Jim
Kunstler: 2019, Ding! Ding! Margin Call USA
01/01/2019
Welcome
to the American hall of mirrors... and mind the broken glass all over
the floor. That’s
Nature’s way of saying the country has run out room to punk itself.
2018 was the consolidation of bad faith in everything we do:
politics, the news media, economics & finance, show biz, regular
biz, jurisprudence, medicine, education, and relations between men
and women — the year of peak dishonesty and self-deception. Of
course, the trouble with dishonesty is that it doesn’t comport with
Reality, and Reality being Mother Nature’s husband, bats in the
cleanup position. Entering
2019, the bases are loaded with delusions, misdirections, and
turpitudes. I shall get right to it without further throat-clearing.
Trumpology
The
nation’s focus remains clamped to mercurial character in the White
House. If you subscribe to Strauss and Howe’s theories about The
Fourth Turning,
then you might see president Donald J. Trump playing the archetypal
role they call “The Gray Champion,” an elder figure of the
“transcendental” Boomer generation sent by fate to rescue a
floundering society at a grave moment in the seasons of history. Yes,
I know: we might have been better off calling Ghostbusters. A
cardinal precept at this blog is that fate is a trickster. You order
a Gray Champion and room service sends up a Golden Golem of
Greatness.
To
put it mildly, Mr. Trump has failed to charm at least half the
country. They are embarrassed at his physical presence: his lumbering
gait, like unto a behemoth land mammal of the Oligocene; that swaying
bay window stomach half-concealed by the flaps of his suit-jacket and
bisected by the oddly elongated necktie; the pained smile he puts on
for the photo-ops; his man-spreading when
seated with the world’s poohbahs, and that strange confection of
sculpted hair, like the spun sugar on a Croquembouche, or the pouf on
some horrifying plastic dashboard figurine. His manner of speech, the
weird, palindromic repetitions, the childish artlessness of his
casual utterances, the absence of Beltway focus-group cant, and of
course the reviled Tweets — drive his opponents up a tree. The
gilt-plastic trappings he surrounds himself with also offend them.
For all I know, they hate his cologne, too.
His
adversaries say he is “undermining institutions.” By this perhaps
they mean the beloved DC gravy-train of regular institutionalized
grift divvied up between elected officials, Wall Street, the
War-and-Intel matrix, and the unholy infestation of lawyer-lobbyists
slithering around the Swamp. Just look what happened when Mr. Trump
threatened to end US military operations in Syria: apoplexy among the
Neocons and Progs-for War — though none of them could coherently
state what our strategy is there (is it to overthrow Assad so we can
have another failed state in the Middle East?). Whatever Trump
proposes in the way of policy is inadmissible because, according to
the Resistance, Mr. Trump should not be allowed to propose policy, or
order it, or direct it. Because he is… Trump….
Whatever
you think of his agenda, Mr. Trump made the fateful mistake of
bragging on the bubble economy that is now collapsing, and it will
probably un-do him more effectively than all of the attempts to pin
some actual crime on him by Robert Mueller. The Special Prosecutor
has spent two years and has come up with little more than a handful
of rinky-dink “process crimes” — mainly lying under oath,
engineered by Mr. Mueller’s legal team and old friends in the FBI
and DOJ after-the-fact. The Mueller investigation started with a
false predicate — collusion with Russia — and entailed loads of
prosecutorial mischief. We approach the climax of all that in early
2019. Mr. Mueller will issue his report before March. Maybe it will
contain surprises, but the investigatory process involves so many
people that it’s hard to believe no hints of any “bombshells”
have leaked to the papers and cable news outfits. Rather, Mr. Mueller
will depict a whole lot of nothing in the darkest possible light for
the convenience of a house impeachment process, the holy grail of the
Resistance, though the exercise is likely to fail if it gets to a
senate trial.
But
before that, there is the question of Mr. Mueller himself. My view is
that Mr. Mueller has run a colossal cover-your-ass operation for the
many documented misdeeds among the FBI and DOJ in cooking up this
mess starting in the spring of 2016. His appointment in the first
place was a gross error, considering his mentor relationship with
James Comey and prior association with his putative supervisor,
Deputy Attorney General Rod Rosenstein. RR remains in that position
despite being a witness in matters pending before Mr. Mueller (and
other regulators such as federal prosecutor John Huber and DOJ
Inspector General Michael Horowitz), including the FISA warrant
scandal, the Uranium One deal, and the tortured doings of the Hillary
Clinton and her foundation.
