Clusterfuck Nation

by Jim Kunstler

Comment on current events by the author of
The Long Emergency (Atlantic Monthly Press, 2005)


www.kunstler.com


A Hard Place (October 02 2006)

I don't think it's accurate to call it a "war" anymore. It was one briefly back in 2003, and it may become a wider one again in the region. But for now the American situation in Iraq has degenerated into a dangerous, half-assed policing operation. We're not really fighting anyone, just getting in the way of factions fighting each other. A large part of our failure in this project has been our inability to get the electricity and water running properly. Any group of Americans might be equally pissed off and crazy after three years of that.

President Bush has done a bad job of articulating the strategic purpose of our presence there. It's certainly not about "freedom". It is in human nature to prefer simple order to some abstract notion of freedom, and the Iraqis had simple order under Saddam. Anyway, the kind of trashy freedoms that Americans enjoy - freedom to gamble in Las Vegas, freedom to buy pornography, freedom to enter into ruinous mortgage contracts - might not seem so appealing to people in an Islamic society.

The purpose of our Iraq project was to stabilize the Middle East by creating a successful buffer state between Iran and Pakistan to the east and the nations west of Iraq, especially Saudi Arabia. Why? To preserve the status quo in our oil deliveries from the region.

Ironically, this last item is the only thing that we have succeeded in - so far. And one of the reasons the Democratic opposition to Bush has been so unsuccessful is precisely because for all our failure over there, America has not yet experienced a cut-off of Middle East oil - while anti-war media stars on the Left like Al Franken and Harry Shearer still get to hop in their cars and drive wherever they like without a second thought.

The sentiment among the American public runs increasingly against our adventure in Iraq. But just as no politician has articulated our reason for being there, no one has expressed any coherent idea of what might happen if we had no military presence in the Middle East. I will try to outline a picture of this now.

Possession of the largest reserve of the world's crucial resource, oil, has no doubt driven the people of the Middle East crazy. It has fed the resurgence of a militant Islam that seeks to punish and antagonize the Judeo-Christian West (and, call it whatever else you will, the 9/11 attack was certainly an act of antagonism). It has also caused populations to swell far beyond the carrying capacity of the region, with predictable results. But with most of the Middle East nations now at or past peak oil production - including Iran and Saudi Arabia - we can expect only more dangerous behavior.

Whatever else might motivate Iran, control of the adjoining southern Iraq oil fields centered around Basra, and the oil facilities offshore in the Persian Gulf, must be high on the list. And a US withdrawal from Iraq would certainly lead to that outcome. Next on Iran's list is the wish to drive a Shiite wedge westward across Iraq to Saudi Arabia, which contains a large Shia population of its own, conveniently occupying the Persian Gulf coastal region where most of Saudi Arabia's oil comes from. The purpose of this "Shiite wedge" would be to bring down the ruling Al Saud family and replace it with an Islamic fundamentalist government. All of these moves are predicated on Iran assuming nominal leadership among the Islamic nations of the region. And all of it would bode ill for American oil supplies.

An American withdrawal from Iraq would leave US bases marooned in the landlocked backwaters of Asia - with outposts in Afghanistan, Uzbekistan and Kyrgyzstan. The purpose of these bases so far has been for staging operations from Afghanistan westward toward Iran, Iraq, and the Arabian peninsula. These bases happen to be next door to China, to the east. Would these tiny bases in Asia be used to stage operations against China in some future conflict? Good luck. They would last about five minutes.

Pakistan has been off the radar screen of the American media for years. It is arguably the most dangerous state in the region. It has a thousand recent years of Muslim experience on top of perhaps 100,000 previous years of other influences. The people of Pakistan are not ethnically Arabs or Persians, yet they are even more violently anti-western. Pakistan is overpopulated to the extreme. It has no oil but owns at least twenty nuclear bombs. Very little stands between the current government of General Pervez Musharraf and either complete chaos or an Islamic fundamentalist government. If Musharraf fell, would the US try to insert itself in a meltdown of Pakistan? Good luck on that one. For the moment, only fear of a nuclear exchange with its neighbor, India, stands to modify or influence Pakistan's behavior.

Let's say the US did withdraw from Iraq. This would leave us with bases in Oman, Qatar, Kuwait, the United Arab Emirates and Turkey. These present a full frontal opposition to Iran, but would have meaning only if we went to war with that country. Such a war would probably leave the oil infrastructure of the Persian Gulf in utter ruin. Which is to say it would do nothing to advance America's strategic interest in maintaining the oil lifeline from the Middle East.

Sooner or later America will lose its ability to influence the people and events in the Middle East, and at the same time we will probably lose access to the oil of the region. Yes, oil is a "fungible" resource that finds its way through markets. But the markets themselves will be badly destabilized by the economics of post-peak production. Do not expect on-time delivery.

The US will withdraw back into the Western hemisphere. We have about 25 billion barrels of conventional crude left of our own. We currently use seven billion a year. Canada has been our largest source of oil imports. They will be left with little besides the tar sands of Alberta. Whatever else might be said of them, the tar sands will make for very expensive oil products. (Ditto the oil shale of the Rockies.) We will not be able to maintain our current living arrangements on these things, nor on coal liquefaction.

