AuthorTopic: The Fate of a City  (Read 3492 times)

Offline Guest Blogger

  • Waitstaff
  • ***
  • Posts: 293
    • View Profile
The Fate of a City
« on: January 14, 2014, 04:12:32 AM »

Off the keyboard of James Howard Kunstler


Follow us on Twitter @doomstead666

Friend us on Facebook





Originally Published on Clusterfuck Nation  January 13, 2014


paris fin de siecle



     I was born and raised in New York City, on the east side of Manhattan (with a brief intermezzo in the long Island Suburbs (1954 – 1957) though I have lived upstate, two hundred miles north of the city, for decades since. I go back from time to time to see publishers and get some cosmopolitan thrills. One spring morning a couple of years back, toward the end of Mayor Bloomberg’s reign, I was walking across Central Park from my hotel on West 75th Street to the Metropolitan Museum of Art when I had an epiphany.


     Which was that Central Park, and indeed much of the city, had never been in such good condition in my lifetime. The heart of New York had gone through a phenomenal restoration. When I was a child in the 1960s, districts like Tribeca, Soho, and the Bowery were the realms of winos and cockroaches. The brutes who worked in the meatpacking district had never seen a supermodel. Brooklyn was as remote and benighted as Nicolae Ceausescu’s Romania. The Central Park Zoo was like a set from Riot in Cellblock D, and the park itself was desecrated with the aging detritus of Robert Moses’s awful experiments in chain-link fencing as a decorative motif. Then, of course, came the grafitti-plagued 1970s summed up by the infamous newspaper headline [President] Ford to City: Drop Dead.


     Now, the park was sparkling. The sheep’s meadow was lovingly re-sodded, many of Frederick Law Olmsted’s original structures, the dairy, the bow bridge, the Bethesda Fountain, were restored. Million dollar condos were selling on the Bowery. Where trucks once unloaded flyblown cattle carcasses was now the hangout of movie and fashion celebrities. Brooklyn was a New Jerusalem of the lively arts. And my parents could never have afforded the 2BR/2bath apartment (with working fireplace) that I grew up in on East 68th Street.


     The catch to all this was that the glorious rebirth of New York City was entirely due to the financialization of the economy. Untold billions had streamed into this special little corner of the USA since the 1980s, into the bank accounts of countless vampire squidlets engaged in the asset-stripping of the rest of the nation. So, in case you were wondering, all the wealth of places like Detroit, Akron, Peoria, Waukegan, Chattanooga, Omaha, Hartford, and scores of other towns that had been gutted and retrofitted for suburban chain-store imperialism, or served up to the racketeers of “Eds and Meds,” or just left for dead — all that action had been converted, abracadabra, into the renovation of a few square miles near the Atlantic Ocean.


     Nobody in the lamebrain New York based media really understands this dynamic, nor do they have a clue what will happen next, which is that the wealth-extraction process is now complete and that New York City has moved over the top of the arc of rebirth and is now headed down a steep, nauseating slope of breakdown and deterioration, starting with the reign of soon-to-be hapless Bill de Blasio.


     Mayor Bloomberg was celebrated for, among other things, stimulating a new generation of skyscraper building. There is theory which states that an empire puts up its greatest monumental buildings just before it collapses. I think it is truthful. This is what you are now going to see in New York, especially as regards the empire of Wall Street finance, which is all set to blow up. The many new skyscrapers recently constructed for the fabled “one percent”— the Frank Gehry condos and the Robert A.M. Stern hedge fund aeries — are already obsolete. The buyers don’t know it. In the new era of capital scarcity that we are entering, these giant buildings cannot be maintained (and, believe me, such structures require incessant, meticulous, and expensive upkeep). Splitting up the ownership of mega-structures into condominiums under a homeowners’ association (HOA) is an experiment that has never been tried before and now we are going to watch it fail spectacularly. All those towering monuments to the beneficent genius of Michael Bloomberg will very quickly transform from assets to liabilities.


     This is only one feature of a breakdown in mega-cities that will astonish those who think the trend of hypergrowth is bound to just continue indefinitely. It will probably be unfair to blame poor Mr. de Blasio (though he surely can make the process worse), even as it would be erroneous to credit Michael Bloomberg for what financialization of the economy accomplished in one small part of America.



 





***



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.


 




Offline Eddie

  • Master Chef
  • *****
  • Posts: 19758
    • View Profile
Re: The Fate of a City
« Reply #1 on: January 14, 2014, 07:12:55 AM »
As much as I like JHK, I wonder if I'll live long enough to see the emptying out of NYC.

