Casaubon’s Book

Sharon April 24th, 2009

Well, I admit, when I wrote my “All Better Now” post, even I was thinking that it might be a week or two before it became completely clear that we weren’t better.  The bad news comes in fast, faster than your local apocalyptic prophetess of doom can even keep up with ;-).

The worst news is not that GM is dead or that the government is definitely, absolutely not expecting Chrysler to go into bankruptcy(does everyone find that as reassuring as I do?), although that is very bad news indeed, especially for the midwest and for many, many aging pensioners.  The worst news is that we finally have the beginnings of a tally of the rate of return on our investment.  Oops, did I say return?

Here’s Ilargi  over at The Automatic Earth (with a bit of help from Elizabeth Warren whose appointment to the government financial watchdog role, and whose blunt commentary are one of the few bright spots in this whole mess) on what we’ve gotten for our money:

“Six months ago, in October 2008, the IMF predicted that American financial institutions would have to write down $1.4 trillion in toxic loans and securities. Three months later, it increased the prediction to $2.2 trillion. We find ourselves another three months later today, and the number has risen to $2.7 trillion, or roughly two thirds of the $4.1 trillion the IMF claims will need to be written down globally. I don’t know about you, but I know a trendline when I see one: the chance that the IMF has this time gotten the numbers right, as in high enough, are zilch and nada.Of the “American” $2.7 trillion, about one third has been actually processed so far, which means US banks will need to write down another $1.8 trillion. Against that backdrop, we need to turn to Elizabeth Warren, who has estimated that $4 trillion has to date been injected into the US financial system. If we were to simplify the issue somewhat, we might say it has taken $4 trillion to write down $900 billion, and that’s without counting the remaining $8.8 trillion in loans that are floating out there somewhere in the economy.What we’ve seen the past few days are positive earnings reports form the main banks, which were so obviously founded on accounting tricks and other bells and whistle style decorating that Bank of America got rewarded with a 25% share value loss yesterday, basically for trying to fool the markets. Today is supposed to be Super Tuesday, the day that midsize and small banks come with their numbers. First off was Bank of New York Mellon, which reported first-quarter net income was down 51%. This should be fun.But it’s the larger picture emerging from all this that we should focus on. The $4 trillion the banks received so far under the guise of encouraging them to restart lending, the actual numbers for new loans are down 23%. Yet, here’s a New York Times headline today: “Credit Markets Still Sputtering, Geithner Says” You pump one third of the entire annual US GDP into them, they react by cutting lending 23%, and you call that “sputtering”? Let’s get a life, shall we, Tim?

In other words, it’s all been a complete failure….

Back to the larger picture: if commercial banks lend 23% less, despite all those trillions in incentives designed to make them lend more, the question arises: What is their core business, how do they make money? Right, by making loans available. So the less they lend, the less they are likely to recover or even survive. Catch 22,3,4. And how do you get out of that catch? By throwing in another $4 trillion? The first batch didn’t work, why would the second?”

Ok, so you invest 4 trillion to get 900 million of assets written off.  Gee, anyone want to sign up for a mutual fund that gives that rate of return? 

I think Ilargi has, with his characteristic bluntness, put his finger precisely on the problem.  We have spent unimaginable amounts of money, and made unimaginable commitments to get us…a couple of little bumps in the stock market.  If the Government had actually wanted to alleviate the crisis, they could have done so by disbursing the same money directly to consumers, or by using it to lend directly to them, it could have done so in a host of ways that would absolutely have been more successful than this one.  I didn’t love the Bush disbursements, but let me stand up here and say that sending people cash is a heck of a lot wiser than flushing it down the toilet.

Meanwhile, in the real world, people’s lives are getting worse quite rapidly.  Der Spiegel, in an excellent piece on the crisis’s effect on the poor and middle class, observes,

In New York City, soup kitchens must make do with sharply reduced budgets, even though demand for their services has quadrupled. According to the city government, free meals were provided to 1.3 million people in 2007. From October to November 2008, the number of New Yorkers living below the poverty line suddenly jumped to 3 million.

More recently, city soup kitchens have been literally overrun by their clientele. The Church of the Holy Apostles in Manhattan currently distributes 1,250 meals a day, but even that is not enough, says Joel Berg, director of the New York City Coalition Against Hunger. “Many people leave without having received a meal.”

Ilargi goes on to observe that the IMF is wildly understating the losses that American banks will have to absorb.  Amd since the states are already struggling to keep functioning, and stripping benefits from the poor, rapidly undermining the social safety net from school kids, the elderly and the disabled and a host of others who can ill afford the losses.  The Federal Government, losing revenue left and right, must sell more Treasuries than ever to keep afloat - even as other nations begin to pull back.  Who will buy them?  And who will pay the rapidly increasing debts?

