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Page added on August 22, 2016
Kunstler: Dark Dynamics
What the world is witnessing, without actually paying much attention, is the death of our debt-based economy — that is, borrowing the means to thrive in the now from a future that can’t really furnish it anymore. The illusion that the future would always provide was a legacy of the cheap energy era. That era ended in 2005. The basic promise is broken and with it the premise for living as we had been. The energy available today, especially oil, is no longer cheap enough to run the industrial economies designed to run on it. Any way that you look at the dynamic, Modernity loses.
With oil under $50 a barrel, and gasoline under $3 a gallon (back east), the public apparently thinks that the Peak Oil story is dead and gone. But when it costs $75 a barrel to pull the stuff out of the ground, and the stuff only sells for $47 a barrel, the oil companies’ business model doesn’t really work. The shale oil companies especially have been gaming the system by issuing bonds that pay relatively high interest rates in an investment climate where almost nothing else offers enough yield to live on, especially for pension funds and insurance companies. Two little upward bumps this year in the price of oil toward the $50 range prompted a wish that the good old days of high-priced oil were coming back, that the oil business would be profitable again.
The trouble is that high oil prices — say, over $100 a barrel, as it was in 2014 — crush advanced economies, so that demand for oil crashes, and with it productive activity. Without productivity, the debts issued by companies (and even governments) don’t get repaid. There really is no “sweet spot” in this energy cost equation.
A lot of wishful thinkers would like to believe that you can run contemporary life on something beside oil. But the usual “solutions,” solar and wind energy, don’t pencil out, especially when you consider that the hardware for running them — the photovoltaics, charge controllers, batteries, turbines, and blades, can’t be mass-produced and distributed without the very fossil fuels they are supposed to replace.
These matters add up to the essential quandary of our time. It has expressed itself in falling standards of living for what used to be the middle class, most particularly in the USA. European countries have tried to work around this problem with their rigid bureaucracies for keeping those already employed from losing their jobs. In France, Spain, and Italy, this has only made it much harder for people under 30 to get a job. The jobs picture for millennials in the USA is not much better, though there’s no structural job-protection for their elders who are still working here. They live in abject fear of termination by the HR ghouls of the big corporations.
Sooner or later the younger generation will explode in rage at the system and there is no telling what the result will be. We’re already seeing it in the black ghettos, where decades of accrued social dysfunction make the anomie and purposelessness — of young men especially — much worse. The newer loser class of people who once had good jobs and now have poor prospects of ever getting them back gets swept up in the mania for their incoherent champion, Trump, who shows no sign of understanding the essential quandary of our time. The tragedy of Trumpism is that the man so poorly represents a large group of Americans with genuine woes and grievances. And the larger tragedy of our country these days is that events did not prompt better leaders to step forward.
The explanation may be that people who actually understand the dark dynamics spinning out are rather pessimistic about the our ability to carry on under the familiar disposition of things. Hillary represents the forces in our national life that want to pretend that nothing is wrong, that all the splendid rackets of the day — Federal Reserve interventions, corporate debt-fueled stock buybacks, military log-rolling, medical racketeering, the college loan Ponzi, pension fund levitation, primary dealer bank interest rate arbitrage, agribiz Frankenfood proliferation — can just grind along like some old riverboat banger engine keeping the garbage barge of American life afloat. Thus, Hillary is shaping up to be the patsy of the century, likely to preside, if elected, over the biggest blowup of established arrangements that world has ever seen.
The debt problem alone is absolutely certain to express itself in at least three major ways: the crash of equity markets, the collapse of the bond markets, and the loss of faith in the value and meaning of whatever money you’re using. Any of those events would turn the economic life of the linked advanced economies upside down. Any of them could occur during the 2016 US election season.
20 Comments on "Kunstler: Dark Dynamics"
Sissyfuss on Mon, 22nd Aug 2016 10:49 am
I’d call this article fear mongering if it wasn’t so accurate.
Hello on Mon, 22nd Aug 2016 10:52 am
Debt is not borrowing from the future. It’s borrowing from somebody else.
