Posts
10
Key Events That Preceded The Last Financial Crisis Are Happening
Again
Michael
Snyder
7
January, 2015
If
you do not believe that we are heading directly toward another major
financial crisis, you need to read this article. So many of the
exact same patterns that preceded the great financial collapse of
2008 are happening again right before our very eyes. History
literally appears to be repeating, but most Americans seem absolutely
oblivious to what is going on. The mainstream media and our
politicians are promising them that everything is going to be okay
somehow, and that seems to be good enough for most people. But
the signs that another massive financial crisis is on the horizon are
everywhere. All you have to do is open up your eyes and look at
them.
Bill
Gross, considered by many to be the number one authority on
government bonds on the entire planet, made headlines all over the
world on Tuesday when he released hisJanuary
Investment Outlook.
I don’t know if we have ever seen Gross be more negative about a
new year than he is about 2015. For example, just consider this
statement…
“When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over.”
And so that is why – at some future date – at some future Ides of March or May or November 2015, asset returns in many categories may turn negative. What to consider in such a strange new world? High-quality assets with stable cash flows. Those would include Treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically. With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable.
Debt supercycles in the process of reversal are not favorable events for future investment returns. Father Time in 2015 is not the babe with a top hat in our opening cartoon. He is the grumpy old codger looking forward to his almost inevitable “Ides” sometime during the next 12 months. Be cautious and content with low positive returns in 2015. The time for risk taking has passed.
So
why are Gross and so many other financial experts being so “negative”
right now?
It
is because they can see what is happening.
They
can see the same patterns that we saw in early 2008 unfolding again
right in front of us. I wanted to put these patterns in a
single article so that they will be easy to share with people.
The following are 10 key events that preceded the last financial
crisis that are happening again right now…
#1 A
really bad start to the year for the stock market.
During the first three trading days of 2015, the S&P 500 was down
a total of 2.73
percent.
There are only two times in history when it has declined by more than
three percent during the first three trading days of a year.
Those years were 2000
and 2008,
and in both years we witnessed enormous stock market declines.
#2 Very
choppy financial market behavior.
This is something that I discussedyesterday.
In general, calm markets tend to go up. When markets get
choppy, they tend to go down. For example, the chart that I
have posted below shows how the Dow Jones Industrial Average behaved
from the beginning of 2006 to the end of 2008. As you can see,
the Dow was very calm as it rose throughout 2006 and most of 2007,
but it got very choppy as 2008 played out…
As
I also mentioned yesterday,
it is important not to get fooled if stocks soar on a particular
day. The three largest single day stock market gains in
history were
right in the middle of the financial crisis of 2008.
When you start to see big ups and big downs in the market, that is a
sign of big trouble ahead. That is why it is so alarming that
global financial markets have begun to become quite choppy in recent week.
#3 A
substantial decline for 10 year bond yields.
When investors get scared, there tends to be a “flight to safety”
as investors move their money to safer investments. We saw this
happen in 2008, and that is happening again right now.
In
fact, according
to Bloomberg,
global 10 year bond yields have already dropped to low levels that
are absolutely unprecedented…
Taken together, the average 10-year bond yield of the U.S., Japan and Germany has dropped below 1 percent for the first time ever, according to Steven Englander, global head of G-10 foreign-exchange strategy at Citigroup Inc.
That’s not good news. The rock-bottom rates, which fall below zero when inflation is taken into account, show “that investors think we are going nowhere for a long time,” Englander wrote in a report yesterday.
#4 The
price of oil crashes.
As I write this, the price of U.S. oil has dipped below $48 a
barrel. But back in June, it was sitting at $106 at one point.
As the chart below demonstrates, there is only one other time in
history when the price of oil has declined by more than $50 in less
than a year…
The
only other time there has been an oil price collapse of this
magnitude we experienced the greatest financial crisis since the
Great Depression shortly thereafter. Are we about to see
history repeat? For much more on this, please see my previous
article entitled “Guess
What Happened The Last Time The Price Of Oil Crashed Like This?”
#5 A
dramatic drop in the number of oil and gas rigs in operation.
Right now, oil and gas rigs are going out of operation at a
frightening pace. During the fourth quarter of 2014, 93 oil
and gas rigs were idled, and it is being projected that
another200 will
shut down this quarter. As this
Business Insider article demonstrates,
this is also something that happened during the financial crisis of
2008 and it continued well into 2009.
#6 The
price of gasoline takes a huge tumble.
Millions of Americans are celebrating that the price of gasoline has
plummeted in recent weeks. But they were also celebrating when
it happened back in 2008 as well. But of course it turned out
that there was really nothing to celebrate in 2008. In short
order, millions of Americans lost their jobs and their homes.
So the chart that I have posted below is definitely not “good
news”…
#7
A broad range of industrial commodities begin to decline in price.
When industrial commodities go down in price, that is a sign that
economic activity is slowing down. And just like in 2008, that
is what we are watching unfold on the global stage right now.
