There’s a particular moment known to all Baby Boomers when Wile E. Coyote, in a rapture of over-reaching, has run past the edge of the mesa and, still licking his chops and rubbing his front paws in anticipation of fricasseed roadrunner, discovers that he is suspended in thin air by nothing more than momentum. Grin becomes chagrin. He turns a nauseating shade of green, and drops, whistling, back to earth thousands of feet below, with a distant, dismal, barely audible thud at the end of his journey. We are Wile E. Coyote Nation.
Is there anyone in the known universe who thinks that the U.S. financial system is not fifty feet beyond the edge of the mesa of credibility?
Nothing will avail now. Not even if Sirhan Sirhan were paroled at noon today and transported directly to the West Wing with a.44 magnum in each hand (and a taxi driven by the Devil waiting outside to take him to the U.S. Treasury and the offices of the Federal Reserve).
It’s hard to imagine what kind of melodramas were unspooling on the Hamptons lawns this weekend, while everybody else in America was watching Nascar, or plying the aisles of BJs Discount Warehouse for next week’s supply of mesquite-and-guacamole flavored Doritos, or having flames and chains tattooed on their necks, or lost in a haze of valium and methedrine.
With the death of the IndyMac Bank last week, and the GSEs Fannie Mae and Freddie Mac laying side-by-side in the EMT van on IV drips, headed for the Federal Reserve’s ever more crowded intensive care unit, there was a sense of the American Dream having passed through the event horizon that denotes the opening of a black hole.
What would happen if the U.S. government acted to bail out these feckless enterprises (and what if they don’t)? Either way, it’s not a pretty picture. If Mr. Bernanke does start shoveling loans into the GSE black hole, he’ll further undermine the soundness of his own outfit and do nothing, really, to repair Fannie and Freddie’s structural problem of having securitized too many loans that will never be paid back. If instead Fannie and Freddie are flat-out taken over entirely by the U.S. government (and remember the Federal Reserve is not the government), then the national debt will roughly double overnight – which will pound the U.S. dollar down a rat-hole.
Meanwhile, the foreign holders of those decrepitating dollars might not rush to the redemption window, but they certainly would use them to buy up every oil futures contract on God’s not-so-green Earth as fast as possible – they’d be dumb not to – which would leave American Happy Motorists with gasoline prices north of $5 a gallon, and possibly north of $10. (In that case, say goodbye to the airlines. In fact, say goodbye to what passes for the rest of the US economy, including especially the vaunted retail sector that supposedly counts for 70 percent of the action.)
If Fannie and Freddie are left to die out on the desert floor, say goodbye to the housing market, the major investment banks, countless regional banks, the retirement accounts of virtually everyone in America, the viability of all fifty states’ governments, and the day-to-day operating ability of all their municipalities – and very likely the current incarnation of the world banking system.
This process is really out of control now. The bottom line is the comprehensive bankruptcy of the United States. The Republican Party under George Bush will be known as the party that wrecked America (release 2.0). Painful as it is, Americans had better get a new “Dream” and fast. It better be a dream based on the way the universe actually works, which is to say an operating procedure run on earnest effort and truthfulness rather than merely trying to get something for nothing and wishing on stars. We might begin symbolically by evacuating Las Vegas and calling in an air strike on the loathsome place – to register our new reality-based attitude adjustment.
After that, we’ve got to get to work re-tooling all the everyday activities of life, including the way we grow our food, the way we raise and deploy capital, the way we do trade and manufacturing, the way we go from point A to point B, the way we educate children, the way we stay healthy, and the way we occupy the landscape. I know, it sounds like a lot, maybe too much. But grok this: we don’t have any choice if we want a plausible future on this portion of the North American continent.
Of course, none of that is likely to happen. Instead, and under the worst imaginable economic conditions, we’ll probably embark on a campaign to prop up the un-prop-up-able and sustain the unsustainable – that is, defend every status quo habit and behavior that we’re used to, whether it can be salvaged or not. Of course, this would be a fatal squandering of our dwindling resources, but it tends, historically, to be the last act of the melodrama in any faltering empire.
The result, pretty soon into that process, will be social breakdown and political upheaval. Every tattoo freak out there who has been prepping for his own starring role in some kind of comic book Armageddon will finally get his chance to shine. Lots of people will get hurt and starve. Property will change hands in a disorderly way. And at the end of this process an American corn-pone Hitler may be waiting to set everything and everyone straight.
James Howard Kunstler
for The Daily Reckoning Australia
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About the Author
(born 1948) is an American author, social critic, and blogger who is perhaps best known for his book The Geography of Nowhere, a history of suburbia and urban development in the United States. He is prominently featured in the peak oil documentary, The End of Suburbia, widely circulated on the internet. In his most recent book, The Long Emergency (2005), he argues that declining oil production is likely to result in the end of industrialized society and force Americans to live in localized, agrarian communities.
Comment by Thomas Tupper on 17 July 2008:
James I think you ignore how crises can re-shape and re-focus a people. You summarize the whole of America as belonging to one of two groups: those "unspooling on the Hamptons lawns" and the rest, who are "plying the aisles of BJs Discount Warehouse for next week’s supply of mesquite-and-guacamole flavored Doritos, or having flames and chains tattooed on their necks, or lost in a haze of valium and methedrine" Is it possible to conceive of a more balanced and less extreme way to characterize an entire nation and an entire people?