All of our assumptions - every single one of our national and collective responses to this crisis has been built upon an overarching assumption - that things *will* get better and soon.  Now I don’t swear this is not true - however, as I’ve pointed out before, the last two deep and major financial crises in the US essentially lasted a decade or more - both the Great Depression and the “two recessions with inflation and no real recovery in the middle” of the 1970s and early 80s lasted a full decade.  Every plan we have made assumes that will not happen to us - but not because we have good evidence it won’t, but because we don’t want it to.  Well, not wanting it is insufficient.

Of course, you could easily (and correctly) make the case this is typical.  That is, our climate change policy has always assumed that we wouldn’t wait too long, we had plenty of time and that the optimistic and politically acceptable targets would reign.  Our energy policy has always assumed that the optimistic targets for depletion and renewable energies would reign.  Most of us live our lives on the assumption that optimistic assumptions about progress and wealth will be accurate.  Thus, we do not have any sort of backup strategy, even of the most common sense sort. 

In fact, we reject pessimistic outcomes in our basic assumptions - look at the constant crowing that US unemployment is nothing like the Depression’s 25% rate.  Well, ummm…duh - that figure comes from 1933, four years after the stock market crash.  If you figure our stock market crashed back this fall, in September,  let us compare (we all know about Shadowstats, right, and that the US official figures are umm…tweaked).  In 1930, within a year of the crash, the official unemployment figure was umm…. 8.7 percent.   

What, seven months after our stock market crash, is the unemployment figure?  Hmmm… the tweaked national figure for March was 9%.  That is, we’re doing a little worse than in the Depression for the parallel point in the crisis.  Does this mean we’ll end up with 25% unemployment?  I have no idea, and I don’t claim to - but I do know that comparing irrelevant statistics out of context doesn’t really do much but screw with people’s understanding of events - which is probably the point.

Nouriel Roubini’s latest forecast does predict an eventual, slow, sluggish recovery - assuming, of course, that nothing else bad happens.  That definitely sounds like what we want to bet on, right?

My analysis of the data suggests that the global economic contraction is still in full swing with a very severe, deep and protracted U-shaped recession. Last year’s economic consensus forecast of a V-shaped short and shallow recession has vanished. While the rate of economic contraction is slowing compared to the free fall rates of the fourth quarter of 2008 and the first quarter of 2009, we are still a long way away from the economic bottom and from a sustained recovery of growth. In particular, in Europe and Japan there is little evidence of a positive second derivative of economic activity.However, by the end of the first quarter of 2009, there were some signs that the pace of contraction had slowed in many economies, especially in the U.S. and China, where policy responses have been more significant and leading indicators in the manufacturing sector may have bottomed before they did in Europe and Japan. However, major economies, including all of the G7, will continue to contract throughout 2009, albeit at a slower pace than at the beginning of the year. Moreover, the global recovery might be sluggish at best in 2010 given the overhang of the credit losses of financial institutions, the lingering credit crunch, the need for retrenchment by overstretched and over-indebted households in current-account-deficit countries, and a slow resumption of demand prompted by extensive government stimulus.
It is simply common sense to have a rational backup plan for an extended economic crisis without an easy recovery, or a series of ever-deeper recessions that cover a decade or more - period.  And it is also common sense not to put all your eggs in one basket.  We’re gearing up for a bigger crash than we needed to have.  And that’s something, coming from me.  There are going to be a lot of broken eggs.

Sharon

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Sharon March 9th, 2009

Note: Sorry for the quiet blog - I’ve been away and in transit and lazy.  I will be posting more AIP stuff and also an account of my Tucson trip, including my visit to Chile, whose food I must say tastes even better than it looks on the blog.  But in the meantime, here’s this breaking news!

Thomas Friedman, uncritical neo-classical economist, whack job proponent of globalization and porn-star-style mustachioed New York Times columnist has actually decided that growth is bad.  http://www.nytimes.com/2009/03/08/opinion/08friedman.html?_r=2 

 This stunning development occurred after the evil, parasitic alien caterpillar that has been residing on his upper lip died, ending its multi-year position controlling all of Friedman’s brain activity.  This is the only possible explanation for a sudden shift to rationality from a man who has done more to encourage the globalizing destruction of all hope for sustainability than most.  

 In a news conference, Friedman also renounced the “science” of economics, and vowed to help develop a new steady state economy.  He also reassured those who would miss his famous look that despite the death of his parasite, he’d be keeping its corpse on his upper lip, since he’s gotten used to it. 