January
will kick off with the congressional extravaganza I’ll
call Investi-Gate,
as committees headed by Democratic chairs Gerald Nadler (Judiciary),
Elijah Cummings (Oversight), and Adam Schiff (Intelligence) swarm the
President and his associates like army ants on a drove of peccaries.
They’ll haul in everybody and his uncle to keep the show going for
their pals in the media. The star attraction will be Trump ex-lawyer
Michael Cohen, though he will appear as a convicted liar. He may even
defy the committee by not answering their subpoena before he has to
report to federal prison in March. After all, Rod Rosenstein
successfully defied more than one summons to congress for months on
end. What will the House committee chairs do to Cohen? — threaten
him with jail?
The
house committee Investi-Gate circus
is a sure thing, though, don’t forget, minority members can also
call witnesses, and there is room for blowback on the venture.
Republicans still chair the senate committees, and there may be a
mud-fight between the two houses. Otherwise, expect a whole lot of
grandstanding at the expense of paying attention to any of the
nation’s serious business. Mr. Huber and Mr. Horowitz will also
release reports in early 2019. Much of the recent criminal
misbehavior in FBI / DOJ / Mueller orbit lies within their
commissions. Abundant evidence has already been published concerning
the conspiracy to defeat Mr. Trump by subterfuge in the 2016
election, and further illegal attempts to injure him in the years
following. Some of the characters in this horror show have already
testified to grand juries.
Gen.
Flynn was sent to the doghouse by Judge Emmet Sullivan at his
December sentencing hearing for the purpose of rethinking his guilty
plea. The idea is to persuade him to go to trial and force Mr.
Mueller to go through a discovery process (of evidence) that could
easily derail Mr. Mueller’s case and reflect poorly on the Special
Counsel, perhaps even lead to legal problems for him in the way of
malicious prosecution. Gen Flynn’s case also resolves one way or
another in March.
Finally,
Mr. Trump will be free to declassify a trove of documents in all
these matters after Mr. Mueller reports. Doing so prior to that might
set up the president on an obstruction of justice charge. If there’s
anything germane in those docs, they could change the whole dramatic
arc of the story that took over two years to develop. There’s
plenty of chatter across the web about Mr. Trump invoking martial law
or declaring some kinds of national emergency, plus loose talk about
military tribunals and “thousands of sealed indictments,” but I’m
not persuaded that there’s any reality to that.
Politics That Maybe Matter
This
country faces a lot of practical problems that are not likely to be
addressed if congress is preoccupied with Investi-Gate,
and depending on how ferocious the action gets in bear markets,
currencies, and banking, which could alter the entire picture (more
below).
The
crisis in medicine is obvious. Whatever else you can say about
ObamaCare, it just didn’t do enough and is now crippled by court
decisions. Health Care is simply unaffordable for a growing
demographic of the sinking middle class. Much of that is due to plain
old racketeering, and I propose that it could be mitigated to some
degree if a simple law were passed that required doctors, surgeons,
hospitals, labs, and other players to publicly post prices for their
services — to eliminate this ridiculous business of providers
“negotiating” the price of every transaction in secret, according
to deliberately incomprehensible guidelines. It may be too late to
“solve” the health care problem in the way that much of the Left
wishes: a single-payer system run by the government. True, other
advanced nations ran single-payer systems with apparent success for
decades, and still do, but they started these programs in an era of
reliable economic growth based on industrial production and that era
is over for reasons mostly having to do with dwindling cheap energy.
The National Health Service in Britain is a shambles. France’s
system still functions, but the high taxation needed to keep funding
it is, ironically, a main beef of the Yellow Vest protesters. The
deflating financial bubble will underscore a new order of austerity
in the USA, and may usher in graver problems with the value of the
dollar. One way or the other, congress will be stymied over health
care reform in 2019.
The
eventual result will be the disintegration of the current health care
system and its eventual reorganization into local, clinic-based
medicine at a much lower level of complexity and treatment. It was a
tremendous blunder to consolidate hospitals and medical practices
into gigantically-scaled conglomerates. The hallmark of The
Long Emergency is
that everything organized at the gigantic scale will fail one way or
another. Get your mind right for that outcome and take care of
yourself in the meantime.
The
Left especially has no inclination to address immigration reform. As
long as they mendaciously refuse to even make a distinction between
legal and illegal immigration, nothing can be done. The Right is also
dishonest and cowardly about it, fearing to alienate the ballooning
Hispanic voter bloc. Still there is a better chance that some
immigration reform may be possible because it doesn’t require the
sort of titanic fiscal outlays that Health Care does — Mr. Trump’s
wall aside. More likely, though, the current immigration impasse will
continue and may provoke vigilante action along the border in 2019
that could be part of greater civil violence prompted by increasing
economic disparities.
