Reduced Standards of Living

Mr. Obama heads to Europe now where official hostility is rising against the Anglo-American method of pounding monetary sand down the rat-holes of "non-performing" debt, bankrupt enterprise, and bubble-levitated bonds. Our poised and charming Prez may escape personal obloquy from the quaint old-world street folk, but most of the other G-20 policy playerz take a dim view of the shell-and-pea games being played by the custodians of the world's reserve currency, including front-end-loader bank bail-outs, the shuffling of worthless securities under TARPS and TARFS, the desperate efforts to prevent the sane re-pricing of real estate, the cannibalizing of treasuries by the Federal Reserve, the now-notorious hijacking of public "liquidity" injections by third parties like Goldman Sachs, and most generally the perceived sacrifice of everybody else's greater good for the sak e of maintaining Lloyd Blankfein's cappuccino machine.

What's going on now is nature's way of telling you that America's standard of living has to be reduced by something between 20 and 50 percent. You can have it in the form of a compressive deflationary depression, including widespread bankruptcies…or you can have by way of inflation, in which money loses its value. But there's one basic qualification to this: the way down is not symmetrical with the way up. That is, it's really not just a matter of ratcheting down to a standard of living half of what it was, say, in 2006, because in the event all the various complex systems that support everyday life enter failure mode before our society re-sets at a theoretically lower level of equilibrium.

By this I mean our methods for getting food, for moving about the landscape, for deploying capital, for trading and manufacturing, for schooling, doctoring, and running public services all destabilize and, to some degree or other, fail to deliver their contribution to normal daily life. Banking (capital deployment) is already mortally wounded. It remains to be seen how this will affect the food supply half a year ahead in the harvest system. Capital is as big an "input" for our method of farming as diesel fuel or fertilizers made from methane gas. The failure of banking will combine with city and state insolvency to crush public transit, law enforcement, fire protection, and whatever flimsy local safety nets exist to keep the ultra-poor and helpless from die-off. The lowering of living standards by 20 to 50 percent essentially eliminates all but the must critical commerce, meaning that mos t of the stores in the malls and strip malls lose their customers and shed employees, while the mall and strip mall owners lose their rents, and the bankers lose performing commercial real estate loans. As all this occurs, tax revenues go way down, schools can't pay their employees or buy diesel fuel for their yellow bus fleets. More people lose the ability to carry health insurance. Hospital emergency rooms are overwhelmed. Health care descends to Third World levels. Meanwhile, pensions are destroyed, the elderly live on dog food and ketchup…

This is where we're headed. It could easily be worse than the 1930s, when we still had plenty of family farms, plenty of oil, plenty of factories in good running order, and a highly regimented population of workers unaccustomed to luxury, leisure, and entitlement. We've hardly begun to see the potential political repercussions of economic disorder now underway. I think it will start to show in a big way not long after Memorial Day, when the current false euphoric Wall Street rally ends in yet another pool of tears, and the despair trickles downward. A crucial piece of the outcome depends on what happens over at Attorney General Eric Holder's Justice Department ― which lately seems to have seceded from the federal government. A peeved public is going to start wondering why the bankers and insurers have not been called in by the criminal division to do a little 'splainin&rs quo;. As the spring yields to summer, the Obama team's current fix-it plans are also likely to have run out of credibility. Mr. O better be prepared to get a new game.

I spent the weekend at the yearly Aspen Institute Environmental Forum ― a confab lately devoted about equally to the energy and climate fiascos. It's a peculiar exercise, since major sponsors include the oil and gas companies and the auto industry. The Saturday center-ring panel on peak oil, for instance, was shockingly weak, led by the flack from the Shell corporation, a charming lady, highly-skilled at blowing green smoke up the public's ass. Even more shocking is the consensus among the presenters and attendees ― including the hotshots of climate and energy science and the elder statespersons of environmentalism ― that the energy problem merely amounts to finding other means for running all our cars. The assumption that we must remain car-dependent remains absolutely entrenched among these people who ought to know better. Of course, the words "public transit&rdqu o; were barely uttered. It's disappointing to find such idiocy among this particular elite.

But Sunday's departure really plunged me into the epicenter of American idiocy ― namely, the airline industry. They've been running airplanes out of Pitkin County, Colorado for at least fifty years, but they seem to discover a'fresh every morning that strange winds blow through the valley. After jerking around absolutely everybody in the terminal for a couple of hours with unexplained delays, the United Airlines ground crew announced that all flights for the day were cancelled, causing a rhino rush back out through the security checkpoints to re-booking counters. I ended up on a bus for the Denver Airport ― a five hour trip, including twenty-miles of parking-lot quality traffic along I-70 where the jackass Colorado DOT had closed down one eastbound lane, despite the fact that it was Sunday and there was no work going on there. 

You'd also think that after all these years, the state of Colorado might have organized choo-choo train service from Denver into the ski valleys of the Rockies, given how important the ski industry is to the state's economy ― and how incredibly fragile the airline service is. But that would be too sensible for a nation determined to become the Bulgaria of the western hemisphere. So, instead, they get up every single morning in Aspen and try to figure out whether commercial aviation works out there, and half the time it doesn't. Anyway, the Aspen Institute was very generous in organizing the bus trek out of there, and putting up us travelers stranded overnight in airport hotels. Mine was some rummy operation called the Staybridge Inn where the vaunted in-room wireless didn't work in my room, so I write to you in a dreary little chamber off the lobby where children are scre aming from their overdoses of fry-max and melted cheese in the only dining venue (Ruby Tuesdays) along this massively over-scaled boulevard of chain motels. I can easily see the whole miserable strip becoming a ruin inside of five years as the airline industry dies. Final note: the hotel elevator proudly declares itself to be the German-made product of the ThyssenKrupps corporation. America's so lame, it can't even make its own elevators anymore.

(I apologize for a somewhat sloppy blog this week. My tendencies to insomnia are aggravated by high altitude and I am cross-eyed with sleeplessness…)

It amazes me that otherwise sensible people can acknowledge that things are falling apart and that ― either through deflationary depression or inflationary calamity ― America is going to end up a lot poorer…yet they think that everyone will be able to carry on pretty much as they have, just with less electronic toys, mall spending sprees and leisure travel.

And the money and credit fiasco will be attended by the relentless decline of global oil production…

The very systems we take for granted are only possible for a society with wealth…and an industrial society like ours needs abundant (cheap) amounts of oil. Poor, oil-depleted societies don't get to have sprawling automobile-dependent suburbs and functioning shiny skyscrapers. Societies that are formerly wealthy get to watch such accoutrement of wealth and energy abundance turn into relics.

Further, formerly wealthy societies will not as a whole be able to eat as well and by extension sustain as many people, especially non-productive people. A welfare class is in fact a luxury item only possible in the presence of surplus. Scarcity culls.

Dear friend of the Whiskey Bar James Howard Kunstler goes to great trouble to explain this clearly in The Long Emergency and to paint a fictive picture of what we can expect in our real lives in World Made By Hand. They're both standard Whiskey reading.

If you'd like to take measures to get yourself financially prepared for economic meltdown and energy scarcity, you may want to take a look at the aptly named Energy and Scarcity Investor. We're offering it for half price…but only until midnight April 2.