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Life After the Oil Crash
Deal With Reality or Reality Will Deal With You
Editor's Note: for those who are curious, last week's 12-page blockbuster expose of Goldman Sachs published in Rolling Stone has now been posted in its entirety to the Rolling Stone website. We're discussing that article along with the above linked article from Reuters at the LATOC Forum. From Reuters:
While most in the US were celebrating the 4th of July, a Russian immigrantliving in New Jersey was being held on federal charges of stealing topsecret computer trading codes from a major New York-based financialinstitution — that sources say is none other than Goldman Sachs. Theallegations, if true, are big news because the codes the accused man,Sergey Aleynikov, tried to steal is the secret code to unlocking Goldman’sautomated stocks and commodities trading businesses . . . The platform isone of the things that apparently gives GS a leg-up over the competitionwhen it comes to rapid-fire trading of stocks and commodities.The New York Stock Exchange quietly announced last week that it wouldend its practice of requiring companies to report all their program trading -- a move that helps shield large investment banks, particularly GoldmanSachs, from public scrutiny. The new rule means the public will no longerbe able to tell if large investment banks are manipulating the stock marketfor their own gain, says Matt Taibbi, the journalist whose Rolling Stonearticle on Goldman Sachs’ role in asset bubbles over the past century hasrocked the financial world. According to previous NYSE rules, any companythat carried out program trading -- essentially, large computer-automatedtrades worth more than $1 million -- had to report the trades to the NYSE,which then made the information publicly available. But, under a set of newregulations (PDF) published last week, that requirement has been removed.Editor's Note: see also our discussion of this at the LATOC Forum
For those still capable of paying attention to our national predicament, thequestions are: what happens from here... and how does it happen? Overthe last ten days, somebody shot the "Green Shoots" narrative in the head.There is no way the American economy can re-expand. This is a debtdeflation like unto nothing the world has ever seen before. We've enteredthe really painful zone of the "work-out" where insolvency can no longer bedenied. Things will be heard crashing every day -- enterprises, households,assets, institutions, prospects, deals. No amount of simulus, first, second,or beyond, will avail to stop this process. President Obama had better turnhis efforts from pretending to re-start the various revolving credit racketsto overseeing the comprehensive re-simplifying of American life.In 2003, Thomas Laubach, the US Federal Reserve’s senior economist,calculated the impact on long-term interest rates of rising fiscal deficitsand soaring national debt. Applying his assumptions to the recent spike inthe US fiscal deficit and national debt, long-term interests rates will doublefrom their current 3.5pc. The impact would be devastating by making itpunitively expensive to finance national borrowings and leading to what TimCongdon, founder of Lombard Street Research, called a "debt explosion".One of the factors that will influence the decision whether to reappoint himwhen his term ends in January is the nature of the next task facing him orhis successor: to wean the economy off the $1 trillion of new moneycreated by the Fed when disaster loomed last fall. Like much of what theFed has had to accomplish recently, it's a scenario without precedent sincethe Great Depression. And that time, the delicate operation was botched.The report is in many ways even uglier than the headline numbers. Averagehours worked per week dropped to 33, the lowest level in at least 40 years.This means that millions of full-time workers are being downgraded to parttime, as businesses slash labor costs . . . Factories are operating at only65% capacity, while the overall jobless rate hit 9.5%. Throw in discouragedworkers who want full-time work, and the rate of labor underutilization rateclimbed to 16.5%. The news is even worse for young people . . .In a sign of how severe the employment downturn is getting, even school-teachers, an occupation once viewed as recession proof, are feeling thepain. Education jobs grew steadily in recent years amid rising enrollmentand government efforts to reduce class sizes. Now the increase in teachingpositions has leveled off as school districts struggle with budget pressures. The closer one looks at the numbers, the worse they look. In June 2007,the official U.S. unemployment rate was 4.5%. The just-released officialunemployment rate for June 2009, is 9.5%, for blacks it's 14.7 percent, forHispanics, 12.2 percent. When that number is adjusted to include thosewho have given up looking for work and the underemployed -- those peoplewho can only find a part-time job and other "marginally-attached" workers,the actual unemployment rate is 16.5% . . . Additionally, the amount ofpeople out of work for over four months has grown significantly . . .The unemployment rate is now at 9.4%, and a record 27% of the nation's14.5 million jobless have been unemployed for about six months or longer.Many are only now seeing their unemployment benefits expire, their homesfalling into foreclosure and their lives upended. The consequences of longterm unemployment can be severe. The longer people are unemployed, themore likely they are to deplete savings, fall behind on bills, even faceforeclosure . . . The odds of finding a job have steadily gotten worse. InDecember 2007, there were about two unemployed workers for everyopening, Labor Department data show. As of March, there were five forevery opening. Beaupre found that out when he tried to go to a job fair inProvidence two weeks ago. Over Three thousand people turned out . . .Kraintz had relocated to Tent City's outer boroughs. Its downtown, whichbriefly attracted camera crews from all over the world--a Third Worldshantytown in the capital of the richest state in the richest country!