The Teeming Brain

GENERAL COMMENT FROM CARDIN:

The meltdown has not been cancelled

America’s economic crash and fall from international supremacy are still proceeding nicely, notwithstanding the proliferation of early calls for “the end of the credit crisis,” which seems to be bandied around as a psychological euphemism for “Everything’s great again!” and also notwithstanding the proliferation of claims that there is no oil and energy crisis beyond prices that are high only because of the supposed mass activity of greedy speculators, and there’s lots of oil in various new and capped off wells anyway, and the whole market’s being manipulated just to drive up prices and hurt the little man, so it’s all just a made-up problem that could be fixed if only somebody would sue the bastards!

Ahem. Like I said, things are still melting down nicely despite early calls for the “all’s clear” signal. People around me in daily life here in southwest Missouri are starting to feel and talk about the definite squeeze they’re feeling from high gasoline prices, high food prices, difficulties with health insurance (something they’ve talked about for years), and more. And if they think the portion of their money that’s currently being eaten up by these things is already proving a bit of a strain, hoo boy, do I cringe to think what’s coming next.

But anyway, this week’s Headlines from the Meltdown post is coming late because of an exceptionally busy week and a half that I recently endured. And also anyway, I’m going to be transitioning back to posting about a wider swath of topics here at The Teeming Brain than just the matter of the mounting economic crisis that has dominated my blogging attention almost completely for maybe six or seven months now.

That said, I certainly encourage you to continue watching good headline aggregator sites (e.g., Prudent Bear), including ones that tend toward the overtly apocalyptic (e.g., the Breaking News page at Life After the Oil Crash, Carolyn Baker’s site, and others). And also watch mainstream financial news sites like Yahoo’s and CNN’s money pages, and like Bloomberg. It’s especially instructive to note how the performance of the financial markets on any given day can be so schizophrenically at odds with the same day’s news, events, and political pronouncements in this new order of things.

So anyway, enjoy the ride. Protect yourself and your loved ones. Brace for massive change. Educate yourself. And keep your wits about you.

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Civilization’s Last Chance

Bill McKibben, The Los Angeles Times, May 11

[Note: This op-ed is primarily about the urgency of addressing the problem of climate change due to mounting levels of carbon dioxide in earth's atmosphere. In the opening paragraphs, excerpted below, McKibben does a nice job of placing the issue in the context of the wider passel of crises facing us all right now and, via their current pattern of relentless convergence, battering even constitutionally heedless Americans into submission to the fact that Big Problems are afoot.]

Even for Americans — who are constitutionally convinced that there will always be a second act, and a third, and a do-over after that, and, if necessary, a little public repentance and forgiveness and a Brand New Start — even for us, the world looks a little terminal right now.

It’s not just the economy: We’ve gone through swoons before. It’s that gas at $4 a gallon means we’re running out, at least of the cheap stuff that built our sprawling society. It’s that when we try to turn corn into gas, it helps send the price of a loaf of bread shooting upward and helps ignite food riots on three continents. It’s that everything is so tied together. It’s that, all of a sudden, those grim Club of Rome types who, way back in the 1970s, went on and on about the “limits to growth” suddenly seem … how best to put it, right.

All of a sudden it isn’t morning in America, it’s dusk on planet Earth.

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Numbers Racket: Why the economy is worse than we know

Kevin Phillips, Harper’s Magazine, May 2008

[Note: This excerpt is from a version of the article that is itself an excerpt from the full piece, which is available online only to subscribers.]

If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

The corruption has tainted the very measures that most shape public perception of the economy — the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances — inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.

The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3–4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?

….The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today’s U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional “Pollyanna Creep,” what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally.

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Economy and the World in Crisis: Gas, Food, Thought

Global Politician, May 11

Crisis is defined first as a “turning point” and secondly as a “crucial situation.” Currently the world is deep into the latter as it relates to energy and food, though inevitably the present situation will evolve into the former. The international community, and particularly the United States, must be willing to think differently about energy, food, and the environment. The current paradigm, as expressed by consumption and inaction, reflects an underlying belief that there will always be more and that this crisis, and others before it, are temporary. Just as society had to accept that the Earth is not flat and the Sun is the center of the universe, we must now accept that oil is not a renewable resource and that how we live today will determine how our grandchildren live tomorrow. We must think about problems in a new way or we will never generate a new reality; we are, in fact, destroying our current reality.

The gas crisis is primarily the result of demand exceeding supply. The increased consumption of emerging economies in Russia, China, and India are adding pressure to a supply already strained by extreme over-consumption in the United States (which accounts for 25% of all oil and gas used in the world). There are also emerging economies in the Middle East experiencing rapid growth as a result of oil profits, which are in turn withholding greater amounts of produced oil for internal use. The dependence of the Western World on oil allows oil-producing nations to use the price and production of crude oil as a unique form of economic sanction and a highly effective political tool. The U.S. wars in Iraq and Afghanistan, coupled with generally tense relations between the West and Middle East, only serve to exert more stress on the global oil markets. Certainly this is an oversimplified explanation of a complex situation, but one need not be an economist or a geologist to understand that one day, in the not so distant future, the oil will run out.

….Like the gas situation, the food crisis is also chiefly the result of the demand/supply ratio; however, with the gas crisis the pressure is on the demand side of the equation (for now), whereas with the food crisis the pressure is on the supply side. It is true that there is an increased demand on the world’s food supply from swelling populations and incomes in China and India, and the rising gas prices are forcing the cost of producing and transporting crops up, but at the root of the food crisis are more fundamental environmental and agricultural issues.

….Neither the gas crisis nor the food crisis is the real problem. The problem is not the mortgage crisis, the AIDS crisis, or a crisis of economics. The real crisis is one of thought. As a world, a society, as people – we are in the midst of a thinking crisis. Instead of focusing on how to get cheaper gas, we must think about how to fuel our world and our lives without gas. Instead of thinking about feeding the world today, we must figure out how to sustain a larger global population tomorrow. We must accept that once we change our thinking, we must align our behavior accordingly. We must learn to value progress over convenience, life over lifestyle. We must acknowledge that we are citizens of a global community, and realize that neither nature nor natural resources recognize our superficial political boundaries.

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The high price of oil is NOT a bubble

Paul Krugman, The New York Times, May 12

“The Oil Bubble: Set to Burst?” That was the headline of an October 2004 article in National Review, which argued that oil prices, then $50 a barrel, would soon collapse.

Ten months later, oil was selling for $70 a barrel. “It’s a huge bubble,” declared Steve Forbes, the publisher, who warned that the coming crash in oil prices would make the popping of the technology bubble “look like a picnic.”

All through oil’s five-year price surge, which has taken it from $25 a barrel to last week’s close above $125, there have been many voices declaring that it’s all a bubble, unsupported by the fundamentals of supply and demand.

So here are two questions: Are speculators mainly, or even largely, responsible for high oil prices? And if they aren’t, why have so many commentators insisted, year after year, that there’s an oil bubble?

….[T]he rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.

….[A] realistic view of what’s happened over the past few years suggests that we’re heading into an era of increasingly scarce, costly oil.

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BusinessWeek predicts ‘global turmoil,’ advises companies to prepare for large-scale events with ’seismic’ impacts

BusinessWeek.com, April 29, 2008

Recent headlines — Citigroup’s layoffs, Iceland’s sudden downturn, worldwide food shortages, etc. — suggest serious global turmoil is ahead. All companies, and multinationals in particular, should be prepared to withstand it.

Unfortunately, many are not. Traditional forecasting and budgeting systems produce linear projections insufficient for risky, uncertain times. What’s needed is scenario planning, where companies stress-test their strategies and processes against a wide range of future scenarios to identify their vulnerabilities. Thus informed, the companies can adjust them to be more responsive and resilient.

But scenario planning often takes a backseat to more immediate concerns: developing new products, fighting an aggressive competitor, meeting earnings targets. So when large-scale external events hit, their impact is seismic.

[Note: The remainder of the article offers advice to companies about scenario planning in the face of the predicted global turmoil.]

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The Ticking Credit Card Time Bomb

Peter Schiff, Financial Sense University, May 9, 2008

For those holding out hope that the American economy can miraculously avoid a long and deep recession consumer credit is often viewed as the wonder drug that can cure all manner of economic ills. As such, this week’s report showing $15 billion growth in consumer credit was widely heralded as proof of America’s economic strength and resilience. However, we are now suffering the after effects of too much debt, and our salvation cannot be found in more of the same.