The following is an excerpt from a recent
CNBC article…
From nickel to soybean oil, plywood to sugar, global commodity prices have been on a steady decline as the world’s economy has lost momentum.
For
an extended discussion on this, please see my recent article entitled
“Not
Just Oil: Guess What Happened The Last Time Commodity Prices Crashed
Like This?”
#8 A
junk bond crash.
Just like in 2008, we are witnessing the beginnings of a junk bond
collapse. High yield debt related to the energy industry is on
the bleeding edge of this crash, but in recent weeks we have seen
investors start to bail out of a broad range of junk bonds.
Check out this
chart and this
chart in
addition to the chart that I have posted below…
#9 Global
inflation slows down significantly.
When economic activity slows down, so does inflation. This is
something that we witnessed in 2008, this is also something that is
happening once again. In fact, it is being projected that
global inflation is about to fall to the lowest level that we have
seen since
World War II…
Increases in the prices of goods and services in the world’s largest economies are slowing dramatically. Analysts are predicting that inflation will fall below 2pc in all of the countries that make up the G7 group of advanced nations this year – the first time that has happened since before the Second World War.
Indeed, Japan was the only G7 country whose inflation rate was above 2pc last year. And economists believe that was because its government increased sales tax which had the effect of artificially boosting prices.
#10 A
crisis in investor confidence.
Just prior to the last financial crisis, the confidence that
investors had that we would be able to avoid a stock market collapse
in the next six months began to decline significantly. And
guess what? That is something else that is happening once
again…
Investor confidence that the US will avoid a stock-market crash in the next six months has dropped dramatically since last spring.
The Yale School of Management publishes a monthly Crash Confidence Index. The index shows the proportion of investors who believe we will avoid a stock-market crash in the next six months.
Yale points out that “crash confidence reached its all-time low, both for individual and institutional investors, in early 2009, just months after the Lehman crisis, reflecting the turmoil in the credit markets and the strong depression fears generated by that event, and is plausibly related to the very low stock market valuations then.”
Are
you starting to get the picture?
And
of course I am not the only one warning about these things. As
I wrote aboutearlier
in the week,
there are a whole host of prominent voices that are now warning of
imminent financial danger.
Today,
I would like to add one more name to the list. He is respected
author James Howard Kunstler, and what he predicts is coming in
2015 is
absolutely chilling…
*****
Here
are my financial forecast particulars for 2015:
- Early in 2015 the ECB proposes a lame QE program and is laughed out of the room. European markets tank.
- Greek elections in January produce a government that stands up to the EU and ECB and causes a fatal slippage of faith in the ability of that project to continue.
- Second half of 2015, the rest of the world gangs up and counter-attacks the US dollar.
- Bond markets in Europe implode in first half and the contagion spreads to the US as fear and distrust rises about viability of US safe haven status.
- Derivatives associated with currencies, interest rates, and junk bonds trigger a bloodbath in credit default swaps (CDS) and the appearance of countless black holes through which debt and “wealth” disappear forever.
- US stock markets continue to bid upward in the first half of 2015, crater in Q3 as faith in paper and pixels erodes. DJA and S & P fall 30 to 40 percent in the initial crash, then further into 2016.
- Gold and silver slide in the first half, then take off as debt and equity markets craters, faith in abstract instruments evaporates, faith in central bank omnipotence dissolves, and citizens all over the world desperately seek safety from currency war.
- Goldman Sachs, Citicorp, Morgan Stanley, Bank of America, DeutscheBank, SocGen, all succumb to insolvency. American government and Federal Reserve officials don’t dare attempt to rescue them again.
- By the end of 2015, central banks everywhere stand in general discredit. In the US, the Federal Reserve’s mandate is publically debated and revised back to its original mission as lender of last resort. It is forbidden to engage in further interventions and a new less-secretive mechanism is drawn up for regulating basic interest rates.
- Oil prices creep back into the $65 – $70 range by May 2015. It is not enough to halt the destruction in the shale, tar sand, and deepwater sectors. As contraction in the failing global economy accelerates, oil sinks back to the $40 range in October…
- …unless mischief in the Middle East (in particular, the Islamic State messing with Saudi Arabia) leads to gross and perhaps fatally permanent disruption in world oil markets — and then all bets are off for both the continuity of advanced economies and for peace between nations.
*****
Personally,
I don’t agree with Kunstler on all of the particulars and the
timing of certain events, but overall I think that we are going to
look back when the year is done and say that he was a lot more right
than he was wrong.
We
are moving into a time of extreme danger for the global economy.
There has never been a time when I have been more concerned about a
new year since I began The Economic Collapse Blog back in 2009.
Over
the past couple of years, we have been very blessed to be able to
enjoy a bubble of relative stability. But this period of
stability also fooled many people into thinking that our economic
problems had been fixed, when in reality they have only gotten worse.
We
consume far more wealth than we produce, our debt levels are at
record highs and we are at the tail end of the largest Wall Street
financial bubble in all of history.