I do agree that the beautification of NYC and certain other places (like all of coastal CA) is an interesting cultural artifact caused by the concentration of vast wealth into certain communities.  But i have no idea what the timeline might be for the reversal of fortune for our overbuilt mega-cities.

I hope it doesn't happen to NY in the next few years, since my son thinks he wants to live there.
What makes the desert beautiful is that somewhere it hides a well.

Offline g

  • Golden Oxen
  • Contrarian
  • Master Chef
  • *
  • Posts: 12280
    • View Profile
Re: The Fate of a City
« Reply #2 on: January 14, 2014, 08:13:09 AM »
As much as I like JHK, I wonder if I'll live long enough to see the emptying out of NYC.

I do agree that the beautification of NYC and certain other places (like all of coastal CA) is an interesting cultural artifact caused by the concentration of vast wealth into certain communities.  But i have no idea what the timeline might be for the reversal of fortune for our overbuilt mega-cities.

I hope it doesn't happen to NY in the next few years, since my son thinks he wants to live there.

Hi Doc, I am a great fan of JHK myself, but considered this one a lesser in merit posting than most of his others. Although a big spike in oil or grid problems could reek havoc on the Big Apple in short order.  :-\

Offline Surly1

  • Master Chef
  • *****
  • Posts: 18654
    • View Profile
    • Doomstead Diner
Re: The Fate of a City
« Reply #3 on: January 14, 2014, 09:39:22 AM »
As much as I like JHK, I wonder if I'll live long enough to see the emptying out of NYC.

I do agree that the beautification of NYC and certain other places (like all of coastal CA) is an interesting cultural artifact caused by the concentration of vast wealth into certain communities.  But i have no idea what the timeline might be for the reversal of fortune for our overbuilt mega-cities.

I hope it doesn't happen to NY in the next few years, since my son thinks he wants to live there.

Hi Doc, I am a great fan of JHK myself, but considered this one a lesser in merit posting than most of his others. Although a big spike in oil or grid problems could reek havoc on the Big Apple in short order.  :-\

Looks to me like he's counting on some sort of dislocation:

Quote from: JHK
There is theory which states that an empire puts up its greatest monumental buildings just before it collapses. I think it is truthful. This is what you are now going to see in New York, especially as regards the empire of Wall Street finance, which is all set to blow up. The many new skyscrapers recently constructed for the fabled “one percent”— the Frank Gehry condos and the Robert A.M. Stern hedge fund aeries — are already obsolete. The buyers don’t know it. In the new era of capital scarcity that we are entering, these giant buildings cannot be maintained (and, believe me, such structures require incessant, meticulous, and expensive upkeep). Splitting up the ownership of mega-structures into condominiums under a homeowners’ association (HOA) is an experiment that has never been tried before and now we are going to watch it fail spectacularly. All those towering monuments to the beneficent genius of Michael Bloomberg will very quickly transform from assets to liabilities.

... capital scarcity deriving from increasingly expensive energy and the Great Ponzi of rehypothicated debt, JHK's argument for some years now is that this growth-at-any-price economy is coming to an end. This article would just seem to be this week's affirmation of same.

To me the real issue was traced out in that C.H. Smith article you posted last week, GO. Smith and others have made the point that the existing debt can never be repaid, there's just far too much of it out there for too little collateral.

We're all just waiting for the music to stop, and trying to prepare for the moment when it does.
"...reprehensible lying communist..."

Offline g

  • Golden Oxen
  • Contrarian
  • Master Chef
  • *
  • Posts: 12280
    • View Profile
Re: The Fate of a City
« Reply #4 on: January 14, 2014, 10:19:28 AM »
 
Quote
To me the real issue was traced out in that C.H. Smith article you posted last week, GO. Smith and others have made the point that the existing debt can never be repaid, there's just far too much of it out there for too little collateral.

We're all just waiting for the music to stop, and trying to prepare for the moment when does.

Agreed Surly, with the caveat of "With Dollars having their Current Value". Inflation, and lots of it, is the only way those debts can be repaid  the way I see it.