Credit card debt, which now stands at whopping $957 billion nationally (approximately $3,000 for every citizen) has, in recent years taken on a different role in American life. While in the past cards were used primarily to purchase big ticket items, spreading out costs over many months, they are now increasingly used to bridge the gap between cost of living and the diminishing purchasing power of Americans who have been taxed mercilessly by inflation. By buying with available credit instead of unavailable cash, consumers are not simply postponing the pain of higher prices, but compounding it by adding interest to the cost of everyday purchases. In addition, as home equity credit is now unavailable to fund large purchases, many consumers are turning to non-deductible, higher cost credit card debt as the last remaining life line. As such, credit card debt compounds steadily, and for many borrowers, becomes increasingly impossible to pay down.

….It should be painfully obvious that expanded consumer credit is not evidence of improvement, but simply, deterioration. Unfortunately, when it comes to understanding the economy, there is little common sense on display. By going even deeper into debt just to make ends meet, American consumers are digging themselves, and our entire economy, into an even greater economic hole and laying the foundation for the next major credit debacle. It’s fitting that just as both Treasury Secretary Paulson and JP Morgan CEO Jamie Dimon declared that the worst of the crisis has past, we are on the verge of kicking the whole thing into a much higher gear!

….Soon, as credit card delinquencies rise and losses on pools of securitized credit card debt mount, those supplying the credit will finally get wise to the fact they will never get their money back. As a result the market for such debt will dry up even more quickly than did the market for subprime mortgages. Cards will therefore be much harder to come by and will have much lower limits then they do today. Limited to only the cash in their wallets, Americans will finally be forced to dramatically curtail their spending, and the recession will finally gather serious momentum.

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Get Ready to Spend $6000 a Year on Gas

The Christian Science Monitor, March 14

Two years ago a leading economist published a study provocatively titled: “What would $120 oil mean for the global economy?” Answer: a global recession, if the price stayed there for a year.

Now the future has arrived, with the United States and other nations getting a double whammy from both the mortgage crisis and oil futures hovering at $120 per barrel. If oil prices stay stratospheric, the cost of fueling cars and planes could slash US economic growth up to 2.3 percent and global growth by 3.6 percent, says Robert Wescott, former chief economist of the president’s council of economic advisers and author of the $120 oil report.

While many energy-security experts worry about a terrorist attack that suddenly crimps global oil supplies and hammers the US economy, Dr. Wescott and other experts say a terror attack is hardly the only, or even the worst, oil threat the nation now faces. “What we are seeing today is more of a slow-motion, rolling oil crisis rather than a sharp shock, yet ultimately we end up with the same sorts of impacts [as a terror attack],” says Wescott, now president of Keybridge Research, a Washington economic-consulting firm.

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The Risk Economy

James Howard Kunstler, Clusterfuck Nation, May 4

[T]he basic situation is this: the world is awash with bad investment paper. The standard of living in the US can’t be supported on debt anymore. The people of the US don’t produce enough real value to service their debts. Institutions can no longer be supported on debt gone bad. Something’s got to give — meaning something has to bring the US standard of living down to a level consistent with our declining actual wealth.

Everything else going on right now is a dodge. The Fed maneuvers, the “coordinated actions” of the western central banks, the postponements of default, the non-disclosure of contents in bank portfolios, the pretense that risk alone is a kind of fungible resource that can be endlessly traded to generate fees — all this fucking nonsense will only make the eventual unwinding much worse.

Personally, I doubt that it can go on more than a few more months. The velocity of everything is going up past the “red line” where things really fly apart. The increased velocity of non-performing mortgages and deadbeat credit card accounts is one thing that can’t be hidden or escaped. America will feel and see very vividly when the repossession teams rush families from their homes, when the pickup truck is taken away, and when the pink slip appears in the pay envelope. Meanwhile all the higher-end banking shenanigans will only debase the dollar and make it more difficult for people already in distress to buy gasoline and food.

If the bankers and treasury officials collude to prop up one more failing big bank a la Bear Stearns, the political fallout for Wall Street could be lethal. In any case, I think we will have a way different sense of ourselves as a society by the time the election comes.

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Preparing For What Future?

John Michael Greer, The Archdruid Report, May 7

The current round of global troubles — the peak of conventional petroleum production worldwide, soaring prices and incipient shortages in other commodities, spiraling breakdowns in the international debt market, and the fraying of America’s global empire — marks, in this analysis, the onset of one of the periods of crisis mentioned above. If this is the case, we face several decades of serious social, economic, and political turmoil, with a high likelihood that many of these troubles will spill over onto the battlefield. As I’ve suggested elsewhere, the period between 1929 and 1945, with its economic crises, political horrors, and global power struggles ending in a brutal world war, may make a tolerably good model for the period now dawning around us.

If I’m right — and every discussion of the future needs to start with those unpopular words — the future for which we have to prepare has two aspects, one overarching, one immediate. The overarching aspect is the slow curve of decline I’ve called the Long Descent, the final trajectory of industrial civilization toward its death. The immediate aspect is the need to deal with the particular round of crises breaking over us just now.

….[I]t’s problematic to insist, as a number of internet bloggers did recently, that the discovery of a new oil resource in North Dakota means that peak oil is no longer a problem. On a global scale, with most of the world’s oil producing countries and most of its supergiant fields already in decline, the Bakken shale simply doesn’t make that much difference, and planning for a future that will allow us to keep up the extravagant energy-wasting lifestyles of the recent past will likely have disastrous results.

Yet it’s just as problematic to insist that the current wave of crises will inevitably spin out of control into a fast crash that will bring industrial civilization to its knees. That claim carries its own agenda of actions for the future, and if the claim turns out to be inaccurate, many elements of that agenda could all too easily prove to be dysfunctional. Moving to an isolated rural area and making a go of subsistence farming is not a viable strategy for everyone, for example, and even those who are well suited to that life might turn out to have made a dysfunctional choice if the fast crash fails to arrive on schedule.

If the end of the industrial age turns out to be a longer and more complex process than fast-crash advocates suggest, in fact, isolated rural areas may not be the best places to start small farms at all. Truck gardens and organic food production on the outskirts of small and mid-sized cities will be much better positioned to thrive in a world where markets still exist but transport costs are a major limiting factor. In some areas this is already happening; the explosive growth of farmers markets, community-supported agriculture schemes, and direct sales of local produce to local restaurants have put down the foundations on which local and regional food production networks could easily grow. Fostering the emergence of such networks could contribute much to the future. So could the evolution of many other economic specialties that are irrelevant in the context of a fast crash, but not in the more complex terrain I suspect the future holds for us.

….[Y]ou won’t find many people preparing to make the transition from today’s high-tech economy to the less complex, more impoverished, more fragmented, but still industrial economies that I expect to emerge from the Great Recession and global troubles of 2010-2030 or thereabouts. Nor will you find many people seriously taking on the role of cultural conserver that will be desperately needed if many things of value are to get through the deindustrial dark ages of 2200-2600 or thereabouts, and reach the successor cultures that will emerge beyond it. As I see it, these are among the crucial tasks before us; they could make the long road to the deindustrial future more bearable, and pass on important gifts to the future; but…they will not happen if the people who could make them happen get caught up in premature proclamations of triumph or catastrophe.

GENERAL COMMENT FROM CARDIN:

America’s bill is due. Are you ready to pay?

For those of you who still don’t know — and just where in God’s name have you been? –- Richard Heinberg is a major voice in the collective peak oil/economic meltdown/peak civilization conversation. He’s awesomely smart, insightful, sensitive, educated, and well informed. In short, he’s somebody you should listen to when he talks. An excerpt from the bio at his Website paints the picture nicely:

Richard Heinberg is the author of eight books….He is a Senior Fellow of Post Carbon Institute and is widely regarded as one of the world’s foremost Peak Oil educators. He writes a regular column for The Ecologist, and has also authored scores of essays and articles….He has appeared in numerous video documentaries, including Leonardo DiCaprio’s 11th Hour.

The full MuseLetter that the first item below is excerpted from features an extended report on the current coal situation as well as Heinberg’s complete introduction to the second edition of When Technology Fails by Matthew Stein. It’s all great reading, especially when you consider it in light of what he says at the end, which is what’s appears below.

For those raised in the short-attention-span-theatre of contemporary media culture, the nutshell version of what Heinberg is saying is this: America’s monstrous growth binge is now coming to a crashing end. The bill has just come due for our profligacy. And we’re all going to pay for it very deeply and for a very long time to come.

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It’s Happening (economic collapse, famine, etc. — the entire peak oil scenario)

Richard Heinberg, MuseLetter #193 / May 2008

There is a surreal quality to the experience of seeing the unfolding of unpleasant events that one has predicted. Plenty of times over the past few years I’ve said, “I want to be proven wrong!” Who in their right mind would wish to see economic collapse and famine? But it was obvious that, given the direction our society is headed, these must be the consequences. Now, with oil at $117 a barrel, the US economy teetering, and food riots erupting in Haiti, Egypt, and Asia, one could perhaps gain some satisfaction in saying “I told you so.” But what faint compensation that would be. We are all going to have to share the bitter fruits of our society’s century-long growth binge, whether we have criticized it or participated wholeheartedly. The only silver lining is the possibility that now, at last, as the trends (Peak Oil, the failure of growth-based economics, the failure of industrial agriculture, climate chaos, and so on) are becoming so starkly clear, policy makers will begin seriously to contemplate a Plan B (or C, as Pat Murphy insists). For those of us who have been lobbying in that latter direction for some while, this is no time to let up, but rather the ideal moment to redouble our efforts.