It
is inevitable that we are heading for a tragic conclusion to all of
this. It is just a matter of time.
Forecast
2015 — Life in the Breakdown Lane
James
Howard Kunstler
4
January, 2015
“Don’t
look back — something might be gaining on you,” Satchel Paige
famously warned. For connoisseurs of civilizational collapse, 2014
was merely annoying, a continued pile-up of over-investments in
complexity with mounting diminishing returns, metastasizing
fragility, and no satisfying resolution. So we enter 2015 with
greater tensions than ever before and therefore the likelihood that
the inevitable breakdown will release more destructive energy and be
that much harder to recover from.
I
don’t know how anyone can trust the statistical bullshit emanating
from our government reporting agencies, or the legacy news
organizations that report them. Yet the meme has remained firmly
fixed in the popular imagination: the US economy has recovered! GDP
grows 5 percent in Q3! Manufacturing renaissance! Energy
independence! Cleanest shirt in the laundry basket! Best-looking
house in a bad neighborhood…!
¡No
hay problema!
This
is simply the power of wishful thinking on display. No one — with
the exception of a few “doomer” cranks — wants to believe that
industrial civilization is in trouble deep. The staggering credulity
this represents would be a fascinating case study in itself if there
were not so many other things that demand our attention right now.
Let’s just write this phenomenon off as the diminishing returns of
career log-rolling in politics, finance, media, and academia. All the
professional “thought-leaders” pitch in to support the “hologram”
of eternal progress that issues their paychecks and bonuses. This
culture of pervasive racketeering that we’ve engineered has made us
obtuse. The particular brand of stupidity on display also points to
another signal vanity of our time: the conviction that if you measure
things enough, you can control them.
I’m
of the view that the measurers only pretend to measure and can only
pretend to control things, especially in the most fragile of the
systems that we depend on for running all the other systems of
techno-industrial economic life: finance. The pretense has endured a
lot longer than many of us had expected. The legerdemain employed by
banking officials and their handmaidens was greatly augmented by the
sheer wish that fragility (i.e. risk) had been successfully and
permanently banished from the universe. That “magic” at least
sustained a universal faith in currencies until the middle of last
year when so many monies went south — except the dollar, levitating
on blowback of the deflationary wind flattening everything else.
All
this unreality in money and markets should be expected in the
conditions just preceding systemic collapse of an entire
trans-national industrial civilization, just as one should expect
societies to construct their most grandiose monuments to themselves
shortly before collapse. The Mayans R us. One year, they were
cavorting bloodthirstily atop their garish painted pyramids and a
generation later the jungle was stealing back over the temple steps
and the population was a tenth of its former size. The same thing is
going to happen to us, except there will be a hell of a lot more
worthless, toxic debris left on the landscape.
Of
course, even that is a more long-term projection than the exercise at
hand calls for, viz.,
the forecast for measly little 2015. So without further
throat-clearing, permit me to break it down for you:
Finance
and Banking
As
2014 closed out, that kit-bag of frauds, swindles, Ponzis, grifts,
bait-and-switches, and three-card-monte scams is looking at least as
wobbly as it did in 2007 when Wall Street was busy manufacturing
booby-trapped MBSs and CDOs. Except we know the true
aggregate risk at
stake has only grown larger and more hazardous due to all the
strenuous efforts by authorities since the panic of 2008 to evade any
natural process for clearing mal-investment and debt gone bad. A lot
of that stank was
simply shoveled into the Federal Reserve’s basement, where it sits
to this day, composting steamily. As to be expected (and averred to
in my previous books and blogs) financial repression, market
intervention, and statistical distortion will produce ever more
financial perversity. That is the hazard in decoupling truth from
reality. Imposed dishonesty will always express itself in unexpected
ways. Who expected the price of oil to fall by nearly half in a few
months? (More on that below.)
These
days, perversity expresses itself in a morbidly obese dollar gorging
on junk while bulimic currencies elsewhere projectile-vomit their
value away as the economies attached to them die of malnutrition.
Perhaps this comes as a surprise to central bankers standing at their
control panels like recording engineers at the soundboard, tweaking
all the dials and slides expecting to achieve a perfect repressive
inflation rate of 2-plus percent so they can melt away the onerous
debt of sovereign balance sheets and Too Big To Fail banks —
incidentally squeezing the citizenry of purchasing power in small
annual increments that add up, after a while, to worthless money.
They did manage to extend the inflation of stock market indexes
another year, which the public is supposed to interpret as
“prosperity.” Half a trillion dollars in stock buybacks of S &
P companies were executed in 2014, much of it done with money, i.e.
“leverage,” borrowed at zero interest. Stock buybacks boost share
prices, of course, but they don’t represent any real increased
value in a given company. They’re just snakes eating their own tail.
The
belief that the world’s “reserve” currency is an implacable
force, and that central bankers are omnipotent has made this trade
appear to be an irresistible trend — Don’t
fight the Fed!
