Shoveling Money into the Deceased Economy

The Great Wish across America is to resume the life of comfort-and-convenience that seemed so nirvana-like just a few short years ago, when the very constellations of the heavens might have been renamed after heroic Atlanta realtors and Connecticut hedge fund warriors, and the boomer portfolios groaned with earnings, and millions of graying corporate salary mules dreamed of their approaching retirement to a satori of golf and Viagra, and the interior decorators grew so rich installing granite countertops that they could buy their own houses in the East Hampton, and every microcephalic parking valet in Las Vegas qualified for a bucket full of Ninja mortgages, and Lloyd Blankfein could dream of divorcing his wife to marry his cappuccino machine.

At the moment, there is tremendous hoopla and jubilation over the start-up of so many “shovel-ready” highway projects around America — as if what we need most are additional circumferential freeways to enhance the Happy Motoring lifestyle. How insane are we? Is this the only thing we know how to do?

I remain confident that the months ahead will introduce the American public and our leaders to a range of horrors that will begin to penetrate our addled collective imagination. We’re far from done with the crisis of banking and money and the related fiasco in mortgages — which translates into the very real situation of many people becoming homeless. It remains to be seen what may happen on the food production scene, but the current severe shortage of capital and the intense droughts shaping up around the world will resolve into a much clearer picture by mid-summer. The price of oil has resumed marching up and has now re-entered a range ($50-plus) that spun the airline industry into bankruptcy last time around. Enough carnage has already occurred on the jobs scene that the next act among many chronically jobless may tilt toward desperation, anger, and violence. The sporting goods shops around the nation are already rationing ammunition.

It’s not just the stock markets that have decoupled from reality as we enjoy the fragrant vapors of spring — it’s the entire conscious consensus of everybody holding the levers of power and opinion. To put it as simply as possible, we’re still sleepwalking into the future.

Bad Collateral

The wishes of the “green shoots and mustard seed” crowd really hinge on whether the various organs of the suburban economy can be jump-started back to life — the production home-builders, the granite countertop outfitters, the mall and strip-mall gang, the national chain discount retailers, all the people who make Happy Motoring possible from the factory to the showroom, and, of course, the banks who shovel money into these enterprises.

All these organs of our now-former economy are gravely impaired, and a realistic appraisal of them would have to conclude that they’ve entered the zone of congestive failure. The choice we face really comes down to this: do we put our dwindling resources and “hopes” into resuscitating those dying systems, or do we move forward to the next chapter of American life, cut our losses, and make new arrangements more consistent with the realities on offer from the universe? To take it a step further, can we remain one nation, a common culture, without such a conscious re-purposing of our collective spirit?

The bizarre spectacle being played out right now by President Obama and his team only adds layers of mystery and mystification to this big question. It is so dispiriting to see Mr. Obama’s White House mount a campaign to sustain the unsustainable in the economic realm. Everything they’ve done for four months involving money management and enterprise policy — from backstopping hopeless banks, to gaming the bankruptcies of the big car companies, to the bungled efforts to prop up artificially-high house prices — amounts to a gigantic exercise in futility. Worse, it gives off odors of dishonesty or stupidity, since the ominous tendings of our system are so starkly self-evident.

Not least of the problems entailed in all this are the scary political consequences. It’s one thing for a business such as a bank to fail; its another thing for the public to lose confidence in banking, or their own currency, or the credibility of all the people who work in banking, or the authority of those charged to regulate these activities, or the courts and their officers who are supposed to adjudicate misconduct in them. When faith in all these things starts to go, all bets are off for even larger social constructs like democracy, justice, and the destiny of a federal republic.

The Obama White House has very quickly painted itself into a corner on these things. The so-called bank “stress test” couldn’t have backfired more completely. Rather than bolster confidence in our money system and the people who run it, it only made the system appear more obviously corrupt. It made the Treasury Department (and the White House by extension) look idiotic for concocting it. Worse, the game of allowing the banks to audit themselves, and cook their books under newly jiggered accounting rules, only made them look less sound and trustworthy, and their executives more venal and mendacious. The stress test scam also virtually guaranteed that the banks will not get another dime out of congress — even while it is common knowledge that they will desperately need quadrillions more dimes in the months ahead.

Who knows what the point of this ludicrous exercise was? Observers in all corners of the media saw through it, and the public has only been made more cynical, and is now so furious over related stunts like AIG using taxpayer money to pay back swaps bets to Goldman Sachs that there is a whiff of revolution in the American air for the first time, really, since 1861. A lot of reasonable people see a good chance that our society will sink into disorder if these trends continue, and these fears could beat a path into radical politics, even the frightful prospect of coup d’etat — not something that I advocate, by the way.

The president is playing with fire on all this. The old economy is not going to recover, and so far he has not used his rhetorical talents to articulate what the next economy is likely to be about. It is reasonable to wonder whether he even really has a clear sense of it — and, based on the fatuous utterances of his economic mandarins like Larry Summers and Austan Goolsby, this team is really behind the curve.

There are plenty of things you can state about the economy past and future with some confidence right now:

  • Cheap energy is over and our wishes for are currently inconsistent with reality, meaning we have to live differently.
  • We have to downscale and re-localize our major economic activities: food production, commerce and manufacturing, banking, schooling, etc.
  • We can’t hope to have a stable money system unless we allow a workout of unpayable debt to proceed.
  • Even if we can do this, universal easy credit is a thing of the past. From now on, we have to save for the things we want and run our businesses and households on accounts receivable.
  • Major demographic shifts are inevitable as it becomes necessary to let go of suburbia and reactivate our derelict towns and smaller cities (and allow our giant metroplexes to contract).
  • We have to face the truth that our major social contracts cannot be met, namely the continuation of social security as we know it and probably all pension arrangements. We’ll probably have to change household arrangements to make up for these losses.
  • Health care will have to go through a revolution more comprehensive than just changing how we pay for it. Like everything else, it will have to downscale, re-localize, and become more rigorous.

We’re not going to rescue the banks. The collateral for their loans is no good and it will only lose more value. All those tract houses on the cul-de-sacs of America and scattered on the out-parcels of our tragically subdivided farming landscape will only lose value, one way or another, in the years ahead. Right now they’re simply losing inflated cash value — and that has been bad enough to sink the banks. In the months and years ahead, they’ll lose their sheer usefulness as the distances once mitigated by cheap gasoline loom larger again, and the jobs vanish and incomes with them, and the supermarket shelves cease to groan with eighty-seven different varieties of flavored coffee creamers, and one-by-one the national chain stores shutter, and the theme parks, and the NASCAR ovals, and the malls, and the colossal superfluous cretin-cargo of consumer nonsense that we’ve been daydreaming in gets blown away in a hurricane of change that we were not ready to believe in.

James Howard Kunstler

May 19, 2009