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Emptying the Breadbasket: Transformation of U.S. agriculture means end of cheap wheat

The Washington Post, April 29

At Stephen Fleishman’s busy Bethesda shop, the era of the 95-cent bagel is coming to an end.

Breaking the dollar barrier “scares me,” said the Bronx-born owner of Bethesda Bagels. But with 100-pound bags of North Dakota flour now above $50 — more than double what they were a few months ago — he sees no alternative to a hefty increase in the price of his signature product, a bagel made by hand in the back of the store.

“I’ve never seen anything like this in 20 years,” he said. “It’s a nightmare.”

Fleishman and his customers are hardly alone. Across America, turmoil in the world wheat markets has sent prices of bread, pasta, noodles, pizza, pastry and bagels skittering upward, bringing protests from consumers.

But underlying this food inflation are changes that are transforming U.S. agriculture and making a return to the long era of cheap wheat products doubtful at best.

….Wheat’s fall from favor, little noticed when it was cheap, has been long coming. Though still an iconic symbol of American abundance — engraved on currency and praised in song — the nation’s amber waves of wheat have been increasingly shoved aside by other crops. The “breadbasket of the world,” which had alleviated hunger and famine since World War I, now generally supplies only a quarter of world wheat exports.

U.S. farmers are expected to plant about 64 million acres of wheat this year, down from a high of 88 million in 1981. In Kansas, wheat acreage has declined by a third since the mid-1980s, and nationwide, there is now less wheat in grain bins than at any time since World War II — only about enough to supply the world for four days. This occurs as developing countries with some of the poorest populations are rapidly increasing their wheat imports.

….[I]n the long run, said USDA wheat analyst Gary Vocke, “The forces leading to the trends are still in place.” Though supplies may rebound, he and other experts doubt that prices will drop to prior levels.

That poses serious concerns for countries that historically have counted on the United States to have inexpensive wheat on hand to cushion shocks.

….”With low stocks and a weak dollar, things fly off the shelf faster than they used to,” said David Brown, chairman of the American Bakers Association’s commodity task force. “There’s just not enough acreage coming back into production to replenish these stocks.”

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Outlook for oil supplies ’signals a period of unprecedented scarcity’

The New York Times, April 28

As oil prices soared to record levels in recent years, basic economics suggested that consumption would fall and supply would rise as producers opened the taps to pump more.

But as prices flirt with $120 a barrel, many energy specialists are becoming worried that neither seems to be happening. Higher prices have done little to attract new production or to suppress global demand, and the resulting mismatch has sent oil prices spiraling upward.

“According to normal economic theory, and the history of oil, rising prices have two major effects,” said Fatih Birol, the chief economist at the International Energy Agency, which advises industrialized countries. “They reduce demand and they induce oil supplies. Not this time.”

A key reason that supply is not rising to meet demand is that producers outside of the OPEC cartel — countries like Russia, Mexico and Norway — have been showing troubling signs of sluggishness. Unlike the Organization of the Petroleum Exporting Countries, whose explicit goal is to regulate supply to keep prices up, the other countries are the free traders of the international market, with every incentive to produce flat-out at a time of high prices.

But for a variety of reasons, like sharply higher drilling costs and nationalistic policies that restrict foreign investments, these countries are finding it difficult, if not impossible, to increase output. They seem stuck at about 50 million barrels of oil a day, or 60 percent of the world’s oil supplies, with few prospects for growth.

….Analysts at Barclays Capital said last week that non-OPEC supplies were “seemingly dead in the water.” Goldman Sachs raised similar concerns last month, saying that growth in non-OPEC supplies “can no longer be taken for granted.”

….“What is disturbing here is that things seem to get worse, not better,” an analyst at Goldman Sachs, David Greely, said. “These high prices are not attracting meaningful new supplies.”

….The outlook for oil supplies “signals a period of unprecedented scarcity,” an analyst at CIBC World Markets, Jeff Rubin, said last week.

….Oil prices might reach more than $200 by 2012, he said, a level that would probably mean $7-a-gallon gasoline in the United States.

….The International Energy Agency estimates that current investments will be insufficient to replace declining oil production, let alone increase overall output. The energy agency said it would take $5.4 trillion by 2030 to increase global output, a level of investment that is unlikely to be met. It said a crisis “involving an abrupt run-up in prices” could not be ruled out before 2015.

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Waking Up from the American Dream (how the U.S. federal government helped create this crisis)

CBS News (reprinted from The New Republic), May 2

In the midst of the subprime crisis, there’s an important question that analysts and policymakers have neglected: Did so many people need to own homes in the first place? The dream of home ownership has long been part of the American experience, but, as the federal government steps in to artificially support borrowers and lenders with tax credits that encourage more spending or with public spending that keeps over-indebted borrowers in unaffordable homes, we ought to consider whether it’s time to wake up from that dream.

Indeed, we ought to consider what role the federal government has played in creating this mess. By stimulating home ownership while failing to account for the reasons home ownership is valuable to society, Washington has simply sought to buy our votes with our own debt. As the subprime crisis accelerates and threatens to spread through prime and near-prime markets, policymakers face a watershed moment. To keep us from an economic nightmare, they need to replace the dream of home ownership with policies that actually increase wealth — not just the illusion of it.

….For the past decade, Americans have increasingly relied on the appreciation of their homes, rather than the returns of their labors, to support themselves, creating an unsustainable and destabilizing economic mirage. Home ownership will — and should — remain a goal, but only if it brings with it the long-term commitment that a mortgage traditionally implied. Home ownership is a social good as long as it allows buyers to build equity — an investment not only in their house but in their community — but a home without equity is really just a rental with debt.

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Why most folks in the future won’t fly: Peak oil and the end of air travel as we know it

Tom Whipple, Falls Church News-Press, May 1

It is clear we are going to see major changes in air travel shortly.

For some time now, airlines have been eliminating frills, raising prices, filling the planes and effecting whatever other economies come to mind. After the summer flying season ends next September, many airlines are planning to retire 5-10 percent of their least efficient aircraft, thereby reducing their flight schedules by a similar amount.

Knowledgeable observers are expressing doubts these moves will be enough. People are starting to talk about $200 oil which implies that airline fuel costs will double again. Newer aircraft are more efficient, but the improvements are nowhere near what is necessary to keep up with surging fuel costs and, as Continental Airlines concluded this week, there is not enough financial benefit in a merger to keep up with costs.

….In short, airplanes simply can’t make money while charging affordable fares at current, much less prospective, fuel prices. The era of 500 mph travel for most people is nearly over.

….Ten or 15 years from now, air travel is likely to be significantly reduced; will be patronized by business travelers or the very wealthy; and will be limited to trans-oceanic or long-distance flights between major population centers.

….There is still a remarkable amount of denial in the airline business. This week Airbus released a forecast showing that the number of large commercial aircraft will grow from 15,000 to 33,000 in the next 20 years and that the number of passengers will triple.

If there is to be a long-term future for air travel, it is unlikely to be with liquid fuel powered turbines driving heavier than air devices.

….Over the longer run, the development of hydrogen powered aircraft might prove feasible or perhaps lighter-than-air dirigibles might be developed to the point where they can move people and goods efficiently over long distances. In any case, the day of the ubiquitous kerosene-powered jet transport which revolutionized travel for many of us in the second half of the 20th century is likely to be shorter than most realize.

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California water shortage is worst in decades

The Los Angeles Times, May 2, 2008

California communities face a strong possibility of water shortages and even mandatory rationing this summer because of record dry weather in March and April, a fast-shrinking snowpack and below-normal reservoir levels, state officials said Thursday.

The bleak news, contained in California’s final Sierra snowpack report of the snow season, means a second consecutive year of water anxieties in a state heavily dependent on water from the melting snow in the Sierra Nevada.

“I have not seen a more serious water situation in my career, and I’ve been doing this 30 years,” said Timothy Quinn, executive director of the Assn. of California Water Agencies. An outmoded delivery system and court rulings that protect endangered fish are also straining the system, he said.

“This is a harbinger of relatively tough times, not just for this year but for a set of years,” Quinn said.