Since it’s a matrix of fraud based on thin air money detached from
real productive activity, it is certain to blow up. And since 2015 is
seven years past the last blowup, it can happen any time. All it
requires is some small slippage somewhere, that one equivalent extra
grain of sand or snowflake to bring the accumulate mass of false
value down in a financial earthquake or avalanche. That obese dollar
has been gorging on the equivalent of cheez kurls and Little Debbie
Snack cakes, so it only grows more diseased as it gains weight.
Sentient observers cannot fail to notice the advancing sickness.
Meanwhile,
the US is stupidly waging currency war against other nations that can
only blow back by incurring the animosity of every trading partner we
have on the only planet available to live on. In 2015, I expect
Russia to enlist China’s aid in undermining the dollar’s reserve
status. Both countries have weaponry in the form of cash reserves and
gold in their vaults. They also have the computer hacking expertise
to start seriously messing with US markets — as much Fed
technicians and TBTF bank algos do — bringing on mysterious flash
crashes, derivatives “accidents,” and other abnormal events that
will leave even the Goldman Sachs MIT graduates scratching their
heads. Such hacking may accomplish what years of arrant market
interventions by US technicians failed to produce: a deadly loss of
faith on all the institutions that govern money and markets. Then the
US will be the cleanest shirt in a laundry basket that is on fire.
The
dollar these days represents two kinds of capital. The first is the
stuff that the US has built and invested in since, say, the end of
World War Two: a wasteland of aging and decrepitating suburban
sprawl, that is, the infrastructure of a living arrangement with no
future, the greatest entropic sink in human history. It extends to
whole cities and their subsystems, e.g. the hell-hole of Las Vegas
with Hoover dam and the dwindling reservoir of Lake Mead. Before
mid-century, Las Vegas will be as desolate as Egypt’s Valley of the
Kings. Try to imagine the money that went into building all that
stupid shit in the desert. In another decade, across America, the
housing subdivisions and commercial highway strips filled with
tilt-up box stores, muffler shops and burger dispensaries will retain
less value than the pyramids of Palenque had for the Mayans after
their society rolled over and did.
The so-called real economy is a
New Age serfdom of burger fryers and janitors, indentured to that
entropic sink. Below them is a widening slough of methedrine, child
abuse, and tattoo art on its way to becoming Soylent Green. To put it
bluntly, the dollar is entropy’s algo bitch.
The
second kind of capital the dollar represents is the imaginary value
based on sheer lying, making shit up, and borrowing from a future
that has no chance of being paid back. This is the capital ginned up
on “American exceptionalism” and “energy independence,” fairy
tale memes functioning as collateral for the aforementioned
malinvestments that add up to “The American way of life.” This
capital has no substance, since it is just made up of intellectual
and emotional dishonesty. This is the kind of constructed narrative
that addicts and other functional cripples resort to to justify their
behavior, and the fragility of it will sooner or later lead to the
well-known condition of “hitting bottom.” That is the event
horizon where the remnants of America enter what I call the World
Made By Hand.
It will be the greatest socio-economic shift since the fall of Rome,
only much swifter.
Oil
It
really deserves a sub-category of its own because it is the primary
resource of our techno-industrial society and its troubles lie behind
much of the present disturbances of our times. Despite the triumphal
agitprop of the past few years, peak oil is for real. It just
manifests more strangely than most people thought, namely, the
simpleminded idea that it would only show up as ever-rising prices.
No, I made point in The
Long Emergency (2005)
— and other commentators did too — that peak oil would manifest
as volatility. And so since the actual moment of peak conventional
crude around 2005, we’ve seen pretty wild oscillations in the price
of oil. This is due to the harsh reality that the price people and
enterprises can afford to pay for increasingly harder-to-get oil is
less than the price that makes it possible to get it. This sets up a
yo-yo-ing instability in economic performance that exacerbates even
normal wave patterns in the business cycle (which are, in turn,
aggravated by banks and governments’ interventions such as ZIRP to
suppress those cycles). Below $70-a-barrel the producers go broke;
above $70-a-barrel the customers go broke. So the price wobbles up
and down as financial Ponzis like shale oil are introduced onto the
scene in the hope that debt finagling and mineral rights leasing
scams can substitute for physics and geological reality. One trouble
with this is that each violent oscillation generates more economic
and financial destruction. Activities like motoring, aviation,
manufacturing, and retail are badly affected and the entire financial
system is made more fragile by worsening increments. Most
importantly, the cost structure of the oil industry itself gets
battered to a degree that fewer companies can survive to produce the
remaining oil.
The
big story for 2014 was the crash of oil prices. It is yet being
celebrated in other blogger’s 2015 forecasts as a boon to America.
Wait until they find out that almost all of the “good jobs” added
in recent years were associated with the shale drilling industry that
is now being put out of business by low oil prices. Wait until they
find out how the failure of junk bond financing thunders through the
bond markets and the savage wilderness of derivatives — and
ultimately into their ruined pension funds. Wait until they discover
that it was but a symptom of the compressive deflationary depression
now gripping the entire techno-industrialized world.