Markets and Money
The
jig is really up. The big bad bear market is already underway, even
if it rallies in January. The debt bubble engineered by the Federal
Reserve is blowing up and thundering through the system. The epic
market instability of December 2018 on the heels of persistent Fed
rate hikes points to major credit problems and especially an
inability to roll over old debt into new loans at higher interest
rates — in particular loans to zombie enterprises that need to
borrow to keep paying interest on previous loans (a lot of that among
the shale oil companies). The US government can’t take higher
interest rates either. It’s already paying about as much in annual
interest on US debt as we pay for our war machine. There are only two
ways out, both of them nasty. Either suck up debt defaults, which
will induce an impoverishing disappearance of money; or provoke high
inflation, by injecting more Central Bank QE “money” into the
system, which can destroy the value of money. Inflation is typically
the choice of governments because it reduces the face value of debts
while it allows government to pretend that it is taking action. In
the end, you may have plenty of worthless money, which is no
different from having not enough money that retains value. The latter
was the main feature of the Great Depression.
So,
inflation is the usual choice, but it also typically leads to
incendiary resentment among the citizenry when they realize they’ve
been played and it takes a wheelbarrow full of cash to buy a loaf of
bread and a jar of peanut butter. I suppose that Fed chief Jerome
Powell knows all too well he’s popped the Mother-of-All-Bubbles. He
can blame it on Mr. Trump. Everybody else will, of course. Sometime
in the second quarter of 2019, the Fed will resume the
money-for-nothing gambit of “quantitative easing” in the hope of
arresting the damage, but this time the dollar will lose value
uncontrollably and catastrophically. Many people will be ruined,
especially retirees at the mercy of insolvent pension funds.
Before
2019 is out, the US could find itself in a situation worse than the
Great Depression. Supply lines are much longer now than they were
then. If suppliers can’t get paid because trust has collapsed in
the short-term corporate paper system, they won’t deliver supplies,
which means you may not eat, or fill your gas tank, or heat your
house, or get whatever else you need. Also, the USA in 1931 had not
yet transformed itself into the fiasco-waiting-to-happen called
suburban sprawl. How is Dallas going to work for people who spend a
substantial chunk of their income on mandatory motoring (if there’s
little or no income)?
Stock
market activity may appear to stabilize in January, but it will go
south again later on in the first quarter and the Bear will growl
louder for the rest of the year.
Civil Disorder
Be
prepared for it in 2019. There are going to be a lot of pissed-off
people around the country. They are liable to attack Federal property
and their fellow citizens (and their property). The hungrier they
are, the worse it will be. They will not understand the forces that
are destroying the money system. There are a gazillion small arms out
there and the government will not be able to control them or
confiscate them. Any attempt to do that will only inflame the
situation. A major principle of The
Long Emergency is
that government becomes increasingly impotent and ineffectual as it
rolls out. We’re already seeing that in Washington, and it is not
at all just because Mr. Trump has inspired such an impasse between
the branches. The states, too, will be hard-pressed to do anything
useful. Many of them, like Illinois, New Jersey, Connecticut, and
California, are already technically insolvent. The federal government
may have to pretend to rescue them financially, which will only make
the national predicament worse.
Oil
The
shale oil “miracle” was an impressive stunt. For a while, it
goosed US production way above the former all-time production peak of
1970, and it achieved that with astounding speed — about a decade.
But this is oil that is very expensive and complex to produce. It was
made possible by massive borrowing at artificial low interest rates,
which are now rising. Something like three-quarters of the shale
operators never made a red cent in net profit, and many of these
companies will find it hard or impossible to roll over their existing
debt, especially with oil under $50-a-barrel. But the price is a
deceptive metric. If it zoomed up to $100-a-barrel tomorrow, the
effect would only be to crush economic activity, because industry
requires cheaper oil to pencil out its operations and citizens can
barely afford to drive when gasoline hits $4-a-gallon at the pump. At
the lower $45-a-barrel, the price crushes the oil producers. Take
your pick. There’s no “Goldilocks” price.