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Melbourne: A city on the edge

The Age, May 3

[Cardin comments: The general significance of this story for all of us not living in Melbourne is, of course, the way the evolution-in-progress of that city into an inner core of "haves" surrounded by a periphery of "have nots" -- with a distinct socioeconomic culture and way of life pertaining to each -- may be a harbinger of what all developed countries can expect to occur not just in their urban areas but everywhere, as a matter of general cultural and socioeconomic transformation, during the early stages of the peak oil crisis.]

Looming peak oil and plunging housing affordability are especially troubling for a sprawling, car-reliant city such as Melbourne. The city’s rail network stopped expanding with its suburbs long ago, leaving two-thirds of residents beyond its reach and creating a massive imbalance between inner and outer Melbourne.

….For all intents and purposes, Melbourne is humming. The smart set from Sydney love visiting for its laneway boutiques and bars, its mix of bold new architecture and Victorian nooks and crannies. So perfectly Victorian are the old streetscapes of Carlton and Fitzroy that the National Trust wants them world-heritage listed. So wonderfully eclectic are the city’s architecture and fashion scenes that RMIT University’s Leon van Schaik lists Melbourne as one the world’s great design hot spots.

Sydney architect Elizabeth Farrelly is a huge fan, saying Melbourne has that “indefinable chutzpah that makes cities hum”. “How could Sydney get it so wrong?” she asked provocatively in a Sydney Morning Herald article a year ago. “Sydney remains bigger, but Melbourne makes the running.”

But appearances can be deceiving. Farrelly is talking about the Marvellous Melbourne of the last century with some interesting latter-day nips and tucks. If she cared to venture into Melbourne’s outer suburbs, it is fair to assume that she would detest them as much as she does those that confront her in Sydney. The Melbourne celebrated by the likes of Farrelly is increasingly mythical, an inner hub that bears little resemblance to its outer wheel.

And while inner city inhabitants might be heard railing against McMansions and gated suburban estates, their world is effectively a similarly gated community — only the cashed-up have access. That means most Melburnians are locked out of the place that contains the cool jobs with the abundant public transport and bike paths that service them, as well as its cafe society, its bars and its theatres. Ironically, too, for all our cultural diversity and rich migration history, inner Melbourne risks becoming mono-tonal. The diversity that Lord Mayor John So constantly praises is fast disappearing.

….So glaring is the splitting of Melbourne into geographical “haves” and “have nots” that even developers raise concerns about the future social consequences.

….Many of those who do migrate to the fringe, according to planners, risk becoming trapped by what is referred to as distance decay — stranded away from jobs and infrastructure. And property prices taking that factor into account will always lag inner-city values, making people’s ability to trade up — and out — of less-advantaged neighbourhoods almost impossible.

* * * * *

The Great Reckoning: For America it’s the end of the instant gratification, shop-till-you-drop lifestyle

The San Francisco Chronicle, April 27

It’s a global shift that some are calling the Great Reckoning. For a generation, economists warned that Americans were living too large. With wallets crammed with credit cards and home-equity loans available to any homeowner who could sign his or her name, consumers went on a debt-fueled buying binge. Living rooms bulged with the latest in snazzy electronics and garages filled with shiny new cars and trucks. Restaurants were fully booked, and airlines whisked happy passengers to dream vacations around the world.

Now, that shop-till-you-drop, I-want-it-all-and-I-want-it-now era may be coming to an end. It couldn’t last because it was built on a mountain of money borrowed from overseas.

….[T]he housing crash, a severe credit crunch and a dizzying fall of the dollar are depriving the nation of the means to keep on borrowing and spending. Foreigners have become wary of underwriting the U.S. standard of living. The flow of outside investment is slowing.

In effect, the United States has maxed out on its national credit card. Like it or not, that’s one of the most important things now forcing a new standard of frugality on free-spending Americans.

“We’re going back to the good old days of living within our means,” said David Rosenberg, chief North American economist for securities giant Merrill Lynch.

….The years from the early 1980s until recently were a long boom for American consumers, even though their incomes grew slowly if at all during much of that period. “There was a lot of air under this economic expansion,” Rosenberg said. “It was engineered by an unprecedented increase in (borrowing) that involved practically every area of consumer credit.” Consumer debt reached levels never seen before and, by the end of 2007, the household savings rate fell below zero.

The United States is now in the early stages of a prolonged period of belt tightening, a contraction not seen in decades.

….”We’re seeing the birth pangs of a new economic structure,” said Neal Soss, chief economist for the securities firm Credit Suisse First Boston. “The next year or two or three will be about the transition to a new equilibrium. Consumption by households will grow more slowly than their incomes, which is the exact opposite of the last 25 years when consumption grew faster than incomes.”

….”This is not the end of the world. It’s not Armageddon,” Rosenberg said. “It doesn’t mean we’re going to have to live in a cave or a hut or an RV. The areas of retrenchment are in things we can do without, such as cutting out that extra vacation.”

The current period marks the finale of the post-World War II era when the United States stood unchallenged atop the world’s economic pyramid and the dollar reigned as the one truly global currency, many observers say. Now the nation must deal on more equal terms with a rising China and India, a united Europe and a powerful bloc of Asian manufacturing nations. Even Latin America, the long-time underperformer in the global economy, is flexing its muscles.

“The world has become multipolar,” said UC Berkeley international economics expert Barry Eichengreen. “Our dominance will decline.”

In places such as Asia, where Uncle Sam long wagged his finger at nations that mismanaged their economies, “there is a peculiar sense of satisfaction that the United States has received its comeuppance,” Eichengreen said.

The catalyst for this transformation has been the traumatic collapse of the nation’s housing market.

* * * * *

End of America’s buying binge signals much trouble — and profound changes — just ahead

The Los Angeles Times, April 30

[Cardin comments: Please note the subtext that's present in this and the similar article located directly above: that the the era of Americans living beyond their means on ginormous credit, zero savings, and the economic largesse of other nations was ultimately a GOOD thing. After all, isn't that obviously the point that's being made when the end of said era is pegged as a bad thing? This just goes to show how thoroughly nutsoid (to coin a new term that I rather like) our collective thinking has become, when what's considered "bad for the economy" is actually what's manifestly beneficial for human life, the human spirit, planet earth, and the Big Picture. The great E.F. Schumacher nailed the matter a generation ago, right on the incipient edge of this cultural catastrophe back in the 1970s, in his book Small Is Beautiful, when he pointed out that an economic system based on perpetual growth is divorced from reality. He wrote,

Can such a system conceivably deal with the problems we are now having to face? The answer is self-evident: greed and envy demand continuous and limitless economic growth of a material kind, without proper regard for conservation, and this type of growth cannot possibly fit into a finite environment. We must therefore study the essential nature of the private enterprise system and the possibilities of evolving an alternative system which might fit the new situation.

We're presently experiencing an entirely Schumacherian moment. The man is being revealed as a prophet more and more every day by current events, as are the members of the Club of Rome, who brought us The Limits to Growth during the same 1970s era. Geez, do you think we'll listen to them this time around, when events are forcing us to?]

For a generation, Americans snapped up clothes tailored to every demographic, bought the latest sport utility vehicles and piled on the wide-screen TVs.

No more. The nation’s long buying binge appears to be over. And that’s probably bad news for the economy.

Today, when the government issues its first snapshot of growth in 2008, the role played by U.S. consumers will appear smaller and faded compared with the past, when, year after year, their spending became ever more important to the economy.

“We’re at a watershed moment,” said Jay P. Feldman, an economist with Credit Suisse in New York. “The era of consumers living beyond their incomes is at an end.”

….The abrupt slowdown in consumer spending has already wreaked havoc with retailers, especially auto dealerships, furniture showrooms and apparel stores. Auto sales fell 12% last month compared with a year earlier, according to AutoData Corp., which compiles industry statistics. More than 2,100 retail stores have been shuttered since January and more than 6,500 are likely to be by the end of the year, according to the International Council of Shopping Centers.

A string of mid-size chains, including furniture sellers Levitz, Bombay and Domain, catalog retailer Lillian Vernon and electronics firm Sharper Image, have gone bust. And home goods giant Linens ‘n Things is tottering on the edge, having missed making recent interest payments.

….If Americans ultimately decide that their longtime strategy of low savings, high debt and reliance on stocks and housing no longer works, the results could be big, and unpleasant. People would have to save more, rather than rely on price appreciation to cover spending. They’d have to consume less. Businesses, in turn, would have to find new consumers elsewhere, especially overseas.

“Nothing’s going to reverse a generation of behavior overnight,” said Feldman, the Credit Suisse economist. But “what the markets are signaling is we have to consume less and export more.” Doing so would make for a very different — and considerably less heady — America than that of the last quarter of a century.

CARDIN COMMENTS:

Bye-bye to Business As Usual

If there’s a single theme that unites the past week’s crop of news, analysis, commentary, and prophetic utterances, it is that Business As Usual — a term that surely deserves the proper-noun caps by this point — is altogether dead.

