swindle

Fed Cred Dead

strip-mall1gc2smFrom the keyboard of James Howard Kunstler
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Originally Published on Clusterfuck Nation September 21, 2015
 

The economy is a two-headed monster. One head is the trade in real goods and real services. The other head is the financialized traffic in swindles and frauds that surrounds banking. There is some deception and overlap about which is which. For instance so-called health care might be perceived as a real service. In fact, it’s a hostage racket, designed to victimize “patients” at their weakest, with a “protection” premium that easily runs to $12,000-a-year for a married couple, even when they aren’t sick, and vulnerable. Just see what happens if you go to an emergency room with an injury that requires six stitches. Next stop: re-po land.

Most of the remaining on-the-ground economy consists of people merely driving their cars absurd distances, burning gasoline, between exquisitely-tuned giant warehouse store operations that were designed to destroy local Main Street trade — and accomplished that, by the way, to the applause of the local citizens whose towns were destroyed (“We want bargain shopping!”).

Now, of course, even WalMart is looking over its shoulder at the collapse of the complex arrangements that allowed it to metastasize across North America like some cancerous fungus. Globalism is winding down as the gargantuan matrix of Ponzi schemes based on owed money dissolves debt by debt. It isn’t long before nobody is a credit-worthy borrower, and no transaction in real goods can be risked unless cash hits the barrelhead — which turns out to be a very awkward way of doing business.

It’s especially like this these days in the so-called “emerging markets” — e.g. places in the world with large populations of willing factory slaves. The traffic in shipping-out containers full of flat screen TVs (or shipping-in the raw materials to make them) won’t work very well without letters-of-credit, which are promises between banks to make sure that the stuff on the receiving end gets paid for. That becomes difficult when national currencies drop 3.5 percent in value one day and then 4 percent another day, and so on. An eight-year-old can figure out how that math works.

My new theory of history applies well to the macro situation: people do what they do because it seems like a good idea at the time.

For instance, a few decades ago, the suburban / “consumer” arrangement of daily life seemed like a good idea. You buy cheap land twenty-seven miles outside what used to be a functioning (now obsolete) city. Build lots and lots of houses out of cheap, shitty materials such as strand-board and vinyl, pave a lot of new roads, line many of them with even shittier strip-mall buildings and Big Box “power centers,” and there you have a wonderful basis for an economy. That was more or less the Ronald Reagan Utopia.

Now it’s all aging badly, fraying, too costly to fix and, increasingly, not worth scraping off the land and replacing with a new cheap, shitty building. The younger generation doesn’t even want to live in that suburban dystopia. They run shrieking from it to Brooklyn, or even downtown Troy, New York, up the Hudson River Valley. Alas, this younger generation has also been broadly victimized by the college loan racket — reinforced by the revised bankruptcy laws that make it impossible to ever write-off this sort of debt. When will they get political about it? Their debt loads will disfigure their lives as surely as a tour of duty in Vietnam would have forty years ago. Perhaps Siri has not informed them about this.

Last week was the watershed for central banking and for the illusion that the current disposition of things has a future. The Federal Reserve blinked on its long-touted Fed funds interest rate hike and chairperson Janet Yellen was left standing naked in the hot glare of her own carbonizing credibility, a pitiful larval creature, still maundering about “the data,” and “the median growth projection,” and other previously-owned figments spun out of the great PhD wonk machine in the Eccles Building.

The Federal Reserve itself is the victim du jour of its own grandiose fatuous fecklessness, in particular the idea that it could play a national economy like a three-button flugelhorn. What seemed like a good idea at the time when Alan Greenspan and then Ben Bernanke stepped into the pilot house now just looks like the fraud of frauds: enabling corporations to borrow ever more money from the future to pretend that their balance sheets are sound. That scam has nowhere left to go, except into the black hole that has been waiting for it. All the Fed really has left is to destroy the value of the dollar (to save it! Just like Vietnam!).

