State of Cringe

Just as Mr. Obama has danced into the oval office, we’ve arrived at a moment when a lot of people have a hard time imagining the future. This includes especially the mainstream media, which has reached a state of zombification parallel to that of the banks. But even in the mighty blogosphere, with its thousands of voices unconstrained by craven advertisers or pandering managing editors, the view forward dims as a dark and ominous fog rolls over the landscape of possibilities.

For at least a year several story-lines have been slugging it out inconclusively for supremacy of the Web-waves. The main event has been the Deflationists versus the Inflationists. The first group basically says that so much “money” is being welshed out of existence that it dwarfs the new “money” being shoveled into existence in the form of bail-outs, tarps, and office re-decoration stipends. The Deflationists see the tattered remnants of the consumer credit economy auguring ever deeper into a hole until it is buried so far down that all the back-hoes ever sold will not be able to dig it out. The competing Inflationists say that the massive truckloads of shoveled-in “money” will soon overtake vanishing “wealth” and, in the process, make the US dollar worthless.

Some of us see both outcomes in sequence: the deflationary “work out” of bad debt currently underway — of loans that will will never be paid back, of acronymic paper securities revealed as frauds, of “non-performing” contracts entering the swamps of foreclosure, of banks pretending to still exist, of hallucinated “wealth” rushing into the cosmic worm-hole of oblivion — can only go for so long before everyone who can go broke will go broke. Then, just as we find ourselves a nation of empty pockets, the tsunami of shoveled-in “money” designed to “reboot the consumer” (created not from productive activity but just printed recklessly), will start churning through the “economy,” chasing products and commodities that became scarce during the deflationary phase — and the result is hyper-inflation, the eraser of debt, destroyer of fortunes, and suicide pill of feckless governments.

I guess the basic difference is that the hardcore Deflationists seem to think that their process can go on forever. The society just gets poorer and poorer until we’re back at something like a scene out of Pieter Bruegel the Elder. The Inflationists see a fork in the road leading to more overt destruction, especially political turmoil as a lot of negative emotion joins the work-out orgy and overwhelms government.

But in this moment, the week after a new president’s inauguration, the deadly fog has rolled in and absolutely everyone dreads what lurks on the other side of it, without being able to discern the path through it. For example, the “bail-out fatigue” being reported suggests that congress may just call a halt to money-shoveling. Where would that leave Mr. Obama’s urgent call for “stimulus?” Not to mention further TARP injections for redecorating bank offices.

I’ve been skeptical of the “stimulus” as sketched out so far, aimed at refurbishing the infrastructure of Happy Motoring. To me, this is the epitome of a campaign to sustain the unsustainable — since car-dependency is absolutely the last thing we need to shore up and promote. I haven’t heard any talk so far about promoting walkable communities, or any meaningful plan to get serious about fixing passenger rail and integral public transit. Has Mr. Obama’s circle lost sight of the fact that we import more than two-thirds of the oil we use, even during the current price hiatus? Or have they forgotten how vulnerable this leaves us to the slightest geopolitical spasm in such stable oil-exporting nations as Nigeria, Mexico, Venezuela, Libya, Algeria, Columbia, Iran, and the Middle East states? And we’re going to rescue ourselves by driving cars?

I know it is difficult for Americans at every level to imagine a different way-of-life, but we’d better start tuning up our imaginations, because endless motoring is not our destiny anymore. The message has not moved from the grassroots up, and so at this perilous stage the message had better come from the top down. Mr. Obama needs to go on TV and tell the American public that we’re done cruisin’ for burgers. He could do that by drastically reviving his stimulus proposal as it currently stands.

Putting aside whether this “stimulus” represents reckless money-printing in an insolvent society, let’s just take it at face-value and ask where the “money” might be better directed:

— We have to rehabilitate thousands of downtowns all over the nation to accommodate the new re-scaled edition of local and regional trade that will follow the death of national chain-store retail of the WalMart ilk. Reactivated town centers and Main Streets are indispensable features of walkable communities. The Congress for the New Urbanism ( ought to be consulted on the procedures for accomplishing this and for rehabilitating the traditional neighborhoods connected to our Main Streets.

— We have to reform food production (a.k.a. “farming”). Petro-dependent agri-biz will go the same way as the chain stores. Its equations will fail, especially in a credit-strapped society. That piece of the picture is so dire right now, as we prepare for the planting season, that many crops may not be put in for lack of front-money. This portends, at least, much higher food prices at the end of the year, if not outright scarcities and shortages. And the new government wants to gold-plate highway off-ramps instead? Earth to Rahm Emanuel: screw your head back on.

— As mentioned above, we have to get passenger rail going again because the airlines are going to die the next time there is an uptick in oil prices, or a spot shortage of oil. Let’s not be too grandiose and attempt to build expensive high-speed or mag-lev networks — certainly not right now — because they require entirely new track systems. Let’s fix those regular tracks already out there, rusting in the rain, or temporarily replaced by bike trails.

Those are three biggies for the moment and enough to keep this society busy for a couple of years. But more to the point of this blog, observers of all stripes are having trouble imagining any way out of our multiple predicaments. All the possible actions tried so far have seemed absurd. Why even try to prop up inflated house values when the single most crucial need in this sector is for house prices to return to parity with incomes so the shrinking pool of ordinary people still employed can begin to think about buying one? Well, the obvious explanation is that politicians can’t bear the pain of watching mass foreclosures and the ruination of families. This is pretty understandable, and it is tragic indeed. Frankly, I don’t know of any political narcotic that can mitigate the pain that results from having made poor choices in life — even if those choices were promoted and reinforced by the mighty ideology of “American Dreaming.” Anyway, the foreclosures are well underway now, and perhaps the salient question is how long will the public’s fury remain constrained while they hear about Wall Street executives buying $80,000 area rugs? Surely there is a tipping point of collective distress that is not too far from where we’re at now.

In the realm of TARPS and other continued bail-outs aimed at the banks, the car-makers, and a host of other corporate special pleaders, I wonder if we have already reached the saturation point. But opinion on the Web is starkly divided and a prime manifestation is the debate over whether it was a terrible blunder or the right thing to let Lehman Brothers sink into bankruptcy. Both sides make valid arguments, but virtually all the other super-banks right now have lurched to death’s door and we have no clear guidance on what we should do about them. Each one is touted as “too big to fail,” as well as being interlocked with the others on credit default swaps that would bring them all crashing down if one counter party truly failed. It seems to me that this is what lies at the heart of the present situation. Nobody I’ve encountered in the sphere of opinion-and-comment thinks that these banks will survive, and this outcome beats a short path to the conclusion that the entire banking system is fatally ill — leading directly to a super-major crisis of political economy in which the whole reeking, leaking system just crashes. I think this is what lies behind Mr. Obama’s appeals for very urgent action.

But then we’re back to square one: nobody, including Mr. O himself, has really proposed a set of actions that have not already been tried in the way of money-shoveling. So this will be a week in which, perhaps, some wise and intrepid figures — perhaps even the president — will articulate something we haven’t heard before, perhaps even something like bearing our hardships bravely. It’ll be a very interesting week, I’m sure.

Jim Howard Kunstler

January 29, 2009

The Daily Reckoning