The inflation deflation argument is one that has been going on for ages. While I fully realize my guess could be wrong, a deflationary collapse is always possible. My advice has always been to prepare for either outcome, with history favoring the inflation argument over the deflation one most of the time.  :dontknow:

Offline jdwheeler42

  • Global Moderator
  • Sous Chef
  • *****
  • Posts: 3339
    • View Profile
    • Going Upslope
Re: The Fate of a City
« Reply #5 on: January 14, 2014, 09:01:58 PM »
The inflation deflation argument is one that has been going on for ages. While I fully realize my guess could be wrong, a deflationary collapse is always possible. My advice has always been to prepare for either outcome, with history favoring the inflation argument over the deflation one most of the time.  :dontknow:
It's really quite simple... as long as the Wall Street elites maintain control, inflation is going to win out over deflation.  But when (not if) they lose control, deflation will ultimately triumph.  Yet while I am sure it will happen, I am not confident it will occur within the lifetime of anyone alive today.   It's a game of musical chairs, and when the music stops, someone (e.g. Cyprus) loses their seat, but I have no idea how long it will be until the last seat is gone.
Making pigs fly is easy... that is, of course, after you have built the catapult....

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 42050
    • View Profile
Re: The Fate of a City
« Reply #6 on: January 14, 2014, 10:29:45 PM »
The inflation deflation argument is one that has been going on for ages. While I fully realize my guess could be wrong, a deflationary collapse is always possible. My advice has always been to prepare for either outcome, with history favoring the inflation argument over the deflation one most of the time.  :dontknow:
It's really quite simple... as long as the Wall Street elites maintain control, inflation is going to win out over deflation.  But when (not if) they lose control, deflation will ultimately triumph.  Yet while I am sure it will happen, I am not confident it will occur within the lifetime of anyone alive today.   It's a game of musical chairs, and when the music stops, someone (e.g. Cyprus) loses their seat, but I have no idea how long it will be until the last seat is gone.

According to the latest from Elvis, Deflation Coming to a Theatre Near You around the end of 2014

Quote from: Steve from Virginia
– The cost of fuel will continue to rise relative to the cost of everything else, the cause will be our prior decades’ as well as current consumption success. By the end of this year or very shortly afterward, the price that drillers need to bring new fuels to market will be the same price that shuts down consumption. This will occur even if the managers make no serious errors, such as start a great war or cause a run out of banks or a major currency. The reason for this has nothing to do with the physical ability to produce nor does it imply an actual shortage of reserves. Instead, it is the inability of consumption to provide any returns => these must be borrowed => too little can be borrowed => this borrowing incapacity is the result of high fuel prices. This is self-reinforcing energy deflation.

– That is the word for the year: deflation. Coming to your town.

I'll cross post it eventually, but the queue is a few days here at the moment.

RE
Save As Many As You Can

Offline g

  • Golden Oxen
  • Contrarian
  • Master Chef
  • *
  • Posts: 12280
    • View Profile
Re: The Fate of a City
« Reply #7 on: January 15, 2014, 05:25:49 AM »
The inflation deflation argument is one that has been going on for ages. While I fully realize my guess could be wrong, a deflationary collapse is always possible. My advice has always been to prepare for either outcome, with history favoring the inflation argument over the deflation one most of the time.  :dontknow:
It's really quite simple... as long as the Wall Street elites maintain control, inflation is going to win out over deflation.  But when (not if) they lose control, deflation will ultimately triumph.  Yet while I am sure it will happen, I am not confident it will occur within the lifetime of anyone alive today.   It's a game of musical chairs, and when the music stops, someone (e.g. Cyprus) loses their seat, but I have no idea how long it will be until the last seat is gone.

According to the latest from Elvis, Deflation Coming to a Theatre Near You around the end of 2014

Quote from: Steve from Virginia
– The cost of fuel will continue to rise relative to the cost of everything else, the cause will be our prior decades’ as well as current consumption success. By the end of this year or very shortly afterward, the price that drillers need to bring new fuels to market will be the same price that shuts down consumption. This will occur even if the managers make no serious errors, such as start a great war or cause a run out of banks or a major currency. The reason for this has nothing to do with the physical ability to produce nor does it imply an actual shortage of reserves. Instead, it is the inability of consumption to provide any returns => these must be borrowed => too little can be borrowed => this borrowing incapacity is the result of high fuel prices. This is self-reinforcing energy deflation.

– That is the word for the year: deflation. Coming to your town.

I'll cross post it eventually, but the queue is a few days here at the moment.

RE

Sure, a distinct possibility. Again, so what I ask?

We had a deflationary collapse six years ago, you saw the Fed's reaction.

They have vowed to do it again if it happens again, in front of millions on TV.

The same applies to your China is toast postings. You saw my reply, they will also print.

Your forecast and Steve's, like forecasting rain are bound to be correct some day in the future, but what is the point. Their reaction to it is what counts in my view.