 (Ok, the last part isn’t true.  But the article is, and this is the only way I can think of that really makes sense ;-)).

 Sharon 

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Sharon February 16th, 2009

A while back there was a study that suggested that it is more expensive to be poor in the US in some ways, than it is to be rich.  And to anyone who has actually been poor, this probably made perfect sense.  Among the ways that being poor cost you money:

1. Your infrastructure is limited, so you are limited to what fits in your infrastructure - for example, you don’t have a car, so you can only shop at the convenience stores or those on your bus line, which are more expensive than the Walmart outside town.  Your house or apartment is underinsulated, so your utility bills are extremely high.  You have to have food and heat, so you pay them, and struggle.

2. You are less likely to have insurance, or to have exhausted your safety nets,  so you are more likely to find yourself paying for acute costs because of things you’ve let go - instead of routine dental care, you don’t got the dentist until there’s a major crisis, involving multiple root canals.  You can’t afford to have the roof replaced, so you wait until things start falling on your head.

3. You find yourself falling behind on bills and incurring the costs associated with that fall behind - $50 here to get your electricity turned back on when the child support payment didn’t come in, higher interest rates on the credit cards because of late payments, the returned check fee for the school yearbook you’d hoped your tips would cover…

 4. You have little access to ways of getting ahead - you can’t buy in bulk because you can’t lug your toddler, your infant stroller and a 50lb sack of anything on the bus.  You credit is shaky, nonexistent or minimal, so you can’t borrow enough to start that business or get a car that wouldn’t break down.  So you continue to buy the higher priced bags of rice, and pay the repair and heat bills bills,  - even though you’d save money with a minor upgrade that is as out of reach for you as the moon.

5. The upgrades are out of reach because things like “return on investment” don’t matter when you can’t front the cash.  People who talk about “Only 3 years until you get your money back” for some investment don’t quite grasp that fronting 3 years of anything is out of the question - you can’t handle the credit, you can’t handle the payments, and odds are you, can’t get the loan anyway.

6. Prior indebtedness weighs you down.  Those payments that seemed so manageable when they were described to you at teaser reates or in isolation are now major drags on your budget.  Borrowing to meet crisis needs - say, the payments you owe the hospital from after your car accident, make it less likely you can get along day to day.  Moreover, the costs keep shooting higher, either because companies are making less profit and want more, or because you screwed up as in #3.  You now know you will never, ever get out from under it - and thus, your choices are limited by your debt.

There are other ways that this high cost of poverty plays out, but these are enough examples to get you going.  I’m willing to bet that some of my readers have experienced some of these costs themselves, and more probably will as the current economic crisis expands.

But unlike in prior recessions, ordinary people aren’t the only ones experiencing the new realities and limitations of poverty - governments at all levels are getting to know these restrictions.  I recently listened to my state’s debate on what to do what the stimulus money being offered to them.  The choices consist of:

1. Save the money to meet future budget shortfalls, which will definitely occur.

2. Spend the money in the vain hope of getting the economy moving on projects that were conceived back when we had a growth economy and probably won’t do much to alleviate our plight.  Meanwhile, panic because there will be no money for future budget shortfalls.

3. Use it to cover increasing gaps in safety nets - gaps that only get bigger, and devour more of the money.

None of these really deals with the primary need, which is for deep infrastructure change.  But, of course, it is increasingly beyond our states, just as it is beyond most poor people.  For example, you’d like to move to a better apartment, the one with a bedroom for your daughters who now sleep in the living room, no cockroaches and nearer your husband’s job.  But to do so, you’d have to get first months, last months and security accumulated, plus the cost of the moving truck, and the landlord isn’t likely to give you back the security deposit because he’s that kind of landlord. 

Now the states are in roughly the same situation as your average working class poor person - they aren’t allowed to carry deficits (ie, no credit for you), and the one thing they can’t do is get enough money to do the things that are really needed - even if they knew what they were. 

Meanwhile, their infrastructure begins to degrade, the rough equivalent of skipping your dentist appointments - the bridges start to crumble, the roads have potholes, etc…  And of course, a year or two of neglect is going to mean more costs down the road - but that can’t be helped.

Because your infrastructure is now limited to the cheap energy infrastructure, the states are now limited to cheap energy adaptations - and emphasis on the cheap, or the ones that use what you’ve got - that is, without a public transport network, the best we can hope for is carpooling.  Without good housing, the best we can expect is for someone in any given family to keep their house and move their relatives in.

And crises keep coming along to undercut your attempts to catch up.  First the unemployment funds start to empty, and then the bond defaults start.  A city goes bankrupt and needs state aid to keep the trash pickup coming, and no one budgeted for that.

