening, when the warriors came back to the city, we heard stories of the battle. We heard of this guy having killed that guy, and of another guy coming up and killing the first in revenge. I figure this is the way wars are; not very interesting for a hierodule. Anyhow, and I must say that the Trojans put up quite a good fight, though badly outnumbered. And they trusted their walls, they thought they were safe behind them.

There is a legend that says that the siege of Troy lasted for ten years, but it is not true, it lasted just for a season – what do you think those Achaeans would have eaten if they had to stay in the plain for ten years? But never mind that. One day, someone came up to the temple and he told me, “Cassandra, come and see!” So, I walked up to the battlements and I saw a big wooden thing right in front of the walls. And everyone was asking “what the heck is that?” and they asked me because they knew I was a priestess from Babylon and I had seen a lot of things. And, of course, I knew what it was, I had read about those things in the temple. So, I told them, “it is a siege engine!” And they looked at me with bovine eyes and they said “What?” And I told them, “it is made to smash down the city walls!” They looked at each other, shaking their heads. They didn’t believe me. What’s so new about that?

Sp, they kept discussing about that big wooden thing and they came up with this brilliant idea that it was supposed to be a  horse and that it was a votive offering for the God Apollon. And I tell them, “Look, you idiots, you must set that thing on fire before it is too late.” I was trying to do my best, after all, they were not bad people – I liked them. But they just looked at me, askance and again, they started muttering that I am a foreign and that I should not be trusted. What could I do about that?

So, I went back to the temple, and night came, and I went to sleep and I woke up when I heard a lot of noise, people screaming, and the smell of things burning. I understood immediately what’s going on but, again, there was nothing I could do about that, just noting how silly these people were. And, again, I was sorry for them. Then, at some moment, the door of the temple was smashed open from the outside there came in an hirsute idiot wearing armor and carrying a sword. You can imagine that I was afraid, so I clung to the statue of Athena, but the idiot tried to pull me away – I mean, so stupid: if he had wanted to play Dummuzi and Inanna with me, he could have just asked in the proper manner. So, I got even more scared and I clung to the statue more, and in the end I got a dislocated shoulder, quite some bruises, and the hirsute idiot carried me away.

You can imagine how angry I was, in addition to the dislocated shoulder, this idiot had managed to desecrate the temple of the Goddess. So I cursed him for good, using some curses that my Ensi had taught me; while telling me that I should never use them, but I did. He was cursed for good and he had lots of troubles. Later on, the Goddess had his ship sink at sea, and he drowned. In a way, I was sorry for him, but that was how things went.

So, while Troy was burning, I ended up playing Inanna and Dummuzi with the king of the Achaeans, someone called Agamemnon. I said that I was a good looking girl, so he wanted to take me with him on his ship, when he sailed back to his city, Mycenae.  Before leaving, he asked me to make a divination for him; which I did. And I told him that I saw blood and murder, and he just laughed and he said that his loving wife was waiting for me and that he was very happy to go back and that everything would be fine. Nothing unusual for me.

So, we arrived in Mycenae, and Agamemnon took me with him to his palace. His wife, Clytemnestra, didn’t like that — not so much because of me, but because she had a lover, and she didn’t want her obnoxious husband back. So she killed Agamemnon by stabbing him while he was taking a bath – loving wife, yes! –  and then she ran after me with an axe. She almost got me, but I managed to run away. Later on, the legend spread that said that she had killed me. That was not true, but I was perfectly happy with that. I had had enough troubles with all those stories and I much preferred if people thought I was dead.

That was not the end of the story, but I’ll skip several details of what happened after I ran away from Mycenae, chased by a madwoman yielding a battle axe! Let me just say that I managed to meet another Achaean who was also coming back home –  Odysseus his name. He took me on board of his ship and he played a little of Dummuzi and Inanna with me, then he asked me a prophecy for his return home. I don’t have to tell you that I saw bad things there, but he didn’t believe me – of course. But this Odysseus was nice enough to land me in Byblos, in Lebanon. There, I found a ride on a caravan that took me back to Babylon.

And there I was, a few years had gone by, but in the meantime my Ensi priestess had died and they recognized me, and they wanted me to become the new Ensi of the temple. But I didn’t want to – I had had enough of prophecies. I married a tavern keeper in Babylon, I had children and grandchildren, I died very old. I had a happy life and now I am a ghost. And that’s the end of the story of Cassandra – actually known as Kasanna in Babylon.

Just one more detail; I think it may interest you. One day there came someone to the tavern, an old Greek. He was blind and he had no money, but he said he could sing for me in exchange for some good beer. So, he did, and he sang the story of the war of Troy. It was nice, but I told him that it was wrong in many details. I tried to tell him that Cassandra was not the daughter of King Priam, and that the siege engine was not supposed to look like a horse. But he didn’t believe me – imagine that! So, I told him that he could have his beer for free, and might the goddess bless him. And that’s truly the end of this story.

….. Lady Cassandra, it is a nice story to hear. Thank you very much. So, you even meet Homer…

Yes, I remember that Homer was the name of that blind Greek. I think he became famous.

But, Lady Cassandra.. You said that your name in Babylon was…. how did you say?

My name? Kasanna…. it was my name in Babylon.

What does it mean?

Oh… it is an old Sumerian name. Kash is beer in Sumerian and Anna is heaven. So, Kashanna means “heavenly beer.”

A very nice name.

Thank you. Do you like beer?

I do. Although sometimes it gives me headaches.

Not the beer I served in my tavern, in Babylon. I am sure that it didn’t give headaches to anyone.

I don’t think they make that kind of beer any more…. unfortunately. Do you like beer Lady Cassanra?

Well, I used to. The beer I served in the tavern in Babylon was very good. But, you know, as a ghost……

Oh…. sorry, I didn’t mean…

No, it is all right. It is the way the Gods have arranged things to be. Everyone has to become a ghost. Sooner or later.

But, Lady Cassandra, I was thinking that I might ask you something…..

You want a divination, don’t you?

Well, if possible…. I am not sure I can find a goat liver for you, but…..

Oh… don’t worry about that. As a ghost I can make divinations even without a goat liver. And what would you like the divination to be about?

That’s very nice of you, Lady Cassandra. So, you know, we have plenty of problems, here. But there is this one we call “climate change”…. I am not sure you are familiar with this concept.

Ghosts have special powers, you know? So, I know what you are talking about. It is very dangerous, indeed. More dangerous than having the whole Achaean army lined up in front of the city doors. So, let me make this divination for you.

Well, maybe it takes time…

No…. as I said, we ghosts have special power. I just have to think about the matter, and the prophecy comes. And, you know, I am sorry, I am really sorry…..

Why?

It is not a good prophecy. It is even worse than for Troy. Everything on fire. People dying, blood everywhere. But many, many more.

But am I not supposed to disbelieve you?

Oh… no, that curse was for when I was alive. Now that I am a ghost, not any more….. I think you believe me. I can see that.

Not that I am happy about that, but….

It seems that people in your time are even more stupid than the Trojans. They just had to give back Helen to the Achaeans to save the city. All what you have to do is to stop burning that awful black stuff you keep burning. Is it so difficult?

Apparently, yes. It seems to be very difficult.

I see….. I am sorry that I upset you.

It is all right. I should have expected that.

I am really sorry. I see that you are very upset. I should go back to the underworld….

No, no… there is no hurry. But, Lady Cassandra, do you really think your prophecies…. I mean, do they always come true?

They do. It is the will of the Gods.

Ah……

See, I was sorry for the people of Troy, and I am sorry for your people, too. You see, maybe you should pray to the Goddess Inanna, maybe she can help you.

I think I should try that, yes…..

Really, I guess it is time for me to go…… Ghosts are not supposed to chat with the living for such a long time. And good luck, you really need it.

Thank you, Lady Cassandra

Prediction Gap

Off the keyboard of Steve from Virginia

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Published on Economic Undertow on August 9, 2014

Discuss this article at the Economics Table inside the Diner

There are people who read this blog religiously, eager to find out when the next giant crash is going to occur. Blogman sez the giant crash is occurring right now under everyone’s nose. It just doesn’t look like a crash, rather more like a bit of vaudeville grafted onto a horror movie.

Bloggers, economists and finance analysts gain credit from their peers by predicting crashes and for no other reason. A good crash prediction allows financiers to shift away from potentially illiquid asset markets before they freeze up … so they might re-enter the same markets later when it is safe to do so. Prior to the Lehman collapse, about fifty high-level analysts fingered the last giant crash out of 6.2 billion humanoids on this planet (none of those other billions really cared). Estimable Gary Karz, CFA has taken the time to curate a comprehensive list of them. Included are familiar names like Dean Baker, Richard Baker, Roy Barnes, Susan Bies, Rick Bookstaber, Claudio Borio, Brooksley Born, Jesse Colombo, Vox Day, Richard Duncan, Marc Faber, Fred Foldvary, Robert Gnaizda, Wynne Godley, James Grant, Jeremy Grantham, Jeffrey Gundlach, Fred Harrison, Kenneth Heebner, Michael Hudson, Eric Janszen, Med Jones, Steve Keen … etc.

Where are these guys now? Some analysts like James Grant and Robert Prechter have been calling for a crash every week for the past twenty five years, but others are vague or they demur. In the foreground, the media circus trumpets ‘recovery’ and growth. In the background, nothing in the West’s finance- or energy throughput systems has been fixed or even amended since the beginning of the millennium and the ‘Dot-Com Crash’. Credit overstretch is greater now than in 2007, there are hundreds of trillions of dollars of derivatives cluttering the finance industry’s books, the too-big-too-fail banks are more bulbous and corrupt than ever … The same banks’ low-cost credit has inflated asset prices far beyond their underlying, fundamental worthlessness. The fuel for a giant crash is in place, all that is needed is a match. Everywhere in the world the economies are staggering; Japan, Russia, India, Brazil … even manufacturing powerhouse China is on the ropes.

When the slide passes the point where it cannot be ignored any more, people will cry, “nobody could have seen it coming!”

To a large degree, nobody will. Because the establishment adapts to crashes over time, each new one takes a slightly different form. The toolkit to combat money panics has been expanded and refined: bank depositors are possessed of almost universal government treasury-backed guarantees. Central banks offer cheap credit by the trainload which validates the worth of collateral taken in exchange for it. Risk-averse, under-capitalized retail speculators that were quick to leap head first out of windows have been driven out of markets; their places occupied by professionally-managed funds which have in turn been consolidated into behemoths. The monolithic firms tend to be panic- resistant because they are able to hedge themselves across multiple markets and have access to liquid credit at near-zero cost. At the first sign of trouble political establishments around the world rush in to ‘prop up’ key institutions with bailouts. Markets and banks certainly aren’t risk-proof but the finance system is more able to respond to a margin call more effectively than could markets twenty or thirty years ago.

The current crash has unrelated, non-financial components falling apart at distant margins: the un-crash crash. Emergencies pop up then disappear as soon as the mediasphere changes focus or is distracted by something else: Argentina defaults (again), Russia, Israel, Iraq and Libya engulf themselves or their neighbors with mad war, methane bubbles out of the ground in Siberia … returns on CAPEX in the oil patch decline … the air leaks out of bonds …

Figure 1: Back in 2012 the gnomes at Economic Undertow predicted that there would be ‘trouble’ sometime right about now … How it works is simple: at some ‘high crude price’, the economy seizes up; an ‘oil shock’ as in 1973. Conventional analysis assumes that the economy-killing price will trend higher with inflation and the passage of time: $147 crude in 2008 is followed by $200 crude then the $300 crude. This is a false assumption: observations since 2008 indicate that the economy-killing high price has declined and is now a little more than a $110/barrel for Brent crude. As extraction costs increase, the price that shocks the economy is lower than the price needed by the energy industry to bring new crude oil to the marketplace. The result is a shortage of fuel …

The incipient fuel shortage is manifest as credit ‘problems’, runs out of bonds, wars, social disturbances; things other than gas lines and ration coupons.

Before 1998, each succeeding dollar spent on fuel extraction accessed an increased amount of petroleum, much of this petroleum was simply left alone as spare capacity. From 1999 onward, every dollar spent has accessed diminished amounts of petroleum … with no end to this trend in sight. At the same time, demand for fuels has exploded with the addition of millions of Chinese, Indian and the Middle Eastern consumers … something has to give.

Three things are occurring simultaneously:

– oil prices are too high — regardless of what that price is. Even if prices aren’t high enough to cause an outright crackup as such, their effect is to slow the economy to a crawl. Our economic infrastructure has been built assuming sub-$20/barrel crude oil into the foreseeable future. Current $100+/barrel prices are unaffordable, our consumption infrastructure is stranded.

– Customers are less solvent and are less able to borrow due to the high cost of both fuel and debt. This means there are less funds available, fuel prices cannot be bid higher.