A boom bust cycle is common and inevitable, agreed, the world will spin before one, as now, and after one as well.

Not trying to be wise or sarcastic,  please regard this as a serious honest inquiry.

Let me try to explain my view further. We had the worst deflationary collapse witnessed since the great depression about half a decade ago.

The stock markets, and real estate markets were destroyed in an unrelenting crash of asset values that has not been seen since the infamous 1929 Crash.

The public and their 401ks savings for retirement were decimated.Their home equity vanished. Their jobs and pensions become instantly a source of fear and worry rather than security.

We had a huge contraction in the economy, and the unemployment rate soared to unheard of levels, people were foreclosed on and thrown out of their homes by the millions. This came about suddenly and seemingly out of nowhere.

The Fed stepped in as soon as the banking system was about to shut down and started the greatest printing of money and bail out of financial institutions that was ever seen in all of financial history. They went from providing billions to Trillions to pump the system back up. Banks, insurance companies, auto corporations, even foreign banks were provided with all the funds needed.

Here we are six years later, the stock markets are at record highs, auto sales are booming, the rich are richer, the poor are poorer, everything costs more, and the earth still spins.

The same in Europe, same problem, same medicine applied, same result.  Ditto Japan, engaged in a print currently that dwarfs even our latest.

Why should the next one be any different, whether here or Europe, Japan or China? Will the medicine be any different? Will the aftermath be any different? 


 

Offline steve from virginia

  • Pundits
  • Bussing Staff
  • *
  • Posts: 163
    • View Profile
Re: The Fate of a City
« Reply #8 on: January 15, 2014, 08:46:12 AM »
 ... the ultimate deflationary collapse is when all the banks close and there is no money at all. What would remain is the pittance of printed currency remaining in private hands, this would immediately disappear from circulation. There would be a multitude of scrip-type local currencies, exchangeable for the remaining US paper money and coins at a multitude of rates, depending on location and quantity of available US currency or other forms of 'hard money'.

The chastened government would certainly arrive with 'new dollars' or something else equally silly which would prove to be more or less useless. Once credibility is gone it stays gone for a very long time, at which point there is likely to be either a new government, maybe a new kind of government. No chance of an improvement in either case.

All the banks close: it is clear the banking system is entirely insolvent today. Why? Because the lenders have extended trillion$ in unsecured loans that are more or less worthless as the borrower has little or nothing at risk; he has nothing to lose should he choose not to repay. Loans extended w/o collateral include revolving credit, student loans, deposits to banks, loans extended w/ fuel as collateral. When the fuel is burned what remains is the obligation to repay ... with nothing remaining to repay with!

What keeps the system afloat is a) habit, b) public willingness to overlook the banking system's insolvency for its own self-interest, c) taxation -- which creates circulating money, d) need for gasoline/fuel imports which requires money w/ unquestionable exchangeability. The need for gas trumps all other considerations, including any serious critique of the finance-monetary status quo.

Monetary reform = get rid of the cars.

Keep in mind, no one on planet Earth except for a handful of Luddites wants a generalized deflationary crisis or widespread deleveraging. Finance is at the forefront of keeping itself liquid and functioning; its efforts include extending vast amounts of credit to itself ... so as to support the prices of its own securities within its own markets.
« Last Edit: January 15, 2014, 08:49:57 AM by steve from virginia »

Offline Eddie

  • Master Chef
  • *****
  • Posts: 19758
    • View Profile
Re: The Fate of a City
« Reply #9 on: January 15, 2014, 09:02:36 AM »
All the banks close: it is clear the banking system is entirely insolvent today. Why? Because the lenders have extended trillion$ in unsecured loans that are more or less worthless as the borrower has little or nothing at risk; he has nothing to lose should he choose not to repay. Loans extended w/o collateral include revolving credit, student loans, deposits to banks, loans extended w/ fuel as collateral. When the fuel is burned what remains is the obligation to repay ... with nothing remaining to repay with!


Somebody is still going to be holding the mortgage paper on the real estate. What happens to those obligations? I assume most debtors couldn't service their debt. So banks would never reach a point where they would be devoid of assets. They would repossess the real assets of millions of people. Prices would fall, of course, but not to zero. Doesn't that mean some kind of consolidation in banking around those assets?
What makes the desert beautiful is that somewhere it hides a well.