Here
are my financial forecast particulars for 2015:
- Early in 2015 the ECB proposes a lame QE program and is laughed out of the room. European markets tank.
- Greek elections in January produce a government that stands up to the EU and ECB and causes a fatal slippage of faith in the ability of that project to continue.
- Second half of 2015, the rest of the world gangs up and counter-attacks the US dollar.
- Bond markets in Europe implode in first half and the contagion spreads to the US as fear and distrust rises about viability of US safe haven status.
- Derivatives associated with currencies, interest rates, and junk bonds trigger a bloodbath in credit default swaps (CDS) and the appearance of countless black holes through which debt and “wealth” disappear forever.
- US stock markets continue to bid upward in the first half of 2015, crater in Q3 as faith in paper and pixels erodes. DJA and S & P fall 30 to 40 percent in the initial crash, then further into 2016.
- Gold and silver slide in the first half, then take off as debt and equity markets craters, faith in abstract instruments evaporates, faith in central bank omnipotence dissolves, and citizens all over the world desperately seek safety from currency war.
- Goldman Sachs, Citicorp, Morgan Stanley, Bank of America, DeutscheBank, SocGen, all succumb to insolvency. American government and Federal Reserve officials don’t dare attempt to rescue them again.
- By the end of 2015, central banks everywhere stand in general discredit. In the US, the Federal Reserve’s mandate is publically debated and revised back to its original mission as lender of last resort. It is forbidden to engage in further interventions and a new less-secretive mechanism is drawn up for regulating basic interest rates.
- Oil prices creep back into the $65 – $70 range by May 2015. It is not enough to halt the destruction in the shale, tar sand, and deepwater sectors. As contraction in the failing global economy accelerates, oil sinks back to the $40 range in October…
- …unless mischief in the Middle East (in particular, the Islamic State messing with Saudi Arabia) leads to gross and perhaps fatally permanent disruption in world oil markets — and then all bets are off for both the continuity of advanced economies and for peace between nations.
Geopolitics
The
signal event of 2015 will be the disintegration of Tom Friedman’s
global economy, the trade and banking relations we have known for
about a quarter century, especially the frictionless flow of goods
and capital between East and West. The tactical blunders of the USA
and its Euro-partners drive the so-called emerging markets, led by
China’s Shanghai Cooperation Organization, into a skein of
work-arounds to undermine and avoid the US dollar trade. They don’t
exactly replace the dollar as the world’s reserve currency but the
workarounds lead to a period of worldwide currency turmoil that can
only be resolved by monies being at least partially backed by gold.
Both China and Russia will continue to work to convert their dollar
reserves into Gold whenever possible. Meanwhile, America and Great
Britain’s campaign to discredit and devalue gold will only permit
their rivals to acquire more at a cheaper price.
The
rest of the world is sick of America’s interventionist shenanigans
and its moronic exported culture of burgers, Grand Theft Auto, and
twerking Jezebels. They are aided by America’s own obdurate
foolishness and poor strategic choices, for instance the blowback
from the Ukraine misadventure of 2014. Who in the White House,
Pentagon, or State Department thought it was a great idea to
undermine the fragile stability of Ukraine? Is there any question
that Ukraine was ever not in Russia’s sphere of influence? Or that
Russia would allow it to be dragooned into NATO and used as a forward
base for American firepower? Dmitry
Orlov’s explanation for
all this is the most cogent on the web:
“What
the Anglo-imperialists were paying for in corrupting Ukraine’s
politics was a ring-side seat at a fight between Ukraine and Russia.
And what they got instead is a two-legged stool at a bar-room brawl
between Eastern and Western Ukraine.”
Read
the whole darn thing; it’s not long.
We
succeeded in turning a marginally-bankrupt, marginally-independent
nation into a complete basketcase that is going Dark Age as I write —
no money, no work, no fuel, no heat, no food, no prospects. Having
completely botched the operation, and misplayed the game against
Russia’s Putin — and Russia’s legitimate interest in a stable
next-door neighbor — the US will now abandon Ukraine. It will be
forgotten as surely as the US-sponsored Ukrainian air force’s role
in the crash of Malaysian Airlines Flight 17 — the incriminating
details of which were buried by the Dutch investigating officials.
Eventually, the Russians will have to care for the dying Ukraine.
They will not be enthusiastic about it. They will do little and do it
slowly.
Likewise
our economic sanctions campaign against Russia (including the attack
on the ruble) is now blowing back on the Eurozone’s export economy.
Russia has survived much worse than Western sanctions in recent
history. Russia will survive by turning east to Asia. This is already
happening and is well publicized. What it means for Europe sooner
than later is the loss of their access to imported oil and gas from
Russia. Meanwhile, the North Sea fields and the Dutch Groningen gas
field are dying. Good luck staying warm, Europe.