I cannot get an iphone-20 now, no matter how much I borrow. I’m limited to the production capacity of now.
penury on Mon, 22nd Aug 2016 11:06 am
Truth, the first casualty of “war’ apparently the politicians have been at war with the voters for a long time. And yes debt is borrowing from soneone else. However, if you borrow money for ten years,Who are you borrowing from? What will you produce in that period of time which will allow you to repay the money with interest? Oh that is not a problem, I have ten years to pay it back. Figure it out, are you borrowing from the future? Whose4 future?
penury on Mon, 22nd Aug 2016 11:07 am
Truth, the first casualty of “war’ apparently the politicians have been at war with the voters for a long time. And yes debt is borrowing from someone else. However, if you borrow money for ten years,Who are you borrowing from? What will you produce in that period of time which will allow you to repay the money with interest? Oh that is not a problem, I have ten years to pay it back. Figure it out, are you borrowing from the future? Whose future?
JGav on Mon, 22nd Aug 2016 11:09 am
Sissy – Keep on pushin’ that rock! We’re all doing it in one way or another. Bonjour Monsieur Camus. Good comment by the way, succinct and to the point.
Davy on Mon, 22nd Aug 2016 11:32 am
Debt is irrelevant now in the 20th century sense of fundamentals and principals of law and accounting standards. The reason debt does not matter is it can be created, destroyed, extended and pretended at will in an inclusive environment where everyone is doing it. It will not be debt that is the end game. It will be the eventual dysfunction and decay of the physical structures that feed and protect us from the elements. All this talk about money printing and other financial shadiness is foolish. It is a outcome not a cause.
penury on Mon, 22nd Aug 2016 11:39 am
Davy it sounds like you work for the Fed. Only the rich think that debt does not matter. I feel that they are about to get a large lesson.
Cloud9 on Mon, 22nd Aug 2016 11:53 am
“Hillary is shaping up to be the patsy of the century; likely to preside, if elected, over the biggest blowup of established arrangements that world has ever seen.” A great comment. Debt at this point in time is nothing more than an accounting gimmick. Neither the borrower nor the lender expects the contract to be performed. Arthur Anderson famously made debt seem profitable. With their bookkeeping methods, Enron became the most successful venture on the planet for the insiders until it wasn’t.
Cloggie on Mon, 22nd Aug 2016 12:10 pm
If Obama can double US debt, Clinton can be expected to top that.
Graph:
https://ricochet.com/archives/athens-on-the-potomac/
US has 100% GDP debt, Japan more than 200%.
No worries.
ghung on Mon, 22nd Aug 2016 12:32 pm
Cloggoid; “If Obama can double US debt, Clinton can be expected to top that.”
Uh,, in the US, Congress controls the purse strings. Add in a bit of economic stimulus, QE, etc., trying to pretend we’re in a recovery, debt was sure to rise significantly.
Of course, much of government spending is “mandatory” while:
Domestic spending is near 53-year lows. Yet Congress keeps cutting….
“Lawmakers and candidates often bemoan how high U.S. debt is and how much higher it will go if nothing changes.
But they’ve been focusing almost exclusively on squeezing savings from the smallest part of the federal budget: “discretionary” spending on defense and domestic programs, which fund everything from the military to national parks and museums to food safety to Head Start and research and development….
…Meanwhile, lawmakers and candidates typically dodge dealing with the real debt drivers — “entitlement” spending, which includes the major healthcare programs (Medicare, Medicaid and insurance subsidies) as well as Social Security, and interest on the debt. …
… For instance, the Army Corps of Engineers, the Environmental Protection Agency and the National Science Foundation now have less money in absolute terms than they did just a few years ago, according to the Bipartisan Policy Center.
Some of the cuts have been more politically motivated than others. The EPA, which Republicans often accuse of regulatory overreach, is operating with $2 billion less than it had in 2010.
And the IRS — long a political punching bag — is now operating with about $900 million less than it got six years ago. …. “
“Within 20 years, CBO projects that entitlement spending plus interest will suck up virtually every tax dollar coming into the federal government, up from 65% of revenue today.”
20 years? Meh, we’ll likely be in the mother of all depressions,, or worse.
Davy on Mon, 22nd Aug 2016 12:35 pm
Pen, I said it didn’t matter in the 20th century sense of the concept. Maybe you should enter the 21st century. And you are wrong about the rich. They think debt matters hence the constant complaining about it. The reality is we are too far gone for it to matter rich or poor. It is now part of a much bigger end game of a civilization at all levels descending into decay and deflation.
IPissOnLoser on Mon, 22nd Aug 2016 1:22 pm
Kunster and Gail are completely irrelevant in the peak oil community.
Kunstler is begging for money using Patreaon like a cheap whore on Cocaine on a dark corner. Plus Kunstler is doing pod cast with hedge fund manager. This guy is a total sellout just looking at the peak oil community as a cash cow.