– The result is insufficient funds for oil drillers whose need for funds increases with time and whose costs can only be met with borrowing, (from, ‘The Mother of All Free Lunches’)

The maximum price customers can afford to pay for fuel decreases while the price required to bring crude to market continuously increases. The current price at any given time is too high, firms fail and customers are left with diminished discretionary income. At the same time, the current price is too low to allow drillers to complete the increasing numbers of wells in difficult areas that are needed to keep pace with demand- plus depletion in older wells.High prices strand consumption infrastructure. Low prices strand the drillers … When prices are ‘low’, the high priced reserves become unavailable. At some near point in the future both the too high- and the too low prices will be the same … then it’s game over. From the chart it looks to be about two years in the future … all else being the same. If conditions change, the price will plunge and oil shortages intensify. Under no possible circumstance will our pauperizing meat-grinder-economy be able to afford higher real costs: resource waste is unproductive everywhere but at the margins, so is the debt taken on to subsidize it

The proposition is that more loans can command capital to appear: analysts assume that changes in the rules governing finance can change conditions on- and under the ground. Central banks offer loans used to gain capital but they cannot offer capital itself, which requires work to extract and make usable. Additional work is required due to the ‘destroyed capital’ effect and continually diminished capital concentrations.

 

 

The fifty- or so prognosticators peering forward in 2007 thereabouts were looking through the prism of mortgage debt. Post crisis, the mortgage origination and funding regimes have been cleared; the housing speculator ‘weak hands’ sent into bankruptcy. Today’s debt related risks are spread out across a constellation of regimes that also happen to be subprime: auto loans, college education loans, stock buy-back funding, M&A, IPO/angel funding, also energy lending. Analysts today looking to predict must look through the telescope of energy cost. Energy firms are able to fund themselves because of the central banks’ concerted efforts to keep interest rates below the rate of inflation. Firms must fund themselves because their customers cannot afford to do so; that being the definition of ‘sustainability’ … when customers borrow in the place of the businesses they are buying from, putting themselves on the hook for repayment rather than the firms.
fredgraph EFFR
Figure 2: US Effective Federal Funds Rate by FRED, (Click on for big). The modest rise of interest rates beginning in 2004 was the proximate cause of the mortgage crisis; the reason behind the increase was the marketplace response to ‘inflation’, that is, rising fuel prices due to vanished spare capacity. After the crisis began, rates plunged to current levels: some of this credit flowed toward the finance industry itself and its pyramid schemes, much of the rest is flowing now to the energy extraction industry.

The International Energy Agency estimates that $48 trillion will be needed over the next twenty years to procure the modern world’s needed energy, a doomsday machine in all but name. Approximately half of the $48 billion will be required by the petroleum industry. Keep in mind, these fuel industry’s costs are ultimately the responsibility of customers to retire … assuming that individuals will be able to borrow these amounts … which are themselves likely to be an underestimation.

If the world’s GDP remains the same at roughly $60+ trillions per year, the IEA percentage appears modest; however, GDP cannot be assured any more than the cost estimates. Procurement amounts to a modest fraction of total energy- or even petroleum budgets. When fuel shortages actually materialize the GDP numbers will decline while the amounts directed by necessity toward the fuel industry will increase. As the industry attempts to compensate for legacy depletion it drills more wells, the new wells deplete along with the others. The result is an industry race against itself as accelerated extraction pressure draws down reservoirs that much faster …

Fast forward to the onrushing crisis under our feet: credit is stressed, customers are broke and cannot pay. Fuel prices are declining because there is less credit. Drillers are dependent upon Wall Street finance and central bank interest rate policy even though the finance is drying up and rates are set to rise regardless of what the central banks do. Everyone is running as fast as possible trying to catch up to themselves … and finding themselves always a little out of reach.

A personal note:

My friend Jim Hansen announced the other day that he is ceasing publication of his excellent newsletter ‘Master Resource Report’. Says Jim:

Since 2006 nearly 400 issues of The Master Resource Report have been distributed as a free educational service of our firm. The motivation was to share some of our insight with a broader group of interested people so they could make better informed decisions in their lives concerning energy. But now it is time to end this venture due to a combination of time constraints and other demands for my attention. In closing out the report I would like to leave a few observations concerning what history might tell us about what may be ahead.The first observation is that we have been here before with forecasts of oil abundance and lower prices on the horizon. While it is frequently pointed out that we have not run out of oil as if that is what Peak oil is about. The abundance side of the debate is seldom given the same critique.

Over the last 15 years there have been as many calls for cheap and abundant oil as there have been for scarce and expensive. But one reality holds, the inflation adjust price of oil today remains near an all-time high while the global economy remains sluggish and crude oil production flat lines. On this point always remember to check and see what is being represented as oil. When the term liquids is used it is a tip off that everything from NGLs, biofuels and the absolutely useless refinery gains are probably in the volume mix being quoted.

Energy is The Master Resource required to extract all others. Without the cheap transportation fuels provided by oil the global economy as we know it today would not exist. The food supply depends not only on the diesel fuel for farms and transport but the fertilizers and chemical inputs that oil and natural gas have provided the “Green Revolution”.

I hope that by making these points through this report I have given readers some perspective to plan both their lifestyle and investments. The risks we face are great but so are the opportunities. How it works out for all of us depends on how we choose to use or not use the information we have.

Best Wishes to All and thanks for all your feedback over the years.

It’s understandable that Jim would bring an end to his long-running project. After awhile behind the computer you forget your family members’ names or what they look like. I sent him an email suggesting that if he ever feels the need to write a commentary to feel to send it over this way. Thanks, Jim, for the timely intelligence!

Pigs on the Wing

Off the keyboard of Jason Heppenstall

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Published on 22 Billion Energy Slaves on Jan 3, 2014

Will the FTSE reach new heights in 2014?

Will the FTSE reach new heights in 2014?

Discuss this article at the Kitchen Sink inside the Diner

Another year dawns and it’s with some wry amusement that I note almost everyone in the peak energy/collapse blogosphere has been throwing out predictions as to what the coming year has in store for us. It seems to me a bit of a fool’s errand to try and predict what will happen over the coming twelve months because, as the Danish physicist Niels Bohr noted, it’s hard to make predictions, especially when they are in the future. But then Mr Bohr was pretty bad at making predictions himself, failing to foresee that inventing the atomic bomb might lead to a few problems in the future.

Mind you, if one considers oneself as having something even vaguely worthwhile to say about the future of our energy supplies and thereby our industrial civilisation it’s perhaps not too hard to see why people might expect some kind of periodic prediction with a timeframe attached to it. I mean, is it too much to ask? So here’s my prediction about what will happen in the year to come:

I don’t know.

There it is – you have it. I have no clue about gold or silver prices, and still fail to understand why these should be considered important to so many people in this corner of the internet. Neither do I have a clue about the price of oil, subject as it is to a baker’s dozen vagaries ranging from supply and demand, to geopolitics and corruption. I do know that the supply of oil is slowly but steadily dwindling, especially so when you take into account the quality of said oil, but what turn that will take in 2014 is anyone’s guess. Those who have spent far more time analysing these factors seem to be saying that it could be as low as $20 a barrel, or perhaps as high as $200 – or somewhere in the middle, and bouncing around quite a bit. Let’s face it: nobody knows. What we do know is that high prices and volatility cause economic damage, and that low prices mean it isn’t profitable to produce it in the first place. These are both good and bad depending on your perspective.

Speaking of geopolitics, what is to happen on the international stage? Will China and Japan have a war? Will Saudi Arabia have an Arab Spring? Will the European Union bust apart at the seams with Greeks fighting Germans? Will Syria’s bloody conflict spread beyond its borders and engulf surrounding lands?

In each case I could say ‘possibly’, but I’d also have to admit that anything else could happen, and probably will. Going from past experience it’s equally as likely that some new previously overlooked regional flashpoint escalates in a way nobody expected it to. China might attack its own Uighurs. North Korea might throw a fit. Israel or Russia might have a nuclear ‘whoops’ moment. Anything could happen.

Here at home, what is to happen in ‘Great’ Britain? Scotland might or might not decide to turn its back on Sassenach rule. The best of luck to them but either way it won’t make much difference to the fortunes of these increasingly damp and dispirited isles. Will we be invaded by legions of Romanians and Bulgarians – all of whom are thieving, benefit cheating, swarthy ‘others’ as the press keeps telling us? Again, I don’t know, but I doubt it (Romania’s economy is doing better than the British one). If they do arrive en masse, perhaps they could teach us a few of the skills we have so willingly forgotten.

Will Fukushima kill us all? Will the US government launch a war against its own people? Will the world economy crash and we will all have to revert to making transaction with pigs’ teeth? I don’t know, I don’t know, I don’t know.

I’m not much use am I?

Well, okay, if we have to play this game then I’ll make a few predictions that are close enough to home that I feel confident enough to call. Here they are, in no particular order of importance:

  • The government and press will continue to confuse asset price inflation with economic recovery. The fact that the FTSE has inflated like a giant floating pig at a Pink Floyd gig will continue to be heralded as proof that an economic recovery is underway. If further proof were needed, house price rises will continue to such an extent that home ownership will slip even further from the outstretched grasp of Mr and Mrs Average, while multi million pound mansions in London will continue to be snatched up like hotcakes by Chinese, Russian and Arab buyers.
  • At the same time, the number of families who rely on food banks will continue to climb. As will the number of children turning up hungry to school and unable to afford school uniforms. Austerity will continue to bite deeper and harder and more people will end up living on the streets. More families will break down and the number of people with a decent job that allows them a good standard of living and a chance to put some aside for the future will continue to fall.
  • The public will become increasingly fed up. British people don’t get angry, they just get miffed. There will be more peeved letters written to The Times, and mostly they will be about the price of petrol and food, and the fact that energy bills and train fares are going up almost as fast as savings rates and pensions are going down.
  • There will be a growing realisation among people that the retirement age is accelerating away from them as they age, like a mechanical rabbit at a greyhound track.
  • The government will continue to enact policies that may have made sense ten or twenty years ago before energy supplies had plateaued but which now make no sense whatsoever unless interpreted through the lens of cargo cult behaviour. They will promise more housing development on protected land, more nuclear power stations, more ‘golden age of energy’ fracking, more high speed train lines that nobody needs or can afford, more airports and more road building to promote GROWTH!
  • More people will see through this increasingly desperate tissue of lies and start wondering why they hadn’t seen through it all a few years earlier when they had more cash. They will start reading books on peak oil and searching the internet for somewhere ‘safe’ to go and live. Their friends will think they are weird and have ‘lost the plot’.
  • Usury will continue to be the most profitable business in the country. More and more people will consider it to be normal behaviour to turn to companies like Wonga.com that feature cute animated ‘normal people’ characters on prime time adverts and take out loans at 5,853% interest.
  • The weather will be awful, again. Floods, torrential rain and storms will continue to turn this once green and pleasant isle into something from a dystopian sci-fi B movie where it never stops raining. As a result, more homes built on flood plains, beside rivers or a bit too close to the sea, will become uninsurable. And when it does occasionally stop raining it will turn into a scorching drought that gives old people heat stroke and dries up all the rivers.
  • More and more councils and local authorities will slip into the red and have to cut the services they offer. At the same time, the ongoing wholesale privatisation of council services will massively drive up costs as inefficient and bloated corporate behemoths stuffed with thousands of salaried middle managers attempt to make money out of vital public services – and succeed – at the expense of the public.
  • Ditto with public health services.
  • More public assets will be sold off at fire sale prices to overseas ‘investors’ and this will be spun as a ‘good thing’ and positive for the economy.
  • The number of road miles driven will continue to fall (it has already fallen by 18% since its peak in 2008) and this will again be put down to increased haulier efficiency and better SatNavs.
  • The number of street lights switched off will continue to climb and safety campaigners will continue to insist that we we are going ‘back to the dark ages’.
  • I will finish writing my book entitled “When the Lights Go Out: A Survival Guide for Energy Descent” and a handful of people will place orders for it through this blog.

These are the things we can look forward to in 2014. There are a whole load of other predictions that one could wager upon in the realm of economics, but I’m not going to make any because for the time being at least that realm is controlled by fantasists and mental herds.

One thing that I have observed that should worry anyone with the sense to be worried by it is that the abstract notion of the ‘economy’ as we know it is showing alarming signs of becoming something similar to the state-controlled Soviet communism of yore. It’s ironic, to put it mildly, that as China becomes ever more capitalist in nature (and increasingly hardline attempts to control its shadow banking system are something to look out for this year) the West becomes increasingly monolithic. Because that’s what quantitative easing seems to be all about, namely taking wealth from the population and delivering it to a tiny elite who increasingly control the means of production and are able to successfully lobby governments and enact regulatory capture. But all this is more or less hidden from view, or at least rarely mentioned, and won’t really come apparent until we are looking in the rear view mirror and asking what went wrong.

And I’m not even going to mention the so-called taper.