The
blowback of Europe’s foolish partnership with the US campaign to
punish Russia can only discredit the ruling parties and boost new
right-wing parties such as France’s National Front and Britain’s
UK Independence Party, both deeply nationalistic, anti Euro Union,
and anti endless immigration.
The
Islamic State was another legacy of blowback from American foreign
adventurism. It was spawned out of the remnants of Al Qaeda in poor,
broken Iraq and its conquests in 2014 ranged clear across northern
Syria to several major cities in Iraq (Faluja, Tikrit, Mosul) right
up to the suburbs of Baghdad. They made a lot of money off of
captured oil wells and ransoming western hostages, and they shocked
Western decency with their YouTube decapitations of hostages that the
US and UK refused to ransom. The US’s response now is to bomb their
installations and bivouacs. That can only drive them, literally,
underground. IS will thrive on Western punishment. It has vast
potential to recruit the population of idle, under-employed young men
all across North Africa and the Middle East, and beyond to Europe and
the band of Islamic society that stretches below Russia across
mid-Asia. The catch is, if and when they come to actually rule most
of these territories, they will be running economies reduced to Dark
Age levels.
As
I write, King Abdullah of Saudi Arabia has just entered the hospital.
At 91, he is closer to the end of his story than the middle.
Meanwhile, the tanking of crude oil prices has critically impaired an
Arabian economy that depends on oil sales for more than 80 percent of
its operating revenue. Much of that revenue goes to a national
welfare system that pays just about everybody to not work. There will
be a lot less money to go around now and a lot of grievance over it.
The population of the Arabian Peninsula is so far beyond critical
overshoot that the situation can only get ugly, especially since a
large part of that excessive population consists of
testosterone-jacked young men under 30 with nothing to occupy their
hours but chitchat over tea and religious mummery. Consider also that
when King Abdullah goes, there is liable to be a deeply destabilizing
fight for the throne among the hordes of princes and competing clans
— despite whomever Abdullah has named as his successor. You may be
sure the Islamic State will be standing by to add fuel to those
fires. That, in and of itself, could bring on a fast end of the oil
age. Bear in mind, too, that the eastern side of Saudi Arabia, where
most of the oil infrastructure is, contains a majority Shi’ite
population. In a conflict between Sunni IS and Iran-backed Arabian
Shia, a lot of stuff could just get blown up. At the least, itr could
badly interrupt 30 percent of the world’s oil supply.
China
is obviously struggling to prevent a financial freefall brought on by
20-plus years of extravagant debt creation and a lot mal-investment
in the service of a very late entry into the techno-industrial
frolic. It can’t be denied that they made a good show of it in a
very short time, but they got in at the blow-off stage. Now
conditions are changing unfavorably. The global economy that made
China the world’s workshop is unwinding in a vortex of currency
war, trade friction, territorial dispute, ethnic ill-will, and the
disturbances that attend the great background problem of peak cheap
oil.
The
Chinese will work sedulously to try for a soft landing in the great
economic contraction that looms. Chinese banking being
non-transparent, overly subject to blundering central control, and
deeply corrupt, may not bode well for that project. However, China
has many cushions to fall back on short-term in the form of foreign
money reserves and stockpiles of raw materials. But sooner or later
they have to reckon with their dependence on continued oil imports.
That is clearly the basis of China’s current flirtation with Russia
— but with Russia arguably past its own oil production peak, that’s
not a long-term strategy. China has cranked up the world’s
mightiest production line of photovoltaic hardware, but solar won’t
replace oil the way things currently run, and whatever they rig up
may not last more than one generation if there’s no supporting
platform of an oil economy for the manufacture of solar replacement
parts.
Japan’s
suicidal experiment with hyper-turbo ZIRP and QE is not accomplishing
much except exacerbating global currency carry trades and driving
down the nation’s standard of living. It may succeed in destroying
the Yen and what remains of its economy in 2015. Fukushima remains
unresolved and Japan’s energy future looks plain dismal. They have
no energy resources of their own whatsoever. Any serious mischief in
the Middle East oil fields will finish them off. The nation has been
on the fast track to become the first post-industrial neo-medieval
society. They could be fortunate to land back there and set up their
shop while there are still residual riches in the world to work with.
They might also go cuckoo and start a war with China for control over
the oil fields of the South China sea. It is hard to see any other
outcome from such a conflict other than China kicking Japan’s ass.
Geopolitical
forecast particulars for 2015
- Russia toughs out sanctions imposed by the USA; European partners drop their sanctions as self-evidently counter-productive. Russia threatens to post-pone debt repayments to Western banks. The ruble stabilizes.
- Russia endures Islamic terrorist attacks and responds very harshly, embarrassing the wimpy West.
- Baghdad Falls to Islamic State forces. Years of American endeavor are lost just like that. The IS attempts to use Iraqi oil reserves to fund its operations. It has a hard time keeping the infrastructure in repair. The USA refrains from bombing Iraqi oil installations, a decision viewed as weakness by IS.