Both of them only talk about debt. THe central bank will buy the bad debt of shale oil producers just like they did with the bad banks.
The system will collapse once we run out of natural ressources to kept the supply chain alive. Especially food, transportation system, manufacturing.
Harquebus on Mon, 22nd Aug 2016 5:14 pm
Debt brings future spending to the present. Unfortunately, borrowers of the past have beaten us to it.
Apneaman on Mon, 22nd Aug 2016 7:37 pm
As Homeless Find Refuge in Forests, ‘Anger Is Palpable’ in Nearby Towns
http://www.nytimes.com/2016/08/22/us/as-homeless-find-refuge-in-forests-anger-is-palpable-in-nearby-towns.html
Roger on Mon, 22nd Aug 2016 8:27 pm
Some good points made…however
“The trouble is that high oil prices — say, over $100 a barrel, as it was in 2014 — crush advanced economies, so that demand for oil crashes, and with it productive activity. Without productivity, the debts issued by companies (and even governments) don’t get repaid. There really is no “sweet spot” in this energy cost equation.”
The fact is (by my recollection):
1. The crash of 2008 (if that is what is referenced) was well before the “crushing” $100/bbl oil price
2. The economies of advanced nations weren’t “crushed” in 2014. A quick review of the $USDX (US “dollar”) vs. $WTIC chart will show the primary driver in the oil crash.
3. Demand for oil certainly didn’t crash. To the contrary, has been growing steadily at 1MM bbls/d each year for a very long time.
4. As for debts not being repaid, he is correct–they “write them off.” And of course, collect the collateral pledged against such debts in the process (i.e., bankruptcy). The real question is–what “currency/collateral” did the banksters provide in the “loan” transaction? Nothing more than a few keystrokes on their keyboard…a very good deal!! (I believe it was JP Morgan who said, “Let me print the money and I don’t care who writes the laws.”)
5. Agreed–“there really is no sweet spot.” That’s life with peak oil in the rear view mirror.
dooma on Tue, 23rd Aug 2016 10:32 am
I love the term ‘banksters’ it rhymes so well with gangsters. Which they are both birds of a feather.
Perpetual debt is so ingrained in into the western person’s psyche. Madison Avenue has made sure of that. Maxing out your credit card-priceless.
Buy now, pay later, 60 months interest-free sounds better than five years. Replace your car every two years with a new one, so much more fun than setting fire to bundles of $1000’s of dollars. Which, in essence, is the same activity.
And don’t forget that if you don’t update your iPhone every two years, you probably won’t get laid.
Banks complain that around 13% percent of their customers use their credit cards correctly and wisely. They think that his number is too high.
From student loans to mortgages, showing that taking on massive debt slavery is the norm.
“Greed is good”.
As far as “Sooner or later the younger generation will explode in rage at the system, and there is no telling what the result will be”, I won’t hold my breath on that one Kunstler. Facebook takes a lot of energy/time, and there are more important activities such as chasing holograms around.
The young, unfortunately, are very interested in apathy.
Harquebus on Wed, 24th Aug 2016 3:29 am
“Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world.” — Unknown.
Just One Opinion on Wed, 24th Aug 2016 10:02 am
When I was a young person, I wish I would have originally developed fractional banking (turning one unit of money into many out of this air). I could have had fractional hamburgers, cars, monet, paintings, boats, homes and others would actually have to pay for it all. What a concept!
Lets see, “Is there anything else that comes to mind”? Oh yes, portable loan cards costing the earth to maintain and (what a bonus) as a bank, I would pay little or nothing for the funds to operate them. Banking is such a wonderful invention with so many wonderful and generous people in charge of them.
Oh my, it didn’t happen. It was just a daydream. I should find my expensive cell phone and waste my life chasing a cartoon image. That’s the ticket. I will feel much better after I have complety destroyed my social relationships with family and friends by ignoring them and turning my brain into something akin to jello. Good luck to all of you young folks. You have severe and very daunting challenges ahead.
Fulton J. Waterloo on Wed, 24th Aug 2016 1:04 pm
Jim: there is a very good reason there was no “quality” candidate to run against Hillary Clinton. African Americans and many in the Hispanic Community are so “plugged in” to the Democratic Party as savior that they are incapable of critical thought. When elected, Hillary will SCREW the lower and working classes, who will respond by re-electing her in 2020….
Sissyfuss on Wed, 24th Aug 2016 1:53 pm
That is priceless, Harq.