The
other problems with shale oil have to do with the nature of the shale
plays. The Permian Basin in Texas is very large, but the best plays
are developed in the so-called “sweet spots” and there’s a
limited amount of them. They are the places that the producers
developed first, and when they are played out, the next round of
plays will be in spots not-so-sweet (or productive) — possibly not
worth drilling. The character of the shale oil wells is also way
different from the old conventional classic oil wells. The old wells
cost about $400,000 (in current dollars). It involved just sinking a
pipe into the permeable source rock. The oil came out under its own
pressure at the rate of thousands of barrels a day. Eventually,
you put a simple pump-jack on the well (the “nodding donkey”) and
it produced for decades, like running a cash register. Shale oil
wells cost between $6- 12 million. They require technically demanding
horizontal drilling and fracking, with additional costs in highly
technical labor, water for fracking, sand to hold open the fracks,
chemicals to aid the process, and a gazillion truck trips to deliver
all the water and sand (and take the oil away). Shale wells produce
maybe a few hundred barrels a day for one year, after which they
typically deplete by over 60 percent. After four years, they’re
done. The oil is also different. Shale oil is typically ultra-light.
It contains little-to-none of the heavier diesel, kerosene, jet fuel,
and heating oil distillates, making it less valuable.
Trouble
in the credit markets could shut down shale production for a period
of time and create dire problems for the American economy. That could
happen in 2019 as poorer-performing companies fail to get new
financing. As mighty as it seems to be, the industry is fraught with
fragility. Meanwhile, discovery of new, producible oil has fallen to
the lowest level since the 1940s, after three recent previous record
low years. Current low oil prices at around $45-a-barrel may give
Americans a false sense of security. Low prices are mostly indicative
of the collapse of the demand for oil at the global margins and among
the large US demographic that cannot afford it anymore — that is,
the impoverished former middle class. As the damage becomes more
obvious, we could hear calls to nationalize the oil industry. The
attempt to do that would collide with the aforementioned trend for
government to become more strapped for revenue, more impotent,
and more incompetent.
Geopolitical
The
Golden Golem has gone an extra mile to antagonize Russia the past two
years. Is it to demonstrate how not Putin’s
puppet he is? If so, it’s pathetic. For instance, heaping ever more
sanctions on Russia, tossing Russian diplomatic staff out of the
country because of the laughable Novichok poisoning of the Skripal
father-and-daughter in Britain. Nobody believed that set up — who
recovers from the world’s supposedly most potent, high-tech
military toxin? The larger Russia hysteria, ginned up by the US
“Intel Community” to cover the embarrassment of Hillary Clinton’s
election loss, has destroyed the brains of thousands of Washington
insiders and infected whole sectors of the educated coastal elites
who really ought to know better. Meddling in elections? Is that
something the US has never entertained? Recall that 1996 Time
Magazine cover
with the headline that bragged, “Yanks to the Rescue: the Secret
Story of How American Advisors Helped Yeltsin Win.” And now we’re
wetting our pants over a baker’s dozen Russian Internet trolls on
Facebook? Yes, this is what the
brightest people in the room have
been doing for two years. The net result is a new cold war, pushing
Russia into the arms of China, giving both of those countries an
incentive to construct a new framework for global relations that
excludes the toxic US as much as possible.
That
new framework, by the way, will not be the same as the late,
unwinding Globalism Release 2.0 (Release 1.0 was 1870 – 1914) that
allowed America to exchange IOUs for flatscreen TVs lo these many
years. Let’s call that Tom Friedman Globalism, after the pundit who
said it would last forever. The world will become a wider place again
as the Great Powers are increasingly bound to their own regions for
trade relations in a world growing short of energy and capital
resources. The exception to that is in weaponry, now that Russia has
demonstrated its ability to launch hypersonic rockets that can reach
the US in little more than a few Noo Yawk minutes. Do we have
anything like that? I suppose we wish we did. The media is not even
talking about it, the implications are so dreadful.
Has
Mr. Trump actually accomplished anything with his deal-seeking in
China while beating it on the snout with his tariff stick? Well,
he got a lot of US companies loading up on inventory of goods they
feared will carry costly duties a year hence, so they’re all
stocked up just in time for a vicious bear market and the recession /
depression that it entails. A lot of that stuff may end up being
distributed by the bankruptcy judges.
How
does our antagonism against China work with the campaign to
“normalize” the behavior of North Korea. I doubt it helps. In
2019, North Korea will be the whoopie cushion that China places under
America’s seat at the negotiating table. Mr. Trump defied the
conventional State Department wisdom by meeting face-to-face with
Kim. It got the two Koreas actually speaking with each other for the
first time in 60 years, with some concrete steps toward ending the de
facto state-of-war. Will Li’l Kim play the role China assigns to
him? I think so. They can squash him like bug. And, of course,
everything that the US congress and Mr. Mueller do to injure and
weaken Mr. Trump will make further progress in Korea unlikely.