Credit becomes almost impossible to find - no one wants your muncipal bonds, no one shows up for the auctions.  Which means that you have to stop even the steps you’ve been taking to get ahead.

Things that would give you a return on investment - say, improving the quality of education for your million school kids, or ensuring that some of them can go on to college through state subsidies, or investing in the good health of your households, or making your environment attractive to the kind of businesses that are most likely to stay and bring in tax revenues become impossible - you don’t have the money to make sweetheart deals or improve education - in fact, you are probably cutting back on it, and accepting that in 12 years, you’ll pay the price in students who did about as well in 35 kid classrooms as you’d expect.

That is, real poverty works pretty much the same at the personal, state or national (Iceland, say) level - you can’t buy much, you can’t save money, your costs get driven up. you lurch from crisis to crisis, getting further and further in the hole.  Some people are able to make their way out due to concerted effort and some good luck, but for most people, no matter how you try, getting out is almost impossible - because it would require the ability to invest in your future.  At best, you can maintain, get a little ahead this year, and fall back next, rather as Japan has done for the last 15 years. 

We are not yet at the stage where the US government is fully in this mode - it is still able to borrow money, but there are ominous signs of what is to come.  China’s mutterings about uncoupling from US debt are getting louder.  And with Japan facing a national contraction of 10%, their ability to buy our Treasuries is falling apart.  What happens when the 2 billion per day inflow sputters or halts? 

This is something that many people, maybe even most, simply can’t get their minds around.  The idea that a nation could get poor - and that it could look a lot like when Grandma got poor - seems strange and alien.  The idea that our country or our state would lose the ability to invest in major infrastructure changes, that we might have to live with what we have, seems very strange.  After all, can’t the nation run deficits?  Can’t it just print money.

 Yes, it can.  It can run huge deficits - but remember, all those debts will have to be served, and with a declining tax revenue (poor unemployed people and companies that go out of business pay fewer taxes than employed folks and functioning corporations) revenue base, more and more of our wealth has to go to servicing debt.  And all that borrowed money has to come from somewhere - and more and more debt makes people less likely to lend.  Think of it in terms of your own credit score - the lender is far more likely to lend to you if you have money in the bank and a loan level you can reasonably service than if not.

So what about printing money?  Yes, the US can do that, indeed, the Fed already is.  But the amount being printed is comparatively trivial in relationship to the debts and losses, and because we know that, the temptation is to hang on to any money we have in anticipation of the next emergency, which always comes. 

To do it on the scale required would require that we decouple from the world economy in a lot of ways.  Now this may well happen, but the process of decoupling is likely itself to be difficult, and deeply destructive to the economy.  That is, you can print money if you’ve already accepted that other nations aren’t going to be doing a lot of foreign investment - but that means seeing other economies take their wealth out of yours, which is a further deflationary event.  By the time hyper-inflation does come, what you probably have is something called “collapse.” 

And by this point, the assumptions one can safely make about what nations can and can’t do are probably rather different - one stops, I suspect, seeing nations like the US as powerful actors who could do things like extend health care to everyone or rebuild our energy infrastructure.  Instead, governments can do one of two things - pitch their entire effort into ameliorating suffering, or pitch their effort mostly into preserving wealth and privelege.  Something has to go, generally, and the first thing is likely to be the big dreams.  Instead, goals get smaller - either petty small, or more basic, simpler and more honest.  So far, we’ve been heavy on choice #2, help the rich,  but there are still hopes for better, and reason to try and make it happen at every level.

I think a lot of people who “get” the recession break off here, at the idea that there can be such a thing as a nation becoming poor.  And yet, it does happen - we’ve seen standards of living fall in several nations over the last few decades.  But Americans particularly struggle to get their heads around the idea that many of the big things governments do might cease to be done.  And they may be right - but I think it is wise to recognize the real possibility that at the municipal level, the trash pickup and snowplows may stop, that at the state level, your wife who is an employee may end up collecting worthless IOUs, or that projects designed to improve all our lives may simply be abandoned mid project.  And that at the national level, the scope of our ambitions may have to get smaller, and smaller, and smaller.

 What is remarkable about the resilience of poor people is how often they do manage to keep themselves from hitting rock bottom, despite the heavy burdens they labor under.  That is, while some do end up homeless and desperate, most ordinary poor people work their job or jobs, tend their kids, put food on the table, keep everyone going, get their kids to school.  That’s something that states and nations could also do - we will have sufficient resources to keep everyone fed, even to keep our commitments to the hungry in the world.  We will have sufficient resources, if we choose, to educate children and offering support to the elderly, the frail, the vulnerable.  But this will mean giving up most other goals - including the ones that talk about growth and executive salaries.

