The Fed

If Wishes Were Loaves and Fishes

From the keyboard of James Howard Kunstler
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Originally Published on Clusterfuck Nation December 22, 2014

Janet Yellen and her Federal Reserve board of augurers might as well have spilled a bucket of goat entrails down the steps of the mysterious Eccles Building as they parsed, sliced, and diced the ramifications in altering their prior declaration of “a considerable period” (that is, before raising interest rates), vis-à-vis the simpler new imperative, “patience,” with its moral overburden of public censure aimed at those too eager for clarity — that is to say, the assurance that the Fed will not pull the plug on their life-support drip of funny money for the racketeering operation that banking has become.

The vapid pronouncement of “patience” provoked delirium in the markets, with record advances to new oxygen-thin heights. Behind all this ceremonial hugger-mugger lurks the dark suspicion that the Federal Reserve has no idea what’s actually going on, and no idea what it’s doing. And in the absence of any such ideas, Ms. Yellen and her collegial eminences have engineered a very elaborate rationale for doing nothing.

The truth is, they have already done enough. They have succeeded via their dial-tweaking interventions in destroying the agency of markets so that nobody can tell the difference anymore between prices and wishes. Coincidentally, it is that most wishful time of the year, especially among the professional money managers polishing their clients’ portfolios as the carols are sung and the champagne corks pop. Ms. Yellen should have put on a Santa Claus suit when she ventured out to meet the media last week.

Not even very far in the background, there is wreckage everywhere as events spin out of the pretense of control. Surely something is up in the Mordor of derivatives, that unregulated shadowland of counterparty subterfuge where promises are made with no possibility or intention of ever being kept. You can’t have currencies crashing in more than a handful of significant countries, and interest rates ululating, without a lot of slippage among the swaps. My guess is that a lot of things have busted wide open there, and we just don’t know about it yet, like fissures working deep below the surface around a caldera.

This Federal Reserve is running on the final fumes of its credibility. Counsel “patience” as it might, other institutions and the people running them may run out of patience with it and start running for cover. When currencies catch fire, even a run on the bank becomes an exercise in futility. The rot is spreading from the margins to the center. In a world of oxidizing paper obligations, the paper dollar is hardly a fortress but more like a stack of empty foil-wrapped boxes displayed in the concourse of a shopping mall scheduled for closure as soon as the holiday is concluded. Maybe some wise-ass kid will just torch it. The security guard is still awaiting his previous paycheck and is out drinking by the dumpster.

It will be at least a couple of months before the Fed dares to start “printing” again and a lot can happen before it does. If and when it does resume QE — and it will be sorely tempted — all its credibility will finally be lost. What an opportunity for another country, say a country with an already foundering currency, to dare introduce money partially backed by gold. Could happen. That hypothetical nation may be one with, say, substantial oil reserves, something that even an economically depressed global industrial economy desperately needs. That hypothetical nation may be one that is very weary of being jerked around by the USA, with our augerers and vizeers, and haircuts-in-search-of-brains.

Merry Christmas everyone and, this dwindling year, be especially careful what you wish for.

 

 

***

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.

Signs and Wonders

From the keyboard of James Howard Kunstler
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Originally Published on Clusterfuck Nation November 3, 2014

Holy smokes,” Janet Yellen must have barked last week when Japan stepped up to plug the liquidity hole left by the US Federal Reserve’s final taper trot to the zero finish line of Quantitative Easing 3. The gallant samurai Haruhiko Kuroda of Japan’s central bank announced that his grateful nation had accepted the gift of inflation from the generous American people, which will allow the island nation to fall on its wakizashi and exit the dream-world of industrial modernity it has struggled through for a scant 200 years.

Money-printing turns out to be the grift that keeps on giving. The US stock markets retraced all their October jitter lines, and bonds plumped up nicely in anticipation of hot so-called “money” wending its digital way from other lands to American banks. Euroland, too, accepted some gift inflation as its currency weakened. The world seems to have forgotten for a long moment that all this was rather the opposite of what America’s central bank has been purported to seek lo these several years of QE heroics — namely, a little domestic inflation of its own to simulate if not stimulate the holy grail of economic growth. Of course all that has gotten is the Potemkin stock market, a fragile, one-dimensional edifice concealing the post-industrial slum that the on-the-ground economy has become behind it.

Then, as if cued by some Satanic invocation, who marched onstage but the old Maestro himself, Alan Greenspan, Fed chief from 1987 to 2007, who had seen many a sign and wonder himself during that hectic tenure, and he just flat-out called QE a flop. He stuck a cherry on top by adding that the current Fed couldn’t possibly end its ZIRP policy, either. All of which rather left America’s central bank in a black box wrapped in an enigma, shrouded by a conundrum, off-gassing hydrogen sulfide like a roadkill ‘possum. Incidentally, Greenspan told everybody to go out and buy gold — which naturally sent the price of gold spiraling down through its previous bottom into the uncharted territory of worthlessness. Gold is now the most unloved substance in the history of trade, made even uglier by the overtures of Mr. Greenspan. Personally, I think the more violently gold devalues for the moment, the more extreme the reaction will be when the first glimpses of reality pierce the twilight’s last gleaming of official US market intervention shenanigans.