Or the US fracking bubble.

So there it is. A bunch of predictions and non-predictions. The only one I feel I can make with cast iron certainty is that our over-loaded techno-economic-infrastructure will continue to be worn thinner by the physical constraints that underpin it and that a great many people will proclaim that this isn’t so while simultaneously becoming poorer in any metric that you care to measure except, perhaps, the availability of credit.

And then maybe credit will die too. But maybe that’ll be next year. Or the year after.

Dense Fog Turns into Toxic Smog

Off the keyboard of Jim Quinn

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Published on The Burning Platform on December 31, 2013

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In mid-January of this year I wrote my annual prediction article for 2013 – Apparitions in the Fog. It is again time to assess my inability to predict the future any better than a dart throwing monkey. As usual, sticking to facts was a mistake in a world fueled by misinformation, propaganda, delusion and wishful thinking. I was far too pessimistic about the near term implications of debt, civic decay and global disorder. Those in power have successfully held off the unavoidable collapse which will be brought about by their ravenous unbridled greed, and blatant disregard for the rule of law, the U.S. Constitution and rights and liberties of the American people. The day to day minutia, pointless drivel of our techno-narcissistic selfie showbiz society, and artificially created issues (gay marriage, Zimmerman-Martin, Baby North West, Duck Dynasty) designed to distract the public from thinking, are worthless trivialities in the broad landscape of human history.

The course of human history is determined by recurring cyclical themes based upon human frailties that have been perpetual through centuries of antiquity. The immense day to day noise of an inter-connected techno-world awash in inconsequentialities and manipulated by men of evil intent is designed to divert the attention of the masses from the criminal activities of those in power. It has always been so. There have always been arrogant, ambitious, greedy, power hungry, deceitful men, willing to take advantage of a fearful, lazy, ignorant, selfish, easily manipulated populace. The rhythms of history are unaffected by predictions of “experts” who are paid to spin yarns in order to sustain the status quo. There is no avoiding the consequences of actions taken and not taken over the last eighty years. We are in the midst of a twenty year period of Crisis that was launched in September 2008 with the worldwide financial collapse, created by the Federal Reserve, their Wall Street owners, their bought off Washington politicians, and their media and academic propaganda machines.

I still stand by the final paragraph of my 2013 missive, and despite the fact the establishment has been able to fend off the final collapse of their man made credit boom for longer than I anticipated, they have only insured a far worse outcome when the bubble bursts:

“So now I’m on the record for 2013 and I can be scorned and ridiculed for being such a pessimist when December rolls around and our Ponzi scheme economy hasn’t collapsed. There is no disputing the facts. The economic situation is deteriorating for the average American, the mood of the country is darkening, and the world is awash in debt and turmoil. Every country is attempting to print their way to renewed prosperity. No one wins a race to the bottom. The oligarchs have chosen a path of currency debasement, propping up insolvent banks, propaganda and impoverishing the masses as their preferred course. They attempt to keep the masses distracted with political theater, gun control vitriol, reality TV and iGadgets. What can be said about a society where 10% of the population follows Justin Bieber and Lady Gaga on Twitter and where 50% think the National Debt is a monument in Washington D.C. The country is controlled by evil sycophants, intellectually dishonest toadies and blood sucking leeches. Their lies and deception have held sway for the last four years, but they have only delayed the final collapse of a boom brought about by credit expansion. They will not reverse course and believe their intellectual superiority will allow them to retain their control after the collapse.”

The core elements of this Crisis have been visible since Strauss & Howe wrote The Fourth Turning in 1997. All the major events that transpire during this Crisis will be driven by one or more of these core elements – Debt, Civic Decay, and Global Disorder.

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – The Fourth Turning – Strauss & Howe

My 2013 predictions were framed by these core elements. After re-reading my article for the first time in eleven months I’ve concluded it is lucky I don’t charge for investment predictions. Many of my prognostications were in the ballpark, but I have continually underestimated the ability of central bankers and their Wall Street co-conspirators to use the $2.8 billion per day of QE to artificially elevate the stock market to bubble level proportions once again. If I wasn’t such a trusting soul, I might conclude the .1% financial elite, who run this country, created QEternity to benefit themselves, their .1% corporate CEO accomplices and the corrupt government apparatchiks who shield their flagrant criminality from the righteous hand of justice.

Even a highly educated Ivy League economist might grasp the fact that Ben Bernanke’s QEternity and ZIRP, sold to the unsuspecting masses as desperate measures during a crisis that could have brought the system down, have been kept in place for five years as a means to drive stock prices and home prices higher. The emergency was over by 2010, according to government reported data. The current monetary policy of the Federal Reserve would have been viewed as outrageous, reckless, and incomprehensible in 2007. It is truly a credit to the ruling elite and their media propaganda arm that they have been able to convince a majority of Americans their brazen felonious disregard for the wellbeing of the 99% is necessary to sustain the .1% way of life. Those palaces in the Hamptons aren’t going to pay for themselves without those $100 billion of annual bonuses.

Do you think the 170% increase in the S&P 500 has been accidently correlated with the quadrupling of the Federal Reserve balance sheet or has Bernanke just done the bidding of his puppet masters? Considering the .1% billionaire clique owns the vast majority of stock in this corporate fascist paradise, is it really a surprise the trickle down canard would be the solution of choice from these sociopathic scoundrels? Of course QE and ZIRP have impacted the 80% who own virtually no stocks in a slightly different manner. Do you think the 100% increase in gasoline prices since 2009 was caused by Bernanke’s QEternity?

Do you think the 8% decline in real median household income since 2008 was caused by Bernanke’s QE and ZIRP policies?

Click to View

Do you think the $10.8 trillion stolen from grandmothers and risk adverse savers was caused by Bernanke’s ZIRP?

Was the $860 billion increase in real GDP (5.8% over five years) worth the $8 trillion increase in the National Debt and $3 trillion increase in the Federal Reserve balance sheet? Was it moral, courageous and honorable of the Wall Street plantation owners to syphon the remaining wealth of the dying middle class peasants and leaving the millennial generation and future generations bound in chains of unfunded debt to the tune of $200 trillion?

My assessment regarding unpredictable events lurking in the fog was borne out by what happened that NO ONE predicted, including: the first resignation of a pope in six hundred years, the military coup of a democratically elected president of Egypt – supported by the democratically elected U.S. president, the rise of an alternative currency – bitcoin, the bankruptcy of one of the largest cities in the U.S. – Detroit, a minor terrorist attack in Boston that freaked out the entire country and revealed the Nazi-like un-Constitutional tactics that will be used by the police state as this Crisis deepens, and revelations by a brilliant young patriot named Edward Snowden proving that the U.S. has been turned into an Orwellian surveillance state as every electronic communication of every American is being monitored and recorded. The Democrats and Republicans played their parts in this theater of the absurd. They proved to be two faces of the same Party as neither faction questions the droning of innocent people around the globe, mass spying on citizens, Wall Street criminality, trillion dollar deficits, a rogue Federal Reserve, or out of control unsustainable government spending.

My predictions for 2013 were divided into the three categories driving this Fourth Turning CrisisDebt, Civic Decay, and Global Disorder. Let’s assess my inaccuracy.

Debt

  • The debt ceiling will be raised as the toothless Republican Party vows to cut spending next time. The political hacks will create a 3,000 page document of triggers and create a committee to study the issue, with actual measures that slow the growth of annual spending by .000005% starting in 2017.

The government shutdown reality TV show proved to be the usual Washington D.C. kabuki theater. They gave a shutdown and no one noticed. It had zero impact on the economy. More people came to the realization that government does nothing except spend our money and push us around. The debt ceiling was raised, the sequester faux “cuts” were reversed and $20 billion of spending will be cut sometime in the distant future. Washington snakes are entirely predictable. I nailed this prediction.

  • The National Debt will increase by $1.25 trillion and debt to GDP will reach 106% by the end of the fiscal year.

The National Debt increased by ONLY $964 billion in the last fiscal year, even though the government stopped counting in May. The temporary sequester cuts, the expiration of the 2% payroll tax cut, the fake Fannie & Freddie paybacks to the U.S. Treasury based upon mark to fantasy accounting, and the automatic expiration of stimulus spending combined to keep the real deficit from reaching $1 trillion for the fifth straight year. Debt to GDP was 104%, before our beloved government drones decided to “adjust” GDP upwards by $500 billion based upon a new and improved formula, like Tide detergent. I missed this prediction by a smidgeon.

  • The Federal Reserve balance sheet will reach $4 trillion by the end of the year.

The Federal Reserve balance sheet stands at $4.075 trillion today. Ben is very predictable, and of course “transparent”. This was an easy one.

  • Consumer debt will reach $2.9 trillion as the Feds accelerate student loans and Ally Financial, along with the other Too Big To Control Wall Street banks, keep pumping out subprime auto loans. By mid-year reported losses on student loans will soar and auto loan delinquencies will show an upturn. This will force a slowdown in consumer debt issuance, exacerbating the recession that started in 2012.

Consumer debt outstanding currently stands at $3.076 trillion despite the fact that credit card debt has been virtually flat. The Federal government has continued to dole out billions in loans to University of Phoenix wannabes and to the subprime urban entitlement armies who deserve to drive an Escalade despite having no job, no assets and a sub 650 credit score, through government owned Ally Financial. It helps drive business when you don’t care about being repaid. Student loan delinquency rates are at an all-time high, as there are no jobs for graduates with tens of thousands in debt. Auto loan delinquencies have begun to rise despite the fact we are supposedly in a strongly recovering economy. The slowdown in debt issuance has not happened, as the Federal government is in complete control of the non-revolving loan segment. My prediction has proven to be accurate.

  • The Bakken oil miracle will prove to be nothing more than Wall Street shysters selling a storyline. Daily output will stall at 750,000 barrels per day and the dreams of imminent energy independence will be annihilated by reality, again. The price of oil will average $105 per barrel, as global tensions restrict supply.

Bakken production has reached 867,000 barrels per day as more and more wells have been drilled to offset the steep depletion rates of the existing wells. The average price per barrel has been $104, despite the frantic propaganda campaign about imminent American energy independence. Tell that to the average Joe filling their tank and paying the highest December gas price in history. My prediction was too pessimistic, but the Bakken miracle will be revealed as an over-hyped Wall Street scam in 2014.

  • The home price increases generated through inventory manipulation in 2012 will peter out as 2013 progresses. The market has been flooded by investors. There is very little real demand for new homes. Young households with heavy student loan debt and low paying jobs will continue to rent, since the oligarchs refused to let prices fall to a level that would spur real demand. Mortgage delinquencies will rise as job growth remains stagnant, leading to an increase in foreclosures. Rent prices will flatten as apartment construction and investors flood the market with supply.

Existing home sales peaked in the middle of 2013 and have been in decline as mortgage rates have jumped from 3.25% to 4.5% since February. New home sales remain stagnant, near record low levels. The median sales price for existing home sales peaked at $214,000 in June and has fallen for five consecutive months by a total of 8%. First time home buyers account for a record low of 28% of purchases, while investors account for a record high level of purchasers. Mortgage delinquencies fell for most of the year, but the chickens are beginning to come home to roost as delinquent mortgage loans rose from 6.28% in October to 6.45% in November. Rent increases slowed to below 3% as Blackrock and the other Wall Street shysters flood the market with their foreclosure rental properties. My housing prediction was accurate.

 

  • The disconnect between the stock market and the housing and employment markets will be rectified when the MSM can no longer deny the recession that began in 2012 and will deepen in the first part of 2013. While housing prices languish 30% below their peak levels of 2006, the stock market has prematurely ejaculated back to pre-crisis levels. Declining corporate profits, stagnant consumer spending, and increasing debt defaults will finally result in a 20% decline in the stock market, with a chance for losses greater than 30% if Japan or the EU begin to crumble.

And now we get to the prediction that makes me happy I don’t charge people for investment advice. Facts don’t matter in world of QE for the psychopathic titans of Wall Street and misery for the indebted peasants of Main Street. The government data drones, Ivy League educated Wall Street economists, and the obedient corporate media propaganda apparatus declare that GDP has grown by 2% over the last four quarters and we are not in a recession. If you believe their bogus inflation calculation then just ignore the collapsing retail sales, stagnant real wages, and rising gap between the uber-rich and the rest of us. Using a true measure of inflation reveals an economy in recession since 2004. Whose version matches the reality on the ground?

 

Corporate profits have leveled off at record highs as mark to fantasy accounting fraud, condoned and encouraged by the Federal Reserve, along with loan loss reserve depletion and $5 billion of risk free profits from parking deposits at the Fed have created a one-time peak. The record level of negative earnings warnings is the proverbial bell ringing at the top.

negative earnings

I only missed my stock market prediction by 50%, as the 30% rise was somewhat better than my 20% decline prediction. Bernanke’s QEternity, Wall Street’s high frequency trading supercomputers, record levels of margin debt, a dash of delusion, and a helping of clueless dupes have taken the stock market to another bubble high. My prediction makes me look like an idiot today. I’m OK with that, since I know facts and reality always prevail in the long-run. As John Hussman sagely points out, today’s idiot will be tomorrow’s beacon of truth:

“The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top, and most of the signals that have been most historically useful for that purpose have been blazing red since late-2011. My impression remains that the downside risks for the market have been deferred, not eliminated, and that they will be worse for the wait.”