Moreover, there is an alternate form of poverty - self-sufficient poverty.  That is, it is possible to shift one’s idea of growth from the “quarter over quarter” to the “generation over generation” model - that is, you don’t get richer with your annual raises, you get richer because your parents save what they have, and pass it down to you.  They improve the soil, they plant more trees, they pay off the debt, and then you add the extra room for your sister and her children, dig the drainage, start the business that you can pass on to your children.

At the personal level, this is the difference between the urban dweller who lives on $2 per day and spends 80% of her income on food, and the one who lives on $2 per day on a piece of land that produces enough food for them.  In the first case, a medical crisis is a disaster, and you can never get ahead, never find the money to send your kids to school, never keep up.  In the second, most years the money can be held for doctor’s bills and school fees, and there’s hope.

The major functional difference in the two cases is this - the self-sufficient model has found ways around the constant falling behind.  It isn’t perfect - people do fall behind.  But there’s more stability in the long term. Instead of paying heavy fees to have services or energy provided, you might make your own, uisng a methane digester to provide cooking fuel from your own bodily wastes, or you might turn to community funds to start a business, or build a home, rather than banks with heavy interest rates.  Infrastructure investments are slow and less frequent - but because you stay in place for generations, the accumulated benefit of those investments, whether richer soil or a carefully harvested and nurtured forest or a house adapted to your climate and needs accrue enough to each generation to make progress.  Instead of always losing because you cannot afford to borrow ahead from the next generation or the next year, you never borrow against them - you plan for their enrichment by doing what you can, slowly, and then passing down the benefits over time. 

At the government level, it is possible to respond to less formal wealth with more informal wealth - with improving people’s quality of resources, rather than their quantity, with offering incentives for self-sufficiency, with encouraging people to feel content with what they have, or even proud of doing without and living well.  It is possible to imagine a patriotism built on our ability to adapt to these changing conditions, a sense that we are passing on to the future a legacy.  It is feasible to invest in natural capital - to plant more trees that will bear and serve future generations, to improve soil and water quality, and pass down more and better - not more and better economic growth, but more and better natural resources, and more and better priorities.

The transition from on-the-edge to self-sufficient is not a magic bullet - it is all poverty, and no poverty is bliss.  I do not claim that poverty is an ideal - merely that at least for a time, it is inevitable that we will experience a dramatic drop in what we can afford and have.  I wish I thought that there was another way through the present disequilibrium, but I do not.

The good thing is that we are still endowed with resources, nature still repairs itself to a degree, though we have done deep damage, there is still some hope for the future, if we were to invest ourselves in it.  And the other good thing is that after a period of poverty, one can reach equilibrium in which one no longer feels poor - that is, perhaps if we can find a way to induce people to improve their culture, soils, water, resources, we may find that living with much less is easier, we have adapted and developed a vernacular lifestyle in which “poverty” is no longer the right description, because we are accustomed to what we have, and we get back a little more each year, a little more beauty, a little more community and social capital.  

 Sharon

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Sharon February 11th, 2009

“It was much pleasanter at home, when one wasn’t always growing larger and smaller, and being ordered about by mice and rabbits.” - Alice in Wonderland

Rod Dreher has a fascinating observation over at his blog.  He talks about watching an interview on CNBC with Taleb and Roubini:

“Both men are notorious bears, and called the current crash long in advance. Both, CNBC tells us, were the hottest tickets at the recent Davos gathering. CNBC called them in to discuss the crisis. Roubini and Taleb were both trying to make their case for why what’s wrong with the economy is radical, is fundamental, goes to the very base of all our economic assumptions.

The CNBC twits just wanted stock tips and investing advice.”

The more I think about his point, the more I think that it epitomizes something fundamental about the intellectual shift we have to make - and about how hard it is to make it.  Moreover, it caused me to think about how hard it will be to unmake that shift.  I commented on the piece at Rod’s blog, and said,

 ”I think the biggest problem is that people have been told that investing is a form of saving - *the* form of saving, in fact. And they believe it - even when their “savings” are being ripped out of their hands. So the problem, through that lens, must be investing in the wrong things, rather than the whole fact that what you put into the markets should be what you can afford to lose, not what you depend on for basic things.

Add to that the fact that the society has transformed basic things like security in old age and education into things that can only be achieved through fake saving (investing) in a market that goes up, rather than things ordinary people could have, and it is no wonder that people who live in this never-never land can’t grasp that it is a world of myth. That is, they know they are not going to be able to eat during retirement or send their kids to college on their income or on regular savings. But they haven’t yet grasped that the situation has changed radically and the choices are now - change the system or accept that a college education and independent retirement are no longer choices for most of us.”