You seem to operate under the impression that America's sole contribution to the world has been consumption and an endless barage of fast food restaurants. But any truthful analysis would not be so cavalier.
Is this the death of the 'American Dream'? Hardly. What you define as the 'American Dream' is a something for nothing story - the dream of becoming fantastically successful and fabulously wealthy simply by being as fat, lazy, and undisciplined as possible. That is not the American Dream I grew up learning about. The American Dream I know about is one where, given a reasonably level playing field, someone willing to work hard could make something of themselves. It's the dream of basically uneducated bicycle repairmen who believe they can do something that has been thought impossible, and who believe they can literally makes their dreams take flight. It is the dream of an inventor in a garage in silicon valley who believes they can start a corporate empire from a humble, grimy workbench. Its the dream of countless immigrants who believe that they can go from arriving on our shores with literally nothing in their pockets to owning and running their own businesses, and who do exactly that. This is the American Dream: that if you work hard and you try, you just might be able to change your world, and maybe even THE world. And, many times over, America and countless individual Americans have proven it to be exactly so. You do all of these people, all of their dreams, and all of their achievements a disservice when you characterize them as you have.
America survived the great depression, and the substance of the American Dream survived too: that despite obstacles, despite setbacks, and despite difficulty... the biggest determinant of our ability to succeed is the quality of our characters, the earnestness of our labor, the quality of our beliefs, and the size of our dreams. Americans have done great things because we have dared to believe in our ability to accomplish those things. You disgrace those efforts and you trivialize the whole of a nation as if we were all, every American, sitting on the edge of our seats waiting for the next brand of snack chip. A sad commentary, but most pointedly one about your own attitudes and beliefs.
Comment by Davey on 17 July 2008:
I write better than most. Really like your style, snappy without the silly impulse to show us all how clever you are. And, of course, your particular message is succinct, to the point. Good article.
Comment by George Washington on 17 July 2008:
Thank you Woodrow Wilson for selling out your country. George Bush is only the last tool piece that was used to finalize the fraud and scam of the Federal Reserve System and the Internal Revenue Service to undermine and destroy America.
Good Night All. And RIP America.
Comment by GaryB on 17 July 2008:
Why pick on Vegas for your blitzkrieg? Why not Wall St? At least the Vegas gamblers are honest - they don't manipulate the odds, the Casinos don't fiddle the rules of play to keep them in the game, Vegas gamblers don't line up at a free money window if they do their arses, and they don't have stooges go on Nightly Business Report or CNBC to whinge on their behalf when things turn sour.
Comment by Louis Romo on 17 July 2008:
The collapse of American economy is part of the coming United States Of North American which will require a new monetary system...As part of the globalization, the north american union composed of CANADA, MEXICO, AND UNITED STATES will then interlock with the other regions such as the United states of Europe...all together will be a one world monetary system with a computer chip imbedded in evey human being in order to buy, sell, or conduct any business..We are at the end of an age which was predicted by the ancient Israelite prophets and hundreds of prophecies have been fulfilled since 1948 when Israel returned as a nation...because Israel has never been accepted into the world community of nations due to arab pressure, most of mankind must now perish as punishment, just as the first generation of jews that came out of Egypt perished in the desert for having disbelieved God...they wandered in the desert 40 years. today, it is slightly over 40 years since Jerusalem returned to Jewish hands and the world accepted them not and the foolish jews retuned the holy temple mount back to islam and thus set themselves up for a 40 year punishment period for disbelief. NOW it is the time for all mankind to suffer...a full year shall not pass without a nuclear war, massive starvation and total economic collapse...
Comment by Coffee Addict on 17 July 2008:
GaryB I like your analogy about Vegas. Good one! Perhaps Howard once did his own arse at the Vegas tables given his dislike for the place.
Howard does make some valid points though. The Fannie // Freddie bailout means significantly more inflation but it avoids (for now) riots on the street, a bond market collapse and an Asian bank run on the dollar.
All those (previously dormant) dollars are now being applied to the purchase of assets in places like Vegas - propping up asset values for now and (yes) further increasing inflation.
The Fed is counting on booming exports and the figures are showing a significantly reduced trading deficit- we'll have to wait and see. They are also probably counting on a $120 floor on the price of oil.
Back to the GSEs. Freddie and Fannie share holders, in my view, hold no equitable rights to the businesses. The shares should be transferred to a taxpayer trust.
Comment by AnderslaM on 17 July 2008:
Now... where did I put that rope?
Comment by GaryB on 19 July 2008:
Coffee Addict. Reluctant to take on a wide-eyed and addled victim of the demon bean, but I reckon Wall St should suffer the same fate as the Vegas gambler at the wrong end of a losing streak. Suffer the consequences - if you're cleaned out, you're cleaned out.
Comment by Terry on 20 July 2008:
Looks bad politically and economically for China, too -
http://www.globalsecuritieswatch.org/PRC_Sovereign_Risk_Review.pdf