The Canadian producers have substantial contracts with China for the products of the tar sands. I have no doubt the US will invoke the Monroe Doctrine to cancel those contracts. Expect a pissed off China. The same goes for Venezuela. Anyway, that nation is way past its production peak and the oil it has left is low quality heavy crude. Mexico is on the verge of an especially steep oil production decline. The low-hanging fruit of the Western hemisphere is gone. Colombia and Ecuador are not going to save American Happy Motoring. Don't get too excited about Chevron's "Jack" discovery in the deep waters of the Gulf of Mexico. Even at its most fantastical extrapolation, it would represent about two years of US oil consumption, and it would be expensive to a laughable extreme.

The bottom line is that the only meaningful project for the US now is to turn its attention and remaining resources to the job of preparing for civilized life without oil. This is the topic that is absent from our political discourse on all sides and at all levels. The anti-war community is itself either lost in raptures of Bush-hatred or preoccupied with fantasies for running the interstate highways on used french-fry oil. We have to talk about things beyond just running our cars by other means.

We are a profoundly unserious nation, for all our pretensions.


Shit Unhappens (September 25 2006)

The story this coming week, I think, will be how much the collapse of the Amaranth hedge fund may end up infecting other "playas" in the big leagues of finance. Hedge funds being what they are - rackets using "leverage", or other people's promises to pay, to make bets on "spreads", or differentials in other people's bets on the price of things - there are a lot of other people out there who might get sucked through the event horizon of one big fund's black hole of bad betting.

So far - through the weekend of the 23rd and 24th - the banks and other manipulators of capital have been successfully quarantined from the Amaranth infection. Sunday night, as I write, the business desk reporters are waddling back to the fridge for a second bowl of Chunky Monkey. Many of them will go to sleep in a few hours thinking that the price of gasoline is headed down further and all is right with the world.

But the Amaranth fiasco has made about six (or is it eight?) billion of somebody's dollars disappear. Either those dollars have meaning, and those somebodies will suffer from the loss of them, and so will the people who the somebodies owe money to, or else the dollars will have had no meaning per se - they may not have been dollars so much as IOUs denominated in dollars, or loans of bundles of IOUs, or promises of future loans of bundles of IOUs - in which case their value as a medium of exchange will be perceived to be less than was previously assumed.

This is what comes of living in an economy of hallucinated finance instead of an economy of wealth-generating work. It all seems to add up until the old assumptions just don't add up, and then things break down.

This is the season when crashes like to happen. Perhaps it's something about the frost on the pumpkin, those premonitions of the dark and freezing nights ahead, that provoke hard-wired human brains to get real. When people get real and the basis of their currency looks more and more unreal, shit will happen. And unhappen.

Some commentators, such as Doug Noland, at Prudentbear.com, think that the liquidity game - of evermore loans based on other loans based on promises to pay based on IOUs - can keep this alternative universe of rackets going for a while longer. (At least that's what Doug said in an interview with Jim Puplava this weekend.)

Myself, I think something's gotta give. There are too many real things that are going wrong. A tapped out public with no savings. A glut of houses sinking the sprawl-meisters. Nobody buying cars. Balance of payments steadily worse. Overseas adventures failing ...

Despite temporary appearances, the energy predicament has not gone away. Worldwide oil production is on track to go down three percent in 2006. If it keeps on going that way, the 84.5 million available to the world now will shrink to something like fifty million in 2015. Ultimately that will determine the fate of our economy and the financial infrastructure that is supposed to serve it.

A world of increasing energy scarcity will be a world that generates fewer things of value, less "wealth". All the paper "instruments" that represent our hopes that society is bound to produce more wealth will be discredited. This is a fundamental fact of peak oil, and perhaps the most implacable reality. Not only will there be less wealth, and fewer paper certificates that can be construed to represent wealth, but promises to pay back loans of putatively existing wealth will lose their credibility too. The long chains of promises to pay back this debt and that loan will be broken, and all the paper associated with those promises.

If, however, America could find some way to harness the energy in the smoke it blows up its own ass every day, we would never face an energy crisis. Wouldn't that be the day?


A Wild Hair (September 18 2006)

To find any news on the cable news networks these days is getting as hard as finding a pay telephone in an airport. This weekend I went to MSNBC three separate times to see if anything was going on in the world, only to find Matt Lauer interviewing Deborah LeFavre, the blonde babe Florida schoolteacher who got down-and-funky with a fourteen-year-old student. ("He wanted it; I gave it to him".) I guess the network execs could not resist running the segment nearly around the clock. If they could show porn instead, perhaps they would be even happier. Elsewhere around the cable menu, CNN-Headline has passed the baton to geeks like Glen Beck and Nancy Grace, who offer the equivalent of biting the heads off chickens, CNBC ran a seemingly endless loop of cops-in-cars-chasing-lowlife around (pick it) Florida, Las Vegas, or Phoenix, while over at regular-CNN Larry King was discoursing with Sean Penn on world politics (in lieu of someone who actually works in government or foreign policy).