I wanted to say more about this, though, because I think that while this does show where we’re not yet, it also gives us a glimpse of where we are a going, a change as radical as falling into Wonderland or Through the Looking Glass. 

Here is what Taleb and Roubini are telling us with their answer that they keep their money in cash - roughly translated this means “We expect the markets to decline still more.  We expect to lose anything we put into the markets.  We believe that money is safer in holes in the backyard than in the stock market.”

Here is what people who kept asking questions about college and retirement savings were saying, in translation: “We’re terrified to take our money out of the markets, and we’re terrified to leave it in.  We depend on the “fake saving” message of investment for basic things like food, housing, health care and education.  We know we have no way of insuring food in the pantry when we are old, or that our children will get an education without it, and we’re not yet ready to admit that our hope of those things is already lost, and thus, cut our losses.  We desperately need the market to go up, so we are in profound denial about what you are saying.  We have no alternate plan, and our government has no alternate plan.  If what you say is true, we face utter disaster.  Please tell me that there’s a way to make that not happen.”

And they are right.  Both sides of the discussion are right.  Without infinite growth, the hopes of an independent retirement were doomed - everyone was told they’d need half a million dollars or more to live on in retirement?  What was the likelihood of that money being saved over the course of 35 working years out a 50K per year salary?  Hmmm….

Four years at a State University costs $50,000 - a young family with two kids, who began saving at birth - what was the odds they were going to be able to pay for college without the markets?  None.

That is, it isn’t just that people bought the mantra of fake saving, it was that they knew that this mantra was their only hope and clung to it as people being swept away in a current cling to anything in reach.  And thus, most of us got into the stock market somehow.  In fact, we often didn’t have any choice - our pensions, our health insurance funds, our mortgages were invested without our consent.  Our companies matched not our savings, but our 401K contributions.  And all of this meant that the markets had an enormous amount of the average person’s money to play with.  This enforced participation meant that the growth cycle had a feedback loop going - more people had to play, which meant more pay.  Now we’re into negative loops.

We were lied to, and we were betrayed, and most of us will never see our money again.  And that leads to an even more important corrollary point - it will be a very long time before our society sees this level of investment again. 

Think about it.  I’m 35, and my friends in their 40s and early 50s are often already caring for or concerned about aging parents that depend heavily on their investments.  Many have lost nearly half of their money already, but haven’t pulled out of the markets because they have been told that this would hurt them, that it is a bad idea, and because they desperately need to believe that they someday will be able to retire.  They can’t bring themselves to accept that the money they have now may well be as well as they can do, because it will not support the future they’ve envisioned for themselves.  So they leave it in.

Many economists have estimated the bottom - quite a few have estimated it at Dow 4000 or so, while others are optimistic.  But let’s assume that the most optimistic estimates are wrong, and that much more of the money is going to disappear.  It took *30* years for the Dow to reach the same levels that it hit in 1929 - the recovery was not quick, and there’s really no certainty that we’d recover quickly either.

 So millions of baby boomers are facing disaster - either extra years of work, or poverty in old age.  And they are going to be angry and betrayed - none of them imagined their later years to be straitened and struggling.  They did what they were told.  And eventually, they will take what is left of their money out of the markets and salvage what they can - and they won’t put it back.  They won’t be able to afford to risk what little they have.

Shift down half a generation or a whole one, to my peers, and those slightly older and younger.  As we watch our parents struggle, how many of us are going to trust in the stock market for our own retirement?  As we explain to our kids why they may not get to go to college, are we going to put our limited funds there?  Universal investmen tis over - and we will remember our whole lives what the dangers of speculation are.  I’ve never met a peer of mine who expected to collect social security, and I don’t think that in 10 years, I’ll meet one who expects to derive money from a 401K.

The 20 and 30 year olds buried under massive student loans, the 19 year olds who will have to drop out because the college fund isn’t there - they will remember, inscribed on their chests where their vision of their future lay, that investment is not safe, it is not secure, it is not a way to ensure the future, but a way to betray it.

It took 30 years for the stock market levels to rise back up to the adjusted equivalents of the Dow in 1929 - in part, because it took 30 years for the people who were children in the Depression, and on whom the fear of banks and markets did not imprint, to grow up and tentatively step back into them.

It took 50 years, until the 1980s, to get levels of participation in the markets up to approximate the 1920s - until a generation of children who could not remember the Depression, and had only known growth had grown up.