- The Islamic State makes inroads across North Africa. Libya, Egypt, Algeria, Tunisia, Morocco are all susceptible.
- Formerly marginal political parties win big across Europe, forcing nations to rethink wide-open immigration policies. Neo-liberalism sinks into deep Weimar-style discredit. Open ethnic warfare breaks out in France, Britain, the Netherlands, Sweden.
- European economies continue to sink for the simple reason that the growth era of techno-industrialism is over, along with affordable oil, and no amount of debt production will bring it back. All the machinations of the EU and the ECB are dedicated to overcoming this implacable reality, and thus will only lead to deeper and more intractable problems.
- Beginning with the late January elections, which Alexis Tsipras’s Syriza party wins, Greece plays hardball with the EU for debt restructuring that amounts really to forgiveness of utterly unpayable €322 billion ($398 billion). If the EU calls Greece’s bluff and kicks them out, a European banking meltdown is almost certain. If Greece stays, then other hopelessly indebted nations of the EU declare they want the same deal. Pretty much a rock and hard place. Impossible to call except to say the situation promises mucho turmoil in 2015. ¡Hay problema!
- Ebola contagion persists and rips across sub-Saharan Africa. Other nations are forced to pass severe travel restrictions to-and-from Africa.
- Nigeria descends into bloody political turmoil as its oil industry falls apart in response to low prices. UN intervention accomplishes nothing. In wartime conditions, Ebola gains a foothold in Lagos, one of the world’s most overpopulated slum cities.
- Pakistan and Afghanistan both continue to melt down into ungovernability. India is forced to take over administration of Pakistan and remove nukes. America continues to pretend that its mission in Afghanistan has some purpose, but it only remains a black hole of military expenditure and becomes a rancorous issue in the run-up to the 2016 Presidential election.
The
USA Homefront 2015
For
one who has been a close observer of the US socio-political-economic
scene since the Kennedy era, the nation has gotten itself into a
pretty sorry state. The pervasive racketeering that poisons American
life from the money-in-politics farce, to the shameless, chiseling
medical-pharma cabal, to the SNAP-card and disability rights empire
of grift, to the college loan swindle, to the disgusting security
state apparatus, to the corporate tyranny of local life and
economies, to the delusional techno-narcissism of the media, to the
despotic and puerile gender preoccupations of academia — all of it
adds up to a society that cares as little for the present as it does
for the future. And that’s aside from the pathetic digital device
addiction of the generation coming up, and the sheer sordid behavior
of the tattooed, drug-saturated, pornified masses of adults now
forever foreclosed from a purposeful existence or a decent standard
of living.
Even
physically America is a sorry-ass spectacle: between our
decrepitating cities, abandoned Main Streets, gruesome strip-mall
highways, repellent and monotonous suburbs, dreary industrial ruins,
profaned countryside, and desecrated coastline, there is little left
to actually love about This land is Your Land. We’ve made so many
collective bad choices about how we live that one can’t help
feeling we are simply a wicked people who deserve to be punished.
Whole
classes already are, of course. What used to be a working class with
aspirations has devolved to the forlorn savagery averred to above.
Our thought-leaders are devoid of thought. Our hopes and dreams are
absurd sci-fi fantasies prompting us toward robot-assisted suicide.
Our political stratagems of recent years accomplish nothing except
making more trouble for ourselves while inciting the enmity of people
elsewhere.
Barack
Obama’s signal failure — aside from letting the banks get away
with murder and omitting to counter the Supreme Court’s Citizens
United decision
— has been his total evasion of measures that would prepare the
nation for the vast changes in social and economic imperative that
will attend the transition out of the techno-industrial era when he
is out of office. These include supporting local small scale
agriculture (rather than giant corporate agri-biz); promoting and
supporting the reconstruction of local economic networks (Main Street
business); eliminating multitudinous federal regulations that prevent
individuals and small enterprises from operating; closing the
hundreds of superfluous US military bases around the world; giving
federal support to rebuild the US passenger rail system; promoting
walkable communities — especially the re-activation of existing
small towns and cities — instead of mindless obeisance to the
suburban “home-building” industry (and its step-child in the
commercial highway strip development racket) — and truly reforming
medical care without the connivance of the insurance racketeers.
Obama
and his party can be faulted for fostering the myth that every young
person needs a college degree — leading a whole generation into
debt penury for no good purpose, while depriving society of a long
list of vocational roles and livelihoods based on providing genuine
service or value. We will be a nation of unemployed gender studies
graduates instead of plumbers, electricians, organic farmers,
arborists, carpenters, machinists, nurses and paramedics, small
business owners, et cetera.
This
enormous bundles of myths and misplaced expectations for yesterday’s
tomorrow prevents the collective national imagination from summoning
a revised American Dream based on repairing the massive destruction
of recent decades.
