Peak Oil is You

Donate Bitcoins ;-) or Paypal :-)

Page added on September 11, 2017

Bookmark and Share

Kunstler: In the Dark

General Ideas

The stock market is zooming this morning on the news that only 5.7 million people in Florida will have to do without air conditioning, hot showers, and Keurig mochachinos at dawn’s early light Monday, Sept 11, 2017. I’m mindful that the news cycle right after a hurricane goes kind of blank for a day or more as dazed and confused citizens venture out to assess the damage. For now, there is very little hard information on the Web waves. Does Key West still exist? Hard to tell. We’ll know more this evening.

The one-two punch of Harvey and Irma did afford the folks-in-charge of the nation’s affairs a sly opportunity to get rid of that annoying debt ceiling problem. This is the law that established a limit on how much debt the Federal Reserve could “buy” from the national government. Some of you may be thinking: buy debt? Why would anybody want to buy somebody’s debt? Well, you see, this is securitized debt, i.e. bonds issued by the US Treasury, which pay interest, and so there is the incentive to buy it. Anyway, there used to — back in the days when the real interest rate stayed positive after deducting the percent of running inflation. This is where the situation gets interesting.

The debt ceiling law supposedly set limits on how much bonded debt the government could issue (how much it could borrow) so it wouldn’t go hog wild spending money it didn’t have. Which is exactly what happened despite the debt limit because the “ceiling” got raised about a hundred times though the 20th century into the 21st so that the accumulated debt stands around $20 trillion.

Rational people recognize this $20 trillion for the supernatural scale of obligation it represents, and understand that it will never be paid back, so, what the hell? Why not just drop the pretense, but keep on working this racket of the government borrowing as much money as it wants, and the Federal Reserve creating that money (or “money”) on its computers to infinity. Seems to work so far.

Rational people would also suspect that at some point, something might have to give. For instance, the value of the dollars that the debt is issued in. If the value of dollars goes down, then the real value of the bonds issued in dollars goes down, and as that happens the many various holders of bonds already issued — individuals, pension funds, insurance companies, sovereign wealth funds of foreign countries — will have a strong incentive to dump the bonds as fast as possible. Especially if backstage magic by the Fed and its handmaidens, the “primary dealer” banks, keeps working to suppress the interest rates of these bonds at all costs.

Would the Federal Reserve then vacuum up every bond that others are dumping on the market? They would certainly try. The Bank of Japan has been doing just that with its own government’s bonds to no apparent ill effect, though you kind of wonder what happens when a snake eating its own tail finally reaches its head. What’s left, exactly, after it eats that, too? My own guess would be three words: you go medieval. I mean literally. No more engines, electric lights, central heating….

In this land, we face a situation in which both the value of money and the cost of borrowing money would be, at last, completely detached from reality — reality being the real cost and value of all goods and services exchanged for money. Voila: a king-hell currency crisis and the disruption of trade on the most macro level imaginable. Also, surely, a massive disruption in government services, including social security and medicare, but extending way beyond that. And then we go medieval, too. The mule replaces the Ford F-150. And The New York Times finds something to write about besides Russia and trannies.

The value of money and the cost of borrowing it is about as fundamental as it gets in a so-called advanced economy. You can screw around with a lot of things running a society, but when that goes, you’re flirting seriously with anarchy. In the meantime, we’ll see how the social glue holds things together in those parts of Florida that are entering a preview of medieval attractions in the electrical blackout days ahead.


56 Comments on "Kunstler: In the Dark"

  1. JuanP on Tue, 12th Sep 2017 7:39 pm 

    Live from Miami Beach! I intended to report more often but I have been extremely busy. I have helped hundreds of people to prepare for, cope with, and recover from Irma.

    I am glad to report that Miami has been mostly spared. There’s been some broken windows and roofs, fallen trees, lampposts and wires, and a big blackout, but no major structural damage.

    The government and FPL are doing an awesome job of fixing things. I am very positively impressed and really surprised. In Miami Beach they literally cleaned up the streets in less than 24 hours and most people already have their power back. Some gas stations are closed, but there are enough open ones that have gas and the lines are short.

    I was truly horrified to witness how badly prepared most people were. They lacked the most basic supplies like radios, batteries, phone chargers, and flashlights, but at least there was water everywhere.

    Our condo was a mess. If it hadn’t been for a core group of five residents that saved the day the situation here would have turned really nasty. About 50 units were badly damaged by water and damages in our building will be over a million dollars most of which could have been prevented with some prepping and around $1,000 of plywood, plastic tarps, and Gorilla tape. There is going to be a lot of suing here; lawyers will make a killing

  2. Davy on Tue, 12th Sep 2017 7:50 pm 

    Hear that makat, Miami survived. Are you upset?

  3. onlooker on Tue, 12th Sep 2017 8:27 pm 

    Juan, it would be interesting to hear from you, how this latest hurricane has affected the insurance rates and in general what the prevailing attitude is among residents and their elected leaders towards the hurricane threat

  4. sidzepp on Tue, 12th Sep 2017 8:38 pm 

    Juan: Glad your safe. Drove to Pensacola this morning and the east bound traffic on I-10 was bumper to bumper. Every half mile there was a convoy of 4 to 8 electrical trucks.
    Passed a rest area and there were porta-potties in the area. Talk about planning down to the smallest detail. I feel that the governor and officials of the states prepared as best as they could and the action of private individuals in contributing is inspiring.

  5. makati1 on Tue, 12th Sep 2017 8:40 pm 

    Pure American insanity: “US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions”

    Talk about cutting off your nose to spite your face. This is more like slitting your throat to cure a cough. Pure insanity.

  6. makati1 on Tue, 12th Sep 2017 8:49 pm 

    Juan, glad you made it. An experience you will likely never forget. My family up coast are ok also. Just cleaning up the mess. Looks like Jose will be heading north giving you a break. Good luck.

Leave a Reply

Your email address will not be published. Required fields are marked *