 It was only after that that ideas like giving people their safety nets and letting the gamble in the markets with them came up - and anyone want to bet how long before the next time Social Security privatization comes to the table?

Let’s assume that peak oil and climate change simply aren’t that big a deal (for the record, I assume y’all know that they are).  Even without these ecological limits, the idea that the markets will rebound in the long term is probably dubious - because market participation depends on people who believe the “investing is savings” mantra.  And people who have seen it shown to be false will not believe it - you have to wait until a new generation of people, more gullible because they have not seen, arises.

And that means that even if we don’t face energy constraints (we do) and ecological constraints (we definitely do), we face capital restraints - much of our current infrastructure, the way of our way of life, was built with other people’s money, invested in the stock market.  Who will choose to give their money to corporations to spend?  Who will choose to see their health care, housing and education dollars gambled? And that means that our long term recovery prospects  must include the reality that the “investing is savings” mantra has been proved to be a lie, and it will be 20 years or more before anyone will come buying that lie again.

Now mixed in with energy and ecological constraints, I think the constraints in investment capital do mean that we must - I don’t mean should, but must, make our plans for the future very carefully, that we must choose now where to put our limited resources and energies, because they may well turn out to be more limited than we thought.  Down the rabbit hole we go - and it isn’t very clear what size we’ll be when we stop growing.

 Sharon

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Sharon February 4th, 2009

Oh you’ve been on a fast train

And its going off the rails.

And you can’t come back, can’t come back again.

And you start breaking down, in the pouring rain

Oh, you’ve been on a fast train. 

….Got to go on the land.

Stuck in no-man’s land.

Ain’t nobody on your way back.

Ain’t nobody going to lend you a helping hand.

And you start breaking down

And you falling to the sound

You are hearing a fast train. - Van Morrison, sung by the incomparable Solomon Burke 

Despite the fact that there are plenty of people out there who view me as wildly apocalyptic, I don’t actually consider myself a doomer. My own feeling is that while radical restructuring awaits us, our future probably won’t look much like _The Road_.  I have argued that what we face due to peak energy, climate change and our financial crisis can best be described as “ordinary human poverty” - and we can do much to mediate our experience, that we can experience either an ordinary, survivable poverty or one that becomes pathological, based on our own choices.

On the other hand, compared to the mainstream culture,  which tells us endlessly that things will stay the same or get better always, I am, of course, your friendly neighborhood Apocalyptic Dominatrix of Doom.  That’s me,  cracking the whip over my readers to get their gardens going, food storage in order, learn to darn socks and fix their own roofs, etc…  Carolyn Baker was kind enough to mention me as a notable Dystopian chick in her well deserved rebuke to the New Yorker.  So even though I often spend time observing “well, I don’t really think that we’re literally going to see TEOTWAWKI” I suppose I qualify as one of Cassandra’s descendents.

A while back, I wrote my doomiest post to date, when I sat down to compose a section of _A Nation of Farmers_ that described the changes in food and energy issues as of last April.  I was so shocked at what the aggregate shift in our reality looked like put down on paper that I posted it as “We regret to inform you…”and I argued that we are, in fact, in the midst of a fast crash of our society.  I wrote then,

“When climate change and peak oil thinkers run out of other things to worry about, there’s always the endless, inevitable debates about whether we are facing a “fast crash” or a “slow grind.”  And I admit, I’m worried about my fellow environmentalists - because I think they are about to lose their favorite distraction.  When no one was looking, we got an answer.  Fast crash wins.  And we’re in it now.

Wait a minute, you argue - that’s not right.  If we were in a fast crash we’d be well on our way to living in a Kunstler novel.  But we’ve still got cars, we’ve got food, things are slowing down, but at worst this looks like a slow grind - but the crazy lady at the blog is saying fast crash?!?!?

Before you argue with me (and you are both welcome and encouraged to), I’d like to post something a bit out of my usual style - it is simply a description of what has happened with food and energy in the last year - that’s all it is.  Then tell me what you think - because it wasn’t until I began to write this introduction to the present food situation that I suddenly was struck by the fact that even a fast crash doesn’t always look fast when you live it - new normals arise and it turns out we assimilate faster than we panic.

So here we are - the “We regret to inform you that what you have imagined to be “civilization” is now falling apart” post.  See if it strikes you the way it struck me.”  

Although the major issues have changed somewhat - the collapse in energy prices has meant that now people can’t pay for heat because they don’t have a job, rather than because of the high price of energy, and the economic crisis has mostly numbed us to the growth of hunger in the poor world - I don’t see anything to suggest that we are not still in a rapidly accellerating crisis.  The only thing is that even at my most apocalyptic, I would never have guessed how fast - and I think that that’s probably true of most “doomers.” 