This ought to be an interesting week in the financial markets as the players have had a long, anxious weekend to absorb the death of Fed cred. And October, too. Expect dramatic re-pricing. Sometime a few months down the line, financial markets will present a “relief rally.” Don’t get suckered on that one.

Meanwhile, what remains on the other head of this two-headed economy besides driving to-and-from the Walmart? Pornography? The tattoo industry? Meth and narcotics? Prostitution? Professional sports on the flat screen? Kim and Kanye? Grand theft auto? Do you really think Donald Trump can fix this?

 

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

Shake me, wake me!


Off the keyboard of James Howard Kunstler

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Originally Published on Clusterfuck Nation  January 20, 2014
Discuss this article here at the Diner Forum.
  

     The rot moves from the margins to the center, but the disease moves from the center to the margins. That is what has happened in the realm of money in recent weeks due to the sustained mispricing of the cost of credit by central banks, led by the US Federal Reserve. Along the way, that outfit has managed to misprice just about everything else  — stocks, houses, exotic securities, food commodities, precious metals, fine art. Oil is mispriced as well, on the low side, since oil production only gets more expensive and complex these days while it depends more on mispriced borrowed money. That situation will be corrected by scarcity, as oil companies discover that real capital is unavailable. And then the oil will become scarce. The “capital” circulating around the globe now is a squishy, gelatinous substance called “liquidity.” All it does is gum up markets. But eventually things do get unstuck.

     Meanwhile, the rot of epic mispricing expresses itself in collapsing currencies and the economies they are supposed to represent: India, Turkey, Argentina, Hungary so far. Italy, Spain, and Greece would be in that club if they had currencies of their own. For now, they just do without driving their cars and burn furniture to stay warm this winter. Automobile use in Italy is back to 1970s levels of annual miles-driven. That’s quite a drop.

     Before too long, the people will be out in the streets engaging with the riot police, as in Ukraine. This is long overdue, of course, and probably cannot be explained rationally since extreme changes in public sentiment are subject to murmurations, the same unseen forces that direct flocks of birds and schools of fish that all at once suddenly turn in a new direction without any detectable communication.

     Who can otherwise explain the amazing placidity of the sore beset American public, beyond the standard trope about bread, circuses, and superbowls? Last night they were insulted with TV commercials hawking Maserati cars. Behold, you miserable nation of overfed SNAP card swipers, the fruits of wealth and celebrity! Savor your unworthiness while you await the imminent spectacles of the Sochi Olympics and Oscar Night! Things at the margins may yet interrupt the trance at the center. My guess is that true wickedness brews unseen in the hidden, unregulated markets of currency and interest rate swaps.

     The big banks are so deep in this derivative ca-ca that eyeballs are turning brown in the upper level executive suites. Notable bankers are even jumping out of windows, hanging themselves in back rooms, and blowing their brains out in roadside ditches. Is it not strange that there are no reports on the contents of their suicide notes, if they troubled to leave one? (And is it not unlikely that they would all exit the scene without a word of explanation?) One of these, William Broeksmit, a risk manager for Deutsche Bank, was reportedly engaged in “unwinding positions” for that that outfit, which holds over $70 trillion in swap paper. For scale, compare that number with Germany’s gross domestic product of about $3.4 trillion and you could get a glimmer of the mischief in motion out there. Did poor Mr. Broeksmit despair of his task? 

     Physicist Stephen Hawking declared last week that black holes are not exactly what people thought they were. Stuff does leak back out of them. This will soon be proven in the unwinding derivatives trades when most of the putative wealth associated with swaps and such disappears across the event horizon of bad faith, and little dribbles of their prior existence leak back out in bankruptcy proceedings and political upheaval.

     The event horizon of bad faith is the exact point where the credulous folk of this modern age, from high to low, discover that their central banks only pretend to be regulating agencies, that they ride a juggernaut of which nobody is really in control. The illusion of control has been the governing myth since the Lehman moment in 2008. We needed desperately to believe that the authorities had our backs. They don’t even have their own fronts.