Okay, that may be jumping the gun a bit. Presently BAU still in the dying stage. But for all practical purposes, as a model for what we inhabitants of planet earth can and should expect out of life from here to the end, Business As Usual is a freshly minted corpse.

By BAU, I refer to the fossil fuel-based, technologically advanced lifestyle that all of us, whether we hail from the “developed” or “developing” world, whether we’re members of any nation from the First World to the Third, from any and all cultural, ethnic, and socioeconomic backgrounds — the lifestyle, I say, that we all, each and every one of us, have come to think of either normal (if we’re from the First World “developed” nations) or desirable (if we’re from anywhere else). For the better part of a century, we have all either been shoring up and improving our hold on this way of life or else pining after and struggling to achieve it.

That’s too bad, since this way of life is a dead end.

I leave it to the assembled links and excerpts below, as well as all of the other relevant items you can find anywhere and everywhere these days, to establish the point. I’ll just end this week’s comment by noting the poignancy of the phenomenon identified by The Los Angeles Times in the final piece excerpted below. Titled “Raised in boom times, many Gen-X and Gen-Yers see their dreams go bust,” the article reports:

Raised amid a long stretch of financial bounty and weaned on video games, cellphones, iPods and weekends at the mall, many Generation X and Y members have barely seen a time when they couldn’t spend freely on the latest styles and gadgets.

….”This generation as a whole has not experienced any substantial kind of financial difficulty,” said Leslie Winefield, director of the Portland, Maine-based Institute for Financial Literacy. “It could be a defining moment for them.”

This relates directly to what I wrote a couple of weeks ago in “The end of the future as we knew it,” where I said,

We members of modern industrial civilization, especially we members of its current Western (especially American) variety, are no longer able to pretend that we’re going to live in a Star Trek-type utopia that emerges as the logical endpoint of the civilizational trajectory our collective lives have followed for the past several decades. Sorry, but it’s over. It’s just not going to happen. That future is almost certainly dead.

….And for some but probably not all of us, what may die in this process is not just a particular vision of the future — the one you see embodied in advertisements for cell phones, iPods, automobiles, restaurants, clothing, retail stores, television programs, computer platforms, tooth whitening products, exercise machines, financial institutions, pharmaceuticals, etc., etc., etc. — but the very idea that the future is real. Maybe, just maybe, some of us will experience an awakening to the present that does away once and for all with the fallacious notion that there’s really a future out there and a past behind us, and that we’re sandwiched between them and burdened with the weight of both.

It’s not all that surprising, really, that I was writing preemptively in tune with what the L.A. Times article identifies. After all, I’m a Gen-Xer myself, raised in the 1970s and 80s with VCRs and cable television (both of which my family first acquired when I was in junior high school) and come of age during the hyper-pseudo-prosperity of the Reagan years. That article from Los Angeles is talking about me and my generation.

And I, for one, can report that it’s not so bad having your basic economic, political, cultural, and environmental view of the world exposed as an illusion. I mean, sure, it’s shocking and disorienting at first, but when you come to see clearly that your inherited and preprogrammed view of the world was a big lie that was based on and supportive of a fundamentally empty, inhuman, and ecologically unsustainable set of assumptions, the prospect of Business As Usual going bye-bye becomes rather attractive.

* * * * *

The Era of Cheap Food, Energy, and Credit at an End

The Daily Reckoning (U.K. edition), April 24

Eight years into a new millennium, it feels like the end of an era. The end of the eras of cheap credit, cheap food and cheap energy. Will they be back? Even Pollyanna might swallow hard before giving the nod to that one.

On the credit front, banks around the world may have lost somewhere in the region of a $1trn between them, so something has to give. Namely loans to customers. Whether they be first time buyers trying to get a foot on the housing ladder, a business needing finance or some private equity house putting together a leveraged buyout. Subprime has blown a large hole in the banks, and that means credit rationing for customers.

….As for the era of cheap food, its return looks unlikely unless there’s a catastrophic reversal of the long-term economic and demographic growth trends in place. Or agricultural production revives once again confounds global warming and the Malthusians. China will one day boast a middle class whose numbers will equal the entire population of the US. Will they want to subsist on a bowl of rice a day? No. They’ll be wanting hamburgers, pizza, steak and sushi… or the cultural equivalent thereof. The rich world will just have to learn to share with the nouveau riche world and bid more for it. Food rationing in the east. Food rationing in the west. Mighty US retailer Walmart is limiting the purchase of rice, reports Bloomberg, and another US retail giant, Costco, is considering a similar move. Elsewhere, Irish Banana importer Fyffes reports higher import costs are accelerating fruit price inflation.

And then there’s cheap energy… Well, maybe one day we’ll be saved by science, but the quest for an alternative to finite hydrocarbons remains a live one. And until that day comes we’ll continue to be pay close attention to the oil price, now retreated to $117 from its recent relentless march up to $120 high. And on the idea mentioned recently of what price oil has to hit before people start giving up on the car, a reader writes…

“Oil at 200 bucks within the next five years? Quite probable, but down to 80-85 first as this spike runs out of steam. Overall when peak oil (maximum daily supply exceeded by minimum daily demand — not the stuff in the ground ) hits us then the price will go as high as it can ($400) before the global transportation infrastructure grinds to a halt and with it the global economic infrastructure. Global warming just doesn’t stand a chance because we won’t see 2100 as a civilised planet.”

* * * * *

Say goodbye to ‘business as usual’

John Michael Greer, The Archdruid Report, April 23

Those of us who are watching the crisis of industrial society arrive on schedule take our omens where we find them, and one appeared yesterday morning in the unlikely form of an internet ad riding shotgun on a peak oil blog. The header was striking enough — “Oil Will Hit $100!” — or it would have been, except that one of the main benchmark grades of crude oil closed not far below $120 a barrel that evening. When the ads on your computer screen have already been left in the dust by the headlines, it’s fair to say, yesterday’s assumptions are in serious need of revision.

Meanwhile, rolling blackouts and food shortages are making life more difficult for people in many of the world’s poorer nations. Even in the United States, where instant availability of consumer products is generally considered an inalienable right, the first spot shortages of grain products have made ripples in the media. I won’t even get into the plunging real estate prices and financial implosions along the route of the slow-motion train wreck the global economy resembles so much these days. One way or another, it’s turning into a bad week for believers in an imminent return to what most people nowadays consider business as usual.

….What we most need to realize at this juncture is that the way things have been in the world’s industrial societies over the last century or so is in no way normal. It’s precisely equivalent to the new lifestyle adopted by winners of a lottery whose very modest income has suddenly leapt upward by $1 million a year or so. After a few years, the lottery winners might well become accustomed to the privileges and possessions that influx of wealth made possible, and children growing up in such a family might never realize that life could be any other way. The hard fact remains, though, that when the lottery money runs out, it runs out, and if no provision has been made for the future, the transition from a million dollars a year to the much more modest income available from an ordinary job can be very, very rough.

….[W]e’re running out of the energy resources that make it possible for every man, woman and child in America to dispose of the equivalent of $512,811 in labor every year. It’s as though the 30 billion invisible guest workers whose sweat powers the American economy are quitting their jobs one by one, and moving back home to the Paleozoic. When the process completes itself, and the long curve of depletion finally sinks low enough that it’s no longer economically worthwhile to extract the remaining dregs of fossil fuel from the ground, the amount of labor each of us will have at our disposal will be much, much less than it is today.

….The farmers of the future may well use intensive organic methods rather than the field agriculture of an earlier day, just as the craftspeople of the future may well spend some of their time crafting solar hot water heaters and shortwave radios. Still, this sort of handicraft economy is a mature and effective social technology, and far and away the most common way societies provide for the needs of their members. It is, one might say, business as usual.

* * * * *

The Peak Oil Crisis: The Case for 2008

Tom Whipple, Falls Church News-Press, April 24

In recent weeks there have been developments suggesting that the troubles associated with peak oil may be coming faster than many realize.

….If our stockpiles do not start to build more rapidly in the next month or two, then watch out, for in recent years the U.S. has slowly moved towards a just-in-time system for oil and products to lower inventory costs. Keep in mind that much of our “stockpile” is trapped in pipelines, sitting in partially-processed tanks at refineries, and aboard ships and barges where it is no use to the consumer. It was only a couple of years ago that we were hours away from shortages.

There are many forces at work in the world’s oil markets today. How they will all balance out over the rest of the year is impossible to tell. During the last few months, however, developments suggesting much higher prices and shortages have come to the fore as witnessed by the steadily increasing prices for oil and gasoline. Unless something comes along to reverse these forces in the next few months, we are likely to suffer very serious economic troubles before the year is out.