  • Japan is still a bug in search of a windshield. With a debt to GDP ratio of 230%, a population dying off, energy dependence escalating, trade surplus decreasing, an already failed Prime Minister vowing to increase inflation, and rising tensions with China, Japan is a primary candidate to be the first domino to fall in the game of debt chicken. A 2% increase in interest rates would destroy the Japanese economic system.

Abenomics has done nothing for the average Japanese citizen, but it has done wonders for the ruling class who own all the stocks. Abe has implemented monetary policies that make Bernanke get a hard on. Japanese economic growth remains mired at 1.1%, wages remain stagnant, and their debt to GDP ratio remains above 230%, but at least he has driven their currency down 20% versus the USD and crushed the common person with 9% energy inflation. None of this matters, because the .1% have benefitted from a 56% increase in the Japanese stock market. My prediction was wrong. The windshield is further down the road, but it is approaching at 100 mph.

  • The EU has temporarily delayed the endgame for their failed experiment. Economic conditions in Greece, Spain and Italy worsen by the day with unemployment reaching dangerous revolutionary levels. Pretending countries will pay each other with newly created debt will not solve a debt crisis. They don’t have a liquidity problem. They have a solvency problem. The only people who have been saved by the actions taken so far are bankers and politicians. I believe the crisis will reignite, with interest rates spiking in Spain, Italy and France. The Germans will get fed up with the rest of Europe and the EU will begin to disintegrate.

This was another complete miss on my part. Economic conditions have not improved in Europe. Unemployment remains at record levels. EU GDP is barely above 0%. Debt levels continue to rise. Central bank bond buying has propped up this teetering edifice of ineptitude and interest rates in Spain, Italy and France have fallen to ridiculously low levels of 4%, considering they are completely insolvent with no possibility for escape. The disintegration of the EU will have to wait for another day.

Civic Decay

  • Progressive’s attempt to distract the masses from our worsening economic situation with their assault on the 2nd Amendment will fail. Congress will pass no new restrictions on gun ownership and 2013 will see the highest level of gun sales in history.

Obama and his gun grabbing sycophants attempted to use the Newtown massacre as the lever to overturn the 2nd Amendment. The liberal media went into full shriek mode, but the citizens again prevailed and no Federal legislation restricting the 2nd Amendment passed. Gun sales in 2013 will set an all-time record. With the Orwellian surveillance state growing by the day, arming yourself is the rational thing to do. I nailed this prediction.

  • The deepening recession, higher taxes on small businesses and middle class, along with Obamacare mandates will lead to rising unemployment and rising anger with the failed economic policies of the last four years. Protests and rallies will begin to burgeon.

The little people are experiencing a recession. The little people bore the brunt of the 2% payroll tax increase. The little people are bearing the burden of the Obamacare insurance premium increases. The number of employed Americans has increased by 1 million in the last year, a whole .4% of the working age population. The number of Americans who have willingly left the labor force in the last year because their lives are so fulfilled totaled 2.5 million, leaving the labor participation rate at a 35 year low. The anger among the former middle class is simmering below the surface, as Bernanke’s policies further impoverish the multitudes. Mass protests have not materialized but the Washington Navy yard shooting, dental hygenist murdered by DC police for ramming a White House barrier, and self- immolation of veteran John Constantino on the National Mall were all individual acts of desperation against the establishment.

  • The number of people on food stamps will reach 50 million and the number of people on SSDI will reach 11 million. Jamie Dimon, Lloyd Blankfein, and Jeff Immelt will compensate themselves to the tune of $100 million. CNBC will proclaim an economic recovery based on these facts.

The number of people on food stamps appears to have peaked just below 48 million, as the expiration of stimulus spending will probably keep the program from reaching 50 million. As of November there were 10.98 million people in the SSDI program. The top eight Wall Street banks have set aside a modest $91 billion for 2013 bonuses. The cost of providing food stamps for 48 million Americans totaled $76 billion. CNBC is thrilled with the record level of bonuses for the noble Wall Street capitalists, while scorning the lazy laid-off middle class workers whose jobs were shipped to China by the corporations whose profits are at all-time highs and stock price soars. Isn’t crony capitalism grand?

  • The drought will continue in 2013 resulting in higher food prices, ethanol prices, and shipping costs, as transporting goods on the Mississippi River will become further restricted. The misery index for the average American family will reach new highs.

The drought conditions in the U.S. Midwest have been relieved. Ethanol prices have been flat. Beef prices have risen by 10% since May due to the drought impact from 2012, but overall food price increases have been moderate. The misery index (unemployment rate + inflation rate) has supposedly fallen, based on government manipulated data. I whiffed on this prediction.

  • There will be assassination attempts on political and business leaders as retribution for their actions during and after the financial crisis.

There have been no assassination attempts on those responsible for our downward financial spiral. The anger has been turned inward as suicides have increased by 30% due to the unbearable economic circumstances brought on by the illegal financial machinations of the Wall Street criminal banks. Obama and Dick Cheney must be thrilled that more military personnel died by suicide in 2013 than on the battlefield. Mission Accomplished. The retribution dealt to bankers and politicians will come after the next collapse. For now, my prediction was premature.

  • The revelation of more fraud in the financial sector will result in an outcry from the public for justice. Prosecutions will be pursued by State’s attorney generals, as Holder has been captured by Wall Street.

Holder and the U.S. government remain fully captured by Wall Street. The states have proven to be toothless in their efforts to enforce the law against Wall Street. The continuing revelations of Wall Street fraud and billions in fines paid by JP Morgan and the other Too Big To Trust banks have been glossed over by the captured mainstream media. As long as EBT cards, Visas and Mastercards continue to function, there will be no outrage from the techno-narcissistic, debt addicted, math challenged, wilfully ignorant masses. Another wishful thinking wrong prediction on my part.

  • The deepening pension crisis in the states will lead to more state worker layoffs and more confrontation between governors attempting to balance budgets and government worker unions. There will be more municipal bankruptcies.

Using a still optimistic discount rate of 5%, the unfunded pension liability of states and municipalities totals $3 trillion. The taxpayers don’t have enough cheese left for the government rats to steal. The crisis deepens by the second. State and municipal budgets require larger pension payments every year. The tax base is stagnant or declining. States must balance their budgets. They will continue to cut existing workers to pay the legacy costs until they all experience their Detroit moment. With the Detroit bankruptcy, I’ll take credit for getting this prediction right.

  • The gun issue will further enflame talk of state secession. The red state/blue state divide will grow ever wider. The MSM will aggravate the divisions with vitriolic propaganda.

With the revelations of Federal government spying, military training exercises in cities across the country, the blatant disregard for the 4th Amendment during the shutdown of Boston, and un-Constitutional mandates of Obamacare, there has been a tremendous increase in chatter about secession. A google search gets over 200,000 hits in the last year. The divide between red states and blue states has never been wider.

  • The government will accelerate their surveillance efforts and renew their attempt to monitor, control, and censor the internet. This will result in increased cyber-attacks on government and corporate computer networks in retaliation.

If anything I dramatically underestimated the lengths to which the United States government would go in their illegal surveillance of the American people and foreign leaders. Edward Snowden exposed the grandest government criminal conspiracy in history as the world found out the NSA, with the full knowledge of the president and Congress, has been conspiring with major communications and internet companies to monitor and record every electronic communication on earth, in clear violation of the 4th Amendment. Government apparatchiks like James Clapper have blatantly lied to Congress about their spying activities. The lawlessness with which the government is now operating has led to anarchist computer hackers conducting cyber-attacks on government and corporate networks. The recent hacking of the Target credit card system will have devastating implications to their already waning business. I’ll take credit for an accurate prediction on this one.

Global Disorder 

  • With new leadership in Japan and China, neither will want to lose face, so early in their new terms. Neither side will back down in their ongoing conflict over islands in the East China Sea. China will shoot down a Japanese aircraft and trade between the countries will halt, leading to further downturns in both of their economies.

The Japanese/Chinese dispute over the Diaoyu/Senkaku islands has blown hot and cold throughout the year. In the past month the vitriol has grown intense. China has scrambled fighter jets over the disputed islands. The recent visit of Abe to a World War II shrine honoring war criminals has enraged the Chinese. Trade between the countries has declined. An aircraft has not been shot down, but an American warship almost collided with a Chinese warship near the islands, since our empire must stick their nose into every worldwide dispute. We are one miscalculation away from a shooting war. It hasn’t happened yet, so my prediction was wrong.

  • Worker protests over slave labor conditions in Chinese factories will increase as food price increases hit home on peasants that spend 70% of their pay for food. The new regime will crackdown with brutal measures, but the protests will grow increasingly violent. The economic data showing growth will be discredited by what is happening on the ground. China will come in for a real hard landing. Maybe they can hide the billions of bad debt in some of their vacant cities.

The number of worker protests over low pay and working conditions in China doubled over the previous year, but censorship of reporting has kept these facts under wraps. In a dictatorship, the crackdown on these protests goes unreported. The fraudulent economic data issued by the government has been proven false by independent analysts. The Chinese stock market has fallen 14%, reflecting the true economic situation. The Chinese property bubble is in the process of popping. China will never officially report a hard landing. China is the most corrupt nation on earth and is rotting from the inside, like their vacant malls and cities. China’s economy is like an Asiana Airlines Boeing 777 coming in for a landing at SF International.

  • Violence and turmoil in Greece will spread to Spain during the early part of the year, with protests and anger spreading to Italy and France later in the year. The EU public relations campaign, built on sandcastles of debt in the sky and false promises of corrupt politicians, will falter by mid-year. Interest rates will begin to spike and the endgame will commence. Greece will depart the EU, with Spain not far behind. The unraveling of debt will plunge all of Europe into depression.

Violent protests flared in Greece and Spain throughout the year. They did not spread to Italy and France. The central bankers and the puppet politicians have been able to contain the EU’s debt insolvency through the issuance of more debt. What a great plan. The grand finale has been delayed into 2014. Greece remains on life support and still in the EU. The EU remains in recession, but the depression has been postponed for the time being. This prediction was a dud.

  • Iran will grow increasingly desperate as hyperinflation caused by U.S. economic sanctions provokes the leadership to lash out at its neighbors and unleash cyber-attacks on Saudi Arabian oil facilities and U.S. corporations. Israel will use the rising tensions as the impetus to finally attack Iranian nuclear facilities. The U.S. will support the attack and Iran will launch missiles at Saudi Arabia and Israel in retaliation. The price of oil will spike above $125 per barrel, further deepening the worldwide recession.

Iran was experiencing hyperinflationary conditions early in the year, but since the election of the new president the economy has stabilized. Iran has conducted cyber-attacks against Saudi Arabian gas companies and the U.S. Navy during 2013. Israel and Saudi Arabia have failed in their efforts to lure Iran into a shooting war. Obama has opened dialogue with the new president to the chagrin of Israel. War has been put off and the negative economic impacts of surging oil prices have been forestalled. I missed on this prediction.

  • Syrian President Assad will be ousted and executed by rebels. Syria will fall under the control of Islamic rebels, who will not be friendly to the United States or Israel. Russia will stir up discontent in retaliation for the ouster of their ally.

Assad has proven to be much tougher than anyone expected. The trumped up charges of gassing rebel forces, created by the Saudis who want a gas pipeline through Syria, was not enough to convince the American people to allow our president to invade another sovereign country. Putin and Russia won this battle. America’s stature in the eyes of the world was reduced further. America continues to support Al Qaeda rebels in Syria, while fighting them in Afghanistan. The hypocrisy is palpable. Another miss.

  • Egypt and Libya will increasingly become Islamic states and will further descend into civil war.

The first democratically elected president of Egypt, Mohammed Morsi, was overthrown in a military coup as the country has descended into a civil war between the military forces and Islamic forces. It should be noted that the U.S. supported the overthrow of a democratically elected leader. Libya is a failed state with Islamic factions vying for power and on the verge of a 2nd civil war. Oil production has collapsed. I’ll take credit for an accurate prediction on this one.

  • The further depletion of the Cantarell oil field will destroy the Mexican economy as it becomes a net energy importer. The drug violence will increase and more illegal immigrants will pour into the U.S. The U.S. will station military troops along the border.