But I’m starting to feel like I ought to give back the quirt, the cat o’nine tails and that funky leather corset personally bestowed upon me by Richard Heinberg and Pat Murphy when I was inducted into the Ancient Order of Apocalyptic Prophets (you should have seen what they were wearing - I’m sworn to secrecy, but it was very fetching!)  You see, I’m starting to feel I can’t compete with reality - any actual attention to events as they unfold points up the fact that my own doomiest imaginings are being wildly exceeded.

Let’s see - California is broke, functionally insolvent, and has stopped paying for just about everything, including its state police.  Remember how often they trumpted that they were the 6th largest economy in the world - well, that’s kinda like saying the UK is insolvent…oh, and that actually might be not so far from the truth too, since they just had to nationalize their banking system.  We’ve lost at least 300,000 jobs in two weeks.  The New York Times may be out of business by spring.  While neither rain nor sleet nor hail will keep the postal service from its appointed rounds, money probably will, and they are talking about cutting out Saturday deliveries.  Homelessness and hunger are rapidly on the rise, as are suicide and murder suicide.

There’s rioting in Russia, China, Greece, and massive worker demonstrations in France and Britain.  Australia is seeing record high temperatures, while many of the rest of us struggle with record lows.  California’s drought may be the worst in a century.  And the already hungry are among the deepest sufferers of the food crisis.  The New York Times, Fortune Magazine, Bloomberg - they are all starting to use words like “Biblical proportions” “Deep Depression” “Apocalypse.”  It is getting hard to compete with the mainstream doomers.

We’ve been “fixing” the problem - which is a big part of the problem - think of the word “fix” here as in “the fix is in.”  We’ve just spent 8 trillion dollars bailing out the banks - more than all the wars in US history, the Louisiana purchase and the space program combined.  And what did we get for it?  Bank of America and Citi are still teetering, the jobs are still being flushed daily.  The estimate is half a million a month - every month.

And people aren’t really very angry yet.  They should be - think about what 8 trilliion dollars could actually have bought us, had anyone cared as much about the people as they do about the banks, and about the wealth of the fortunate.  At some point people will realize that it isn’t going to work - and their anger will be frightening - and just.  The New Hampshire state legislature is currently debating legislation that would assert that if the US implements martial law or abrogates the Constitution, it will effectively dissolve the Union.  While one wonders where they were the last eight years, this is being taken quite seriously, and it would have been unthinkable a decade ago.

Eight trillion could have paid for free health care for every American, cradle to grave for a century.  Eight trillion was sufficient to cover the cost of almost all the mortgage debt - every American could have been given their house and the “foreclosure crisis” ended instantly.  Eight trillion was enough to build renewable energy infrastructure that could have softened the crisis, to reinsulate our houses, to provide basic food and health care to the world’s poor.  The same eight trillion we were told we didn’t have when it was needed by those who wanted educations, basic medical care, decent shelter, a home, hope, a decent life, we had a plenty for the banks and the wealthiest people in the world.

A number of energy and environmental advocates don’t seem to grasp that the 8 trillion figure - and the monies spent by other nations - aren’t proof that we can build a renewable infrastructure or address peak oil if we really want to - instead, they are what we are doing *instead.*  Yes, nations can print money, but in order to inflate our currency, we’d have to disentangle ourselves quite violently from the other nations with which we are economically intertwined, and that would have its price too.  That is, our ability to keep bailing is limited - and the 8 trillion now buried in bank vaults and flushed down the toilet is money we don’t have for future adaptations.  Think about it - we’re debating 3/4 of a trillion dollars for all the American people combined (and some of that will also make its ways into the coffers of the bank) - while we’ve already spent almost 9 times that much on the banks.  300 million Americans get 1/8 or less what the banks get.  What does that say about us?  And what does it say about the ability and willingness to mobilize funds for things that actually protect human lives?

So what’s a doomer chick to do but throw in the towel and her spiked mitts and admit she’s beat?  I can’t out-doom the Wall Street Journal - Wall Street invented our doom, and who better to describe it.  The old button ”I eat stranger things than this with my breakfast cereal” is increasingly true - me and my gardens and my ordinary human poverty are just plain dull. 

Don’t worry, I’m not going to stop writing.  But like Dmitry Orlov (who did threaten to stop writing, which would have been a tragedy), I’m getting out of the apocalyptic prophetess of doom job.  Like Orlov, I’m now an observer - hardly impartial, but there’s no point predicting the future when we’re living it, and when the song of the apocalypse becomes the universal chorus.

 Sharon

   

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