This is an interesting case of the diminishing returns of technology, the stealth disease that is corroding our economy and our culture. The concept is not as abstruse as it seems. It is related to Gresham's law of economics, which states that "bad money drives out good". If you have a society on a gold standard of circulating money, and you introduce silver as an acceptable medium of exchange, Gresham said, the gold will all disappear from circulation due to hoarding, until only silver is left in circulation. Likewise, there is a tendency with the layering of technologies to diminish the real value of whatever these technologies are applied to in our culture, like broadcast news - the more cable channels, the worse we are informed.

The most obvious example of the diminishing returns of technology is something that probably drives millions of Americans batshit every hour of the day - the inability to connect to a live human being on the telephone. This situation has come about precisely because of the investments made in computer upgrades of telephone systems since the 1980s. All over America, in companies, banks, colleges, doctors' offices, machines now answer the phone and the caller must submit to the absurdity of negotiating with a robot (usually a perky female robot). At best, these systems waste a quarter-hour of your time. At worst, I daresay a few poor souls have literally killed themselves over a failure to connect to some crucial person at a crucial moment. I don't know for sure, but my guess is if all these companies, offices, and institutions had just continued to pay salaries for a few receptionists each over the years, instead of investing an equivalent amount of money in the latest technology, we would be a much happier nation - and at least a couple of million people (probably women) would have decent jobs intelligently and swiftly routing caller's needs to the right person in their organization.

Getting back to the original matter of the television news, what was going on around the world this weekend was not very much of anything. The Pope was the latest in a long line of individuals who spoke their minds about something (in this case, the implacably violent ideology of Islam), and then tried to take it back when a few mullahs affected to be offended. But aside from the Pope acting like an Ivy League university president called on the carpet by vengeful correctniks, not much was actually happening in the world.

Which leads me to the real subject of this Monday blog, which is the question of oil prices. Cheerleaders for an obsolete reality, such as Michael Lynch and Forbes Magazine, are hailing the current drop from the mid $70-range to the low $60-range as an epochal tide-turning return to the salad days of cheap oil. (Lynch predicts it will go down to the $20s.)

Here are some of my current theories. For one thing, being at-or-near peak does not remove price volatility from the picture. It may, in fact, increase volatility as oil markets - like any large-scale complex system - are likely to be destabilized by the uncertainties of what peak will do to all the other big complex systems in our hyper-connected world.

What we've probably seen over the summer, with oil prices entering record territory, is large users laying in inventories in fear of even higher prices. Most of this fear premium revolved around the anticipation of another wild hurricane season, which so far failed to materialize. It was also pegged to the Israel-Hezbollah war, which further induced dread of a wider Middle East war, a showdown with Hezbollah's sponsor, Iran, and the threat of disruptions to oil exports out of the Persian Gulf.

Now, a matter of speculation circulating in the rumor-stream of the Internet is the idea that some large entity (that is, the US government) has managed to manipulate the oil markets in order to calm the voters down prior to the fall elections. Personally, as I have expressed countless times, I am allergic to conspiracy theories. Oil prices are not actually set by the oil companies or the exporting nations. Prices are set on the futures and spot markets, where major buyers of crude bid on either short-term or long-term contracts for the stuff, in order to run their enterprises in a rational, businesslike way. Earlier this summer they bid the prices up.

Some buyers may have simply dropped out as the price of oil exceeded their practical ability to pay - and by this I mean mainly the governments of Third World countries. This would represent significant demand destruction, but the pain incurred by people in Third World economies would likely occur off the "radar screen" of the US news media. (How many Americans, for instance, are up-to-speed on the horrific economic suffering in Zimbabwe?).

Don't look at China for demand destruction. Its oil consumption actually grew by fifteen percent this year.

If there is demand destruction in the US, it has not shown up yet in the overcooked and overspiced statistics emanating from the federal agencies - though the housing slump-or-crash-or-whatever is beginning to make an impression on economy-watchers. There is otherwise no evidence that fewer cars are clogging the Capital Beltway or the Santa Monica Freeway.

But here's one thing I wonder: what if the number one user of oil products in the US had laid in huge inventories of the stuff earlier in the year and has lately withdrawn from bidding in the futures and spot markets? I am speaking of the US Military. It would make sense, against the background of Iran rattling its nuclear capabilities, and the Israel / Hezbollah affair, that the US armed forces filled their tank farms to the max this summer and are now stepping back from bidding on any additional oil for the time being. This could be easily "managed" by the people who run this massive organization - namely, the President, the Secretary of Defense, and the rest of the civilian authorities based in the executive branch of the government. They don't have to consult with congress on their oil purchases.

I apologize for veering into conspiracy territory on this - and I don't have a shred of evidence that this is happening. It's just a thought, a caprice, a "wild hair", a theory. Surely there is some enterprising graduate student or trust fund nerd on the peak oil web sites who might investigate this dark notion. Has the US military gone on an oil-buying vacation as we head toward the elections?

http://www.kunstler.com/


Bill Totten http://www.ashisuto.co.jp/english/index.html