Mexican oil production fell for the ninth consecutive year in 2013. It has fallen 25% since 2004 to the lowest level since 1995. Energy exports still slightly outweigh imports, but the trend is irreversible. Mexico is under siege by the drug cartels. The violence increases by the day. After declining from 2007 through 2009, illegal immigration from Mexico has been on the rise. Troops have not been stationed on the border as Obama and his liberal army encourages illegal immigration in their desire for an increase in Democratic voters. This prediction was mostly correct.

  • Cyber-attacks by China and Iran on government and corporate computer networks will grow increasingly frequent. One or more of these attacks will threaten nuclear power plants, our electrical grid, or the Pentagon.

China and Iran have been utilizing cyber-attacks on the U.S. military and government agencies as a response to NSA spying and U.S. sabotaging of Iranian nuclear facilities. Experts are issuing warnings regarding the susceptibility of U.S. nuclear facilities to cyber-attack. If a serious breach has occurred, the U.S. government wouldn’t be publicizing it. Again, this prediction was accurate.

I achieved about a 50% accuracy rate on my 2013 predictions. These minor distractions are meaningless in the broad spectrum of history and the inevitability of the current Fourth Turning sweeping away the existing social order in a whirlwind of chaos, violence, financial collapse and ultimately a decisive war. The exact timing and exact events which will precipitate the demise of the establishment are unknowable with any precision, but there is no escape from the inexorable march of history. While most people get lost in the minutia of day to day existence and supposed Ivy League thought leaders are consumed with their own reputations and wealth, apparent stability will morph into terrifying volatility in an instant. The normalcy bias being practiced by an entire country will be shattered in a reality storm of consequences. The Crisis will continue to be driven by the ever growing debt levels, civic decay caused by government overreach, and global disorder driven by resource shortages and religious zealotry. The ultimate outcome is unpredictable, but the choices we make will matter. History is about to fling us towards a vast chaos.

“The seasons of time offer no guarantees. For modern societies, no less than for all forms of life, transformative change is discontinuous. For what seems an eternity, history goes nowhere – and then it suddenly flings us forward across some vast chaos that defies any mortal effort to plan our way there. The Fourth Turning will try our souls – and the saecular rhythm tells us that much will depend on how we face up to that trial. The saeculum does not reveal whether the story will have a happy ending, but it does tell us how and when our choices will make a difference.”  – Strauss & Howe – The Fourth Turning

Forecast 2014- Burning Down the House

Off the keyboard of James Howard Kunstler

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Published on Clusterfuck Nation on January 6, 2014

Discuss this article at the Kitchen Sink inside the Diner

 Many of us in the Long Emergency crowd and like-minded brother-and-sisterhoods remain perplexed by the amazing stasis in our national life, despite the gathering tsunami of forces arrayed to rock our economy, our culture, and our politics. Nothing has yielded to these forces already in motion, so far. Nothing changes, nothing gives, yet. It’s like being buried alive in Jell-O. It’s embarrassing to appear so out-of-tune with the consensus, but we persevere like good soldiers in a just war.

     Paper and digital markets levitate, central banks pull out all the stops of their magical reality-tweaking machine to manipulate everything, accounting fraud pervades public and private enterprise, everything is mis-priced, all official statistics are lies of one kind or another, the regulating authorities sit on their hands, lost in raptures of online pornography (or dreams of future employment at Goldman Sachs), the news media sprinkles wishful-thinking propaganda about a mythical “recovery” and the “shale gas miracle” on a credulous public desperate to believe, the routine swindles of medicine get more cruel and blatant each month, a tiny cohort of financial vampire squids suck in all the nominal wealth of society, and everybody else is left whirling down the drain of posterity in a vortex of diminishing returns and scuttled expectations.

     Life in the USA is like living in a broken-down, cob-jobbed, vermin-infested house that needs to be gutted, disinfected, and rebuilt — with the hope that it might come out of the restoration process retaining the better qualities of our heritage. Some of us are anxious to get on with the job, to expel all the rats, bats, bedbugs, roaches, and lice, tear out the stinking shag carpet and the moldy sheet-rock, rip off the crappy plastic siding, and start rebuilding along lines that are consistent with the demands of the future — namely, the reality of capital and material resource scarcity. But it has been apparent for a while that the current owners of the house would prefer to let it fall down, or burn down rather than renovate.

     Some of us now take that outcome for granted and are left to speculate on how it will play out. These issues were the subjects of my recent non-fiction books, The Long Emergency and Too Much Magic (as well as excellent similar books by Richard Heinberg, John Michael Greer, Dmitry Orlov, and others). They describe the conditions at the end of the cheap energy techno-industrial phase of history and they laid out a conjectural sequence of outcomes that might be stated in shorthand as collapse and re-set. I think the delay in the onset of epochal change can be explained pretty simply. As the peak oil story gained traction around 2005, and was followed (as predicted) by a financial crisis, the established order fought back for its survival, utilizing its remaining dwindling capital and the tremendous inertia of its own gigantic scale, to give the appearance of vitality at all costs.

     At the heart of the matter was (and continues to be) the relationship between energy and economic growth. Without increasing supplies of cheap energy, economic growth — as we have known it for a couple of centuries — does not happen anymore. At the center of the economic growth question is credit. Without continued growth, credit can’t be repaid, and new credit cannot be issued honestly — that is, with reasonable assurance of repayment — making it worthless. So, old debt goes bad and the new debt is generated knowing that it is worthless. To complicate matters, the new worthless debt is issued to pay the interest on the old debt, to maintain the pretense that it is not going bad. And then all kinds of dishonest side rackets are run around this central credit racket — shadow banking, “innovative” securities (i.e. new kinds of frauds and swindles, CDOs CDSs, etc.), flash trading, insider flimflams, pump-and-dumps, naked shorts, etc. These games give the impression of an economy that seems to work. But the reported “growth” is phony, a concoction of overcooked statistics and wishful thinking. And the net effect moves the society as a whole in the direction of more destructive ultimate failure.

     Now, a number of stories have been employed lately to keep all these rackets going — or, at least, keep up the morale of the swindled masses. They issue from the corporations, government agencies, and a lazy, wishful media. Their purpose is to prop up the lie that the dying economy of yesteryear is alive and well, and can continue “normal” operation indefinitely. Here are the favorites of the past year:

  • Shale oil and gas amount to an “energy renaissance” that will keep supplies of affordable fossil fuels flowing indefinitely, will make us “energy independent,” and will make us “a bigger producer than Saudi Arabia.” This is all mendacious bullshit with a wishful thinking cherry on top. Here’s how shale oil is different from conventional oil:

PP Oil 2

  • A “manufacturing renaissance” is underway in the US, especially in the “central corridor” running from Texas north to Minnesota. That hoopla is all about a few chemical plants and fertilizer factories that have reopened to take advantage of cheaper natural gas. Note, the shale gas story is much like the shale oil story in terms of drilling and production. The depletion rates are quick and epic. In a very few years, shale gas won’t be cheap anymore. Otherwise, current talk of new manufacturing for hard goods is all about robots. How many Americans will be employed in these factories? And what about the existing manufacturing over-capacity everywhere else in the world? Are we making enough sneakers and Justin Beiber dolls? File under complete fucking nonsense.
  • The USA is “the cleanest shirt in the laundry basket,” “the best house in a bad neighborhood,” the safest harbor for international “liquidity,” making it a sure bet that both the equity and bond markets will continue to ratchet up as money seeking lower risk floods in to the Dow and S & P from other countries with dodgier economies and sicker banks. In a currency war, with all nations competitively depreciating their currencies, gaming interest rates, manipulating markets, falsely reporting numbers, hiding liabilities, backstopping bad banks, and failing to regulate banking crime, there are no safe harbors. The USA can pretend to be for a while and then that illusion will pop, along with the “asset” bubbles that inspire it.
  • The USA is enjoying huge gains from fantastic new “efficiencies of technological innovation.” The truth is not so dazzling. Computer technology, produces diminishing returns and unanticipated consequences. The server farms are huge energy sinks. Online shopping corrodes the resilience of commercial networks when only a few giant companies remain standing; and so on. Problems like these recall the central collapse theory of Joseph Tainter which states that heaping additional complexity on dysfunctional hyper-complex societies tends to induce their collapse. Hence, my insistence that downscaling, simplifying, re-localizing and re-setting the systems we depend on are imperative to keep the project of civilization going. That is, if you prefer civilization to its known alternatives.

      Notice that all of these stories want to put over the general impression that the status quo is alive and well. They’re based on the dumb idea that the stock markets are a proxy for the economy, so if the Standard & Poor’s 500 keeps on going up, it’s all good. The master wish running through the American zeitgeist these days is that we might be able to keep driving to Wal-Mart forever.

     The truth is that we still have a huge, deadly energy problem. Shale oil is not cheap oil, and it will stop seeming abundant soon. If the price of oil goes much above $100 a barrel, which you’d think would be great for the oil companies, it will crash demand for oil. If it crashes demand, the price will go down, hurting the profitability of the shale oil companies. It’s quite a predicament. Right now, in the $90-100-a-barrel range, it’s just slowly bleeding the economy while barely allowing the shale oil producers to keep up all the drilling. Two-thirds of all the dollars invested (more than $120 billion a year) goes just to keep production levels flat. Blogger Mark Anthony summarized it nicely:

…the shale oil and gas developers tend to use unreliable production models to project unrealistically high EURs (Estimated Ultimate Recovery) of their shale wells. They then use the over-estimated EURs to under-calculate the amortization costs of the capital spending, in order to report “profits”, despite of the fact that they have to keep borrowing more money to keep drilling new wells, and that capital spending routinely out paces revenue stream by several times… shale oil and gas producers tend to over-exaggerate productivity of their wells, under-estimate the well declines…in order to pitch their investment case to banks and investors, so they can keep borrowing more money to keep drilling shale wells.

     As stated in the intro, these perversities reverberate in the investment sector. Non-cheap oil upsets the mechanisms of capital formation — financial growth is stymied — in a way that ultimately affects the financing of oil production itself. Old credit cannot be repaid, scaring off new credit (because it is even more unlikely to be repaid). At ZIRP interest, nobody saves. The capital pools dry up. So the Federal Reserve has to issue ersatz credit dollars on its computers. That credit will remain stillborn and mummified in depository institutions afraid of lending it to the likes of sharpies and hypesters in the shale gas industry.

     But real, functioning capital (credit that can be paid back) is vanishing, and the coming scarcity of real capital makes it much more difficult to keep the stupendous number of rigs busy drilling and fracking new shale oil wells, which you have to do incessantly to keep production up, and as the investment in new drilling declines, and the “sweet spots” yield to the less-sweet spots or the not-sweet-at-all spots… then the Ponzis of shale oil and shale gas, too will be unmasked as the jive endeavors they are. And when people stop believing these cockamamie stories, the truth will dawn on them that we are in a predicament where further growth and wealth cannot be generated and the economy is actually in the early stages of a permanent contraction, and that will trigger an unholy host of nasty consequences proceeding from the loss of faith in these fairy tales, going so far as the meltdown of the banking system, social turmoil, and political upheaval.

            The bottom line is that the “shale revolution” will be short-lived. 2014 may be the peak production year in the Bakken play of North Dakota. Eagle Ford in Texas is a little younger and may lag Bakken by a couple of years. If Federal Reserve policies create more disorder in the banking system this year, investment for shale will dry up, new drilling will nosedive, and shale oil production will go down substantially. Meanwhile. conventional oil production in the USA continues to decline remorselessly.

The End of Fed Cred

      It must be scary to be a Federal Reserve governor. You have to pretend that you know what you’re doing when, in fact, Fed policy appears completely divorced from any sense of consequence, or cause-and-effect, or reality — and if it turns out you’re not so smart, and your policies and interventions undermine true economic resilience, then the scuttling of the most powerful civilization in the history of the world might be your fault — even if you went to Andover and wear tortoise-shell glasses that make you appear to be smart.

     The Fed painted itself into a corner the last few years by making Quantitative Easing a permanent feature of the financial landscape. QE backstops everything now. Tragically, additional backdoor backstopping extends beyond the QE official figures (as of December 2013) of $85 billion a month. American money (or credit) is being shoveled into anything and everything, including foreign banks and probably foreign treasuries. It’s just another facet of the prevailing pervasive dishonesty infecting the system that we have no idea, really, how much money is being shoveled and sprinkled around. Anything goes and nothing matters. However, since there is an official consensus that you can’t keep QE money-pumping up forever, the Fed officially made a big show of seeking to begin ending it. So in the Spring of 2013 they announced their intention to “taper” their purchases of US Treasury paper and mortgage paper, possibly in the fall.