All this goes on, by the way, because an essential problem remains: the world cannot pay back its accumulated debt and the money maestros of world finance don’t dare even try to unwind it in an orderly manner, fearing they will open up an international monetary sucking chest wound of deflationary doom. And this does nothing to brighten the prospect that evermore new debt can ever be repaid. All that remains are various three card monte maneuvers, hot potato games, and musical chair tournaments using the last kinetic rocket thrusts of global credulity to pretend that contraction is not already here, walking amongst us, like the ancient Harvestman of yore, swinging his scythe.

Of course, few doubt the reality of Ebola. And ISIS (or whatever it’s called) also works its ghastly hoodoo in the gummiest region of the world, and they both share an interesting feature these days: reporters are discouraged from going into either hot zone where the threat is that they will bleed out through all the orifices from Ebola or have their heads hacked off on video by ISIS. So we are not getting the best information out of Ebola West Africa and those parts of the Middle East where ISIS is at large. The situation is apt to be rather worse than we are being told. The financial markets shrugged off both these threats by the time Halloween rolled around, but I wouldn’t be so confident that story is over for either of these two ugly influences. If the world had a face, it would have fragility written all over it.

 

***

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.

Clusterfuck Nation: “Commotion” by JH Kunstler

Off the keyboard of James Howard Kunstler

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Published on Clusterfuck Nation September 2013

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Commotion

September 16, 2013                                                                                                                                                 by James Howard Kunstler

    Now that Lawrence Summers has removed himself from consideration as Federal Reserve chairman, President Obama is free to launch him into Syria as the first human rehypothecation weapon of mass destruction, where he can sow enough confusion between Assad’s Alawites and the Qaeda opposition to collateralize both factions into contingent convertible capital instruments buried in the back pages of Goldman Sachs’s balance sheet so that the world will never hear of them again — and then the Toll Brothers can be brought in to develop Syria into a casino / assisted living complex that will bring hundreds of good jobs to US contractors in the region.

     No doubt the stock markets will fly like eagles today. Nobody knew what monkeyshines Mr. Summers might have pulled over at the Fed and it was making investors nervous, as well as the big banks who employed Mr. Summers occasionally as some kind of policy bagman. So a big sigh of relief blew over the Northeast Region of the nation like the gusts of autumn air that swept away a fetid hump of stale, wet tropical weather that ruined all the ladies’ party hair in the Hamptons this month.

     Now that Syria has been disposed of — that is, indefinitely consigned to failed state purgatory — the world can focus its remaining attention on the almighty taper. I’m with those who think we’ll get a taper test. That is, the Fed will cut back ten or fifteen percent on its treasury bond purchases to see what happens. What happens is perfectly predictable: interest rates shoot above 3 percent on the ten-year and holders of US paper all the world round fling them away like bales of smallpox blankets and… Houston, we’ve got a problem. After a month (or less) of havoc in the bond market, and the housing market, Mr. Bernanke will issue an advisory saying (in more words than these) “just kidding.” Then it will be back to business as usual, which is to say QE Forever, which might as well be saying “game over.”

     One must feel for poor Mr. Bernanke. He’s tried to run a long-distance foot-race against reality and now it’s breathing down his neck near finish line. The idea was to pump enough artificial “money” into the economy to give it the appearance of motion, but all he accomplished in the words of my recent podcast guest, Eric Zencey, was a commotion of money, and the commotion was pretty much limited to a few blocks of lower Manhattan, two ribbons of real estate running up the East Side and Central Park West, and a subsidiary disturbance out on the South Fork of Long Island. Everybody else in the country was left to stew in a tattoo-and-malt-liquor torpor at the SNAP Card application office.

      The Fed can only pretend to try to get out of this self-created hell-hole. The stock market is a proxy for the economy and a handful of giant banks are proxies for the American public, and all they’ve really got going is a hideous high-frequency churn of trades in conjectural debentures that pretend to represent something hidden in the caboose of a choo-choo train of wished-for value — and hardly anyone in the nation, including those with multiple graduate degrees in abstruse crypto-sciences, can even pretend to understand it all.

     When reality crosses the finish line ahead of poor, exhausted Mr. Bernanke, havoc must ensue. All the artificial props fall away and the so-called American economy is revealed for what it is: a surreal landscape of ruin with nothing left but salvage value. Very few people will get a living off of the salvage operations, and there will be fights and skirmishes everywhere by one gang or another for control of the pickings. The utility of money itself may be bygone, along with the legitimacy of anyone or anything claiming institutional authority. This is what comes of all attempts to get something for nothing.

     By the way, for those of you still watching the charts, notice that gold and silver may bob up and down week-by-week, but the price of oil remains stubbornly above $105-a-barrel no matter what happens. That is the only number you need to know to predict the fate of industrial economies.

Knarf plays the Doomer Blues

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