Offline steve from virginia

  • Pundits
  • Bussing Staff
  • *
  • Posts: 163
    • View Profile
Re: The Fate of a City
« Reply #10 on: January 15, 2014, 10:50:18 AM »
@Eddie says:

Quote
Somebody is still going to be holding the mortgage paper on the real estate. What happens to those obligations? I assume most debtors couldn't service their debt. So banks would never reach a point where they would be devoid of assets. They would repossess the real assets of millions of people. Prices would fall, of course, but not to zero. Doesn't that mean some kind of consolidation in banking around those assets?

Perhaps, it depends upon what form the crisis takes and what is revealed about the lenders and their regulators after the immediate shock of crisis has passed.

If the banks close it won't be on account of them not having assets even though an non-negligible amount of defective assets and an inter-bank lending freeze would be the precipitate cause. Instead, bank closures will be the result lenders being unable to convert assets into funds that are useful to depositors: that is, leverage against collateral working in reverse. Put another way, a promissory note from a mortgaged borrower is useful on the lender balance sheet but no depositor will accept it in lieu of real currency. A depositor in a failing bank will demand his money in currency and nothing else; the bank will have some promissory notes but insufficient currency when it needs just the opposite!  When the currency runs short the bank closes.

This failure will be the government's fault; its mindless, thrashing efforts will invariably make matters worse. What is taking place in France right now is instructive: a drowning government issuing one decree after another, each contradicting the other, all of them pointless.

Of course, there are multiple variations on the theme, the interaction between risk, balance sheet composition, guarantees, agents and external conditions all at once represent an N-body problem.

Related: 'The Financial Fire Next Time' by Robert Schiller.
« Last Edit: January 15, 2014, 08:24:23 PM by steve from virginia »

Offline DoomerSupport

  • Administrator
  • Sous Chef
  • *****
  • Posts: 1157
  • Fiat collapsus rualt caelum
    • View Profile
Re: The Fate of a City
« Reply #11 on: January 15, 2014, 11:31:43 AM »
... the ultimate deflationary collapse is when all the banks close and there is no money at all. What would remain is the pittance of printed currency remaining in private hands, this would immediately disappear from circulation. There would be a multitude of scrip-type local currencies, exchangeable for the remaining US paper money and coins at a multitude of rates, depending on location and quantity of available US currency or other forms of 'hard money'.

The chastened government would certainly arrive with 'new dollars' or something else equally silly which would prove to be more or less useless. Once credibility is gone it stays gone for a very long time, at which point there is likely to be either a new government, maybe a new kind of government. No chance of an improvement in either case.

Expect rules to be put in place to make it illegal to engage in any sort of trade or business without using the official currency.


Quote
All the banks close: it is clear the banking system is entirely insolvent today. Why? Because the lenders have extended trillion$ in unsecured loans that are more or less worthless as the borrower has little or nothing at risk; he has nothing to lose should he choose not to repay. Loans extended w/o collateral include revolving credit, student loans, deposits to banks, loans extended w/ fuel as collateral. When the fuel is burned what remains is the obligation to repay ... with nothing remaining to repay with!

Even if a person can legally get out of a credit arrangement, like giving an underwater house back to the bank instead of paying off the mortgage, they are subject to retaliation in the form of credit report impacts.  Of course, that only applies to living persons, not corporate persons.  The Mortgage Bankers Association strategically ddefaulted on their own offices a few years back ,and took not damage ot their corporate rating. 


Quote
What keeps the system afloat is a) habit, b) public willingness to overlook the banking system's insolvency for its own self-interest, c) taxation -- which creates circulating money, d) need for gasoline/fuel imports which requires money w/ unquestionable exchangeability. The need for gas trumps all other considerations, including any serious critique of the finance-monetary status quo.

Monetary reform = get rid of the cars.

Keep in mind, no one on planet Earth except for a handful of Luddites wants a generalized deflationary crisis or widespread deleveraging. Finance is at the forefront of keeping itself liquid and functioning; its efforts include extending vast amounts of credit to itself ... so as to support the prices of its own securities within its own markets.

I'm no luddite but I want to see widespread delveraging.   I want to see the derivatives market collapse completely and all assets marked to market, not make believe.  It will hurt the rich far more than the poor, who are not leveraged.  I'd like to see if over the course of a few years, with one asset class at a time collapsing, eliminating one group of rentier parasites at a time, until the financial sector is back down to under 5% of GDP. 







 

Related Topics

  Subject / Started by Replies Last post
8 Replies
1844 Views
Last post November 11, 2014, 05:30:16 PM
by Eddie
0 Replies
1164 Views
Last post January 19, 2017, 12:57:39 AM
by RE
0 Replies
309 Views
Last post February 12, 2019, 03:04:58 PM
by Nearingsfault