* * * * *

Peter Schiff: The American standard of living is on the way down; it’s time to start stockpiling things

Interview with Peter Schiff on the Glenn Beck Program, March 17

SCHIFF: [Politicians] don’t want to admit they have been lying to us all these years. They want to create the U.S. economy as if we had a good economy. You know, sub crime wasn’t just a problem that happened in a healthy economy. The sub prime was the pin that predicted the bubble. The problem was we had a bubble economy in the first place. It wasn’t viable. You can’t have an economy where everybody runs deficits, where we just import things that we didn’t make and give the world an IOU. And we all live on a giant credit card. That can’t last. That can’t happen forever and, you know, it’s finally come to an end and so rather than trying to recreate that bubble, rather than going deeper into debt and sending everybody, you know, checks and hoping that there’s a stimulus package so they go out and spend more money, we need to address the fundamentals that got us into this mess. We need to return to a nation where people save money, not spend money. And where we actually produce stuff. But, you know, the transition back to a viable economy from a bubble economy cannot happen without a recession. It can’t happen without a lot of people losing money. But the Fed doesn’t want to fess up and politicians don’t want to admit the mess that we’re in. So they want to prepare that they can make it all better by printing money and they can’t.

GLENN: What does the average Joe do?

SCHIFF: Well, the average Joe has to understand the mess we’re in. Just like you had the heads of Bear Stearns on television last week saying, hey, there’s no problem, everything is great, these rumors are false and next thing you know the stock falls through the floor. Well, it’s the same thing with the entire U.S. economy. You get, you know, the big wigs, the Ben Bernankes and you get Henry Paulson going on all the Sunday morning shows ensuring us that the fundamentals are sound, that everything is great. They are just as fundamentally sound as Bear Stearns were. So people have to understand they are getting lied to by Wall Street, they are getting lied to by the government. Most of the financial shows out there that they think they are getting advice, they are not. They are getting Wall Street propaganda. So people have to take action. They have got to do what I wrote with my book, Crash Proof. People have to get rid of the U.S. dollar or get into other currencies like the Swiss franc or the Singapore dollar or the — they have got to buy gold.

GLENN: Peter, I’m talking about the average person. I’m talking about the guy who is bustin’ his butt, the family is living paycheck to paycheck.

SCHIFF: You want the average person who has no savings.

GLENN: I’m talking about, yeah, the average person in America that is just barely squeaking by. What do they do?

SCHIFF: You know, I don’t know. It’s going to be tough. I mean, maybe one thing they can do is stop making their mortgage payments because that’s a waste of money and maybe they can do something constructive with that money. I mean, certainly people can start stockpiling things.

GLENN: Wait, wait, wait, wait. Wait, wait, I can’t just have you say on national radio stop making your mortgage payments. What do you mean by that?

SCHIFF: You are throwing money down a rat hole. It’s going to be tough for people that don’t have any savings and they are working paycheck to paycheck. Certainly they can stockpile things. Things are going to get more expensive. So, you know, don’t wait to buy, you know, your food items, things are nonperishable, fill up your cupboards. You can buy things like razor blades and shaving cream, things you know you are going to need because they are going to get more expensive.

GLENN: I don’t think we also need to be recommending to people buying razor blades.

SCHIFF: Not to slit their wrists but just so they can shave. It’s going to get tough. What it means to be American, our whole standard of living is going to decline because of years of living beyond our means. It should be no surprise that when you live on debt and eventually when the bills come due and you can’t afford to pay them that you are going to have to reduce your standard of living. You know, a lot of Americans are going to have to find more viable forms of employment. There’s going to be a lot of Americans who are retired right now who a couple of years from now are going to be looking for work because the savings they have are just not going to be adequate to afford the higher cost of living that we’re all going to be stuck with.

* * * * *

Load up the pantry, it’s time for Americans to start stockpiling food

Brett Arends, The Wall Street Journal, April 21

I don’t want to alarm anybody, but maybe it’s time for Americans to start stockpiling food. No, this is not a drill.

You’ve seen the TV footage of food riots in parts of the developing world. Yes, they’re a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here.

Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.

“Load up the pantry,” says Manu Daftary, one of Wall Street’s top investors and the manager of the Quaker Strategic Growth mutual fund. “I think prices are going higher. People are too complacent. They think it isn’t going to happen here. But I don’t know how the food companies can absorb higher costs.”

….The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They’re all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.

These are trends that have been in place for some time. And if you are hoping they will pass, here’s the bad news: They may actually accelerate.

….You can’t easily stock up on perishables like eggs or milk. But other products will keep. Among them: Dried pasta, rice, cereals, and cans of everything from tuna fish to fruit and vegetables. The kicker: You should also save money by buying them in bulk.

If this seems a stretch, ponder this: The emerging bull market in agricultural products is following in the footsteps of oil. A few years ago, many Americans hoped $2 gas was a temporary spike. Now it’s the rosy memory of a bygone age.

* * * * *

Epic ‘noise’ in financial markets means what comes next is anybody’s guess

The Daily Reckoning, April 24

There is so much ‘noise’ in the financial system, it is hard to think. The papers are full of distractions and absurdities. You can find almost any point-of-view you want. Some argue that central banks are winning…that the stock market hasn’t gone down because it is getting ready to go up…and soon, the housing market will bottom out too.

“Fears of bank failures recede,” says a headline in the Financial Times today.

Others argue that the worst is still ahead…that the stock market will melt down…that housing prices will fall another 20%…and that the whole world will go into a monumental downturn.

“Housing slump may exceed Depression,” says a San Diego paper.

We take a middle view — that financial assets (including paper money), the financial industry, the credit cycle, the dollar-standard monetary system and the U.S.A. itself are in an historic decline…while emerging markets, gold and commodities are in a once-in-a-lifetime upswing.

We’ve heard about the panic that the doubling of wheat and rice prices is causing in China, India and other Asian countries. But now, reports the Washington Times, this panic is beginning to spill over to Americans. The article goes on to point out that bulk grocery stores, such as Costco, are having to put a limit on how much rice customers in certain states can buy. Americans have gotten a whiff of the high prices and fear that the shortages will spread from overseas, and have begun hoarding necessities such as oil, rice and flour.

….But for all those mommas hoping to get their babies a place at Goldman or Blackrock, we have a suggestion: aim for the legal department. Yesterday brought word from the Financial Times that “sub-prime produces a tsunami of lawsuits.” Our guess is that the financial industry has seen its best days. The wheels are falling off the deal machine. Bonuses are coming down. Employees are being laid off, cast off, spun off, and blown off in every department — save where the legal team does its work. The next few years are likely to produce further trimming in the financial industry ranks. But the in-house lawyers…and lawyers who work face them from outside firms…are bound to enjoy a boom. They’ve got to work out, renegotiate, defend, and deny thousands of claims. Their jobs are safe for years to come.

* * * * *

Things are seriously out of whack, and we’re on the verge of something major

James Howard Kunstler, Clusterfuck Nation, April 28

This has been a pretty remarkable month, actually, with all the problems of “The Long Emergency” accelerating impressively. Oil is now testing the $120 mark, the airline industry is imploding (largely over fuel costs), the housing scene has reached a degree of collapse unseen since the 1930s, food shortages have strayed out of the Third World and begun to affect Japan and the USA, bats are dying of a mysterious disease in the Northeast, and the Arctic sea ice is shrinking away to nothing.

We’re in a strange collective psychic bubble. We’d like to forget about all these troubling rumors of hardship and bad weather and just get on with the daily task of making a living and paying for stuff and enjoying our customary entertainments. The comforting ceremonies of everyday life seem to continue. The freeways are still full of cars. Nancy Grace comes on TV dependably at 8 p.m. and is there deploring the latest pervert arrest. The baseball season has ramped up and the teams are criss-crossing the nation in their chartered airplanes. The stock market is actually going up — what’s wrong with that?

But there’s an equally eerie vibe out there that things are seriously out-of-whack. We’re on the edge of something. We’re at the entrance of a dark passage where some of the ceremonies of daily life meet resistance. You go to the WalMart and five of your six credit cards are refused. Uh oh. It begins to dawn on you that you’re spending a quarter of your take-home pay filling up the gas-tank every week. There’s no dial tone when you pick up the telephone. How could all the supermarkets in town be out of rice? The local hospital just declared bankruptcy. The neighbors down the street auctioned off all their furniture in the driveway last week. Why does the cat pick up so many ticks these days?

Events are not through with us this year. They’ll keep moving where they will whether we believe in them or not. I’m hardly even convinced that it matters who wins the presidential race this year. It could end up being the world’s biggest booby prize.

* * * * *

Raised in boom times, many Gen-X and Gen-Yers see their dreams go bust

The Log Angeles Times, April 27

People everywhere are coping with rising credit card balances, falling home values and layoffs. But such worries are particularly jarring for a younger slice of the workforce that has known little but long-term financial prosperity and optimism.