     Well, it turned out they didn’t or couldn’t taper. As the fall equinox approached, with everyone keenly anticipating the first dose of taper, the equity markets wobbled and the interest rate on the 10-year treasury — the index for mortgage loans and car loans — climbed to 3.00 percent from its May low of 1.63 — well over 100 basis points — and the Fed chickened out. No September taper. Fake out. So, the markets relaxed, the interest rate on the 10-year went back down, and the equity markets resumed their grand ramp into the Christmas climax. However, the Fed’s credibility took a hit, especially after all their confabulating bullshit “forward guidance” in the spring and summer when they couldn’t get their taper story straight. And in the meantime, the Larry-Summers-for-Fed-Chair float unfloated, and Janet Yellen was officially picked to succeed Ben Bernanke, with her reputation as an extreme easy money softie (more QE, more ZIRP), and a bunch of hearings were staged to make the Bernanke-Yellen transition look more reassuring.

     And then on December 18, outgoing chair Bernanke announced, with much fanfare, that the taper would happen after all, early in the first quarter of 2014 ­— after he is safely out of his office in the Eccles building and back in his bomb shelter on the Princeton campus. The Fed meant it this time, the public was given to understand.

     The only catch here, as I write, after the latest taper announcement, is that interest on the 10-year treasury note has crept stealthily back up over 3 percent. Wuh-oh. Not a good sign, since it means more expensive mortgages and car loans, which happen to represent the two things that the current economy relies on to appear “normal.” (House sales and car sales = normal in a suburban sprawl economy.)

     I think the truth is the Fed just did too darn much QE and ZIRP and they waited way too long to cut it out, and now they can’t end it without scuttling both the stock and bond markets. But they can’t really go forward with the taper, either. A rock and a hard place. So, my guess is that they’ll pretend to taper in March, and then they’ll just as quickly un-taper. Note the curious report out of the American Enterprise Institute ten days ago by John H. Makin saying that the Fed’s actual purchase of debt paper amounted to an average $94 billion a month through the year 2013, not $85 billion. Which would pretty much negate the proposed taper of $5 billion + $5 billion (Treasury paper + Mortgage paper).

            And in so faking and so doing they may succeed in completely destroying the credibility of the Federal Reserve. When that happens, capital will be disappearing so efficiently that the USA will find itself in a compressive deflationary spiral — because that’s what happens when faith in the authority behind credit is destroyed, and new loans to cover the interest on old loans are no longer offered in the non-government banking system, and old loans can’t be serviced. At which point the Federal Reserve freaks out and announces new extra-special QE way above the former 2013 level of $85 billion a month, and the government chips in with currency controls. And that sets in motion the awful prospect of the dreaded “crack-up boom” into extraordinary inflation, when dollars turn into hot potatoes and people can’t get rid of them fast enough. Well, is that going to happen this year? It depends on how spooked the Fed gets. In any case, there is a difference between high inflation and hyper-inflation. High inflation is bad enough to provoke socio-political convulsion. I don’t really see how the Fed gets around this March taper bid without falling into the trap I’ve just outlined. It wouldn’t be a pretty situation for poor Ms. Janet Yellen, but nobody forced her to take the job, and she’s had the look all along of a chump, the perfect sucker to be left holding a big honking bag of flop.

      We’re long overdue for a return to realistic pricing in all markets. The Government and its handmaiden, the Fed, have tweaked the machinery so strenuously for so long that these efforts have entered the wilderness of diminishing returns. Instead of propping up the markets, all they can accomplish now is further erosion of the credibility of the equity markets and the Fed itself — and that bodes darkly for a money system that is essentially run on faith. I think the indexes have topped. The “margin” (money borrowed to buy stock) in the system is at dangerous, historically unprecedented highs. There may be one final reach upward in the first quarter. Then the equities crater, if not sooner. I still think the Dow and S &P could oversell by 90 percent of their value if the falsehoods of the post-2008  interventions stopped working their hoodoo on the collective wishful consciousness.

     The worldwide rise in interest rates holds every possibility for igniting a shitstorm in interest rate swaps and upsetting the whole apple-cart of shadow banking and derivatives. That would be a bullet in the head to the TBTF banks, and would therefore lead to a worldwide crisis. In that event, the eventual winners would be the largest holders of gold, who could claim to offer the world a trustworthy gold-backed currency, especially for transactions in vital resources like oil. That would, of course, be China. The process would be awfully disorderly and fraught with political animus. Given the fact that China’s own balance sheet is hopelessly non-transparent and part-and-parcel of a dishonest crony banking system, China would have to use some powerful smoke-and-mirrors to assume that kind of dominant authority. But in the end, it comes down to who has the real goods, and who screwed up (the USA, Europe, Japan) and China, for all its faults and perversities, has the gold.

     The wholesale transfer of gold tonnage from the West to the East was one of the salient events of 2013. There were lots of conspiracy theories as to what drove the price of gold down by 28 percent. I do think the painful move was partly a cyclical correction following the decade-long run up to $1900 an ounce. Within that cyclical correction, there was a lot of room for the so-called “bullion banks” to pound the gold and silver prices down with their shorting orgy. Numerous times the past year, somebody had laid a fat finger on the “sell” key, like, at four o’clock in the morning New York time when no traders were in their offices, and the record of those weird transactions is plain to see in the daily charts. My own theory is that an effort was made — in effect, a policy — to suppress the gold price via collusion between the Fed, the US Treasury, the bullion banks, and China, as a way to allow China to accumulate gold to offset the anticipated loss of value in the US Treasury paper held by them, throwing China a big golden bone, so to speak — in other words, to keep China from getting hugely pissed off. The gold crash had the happy effect for the US Treasury of making the dollar appear strong at a time when many other nations were getting sick of US dollar domination, especially in the oil markets, and were threatening to instigate a new currency regime by hook or by crook. Throwing China the golden bone is also consistent with the USA’s official position that gold is a meaningless barbaric relic where national currencies are concerned, and therefore nobody but the barbaric yellow hordes of Asia would care about it.

     Other nations don’t feel that way. Russia and Switzerland have been accumulating gold like crazy at bargain prices this year. Lat year, Germany requested its sovereign gold cache (300 tons) to be returned from the vaults in America, where it was stored through all the decades of the cold war, safe from the reach of the Soviets. But American officials told the Germans it would take seven years to accomplish the return. Seven years ! ! ! WTF? Is there a shortage of banana boats? The sentiment in goldville is that the USA long ago “leased” or sold off or rehypothecated or lost that gold. Anyway, Germany’s 300 tons was a small fraction of the 6,700 tons supposedly held in the Fed’s vaults. Who knows? No auditors have been allowed into the Fed vaults to actually see what’s up with the collateral. This in and of itself ought to make the prudent nervous.

     I think we’re near the end of these reindeer games with gold, largely because so many vaults in the West have been emptied. That places constraints on further shenanigans in the paper gold (and silver) markets. In an environment where both the destructive forces of deflation and inflation can be unleashed in sequence, uncertainty is the greatest motivator, trumping the usual greed and fear seen in markets that can be fairly measured against stable currencies. In 2014, the public has become aware of the bank “bail-in” phenomenon which, along with rehypothication schemes, just amounts to the seizure of customer and client accounts — a really new wrinkle in contemporary banking relations. Nobody knows if it’s safe to park cash money anywhere except inside the mattress. The precedent set in Cyprus, and the MF Global affair, and other confiscation events, would tend to support an interest in precious metals held outside the institutional framework. Uncertainty rules.

Miscellany

      I get a lot of email on the subject of Bitcoin. Here’s how I feel about it.
      It’s an even more abstract form of “money” than fiat currencies or securities based on fiat currencies. Do we need more abstraction in our economic lives? I don’t think so. I believe the trend will be toward what is real. For the moment, Bitcoin seems to be enjoying some success as it beats back successive crashes. I’m not very comfortable with the idea of investing in an algorithm. I don’t see how it is impervious to government hacking. In fact, I’d bet that somewhere in the DOD or the NSA or the CIA right now some nerd is working on that. Bitcoin is provoking imitators, other new computer “currencies.” Why would Bitcoin necessarily enjoy dominance? And how many competing algorithmic currencies can the world stand? Wouldn’t that defeat the whole purpose of an alternative “go to” currency? All I can say is that I’m not buying Bitcoins.

     Will ObamaCare crash and burn. It’s not doing very well so far. In fact, it’s a poster-child for Murphy’s Law (Anything that can go wrong, will go wrong). I suppose the primary question is whether they can enroll enough healthy young people to correct the actuarial nightmare that health insurance has become. That’s not looking so good either now. But really, how can anyone trust a law that was written by the insurance companies and the pharmaceutical industry? And how can it be repealed when so many individuals, groups, companies, have already lost their pre-ObamaCare policies? What is there to go back to? Therefore, I’d have to predict turmoil in the health care system for 2014. The failure to resolve the inadequacies of ObamaCare also may be a prime symptom of the increasing impotence of the federal government to accomplish anything. That failure would prompt an even faster downscaling of governance as states, counties, communities, and individuals realize that they are on their own.

     Sorry to skip around, but a few stray words about the state of American culture. Outside the capitals of the “one percent” — Manhattan, San Francisco, Boston, Washington, etc. — American material culture is in spectacular disrepair. Car culture and chain store tyranny have destroyed the physical fabric of our communities and wrecked social relations. These days, a successful Main Street is one that has a wig shop and a check-cashing office. It is sickening to see what we have become. Our popular entertainments are just what you would design to produce a programmed population of criminals and sex offenders. The spectacle of the way our people look —overfed, tattooed, pierced, clothed in the raiment of clowns — suggests an end-of-empire zeitgeist more disturbing than a Fellini movie. The fact is, it simply mirrors the way we act, our gross, barbaric collective demeanor. A walk down any airport concourse makes the Barnum & Bailey freak shows of yore look quaint. In short, the rot throughout our national life is so conspicuous that a fair assessment would be that we are a wicked people who deserve to be punished.

Elsewhere in the World

     Globalism, in the Tom Friedman euphoric sense, is unwinding. Currency wars are wearing down the players, conflicts and tensions are breaking out where before there were only Wal-Mart share price triumphs and Foxconn profits. Both American and European middle-classes are too exhausted financially to continue the consumer orgy of the early millennium. The trade imbalances are horrific. Unpayable debt saturates everything. Sick economies will weigh down commodity prices except for food-related things. The planet Earth has probably reached peak food production, including peak fertilizer. Supplies of grain will be inadequate in 2014 to feed the still-expanding masses of the poor places in the world.

     The nervous calm in finance and economies since 2008 has its mirror in the relative calm of the political scene. Uprisings and skirmishes have broken out, but nothing that so far threatens the peace between great powers. There have been the now-historic revolts in Egypt, Libya, Syria, and other Middle East and North African (MENA) states. Iraq is once again disintegrating after a decade of American “nation-building.” Greece is falling apart. Spain and Italy should be falling apart but haven’t yet. France is sinking into bankruptcy. The UK is in on the grift with the USA and insulated from the Euro, but the British Isles are way over-populated with a volatile multi-ethnic mix and not much of an economy outside the financial district of London. There were riots in — of all places — Sweden this year. Turkey entered crisis just a few weeks ago along with Ukraine.

      I predict more colorful political strife in Europe this year, boots in the street, barricades, gunfire, and bombs. The populations of these countries will want relief measures from their national governments, but the sad news is that these governments are broke, so austerity seems to be the order of the day no matter what. I think this will prod incipient revolts in a rightward nationalist direction. If it was up to Marine LePen’s rising National Front party, they would solve the employment problem by expelling all the recent immigrants — though the mere attempt would probably provoke widespread race war in France.

     The quarrel between China and Japan over the Senkaku Islands is a diversion from the real action in the South China Sea, said to hold large underwater petroleum reserves. China is the world’s second greatest oil importer. Their economy and the credibility of its non-elected government depends on keeping the oil supply up. They are a long way from other places in the world where oil comes from, hence their eagerness to secure and dominate the South China Sea. The idea is that China would make a fuss over the Senkaku group, get Japan and the US to the negotiating table, and cede the dispute over them to Japan in exchange for Japan and the US supporting China’s claims in the South China Sea against the other neighbors there: Vietnam, Indonesia, Malaysia, and the Philippines.

     The catch is that Japan may be going politically insane just now between the rigors of (Shinzo) Abenomics and the mystical horrors of Fukushima. Japan’s distress appears to be provoking a new mood of nationalist militarism of a kind not seen there since the 1940s. They’re talking about arming up, rewriting the pacifist articles in their constitution. Scary, if you have a memory of the mid-20th century. China should know something about national psychotic breaks, having not so long ago endured the insanity of Mao Zedong’s Cultural Revolution (1966-71). So they might want to handle Japan with care. On the other hand, China surely nurtures a deep, deadly grudge over the crimes perpetrated by Japan in the Second World War, and now has a disciplined, world-class military, and so maybe they would like to kick Japan’s ass. It’s a hard one to call. I suspect that in 2014, the ball is in Japan’s court. What will they do? If the US doesn’t stay out of the way of that action, then we are insane, too.

     That said, I stick by my story from last year’s forecast: Japan’s ultimate destination is to “go medieval.” They’re never going to recover from Fukushima, their economy is unraveling, they have no fossil fuels of their own and have to import everything, and their balance of payments is completely out of whack. The best course for them will be to just throw in the towel on modernity. Everybody else is headed that way, too, eventually, so Japan might as well get there first and set a good example.