How
about the second greatest economy in the world? That would be the
European Union. The EU’s financial system is way more dysfunctional
than even ours, with no mechanism or provision for regulating each
country’s spending vis-à-vis the debt generation of the Union as a
whole. There’s no way it can continue and no prospect for debugging
the set-up. What’s more, decades-long shenanigans of the European
Central Bank have created imbalances that will never be corrected.
Even the attempt to normalize operations — as the ECB ceases its
debt monetization routines staring in the first quarter of 2019 —
is guaranteed to crack up the EU economy, which is a horror show of
zombie companies and zombie banks. They will suffer particularly in
the recession / depression to come. The next domino to fall,
theoretically Italy, will take the EU down, whatever happens with the
dithering over Brexit. Without the ECB vacuuming up unwanted EU
paper, nothing really pencils out over there. In 2019, expect a
substantial fall in the value of the Euro, and possibly its demise as
a currency.
In
fact, expect wholesale disintegration of many structural arrangements
all over Europe beginning in 2019, along with more political violence
that exceeds the simple street actions of the Yellow Vests in France.
NATO has been staging war games on Russia’s border for two years,
apparently with no awareness that the NATO members are deeply
dependent on Russian oil and natural gas to remain advanced nations
with comforts and conveniences, like heating their homes. Perhaps
that recognition will hit in 2019. But there will be plenty of noise
for that signal to cut through.
Climate Change
Something’s
going on ‘out there’ though the picture is deeply non-linear and
is being confused for the moment by an extraordinary low level of
cyclical sunspot activity. Not being a scientist, I have only two
salient points worth considering about the issue:
The
first is, we’re not going to do anything about it — because
nothing can be done about it. Whatever’s happening, we’re going
to have to roll with it. I’m also not persuaded that many of the
proposed mitigations — carbon taxes, seeding the upper atmosphere
with reflective particles — will accomplish anything.
The
second thought is this: the civilized world has experienced many many
instances of climate change over the past several thousand years.
Civilizations rise and fall with these changes, but the human project
as a more general matter continues, with periods of history that
appear to be restful time-outs. The Roman Optimum (warming period)
segued into the Dark Age Cooling, and then the Medieval Warming
(viniculture in England!), and eventually the Little Ice Age comes
along with Isaac Newton and skaters on the Dutch canals. The
difference this time is that our civilization is so deeply complex
that successful adaptation to new conditions is a low percentage
outcome, at least in the form of salvaging many of our current
arrangements. In other climate disruptions, people adapted, sometimes
with very severe changes in customs, practices, political
arrangements, and life-styles.
It
will be especially stark this time, and the broad pop culture
of Collapse suggests
that we intuit this — everything from Game
of Thrones to The
Road,
to my own World
Made By Hand novels.
It begins with the wobbling of the most abstract and fragile of our
systemic arrangements, finance, which is mostly based on ephemeral
trust (that the other fellow will pay you). From there, the trouble
proceeds to politics and culture. A few concluding words on the
latter:
Culture
2018
was a low point for American culture, such as it is. The idiotic
drivel emanating from the university campuses has infected the entire
nation like a toxic shock disease. Most damaging, of course is the
umbrella ideology of “multiculture” in a society that formerly
thrived precisely because of the opposite of that: a
common culture composed
of ethics, customs, norms, and standards of decent behavior that
people not insane could subscribe to. Remove the common culture of a
nation and you will not have a nation — it’s that simple. Hence
Americans are divided foolishly into battling identity groups who do
not believe in a common culture and are doing everything possible to
defeat it. They have no idea what E
Pluribus Unum used
to mean and they have no desire or intention to rediscover it. I
return to the cardinal theme of The
Long Emergency:
that we can’t construct a coherent consensus about what is
happening to us, and therefore we can’t make any coherent plans
about what to do.
The
financial hardships of 2019 provide an opportunity for some overdue
mind-cleaning on these matters. There may even be a significant
number of survivors among
the brain-damaged former thinking classes who refuse to go along with
the emperors-new-clothes ideas of recent years any longer. The main
thing to understand about the so-called Progressive Left behind this
toxic shock is that the whole crusade has been less about ideas of
justice or fairness than the sheer joy of coercing others, of pushing
people around and punishing them because its fun! The ideologies
around that behavior are just window dressing.
The
response to it so far has been surprisingly mild. If the financial
unwind shapes up as harshly as it looks from here, the response will
get more severe. The universities themselves will suffer hugely as
their budgets crash through floor and all, of a sudden, they have to
issue pink slips to a half dozen Diversity deans on six-figure
salaries. Many colleges will begin the process of shutting down in
2019 as their student loan racket disintegrates.
Well,
you’ve suffered long enough for today, and I’ll leave it at that.
Happy
2019 everybody!
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