--wasa couple of hundred yards away. Depending on whom you ask, somewherebetween 150 and 300 people lived in Tent City between November andApril. But by the third week in April, when I visited, most had alreadypacked up. Some had migrated to this spot to avoid police attention. Butthe cops came, handing out notices announcing, "It is unlawful to camp inthe City of Sacramento" and giving people two days to leave. ("This is notcamping--we're living!" yelled one of Kraintz's neighbors.) By the end of theweek, everyone left. Tent City, for that moment at least, had disappeared.Few people there, though, doubted that it would be back. Tent City is lessa single location than a nomadic but constant phenomenon, a shifting blue-tarped shadow to the glass and steel of the American metropolis . . .States across the nation are suffering the effects of lost tax revenue in theworst economic downturn since the Great Depression. California's woes aresimilar and different in kind, played out on a grand scale in a state thatboasts the world's eighth largest economy and a Hollywood star in the leadrole. After voters rejected a slew of budget-balancing measures, thegovernor has proposed cuts to programs that would make California morelike a struggling Third World state than 21st century America: welfaresubsistence benefits would end, 1 million poor children would lose healthcare, college aid for the state's best and brightest would be phased out,nonviolent prisoners would be released, hundreds of state parks would beshuttered, and thousands of school teachers would lose their jobs . . .The instability of oil and gas prices is puzzling government officials andpolicy analysts, who fear it could jeopardize a global recovery. It is alsohobbling businesses and consumers, who are already facing the effects of astinging recession, as they try in vain to guess where prices will be . . .The focus on subprimes ignores the widely available industry facts that51% of all foreclosed homes had prime loans, not subprime, and that theforeclosure rate for prime loans grew by 488% compared to a growth rateof 200% for subprime foreclosures. Sharing the blame in the popularimagination are other loans where lenders were largely at fault -- such asliar loans, where lenders never attempted to validate a borrower's assets.Viktor Ivanov, the head of Russia’s Federal Drug Control Service, Russia'snational drug enforcement agency, told parliament in May that it wasreasonable to "call the flow of Afghan opiates the second edition of opiumwars." He was referring to the 19th-century war between Britain and Chinasparked by exports of opium from British India to China. Ivanov isn’t alone."I can name you a lot of politicians in Russia who said that the Americansspecially arranged the situation in Afghanistan so that we would receive a lot of drugs, and this is the real aim of the U.S. occupation," said AndreiKlimov, the deputy head of the foreign affairs committee in Russia’s lowerhouse of parliament. "I’m not sure [that] this is true, but who knows."When it’s harvest time in the poppy fields of Kandahar, Taliban fighters pullup on their motorbikes to collect a 10% tax on the crop. Afghan policearrive in Ford Ranger pickups — bought with U.S. aid money — and demandtheir cut of the cash in exchange for promises to skip the farms duringannual eradication. Then, usually late one afternoon, a drug trafficker willroll up in his Toyota Land Cruiser with black-tinted windows and send afootman to pay the farmers in cash. The farmers never see the boss, butthey suspect that he’s a local powerbroker who has ties to the U.S.-backedAfghan government. Everyone wants a piece of the action, said farmerAbdul Satar, a thin man with rough hands who tends about half an acre ofpoppy just south of Kandahar. "There is no one to complain to," he said,sitting in the shade . . . "Most of the government officials are involved."In August 2007, the presidents of Afghanistan and Tajikistan walked side byside with the U.S. commerce secretary across a new $37 million concretebridge that the Army Corps of Engineers designed to link two of CentralAsia’s poorest countries. Today, the bridge across the muddy waters of thePanj River is carrying much more than vegetables and timber: It’s pavedthe way for drug traffickers to transport larger loads of Afghan heroin andopium to Central Asia and beyond to Russia and Western Europe . . .Too much CO2 in the air and not enough oxygen in the oceans may releasea toxic dose of hydrogen sulfide -- an unheralded executioner. What ishydrogen sulfide? It smells like farts and rotten eggs. You can find it inswamps, sewers, landfills, volcanic and natural gases, and pretty mucheverywhere there is a petroleum refinery. Unfortunately, you can alsousually find it whenever and wherever you've got mass extinctions. In fact,it is hydrogen sulfide, rather than killer asteroids or some other interstellardeath-bringer, that has become the go-to kill-shot of mass extinctions . . .To the extent that we diversify the food economy, we will be that muchmore resilient. Because there will be shocks. We know that. We saw thatlast summer with the shock of high oil prices. There will be other shocks.We may have the shock of the collapsing honey bee population. We mayhave the shock of epidemic diseases coming off of feed lots. We're going toneed alternatives around. When we say the food system is unsustainablewe mean that there is something about it, an internal contradiction, thatmeans it can't continue on the way it is going without it breaking up . . .The acquisition of farmland from the world’s poor by rich countries andinternational corporations is accelerating at an alarming rate, with an areahalf the size of Europe’s farmland targeted in the last six months, reportsfrom UN officials and agriculture experts say. New reports from the UN andanalysts in India, Washington and London estimate that at least 30 millionhectares is being acquired to grow food for countries such as China andthe Gulf states who cannot produce enough for their populations . . .Many see the global economic crisis as proof that we live in one world. Butas countries stumble to right the wrongs of the corporate masters of theuniverse, they are driving us right back to a future that looks like nothingmore than a new Middle Ages, that centuries-long period of amorphousconflict from the fifth to the 15th century when city-states mattered asmuch as countries. Billions live unsure of who their true rulers are, whetherlocal feudal lords or distant corporate executives. In Egypt and India,democratic elections have devolved into auctions. Delivering security andproviding welfare aren’t just campaign promises; they are the campaign.
I recommend the following basic bugout gear
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Books you're not suppossed to be reading:
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