     By “go medieval” I mean re-set to a pre-industrial World Made By Hand level of operation. I’m sure that outcome seems laughably implausible to most readers, but I maintain that both the human race and the planet Earth need a “time out” from the ravages of “progress,” and circumstances are going to force the issue anyway, so we might as well kick back and get with the program: go local, downscale, learn useful skills, cultivate our gardens, get to know our neighbors, learn how to play a musical instrument, work, dine, and dance with our friends.

Ides of December

Off the keyboard of Steve from Virginia

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Published on Economic Undertow on December 31, 2013

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Discuss this article at the Economics Table inside the Diner

The future is always obscure to us. We see it after it emerges in the past … any troubles the future bears become apparent only long after it is possible to do something about them.

This is the time of year when there is a blizzard of predictions. Most of these turn out to be wrong:

(Posted last year) “One thing to keep in mind, the world’s central banks are fully committed already. If/when there is a deleveraging event, there is little more that the central banks can do other than lend from their discount windows. Administrative interest rates are nearly zero in the US, Japan, the EU and in UK. They cannot be lowered further. Also, Japan, US, EU and UK central banks are now credit providers for both governments and large sectors of their respective economies. The (small) incentives the private sector had to lend have disappeared. It also means that promissory notes/IOUs for loans made in the past — which are the collateral for the central banks’ loans — are in diminishing supply. The central banks can lend additional amounts to governments and the private sector, but the positive shock of such lending is diminished and the danger of central banks making unsecured loans increases.

Unsecured lending by the central bank is a danger because leverage is the reason why the commercial lenders have failed in the first place. When the central banks take on all the private sector unsecured loans or they offer their own loans in excess of collateral they become super-sized, insolvent commercial lenders. The consequence is no effective lenders of last resort. Depositors look to remove funds from banking system which in turn accelerates system insolvency. Nobody wants to be caught where the only effective collateral is deposits (currency) and where claims against currency exceed it.”

This isn’t a prediction but an observation. It is always true …

Will central banks be tested in 2013? Maybe not but that certainly does not mean clear sailing.

Not quite a prediction but central banks were indeed tested in 2013. They had little choice but to retreat as their open-market operations reached the limits of usefulness or offered diminished returns.

– In 2013, look for the ongoing bank/deposit runs underway in Europe to accelerate and for Spain and Greece to default (Greece is already in Selective Default according to the Standard and Poors rating agency). The depositor runs indicate that central bank has been making unsecured loans and that system is insolvent rather than individual banks.

Only partially correct. There was a great ‘silent run’ out of the euro system toward US stock market. Ditto runs out of Japan and China.

– In a shocker, look for the French government to seek an IMF-EU bailout.

Incorrect … France was able to continue to borrow from the private sector and avoid bankruptcy proceedings.

– France’s automobile- and banking sectors will collapse in 2013.

Incorrect. These French industries are under tremendous strain.

– EU fuel consumption will decline sharply in 2013. Regardless of the price for fuel in Europe, it will be too high.
Screen Shot 2013-12-31 at 9.36.44 AM
This is certainly correct and will be reflected in the next year’s BP Statistical Review (Mazama Science).

– German auto production and sales will also decline … perhaps not as sharply as makers in other western European countries … as Chinese and US car buyers vanish.

Not quite correct. Americans stepped up and bought more cars and trucks, so did the Chinese. This offset tepid sales in the EU.

– Look for auto sales, registrations and production to decline in western Europe while Eastern European manufacturers will continue to hold steady or decline more slowly than their western counterparts. The eastern European manufacturers have a wage advantage over the counterparts and a local market that has not been completely saturated. Furthermore, these manufacturers are not dependent upon sales to China (Germany) or the US (Japan) or to southern European countries such as Spain and Greece … as are the car makers in France and Italy.

Not quite correct. Europeans did not buy as many cars as the ‘recovery’ in Europe has been confined to the well-off and finance markets. However, access to China and US markets was a life saver for automakers during 2013.

– As long as the European Central Bank lends there will be no pressure for any country to leave the euro-zone and (re)introduce their own currency. However, if any one country abandons the euro, all of them will be effectively gone as Germany will be the second country out the door. Europe’s liabilities are currently the shared burden of the ‘EU’ but will be effectively lodged against Germany if the EU cracks … Germany is one of the few countries in Europe with any money. The Germans will not invest it in European ‘solidarity’ that no longer exists.

Correct. The ECB continued to lend although credit multipliers have collapsed across Europe creating both a liquidity trap and dire, delfationary conditions in the countries across the South.

– Look for the politics in Europe to become more conflicted as the governments endeavor to restart chimeric ‘sustainable’ growth and fail miserably. The economic problems on the Continent can only be solved by stringent conservation, not attempts to waste more resources, faster. Europe cannot afford the resources.

Correct. Notable is the increase of neo-Nazi parties across Europe, generally blaming immigrants and non-nationals for economic problems.

– Angela Merkel will easily win her re-election bid as the main opposition party is unable to find a candidate who can pass the sniff test. Merkel will remain in charge even if the Eurozone falters and Germany exits.

Correct.

– Segments of the populations of Spain, France, Greece, UK and in many eastern European countries will descend further into poverty, with food- and fuel shortages and homelessness.

Correct. The segment of EU society that has not suffered is the ‘investor class’.

– Look for more weather ‘events’ in 2013 including more severe drought and flooding. The pressure on governments to ‘do something’ about climate change will increase … Europe, China and India will respond by burning more coal …

Correct. This has been the year of ‘super-smogs’ in China and India as well as destructive cyclones in India and Philippines. The establishment response has been denial … and burning more coal.

– Look for higher prices for grains due to bad weather. Humans have to buy and drive cars to keep economies alive. Humans have to buy and eat food to keep themselves alive: the marginal human will choose paying for food at any price … versus paying for expensive/useless cars.

It is hard to say whether this prediction is true or false. Bad weather affected consumers more than it did producers world-wide = less pressure on food prices.

– The US government will propose a minuscule carbon tax of $10 per ton along with a ‘cap and trade’ system that rewards energy speculators and big polluters.

Incorrect. The US government lied about energy and climate and did nothing else but subsidize the fossil fuel industry and give credence to climate change deniers.

– Look for at least two wide-area gasoline/fuel shortages occurring in the US as preludes to permanent shortages occurring in 2014. The prices needed to bring fuels to market are becoming unaffordable by rapidly impoverished Americans.

Also incorrect. Creeping poverty eliminating fuel consumers has kept US prices in check. So has the ‘Incredible fuel supply glut caused by fracking’ … What kept upward pressure on fuel prices was US purchases of goods from China and India with Wall Street credit; this in turn subsidized fuel waste in these countries.

– Look for fuel prices on spot and futures markets to generally decline (as customers continue to go broke).

Generally correct.

– Look for Japan’s Shinzo Abe government to fail over its pro-nuclear power policies. The nuclear industry is completely discredited in Japan, ‘Shinzo Abe 2.0′ will be a failure like the first version.

Incorrect. Abe hasn’t failed yet but the cracks are visible.

– Look for Japan to have a funding crisis next year: such a crisis has been predicted for the past twenty years but 2013 will be the year when the prediction becomes reality. The Bank of Japan will be unable to fund the government plus the country’s massive debts by itself. That the establishment cannot imagine a change from the current state of affairs indicates a change is imminent. The difference between next year and the past is Japan’s declining electronics industry and tepid car sales. The outcome is an decreasing foreign trade surplus, which has been the means by which Japan has financed itself.

Correct to some degree. Japan is being funded by its central bank-as-conduit for the private sector in the place of overseas customers. Japan is going broke, it just isn’t there yet.
Japan mfg 122312
Figure 1: from the OECD, noting the secular decline in both the Japan auto industry and manufacturing in general. A business can borrow against its own account(s) such as credit lines or consumer credit (if an individual). A business can borrow against the accounts of its customers (when they borrow to buy the business’ products), against the accounts of the state (by direct credit subsidy, a tax benefit or by way of currency issue) and against the accounts of overseas customers (by way of foreign exchange). Japan has been able to borrow from foreign customers and undercut competitors: now the customers are broke or going.

Still correct.

– In light of the foregoing, Japan will do everything within its power to depreciate the yen to support its flagging car- and electronics industries’ exports: the Bank of Japan will lend without restraint.

Correct.

– The other major economic powers will attempt to depreciate their own currencies by offering more central bank loans. The biggest issue for 2013 is how long can the economies function when sole provision of credit is by central banks … and when there are no real lender(s) of last resort?

Correct. Attempts have been made but all have failed as the cost of money is outside the reach of central bankers, being set at the world’s gas pumps by millions of motorists buying fuel with money every single day.

– For this reason, gold prices will hold up relative to other commodities which will will tend to follow the price of crude oil.

Incorrect. Gold has been the sole collectible asset that behaves as an agricultural commodity.

– US Congress will not agree to tax increases by January 1, the sequestration process will take effect the following day. Thousands of Federal government employees are set to be furloughed as the Congress struggles to resolve related debt ceiling/revenue issues in a politically palatable way.

Correct, although sequestration has turned out to have only marginal effect on government spending.

– The US debt ceiling will be reached at the end of January (approximately) and the tedious discussion will take place regarding increasing US debt and by how much. The Congress will ultimately cobble together a can-kicking ‘solution’ that lifts the government’s debt ceiling while leaving the US debt burden largely unaltered. The debt is an unproductive claim against economic output … the debt can only be serviced by more borrowing. The US public sector deficit finances the private sector’s surplus. The US cannot increase output to effect the debt as increases are borrowed, the alternative to borrowing is default … the US economy is trapped.

Correct.

– Look for the Chinese economy to continue to unravel as its overseas customers find it difficult to borrow.

Correct. China faces a credit crunch in 2014.

– Look for more repressive measures in China as its downturn effects workers in cities rather than farmers losing property rights. There will be more riots and work stoppages followed by crackdowns.

Incorrect. The biggest problem in China in 2013 turned out to be air- and water pollution.

– There will be more business bankruptcies in China and capital flight as Chinese tycoons take whatever dollars they can find and run.

Correct about bankruptcies and correct about capital flight out of China.

– The Syrian government of Bashar al-Assad will fail with US-supported militant jihadis gaining ascendency. This in turn will give a reason for the US to intervene and destabilize the country further.

Incorrect. The war in Syria appears to be winding down as combatants run out of human- and other resources needed to continue.

– Look for Salafist consolidation in Egypt. That Salafi- and Shiite extremism are the only coherent, ongoing anti-modern enterprises reflects a world-wide failure of imagination.

Incorrect. Egypt has returned to military dictatorship and the Salafists have been crushed.

– As US military involvement decreases in Afghanistan, look for compensating increased involvement in Somalia, Yemen, Uganda, Kenya, Mali, Democratic Republic of Congo, Nigeria, southern Africa, Venezuela, Honduras, Bolivia and elsewhere.

Correct.

– Look for more diplomatic- and military crises in South China Sea between China, Vietnam, the Philippines and India; between China and Japan over the Sea of Japan; between Iran and the West in the Persian Gulf; between Russia, Norway and Canada over the Arctic Ocean. All of these disputes — plus US military operations in Africa — concern petroleum and mineral resource claims.

Correct. Look for more aggression in 2014 in these areas as well as in Central Asian republics and in Africa.

– Argentina will default in 2013.

Incorrect. Argentina did not default … but it will in 2014!

– Canada will have a banking crisis as the worth of real estate in areas of the country outside of Vancouver, BC, will plummet. The government will be forced to bail out its major banks.

Incorrect. Economic Undertow continually underestimates the ability of the establishment to prop up the status quo.

– Australia will likewise have a banking crisis due to declining real estate prices and an over-leveraged banking system.

Incorrect, see above.

– US real estate prices are now in a short-term quasi-bubble peak and will decline over the course of 2013.

Incorrect. The real estate ‘bubble’ is still inflating across the US. Higher interest rates and the absence of a shadow banking network are making short work of it.

– US natural gas prices will increase due to declining output in shale plays. The cause will be less drilling activity and declining prices for gas liquids and stock prices of gas drillers (New York Times):

“… while the gas rush has benefited most Americans, it’s been a money loser so far for many of the gas exploration companies and their tens of thousands of investors.”

 

Correct. There is a shake-out underway in the ‘gas patch’ as drillers switch to oil- and other liquids plays. Gas is uneconomical at current prices.

– The recent increase of US oil output will level off. This will be ‘a big shock’ to the public which has been promised increased production and lower prices. There will be declines in conventional oil fields to offset gains from tight-oil deposits. Any gains in high-priced export market will be more than offset by losses in domestic markets as customers cannot meet the higher world price.