The
political mood has not been murkier in my longish lifetime. Both
major parties edge toward extinction as the Whigs did in the
mid-1850s. The citizenry not sunk in drugs and depravity — that is,
people who still read the news in some form and would like to care
about their country — deserve a new faction or party that can at
least express their discontent with the current situation. They will
surely not get this in the generally supposed coming contest between
Hillary Clinton and Jeb Bush. I hope they will be so insulted by this
dynastic grab that more than one new party will form and make a
big stank about
it. The Tea Party was a good start in that spirit, but it tripped on
its internal contradictions and its association with Dixieland-style
religious fundamentalist idiocy and cracker war-mongering.
All
that redounds on the current state of the Republican Party, a gang of
venal ignoramuses pimping for lost causes. Despite having won the
2014 midterms, and capturing both houses of congress and
governorships, they seem increasingly out-of-touch with the realities
of economic contraction, peak oil, and climate irregularities. The
old magic of stirring up the animals on social issues of abortion,
bedroom activities, and allegiance to Jesus fail to move the old
base, which is becoming economically quite desperate. That base also
becomes conscious of how they have been hornswoggled into voting
against their own interests for years in the sense that author Thomas
Frank so aptly described in What’s
the Matter With Kansas.
Race
relations turned very sour in 2014 with more highly publicized
killings of young black men in ambiguous circumstances. The chief
martyr of the year, Michael Brown of Ferguson, Mo., was a poor
candidate for sainthood, and did not help advance the credibility of
claims that police brutality rather than the misbehavior of young men
is behind a lot of strife abroad in the land. One gets the feeling
that black race hustlers are in the driver’s seat recklessly
pushing African Americans toward open warfare with everybody else. My
view of the situation is not popular with Progressives, viz: that
black separatism and its offshoots in “diversity” politics and
multi-culturalism tragically promote an antagonistic, alienated,
oppositional black politics at the expense of a common culture for
blacks and whites with common values and common standards of
behavior. It has gotten so bad that reasonable people can sadly
conclude that the long civil rights project has ended in failure. We
are treading on dangerous ground here, with foolishly outmoded ideas
about what to expect from each other, and of course all this begs the
questions: What now? What next?
Domestic
Forecast Particulars for 2015
- Markets tanking in Q3 destroy the illusion of “recovery.” It becomes obvious that the story was a lie and the public mood grows much more surly.
- 2014 proves to be the year of peak shale oil. After the shakeout of 2015 due to low oil prices, production never returns to previous levels. The fairy tales of “energy independence” and “Saudi America” fall apart, deeply demoralizing a gulled public and adding yet another layer of discredit to the people in charge of things.
- Different kinds of political revolt break out around the country among varied groups, left, right, and center. Some of it revolves around life-and-death struggles for the souls of the floundering major parties. Some of it is organized violence against the government and especially against the US security state apparatus, including overly militarized local police forces.
- Low-grade racial warfare erupts across the US. Flash mobs, knock-out games, lootings, and hammer attack type outrages generate counter-attacks. By summertime the conflict heats up. Firefights become routine and casualties mount. President Obama proves to be tragically ineffectual in restoring peace.
- Anti-immigration sentiment in Europe spreads to the US as falling oil prices produce political disorder in Mexico prompting tens of thousands to try to flee north.
- Bank of America is the first of the Too Big To Fails to enter the event horizon of failure. Obama can’t get congress to go along with a bailout. By Thanksgiving, there is turmoil among the banks as they scramble to cover losses. A public furor over using taxpayer money to cover derivatives losses leads to an unprecedented concerted action by states to attempt “nullification” campaigns.
- Citibank applies for a bail-in of account holders. Dithering, frightened federal authorities are too slow to respond, permitting a run on deposits.
- Hillary is loudly booed and hectored at campaign stops as “a tool of Wall Street.” Her coffers overflow with TBTF bank contributions. She bows out of the presidential contest as the public mood toward her sours. But not before she generates a lot of resentful opposition and alienates many Democratic Party voters who are also furious over the eight-years of Obama’s “hope” and “change” hand-jive. Elizabeth Warren is dragooned to replace her — dubbed the “Un-Hillary” — rescuing the party from a near-death experience. She openly feuds with party bosses, who plot against her, and undermine her campaign.
- Senator Rand Paul agitates to abolish the Federal Reserve. His senate colleagues are shamed into considering legislative reform of the Fed’s mandate. Debate on the issue is the only thing the Republican dominated congress and senate accomplish in 2015. Paul decides to challenge Jeb Bush for the 2016 nomination. This blows the Republican party apart.
- At Christmas 2015, the DJA sits at 13,500, the S & P is at 1200. Gold is at 1750, silver at 42.
Good luck everybody. Gird your loins and fasten your seat belts.
See also - "Some Folks Are Buying Cars..." President Obama Explains Why Subprime Auto Loans Are Great For America - Live Feed
This
should be good... On the same day as the administration pushes
through 3% down FHA loans for some insane reason, President Obama is
in Michigan to discuss the renaissance of the US Autoo industry (or
more correctly described- the rebirth of the subprime lending
bubble)...
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