After all, a large share of today’s 20- and 30-somethings — a nearly 80-million strong cohort — were in college or high school (and some in grade school) the last time the country experienced a severe financial jolt. Some can barely remember the mild recession of 2001, which was followed by an extraordinary boom that coincided with their entry into the workforce.

Raised amid a long stretch of financial bounty and weaned on video games, cellphones, iPods and weekends at the mall, many Generation X and Y members have barely seen a time when they couldn’t spend freely on the latest styles and gadgets.

In these tighter times, they’re watching their spending and they’re borrowing money from family members for the first time. To economize, some are moving in with friends and — the horror — even Mom and Dad.

And after years of being able to boast about promotions and climbing income, a growing number find themselves having to admit that they are out of a job. In the last year, the unemployment rate for 25- to 34-year-olds rose from 4.3% to 5.4% — nearly twice the increase for age groups above them.

“This generation as a whole has not experienced any substantial kind of financial difficulty,” said Leslie Winefield, director of the Portland, Maine-based Institute for Financial Literacy. “It could be a defining moment for them.”

GENERAL COMMENT FROM CARDIN:

An economic bleedout or a swift death?

I’ve written such an extended assortment of commentary to go with the assembled items below that I’ll let them do most of the talking for me this week. Just scroll through and look for my introductory comments, which are clearly marked.

But I’ll pause here at the outset to say that as it appears to me right now, two general scenarios for the U.S. are equally likely in the immediate future, as in, the next few days, weeks, months, and years.

One might be labeled the “slow bleed” scenario. This would involve more of what we have already been seeing, namely, a society-wide and economy-wide squeeze from various general and specific economic pressures — inflating energy and food prices, cratering housing market, ongoing discoveries of “toxic” debt being held by all kinds of companies, the relentless progression of the home foreclosure catastrophe, the drain and strain of the wars in Iraq and Afghanistan, increasing scalebacks and failures of basic government services, the progressive death of the middle class and widening of the gap between rich and poor, etc., etc. — that continue to mount steadily, with perhaps a few intermittent periods of perceived relief, so that we slowly hemorrhage our way into a new and vastly altered cultural and economic landscape characterized by a stupendous decrease in our standard of living and a dramatically altered political environment.

The other might be labeled the “spurting wound” scenario, in which a sudden and acute crisis slashes our national jugular vein and alters things practically overnight. Any number of events might accomplish this, including the failure of one or more large financial institutions, a terrorist attack, the onset of fuel shortages, a natural disaster (earthquake? hurricane?), and/or an outbreak of civil unrest akin to the recent food riots in Haiti, Egypt, and elsewhere. For the first time since the heady days of the 1960s and 1970s, life here in America is pervaded by an authentic and undeniable sense of imminent crisis and breakdown. It wouldn’t really surprise most of us — or at least those among us who aren’t completely encased in the soporific cocoon of mass entertainment culture — to wake up tomorrow morning and be greeted with news of a large scale disaster and political/economic/military lockdown.

The end result of both scenarios will of course be similar or the same (that decreased standard of living and altered political environment mentioned above). And it will of course not be an either/or situation. The slow bleed and spurting wound aren’t mutually exclusive. We will experience both, with our steady hemorrhage being punctuated by periods of acute injury.

Sorry, but them’s the facts.

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Anarchy or worse: Peak oil and the end of the world as we know it

Horizon, KAET (Arizona PBS), April 14

[Cardin comments: In my last installment of Headlines from the Meltdown, "The end of the future as we knew it," I included excerpts from an op-ed in The Arizona Republic by University of Arizona professor Guy McPherson about the imminent end of life as we know it due to the societal and civilizational breakdown that will be occasioned by peak oil. A little over a week after that article appeared, McPherson was interviewed on Horizon, a nightly public affairs program on Arizona PBS station KAET. The interviewer grilled him about the flat-out apocalypticism of his views and asked him how he expects people to react to such a prediction. It's well worth watching. Here's the entire interview as archived on YouTube. But you should only watch it if you're prepared for a serious dose of darkness (as measured by common emotional standards). McPherson speaks in a calm, friendly, and matter-of-fact manner about the complete breakdown of America and, by implication, all other industrialized nations within our lifetimes.]

* * * * *

Global food fight

CNN, April 14, 2008

[Cardin comments: At 1:40 into the following video there's an itemized list of factors that economists say are causing or contributing to the current global food inflation crisis. They include:

• Bad weather
• High oil prices
• More demand in China and India
• Competition with ethanol

Notice how this falls entirely in line with what should be expected in a scenario characterized by peak oil and catastrophic climate change. "Bad weather" is a climate change factor as well as a peak oil-related factor due to the carbon emissions caused by burning fossil fuels. High oil prices and competition with ethanol are drawn directly from the peak oil playbook. And the increased demand from China and India likewise spin off from this same nexus of factors, since the population explosion and technological expansion that have occurred in these nations and elsewhere (including the U.S.) over the past several decades have been entirely facilitated and enabled by reliance on oil in all areas of life.]

* * * * *

IMF director warns food price spike may trigger mass starvation among world’s poor

Bloomberg.com, April 12

Further gains in food prices would be “terrible” for the world’s poor and throw hundreds of thousands of them into starvation, International Monetary Fund Managing Director Dominique Strauss-Kahn said.

Governments throughout Asia, Africa and the Middle East are seeking to combat food inflation and avoid social unrest by curbing exports or lifting import duties on basic food staples such as rice. Global food prices surged 57 percent last month from a year earlier, according to the United Nations, and the World Bank warns civil disturbances may be triggered in 33 countries.

If food inflation keeps accelerating at its current rate “the consequences will be terrible,” Strauss-Kahn told reporters at the IMF’s semi-annual meeting in Washington today. “Hundreds of thousands of people will be starving, leading to a disruption in the economic environment.”

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ABC News: Food riots deliver ‘an apocalyptic warning’

ABC News, April 14

Basic access to food is slipping out of reach for many people in developing countries. The cost of the rice has risen by more than three-quarters in two months and the price of wheat has more than doubled in the same time.

The desperation in dozens of countries has turned deadly of late. In the past week alone there have been violent, food-related riots in Haiti, Indonesia, the Philippines and Cameroon.

World Vision Australia head Tim Costello says the situation is desperate and chronic. “It is an apocalyptic warning,” he said. “Until recently we had plenty of food. The question was distribution. The truth is because of rising oil prices, global warming and the loss of arable land, all countries that can produce food now desperately need to produce more.

….”Disruption may occur in the economic environment so that at the end of the day most governments, having done well for the last five or 10 years, will see what they have done totally destroyed and their legitimacy facing the population destroyed also.”

* * * * *

Around the world, empties bellies are bringing rising anger, riots, political instability

The New York Times, April 18

[Cardin comments: This is serious. And if you live in the U.S. or another First World country and think this kind of thing can't happen to you, think again. As reported on Bill Moyers Journal on April 11, a hunger crisis is already underway on the lower end of the economic spectrum in the U.S. Also see the article immediately below about the food rationing that is currently going on in the U.S. What's more, the entire populace is increasingly uneasy and riled up by the increasingly undeniable signs of, first, a serious nationwide social/economic/political/ecological crisis, and second, a real failure of leadership at all levels of government. The problem with food prices is now creeping and will continue to creep up the economic ladder, affecting an ever greater portion of the population. Revolution, anyone? Or widespread chaos and social breakdown? Don't think it can't happen. But don't expect it to be pretty or to solve much of anything. Remember the aftermath of Hurricane Katrina?]

Hunger bashed in the front gate of Haiti’s presidential palace. Hunger poured onto the streets, burning tires and taking on soldiers and the police. Hunger sent the country’s prime minister packing….Haiti’s hunger, that burn in the belly that so many here feel, has become fiercer than ever in recent days as global food prices spiral out of reach

….That anger is palpable across the globe. The food crisis is not only being felt among the poor but is also eroding the gains of the working and middle classes, sowing volatile levels of discontent and putting new pressures on fragile governments.

….“It’s the worst crisis of its kind in more than 30 years,” said Jeffrey D. Sachs, the economist and special adviser to the United Nations secretary general, Ban Ki-moon. “It’s a big deal and it’s obviously threatening a lot of governments. There are a number of governments on the ropes, and I think there’s more political fallout to come.”

….“This is a perfect storm,” President Elías Antonio Saca of El Salvador said Wednesday at the World Economic Forum on Latin America in Cancún, Mexico. “How long can we withstand the situation? We have to feed our people, and commodities are becoming scarce. This scandalous storm might become a hurricane that could upset not only our economies but also the stability of our countries.”