     Is the money world at that threshold right now? One thing seems clear: nobody is able to turn back the plummeting currencies. They go where they will and their failures must be infectious as the greater engine of world trade seizes up. Who will write the letters of credit that make international commerce possible? Who will trust whom? When do people seriously start to starve and reach for the pitchforks? When does the action move from Kiev to London, New York, Frankfurt, and Paris?

***

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

 

 

Taper (Not)

Off the keyboard of James Howard Kunstler

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Published on Clusterfuck Nation August 2013

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Taper (Not)

     

Remember, the doleful, lonesome figure of Ben Bernanke stands (or slumps) at the top of a pyramid of obfuscation so high, broad, and massive that all the debt serfs in a history of the future will not avail to reconstruct its hypothecated contours. When the world picks itself up from the smoldering ruins of the financial landscape currently being rigged to blow, nobody will be able to explain how the modern world collateralized itself out of existence.

     What a set up. Bernanke gave the financial markets five months of the heebie-jeebies punctuated by a big fake-out and so the consensus finally perceives a giant green-light for resumed asset inflation. That’s why I like standing outside the consensus. Assets can inflate all they like on their way to the biggest train wreck of organized money ever recorded. Dow 20,000 is accelerating on a parallel track with the complete loss of confidence in paper representations of wealth. Enjoy your Facebook shares, or at least the digital ghost of them on your iPhone screen, while they’re fluorescing.

     It was perfectly obvious all spring and summer that the Federal Reserve could not neck down its purchases of US Treasury debt paper and bundled mortgage swindles without causing the equivalent of the 1942 Boston Coconut Grove nightclub fire in the financial markets. But not pretending to contemplate the “taper” would have entailed an admission that the so-called economy was on artificial life support juice. That would have suited neither the politicians and their political economists, who clung to their “recovery” story, nor the 1 percenters who were the direct beneficiaries of the wealth transfer activated by the life support liquidity juice injections.

     The net result is a return to the grand theme of pretend, with an increasingly dark outlook for the consequences, which will be the repudiation of what is officially called “money.” Meanwhile, congress now convenes to debate the question of extend, which can only add a frisson to the spectacle of pretend. The problem with these best laid plans of mouse-like creatures is that shit happens.

     Those distant rumbles of thunder are the audible traces of the destruction at the margins, certainly out of earshot of those at the very center. The margins is the place where nations, towns, institutions, families, and individual lives are ground down into a fine entropic powder of broken dreams. From the standpoint of the blogger-journalist, the story has been about how the destruction travels from the margins to the center. The center has been able to protect itself so far with one swindle after another, at the expense of the poor schnooks at the margins. The swindles are so abstruse and impenetrable that the schnooks don’t have a clue what is hitting them. At least so far.

     Faced with such a quandary, the schnooks may opt for political suicide, which is apparently the program of both major parties. Out of this sort of tragic muddle, Great Men emerge to galvanize the potential energy of the swindled multitudes. Recent models of this archetype are not so reassuring: Lenin, Hitler, Pol Pot, Ayatollah Khomeini. What history has in store for the USA is probably something that could only be cooked up on TV. One can hope that it turns out to be comedy, not something breaking bad.

          Of course the inverse of the idiotic American exceptionalism story lies beyond the fact that were not as special as we think. There is a whole vast world beyond the podium of Ben Bernanke and in that big world other mouse-like creatures are working sedulously to take advantage of our exceptional fecklessness. Distracted by everything from same-sex marriage to Monday Night Football, we don’t pay attention to the attrition. They’ve got our gold now, and despite the theory that gold has no more intrinsic value than $100 Federal Reserve notes, you can bet that before this is all over it will buy whatever food and fuel remains in the ground.

Knarf plays the Doomer Blues

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