This is hard to tell as good data is not available. The establishment will do whatever it can to avoid the truth about our energy situation.

– Russian petroleum production will continue to decline: keep in mind, the arc of Vladimir Putin’s political career has paralleled the output of Russian oil fields.

It is hard to say whether this is correct or not. Any changes in Russian Federation output are very small.

– Kurdistan will make a deal with arch-enemy Turkey to ship its oil and turn away from dealings with the Shiite Iraqi government. The Iraqi government lacks the military horsepower to have its way with the Kurds, the decline of petroleum revenue will weaken the Iraqi government further.

Correct.

– Israel will not attack Iran in 2013. The country cannot afford a major war because the Israeli’s sponsor America cannot afford one. At the same time, any significant petroleum shortage will be blamed on Middle Eastern suppliers, if a war is necessary to provide cover for politicians in Washington, one will be started.

Correct. The US has begun rapprochement with Iran antagonizing the Saudis and Israelis.

– The steady unraveling of the … economy will continue. Both bonds and stocks in the US will be largely unchanged over the course of the year, largely due to ‘capital’ flight from Europe and the Far East. Given large-scale central bank lending, the credit spreads for European sovereigns and the UK will narrow somewhat. Japan credit costs will climb as the need for credit will be greater than what the Bank of Japan can provide by itself.

Largely correct: citizens around the world became poorer as they exhausted their meager supplies of credit. Meanwhile, the US- and other bourses reached new, all-time highs. This was a consequence of ‘closed-loop’ lending by finance institutions to themselves to support stock Ponzi schemes. Credit spreads did indeed narrow in the EU but did not change in Japan.

– A wildcard would be gunmen shooting up a police station in the US instead of a school. Government would be exposed as vulnerable, the militarization of the police would be demonstrated to be a failure. Putting police into fortresses as a reaction would make them even less effective, would further isolate government police power. There is a reason for militant attacks on police stations overseas: they work.

Incorrect. Gunmen attacked the vulnerable, there was no political action to speak of other than the rise of extremist hard-liners and neo-Nazis in Europe and elsewhere.

– 2013 will be the year of the Marginal Human: among other things, Mr. and Ms. Marginal will have less purchasing power.

Correct. The decline of purchasing power on the part of ordinary citizens has been notable, with the exception of credit-driven purchases of new cars by Baby Boomers.

Only a little more than half-right with some ambiguity due to incomplete data or activities not yet fully ripened. The undercurrent of unraveling is plain to see behind the scrim of media-sphere happy-talk and propagandistic ‘Good News’. Everywhere, the can is being kicked … there is the taint of desperation in the air.

Coming up next: predictions for 2014!

Another Auld Lang Syne

Off the keyboard of RE

Discuss this article at the Frostbite Falls Daily Rant inside the Diner

 So here we are now, on the cusp of another Auld Lang Syne.  Pretty much every year since I started Blogging the Collapse in 2007, I have written some sort of paean to the New Year, and this one will be no different.  Sometimes I write Prognostications for the Future in such posts, other times I write Nostalgia for the Past.  I suspect this one will contain both also.

AsteroidImpactWe got through the big Mayan Date of 12/21/2012 without a Planet Killer sized Asteroid hitting, and without  Global thermonuclear Warfare also!  So I guess we are SAFE now?  Of course not, and pinning your prognostications on any given day is pretty much like picking out the right numers in the Lotto, your chances of being precisely correct here are quite small.

What we do see inexorably are incremental changes in the way we live, and the way our economic system functions, or does not function as the case may be.  So this leads many in the Collapse Blogosphere to conclude that our spin down will continue to eb incremental,  long term “Boiling Frog” or “Long Emergency” in Jimmy Kunstlers terminology.

At this point, after witnessing 4 years of various Kick the Can methodologies undertaken by the CBs to keep the system floating another day, Iexpect more of same in the coming year, but to ever less success all the time.  The “Fiscal Cliff” bullshit playing out over the next week looks likely to give a good Kidney Punch to the Markets, and all the liquidity in the world won’t get commercial banks loaning to credit exhausted customers.

The main CBs of Da Fed, the ECB, the PBoC and the BoJ are basically now in the Bizness of directly funding their respective Goobermints by buying their bonds, since nobody else will.  Thus, any outflow of currency to J6P basically has to come from Da Goobermint now, dribbled out in SNAP Cards and SSDI and other Transfer programs.  The number of people who can afford to Happy Motor around continues to shrink, with an ever widening gap between Haves and Have Nots here.

Juggernauts don’t stop on a dime of course, and this is a BIG Juggernaut.  It remains unlikely the Dollar fails first in the currency warfare, so I don’t think we will see HI this year again in the Dollar, much to the consternation of John Williams of Shadow Stats and Speedy Gonzalo Lira.

I do think some Goobermint over in Eurotrashland will topple this year, repudiate odious debt and try flying their own new currency.  The Spanish or Portuguese seem the most likely candidates, more than the Greeks who are just mired in Political Corruption on a vast scale and probably could not even figure out how to issue Drachma and make it work at all at this point.  Like Zimbabwe, they are a Failed State now and cannot administer their own currency without it turning instantly worthless right off the Printing Press.  Far as International Trade goes, getting Gas to run their cars and trucks and food staples they no longer grow enough of there for the population, the Greeks are basically dependent on the Kindness of Strangers, basically Krauts who historically are none too generous a people.  LOL.

Trying to predict the future here even on the short term though is pretty much a losing proposition, we’ve been teetering on the Precipice since 2008, and we could teeter a while longer here.  Here in the FSofA, I don’t see Mad Max likely this year or even next now, but I do see ever increasing social disruptions and a Tipping Point will come eventually.  We’ll get a Canary in the Coal Mine window on a lot of how it will play out here just by watching Europe and Japan.

In Japan, the Radiation Poisoning around Tokyo is even greater than in Fuk-U-shima itself, and already there are reports of increasing Thyroid Nodules and Cancers occuring.  I cannot imagine how any Nipponese with means to get out of Tokyo would not do so at this point.  The new Goobermint is talking about restarting their still functional Nukes, as I am sure J6P Salaryman is getting tired of Brownouts and says Fuck IT!  Nuke till we die!  Kamikaze!

For myself sitting here in my perch on the Last Great Frontier, I can only look back and wonder at the STUPIDITY of all of it now.

I remember back to going to school at Stuyvesant, taking the Number 7 Flushing Line every working morning at Rush Hour.  I was fortunate to be at the first stop on the line so could wait for an empty train most of the time and get a seat, but by the time the train left the station, it was already Standing Room Only with every “Strap” hung onto sometimes by more than one person, so you got the grubby cooties of whoever it was hanging on the same strap as you.  By the time we got to Junction Boulevard station, there weren’t even straps or poles left to hang onto, but no worries about Falling Down, since everyone was packed shoulder to shoulder inside the Tin Can like Sardines.

This is a way for Human Beings to LIVE?  Even if you have a “good job” in the Big Shitty with a decent paycheck that allows you to have a decent apartment in Queens, 3 hours a day every day of your work week you are a Human Sardine.

Not a whole lot better for the next tier up of peoples either, living in McMansions in Nassau and Suffolk counties commuting in their Carz on the Long Island Expressway either.  Traffic Jams, your own Flat tires running over a discarded Switchblade, an Accident at least every couple of years driving up you Insurance rates and forcing you onto the LIRR for a week while the car got fixed…etc.

For those at the Very Top though, in Penthouses on Park Avenue, gee it was all WONDERFUL.  Doorman greets you with a big smile when you arrive, makes sure none of the Hoi Polloi get thru the door of the building.  No Parking Issues, walk out the door of your building and the Limo is there to pick you up and take you down to Wall Street.

These of course are the people who were running the show through it all, going right back to the Robber Barons (and before that!), and they Invested their BORROWED money on building out the system for their own further Comfort and Enjoyment, hell with the fact that somewhere down the line it was polluting Love Canal or setting the Cuyahoga River on fire.  Later of course to be moved over to China where now the Rice Paddies in Guanzou Province are irrigated in Sewage.

Going way back to my early years in Brazil, I was always irritated by the vast discrepancy between the people living in the Favelas around Rio and those living inside the “Bubble” on Rua Joachim Nabuco where I lived.  Some folks living very well, others in desperate poverty.  Why?  Made no sense to me as a 7 year old, makes no sense to me today.

Along the way between then and now, I’ve been subject to the same Propaganda everyone else has, that everyone has Opportunity to Bootstrap themselves up and Poor people are Poor because they are Lazy & Stupid.  Which in fact many of them are, but so are many Rich people!  In fact I think Rich people are Lazier & Stupider on a statistical basis than Poor folks are!  As F. Scott Fitzgerald wrote in the Great Gatsby, “The rich are different from you and I.  They have more money.”  LOL.

Anyhow, as I have discovered in the interim, the monetary system as it is constructed is a Control Conduit, a mechanism by which the powerful in society stay powerful and subjugate the weaker in the society.  Moving between the Castes here was briefly enabled in the FSofA as there was so much resource base to go out and Plunder after the First Nations people were decimated by the Smallpox and Guns, that it created just a ton of Nouveau Riche folks here, particularly in the post WWII era.

The Nature of the Monetary system though is to perpetually sieve wealth back to those who have the POWER to issue credit, and who will issue it to themselves endlessly.  They only issue the Credit out to J6P though as long as it behooves them to do so and betters their own lives.

In today’s world as we march forward into 2013, it no longer behooves the elite in society to issue more Credit to J6P, because the resources upon which said credit is based are rapidly diminishing in availability and EROEI.  So entire Nation-States like the Greeks and Spaniards are being Triaged off the credit bandwagon to buy the Oil that a very few people hold control over.  As they get triaged off, their Jobs disappear, and so do their Pensions.  It is happening over there across the Pond already, it will arrive at our shores also in the Bye & Bye.

This has not been a good way for Homo Sapiens to live and inhabit the Planet for a long time now, certainly anyone who was ever packed like a Sardine into a Tin Can subway Car should know that.  Anyone who ever sat in a two hour Traffic Jam with their car burning gas at Idle while moving about nowhere should know that.  Anybody who ever had a bullshit, go nowhere job (which almost all of them are for the Hoi Polloi) should know that.

Being real smart leveraged some folks out of this during the growth period, anybody who either could figure a way to get others working “for” him or could jump through the University Hoops to get into a Gate Kept profession could make some decent buckolas and become an FSofA member of the Upper Middle Class.  Doctors and Lawyers, Insurance Agents, Real Estate Developers and Costruction Contractors, any number of people did this in the Salad Years of Growth of this sort of economy.

It even was possible for some 2nd Generation people in the FSofA to leverage into the Elite of the Society,  Billionaires like Steve Jobs and Bill Gates jumped on the bubble of Computers and Information Technology as vast sums of credit were poured in this direction.  To this day, Wall Street makes Billionaires out of nerds like Suckerbug from Facepalm.  HUGE quantities of debt are issued, a few Banksters and “Entrepreneurs” get filthy rich, then over time it all colllapses because in fact it is not really producing anything at all, merely it is just another way to burn energy.

So now we cross the threshhold into 2013 in the early stages of the vast collapse of all the debt accumulated to drive Industrial and Technological civilization.  Nowhere in the Industrialized World does anybody want this to end really, other than a few real Doomers.  No Pensioner wants to accept that his Pension is Worthless.  Nobody working in any end of the automobile economy wants to accept that  people simply cannot afford to Happy Motor about anymore.  Nobody who wokrs even as a Starbucks Barrista in a Mall somewhere wants to accept that not enough peole will make it to the mall to buy their overpriced coffee so they can keep their jobs either.

Above all, nobody in the Industrialized world wants to accept Lights OUT.  For anybody born inside these cultures in the last 50 years, Electricity at the Flick of a Switch is a God Given RIGHT!  To give up Electricity is to give up the GHOST here, the end of the meme of ever improving Techology, the end of the Jetsons and Star Trek Dream.

The Japanese won’t give it up, even in the face of Nuclear Toxins in their environment, they wanna go ahead and restart their Nukes.  “If you are Going through Hell, keep Going” as Winston Churchill said.  The other side option is a collapse of their economy,  and with the 100M plus on those Islands, more will die faster without the electircity than will die from Radiation Poisoning.  Cannot STOP till you are DEAD!

So it goes here for the culture at large, but that does not mean as an Individual you cannot seek your way out of the mess.  Here on the Diner, we SEEK the ways out the individual can muster up here.  None are foolproof, none are perfect.  Any one of them though ups your chances of surviving the Zero Point by orders of magnitude.  Just UNDERSTANDING what is going on does that.

As we move forward here into 2013, I know it will get worse, perhaps much worse and quickly too.  At the same time, I know it is important to reach out to others, deliver the TRUTH, and hunker down to make it through the Zero Point.  When Toba went Ballistic, some people made it though that Bottleneck.  Some can do it again.  Diners.

RE

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