* * * * *

Food rationing: major U.S. retailers limiting food purchases in New England, California

The New York Sun, April 21

Many parts of America, long considered the breadbasket of the world, are now confronting a once unthinkable phenomenon: food rationing. Major retailers in New York, in areas of New England, and on the West Coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply. There are also anecdotal reports that some consumers are hoarding grain stocks.

….Shoppers said the limits [at a Costco Warehouse in Mountain View, California] had been in place for a few days, and that rice supplies had been spotty for a few weeks. A store manager referred questions to officials at Costco headquarters near Seattle, who did not return calls or e-mail messages yesterday.

An employee at the Costco store in Queens said there were no restrictions on rice buying, but limits were being imposed on purchases of oil and flour. Internet postings attributed some of the shortage at the retail level to bakery owners who flocked to warehouse stores when the price of flour from commercial suppliers doubled.

The curbs and shortages are being tracked with concern by survivalists who view the phenomenon as a harbinger of more serious trouble to come.

“It’s sporadic. It’s not every store, but it’s becoming more commonplace,” the editor of SurvivalBlog.com, James Rawles, said. “The number of reports I’ve been getting from readers who have seen signs posted with limits has increased almost exponentially, I’d say in the last three to five weeks.”

….At the moment, large chain retailers seem more prone to shortages and limits than do smaller chains and mom-and-pop stores, perhaps because store managers at the larger companies have less discretion to increase prices locally. Mr. Rawles said the spot shortages seemed to be most frequent in the Northeast and all the way along the West Coast. He said he had heard reports of buying limits at Sam’s Club warehouses, which are owned by Wal-Mart Stores, but a spokesman for the company, Kory Lundberg, said he was not aware of any shortages or limits.

An anonymous high-tech professional writing on an investment Web site, Seeking Alpha, said he recently bought 10 50-pound bags of rice at Costco. “I am concerned that when the news of rice shortage spreads, there will be panic buying and the shelves will be empty in no time. I do not intend to cause a panic, and I am not speculating on rice to make profit. I am just hoarding some for my own consumption,” he wrote.

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The USA: The Third World’s First Superpower

Charles Hugh Smith, Of Two Minds, April 16

To those of you currently ensconsed in quiet, comfortable suburban America, the notion that the U.S. shares a number of disturbing traits with Third World countries might seem implausible or even insulting. But please read on before passing judgment.

Here are some key traits the U.S. shares with Third World nations — trends which are only growing more visible with each passing month:

1. Income and wealth inequality. One of the defining characteristics of Third World countries is extremes of income and wealth; a relative handful of families/elites control most of the property, wealth and “means of production” (wealth generating assets) while the majority of citizens own and earn essentially nothing.

Here in the U.S. it’s not that visibly extreme, but facts are facts: a relative handful own the vast majority of key wealth-producing assets

….2. The gutting of public services to pay burdensome interest on massive public debt.

….3. The gutting of public services as public employee elites rally round their salaries, benefits and fiefdoms. One of the distinctions of a Third World economy is the extremely high premium placed on securing a government bureaucracy position, as these are essentially the only secure jobs in the entire country.

….4. Secure “formal” jobs are replaced with insecure “informal” jobs. You know the drill: fire all your salaried workers in a downsizing, then hire back the best as contract workers without benefits or pensions.

With secure permanent positions as rare as gold statues, laid-off workers take part-time jobs, or reluctantly enter the “informal” job market as handymen, babysitters, etc. On a societal-wide basis, this means the destruction of tens of millions of once-secure or relatively secure jobs, which are then replaced with completely insecure, informal jobs with no pension or healthcare protections/benefits.

….5. As the economy falters, a vast prison-state/gulag acts to control petty criminals and provide patronage-rich public-worker positions. Sell a gram of cocaine, go to jail for 25 years. The prison guards union is one of the most powerful and feared lobbying organizations in the state of California, surpassing even the mighty Teachers Union and trial lawyers for political power. More prisons? You can bet we need them.

6. As secure, decent-paying jobs vanish, the working poor turn to the Military for secure jobs with benefits.

….7. Top-level public education is increasingly expensive and thus increasingly out of reach for average citizens’s offspring. Since when did students have to borrow tens of thousands of dollars to attend public universities?

….Put this all together and what do you have? A nation which clearly shares key characteristics with oft-maligned Third World “basketcase” nations which are wallowing in debt, unfilled potholes, overflowing prisons and declining public-sector services. Does that mean the U.S. is a Third World state? Of course not; but the above trends should raise our collective awareness of the risks ahead.

* * * * *

U.S. Fed says economy has further weakened, Bernanke actually uses the ‘r’ word

CNNMoney, April 16

[Cardin comments: So now Bernanke has actually uttered the word "recession"! This is a distinct step up from his and Paulson's and Bush's ongoing insistence on playing the political game of impressions and perceptions by referring only to economic "pressures" and the possibility of a "slowdown" and "downturn." As I (and others) have been saying for some time now, based on nothing but the experience of the very recent past you can bet the farm on the fact that public statements by government officials about the unfolding economic crisis are deliberately targeted several notches below the actual severity of the situation. And this means you should perk your ears up every time one of them concedes a worsening of any aspect of the situation, since the reality behind the rhetoric must undoubtedly be very dire indeed to have forced such a concession. Or, in a nutshell, and to repeat myself: It's all much worse than they're letting on.]

The country’s economic health deteriorated further in the early spring as shoppers buckled under the strains of the housing and credit debacles and a weaker employment climate.

Manufacturers and other businesses, meanwhile, were walloped by zooming prices for energy and other raw materials. However, their ability to jack up retail prices to customers was mixed, with some companies restrained by competitive pressures, according to the Federal Reserve’s new snapshot of nationwide economic conditions released Wednesday.

“Economic conditions have weakened,” the Fed report stated.

Many analysts believe the economy has fallen into a recession, predicting that economic activity contracted in the first three months of this year and is still ebbing now.

Even Fed Chairman Ben Bernanke recently acknowledged for the first time that a recession was possible. That was a rare utterance of the “r” word for a Fed chief.

* * * * *

Reports Offer Grim Picture of Economy

The Washington Post, April 17

The economy is slowing across the nation, the home-building sector is tanking more than even the pessimists could have imagined a few months ago and prices keep rising at an uncomfortably high rate.

Those are the unpleasant conclusions of several government reports released yesterday that, together, offer a picture of a U.S. economy being squeezed from all directions.

“Today’s news confirms a lot of what we’ve been hearing and how people have been feeling about the economy,” said Mark Vitner, a senior economist at Wachovia. “There is a clear case that the economy is lousy, but not a clear case that the economy is in recession.”

The bad news was in line with economists’ expectations and did not restrain a rally on Wall Street

Economic conditions have weakened almost across the board in the past six weeks, according to the “beige book,” a compilation of anecdotal reports about business conditions from around the United States prepared by the Federal Reserve.

* * * * *

Mortage crisis turning Minnesota suburbs into ghost towns

The Minneapolis Star Tribune, April 21

There are few trees or hills in this flat, predominantly rural county to obscure the evidence: Rows of vacant and unfinished homes, often with lockboxes on the front doors and foreclosure notices taped to the windows. Realtors call them “see-through houses,” so empty of furniture and curtains that it’s possible to see right through them.

“Based on what I see out here, we’re headed for the Great Depression,” said Dan Frie, a sales agent with Wright Sherburne Realty in Monticello, who has been in the business nearly 30 years.

While Frie blames fraud for exacerbating the problem, many of the mortgages that are in default are held by people who believed — as many did and as the real estate community told them — that real estate doesn’t lose its value.

“And just because the national economy recovers doesn’t mean that our local economy will recover, and that’s what I’m worried about,” Frie said.

* * * * *

You ain’t seen nothin’ yet: The home foreclosure crisis has only just begun

USA Today, April 16

The nation’s already alarming pace of home foreclosures is poised to accelerate through the rest of the year, according to RealtyTrac, which reported Tuesday that foreclosure filings jumped 57% in March from March 2007.

The report painted a grim picture of growing numbers of people unable to make their mortgage payments. Bank repossessions more than doubled in March. Foreclosure filings surged 57% last month from March 2007, with one in every 538 households receiving a foreclosure filing during the month, RealtyTrac said. Nevada, California and Florida were the states hardest hit. In total, more than 234,000 homes were in some stage of foreclosure in March.

….“This isn’t a subprime problem,” says Dean Baker, co-director of the Center for Economic and Policy Research. “The underlying issue is housing prices are falling. It’s going to get worse. Subprime (foreclosures) may have peaked and will start to trail off. In terms of the rest of the market, we’re just beginning.”

GENERAL COMMENT FROM CARDIN:

It’s the end of the future as we knew it (and I feel fine)

What a week! From food riots to fuel prices to more evidence of financial and economic meltdown, it was one for the history books.

But in fact what’s more important to notice than the significance of all this for history is its significance for the