POSTED: 13 November 2006 - 6:30pm HST

Democrats oversee suburban collapse

Beirut, Lebanon has tasted sudden economic collapse as recenty as this year

by James Kunstler on November 13, 2006 on

The day after the impressive Democratic election victory, Senate Majority Leader-to-Be Harry Reid declared that a top priority for the new congress would be policy leading to "energy independence" for America. The time of jubilee will certainly come, but not in the way Harry Reid thinks it will -- nor in the way the rest of the country imagines this idea.

When politicians flog the term around -- "energy independence" -- they invariably mean that we will continue enjoying the happy motoring utopia by other means than imported oil (which makes up 70 percent of all the oil we burn). Get this: the day is not far off when, for one reason or another, the flow of imported oil to the US will cease. But when that day comes, we will not be running our shit the way we have been running it. That day will be the end of the interstate highways, Walt Disney World, and WalMart -- in short, the way of life we are fond of calling "non-negotiable."

We are not going to run that shit on coal liquids or tar sand byproducts or oil shale distillates or ethanol or biodiesel, or second-hand french-fry oil. Nor on solar, wind, nuclear, or hydrogen. You can run things on that stuff, but not the biggies we run at their current scale. If the Democrats really want to get serious and act responsibly, they'd better not squander whatever is left of our credit and collective confidence in a futile campaign to keep this racket going. They'd better prepare the public to start living differently.

Where to begin? They can start by recognizing that massive long-haul trucking of goods has to end and be replaced by improved, electrified rail plus water transport -- with trucks used only for the final, local leg of the journey. To reach this point of recognition, the Democrats will have to overcome the entrenched interests of the trucking industry -- but, by now, most of the truck drivers in this country have been successfully converted into right-wing Republican zombies, so it might not be so difficult to overcome them. They will also have to overcome WalMart and its "warehouse on wheels" composed of thousands of 18-wheelers full of discount goodies incessantly in motion for "just-in-time" delivery to the big box outlets. And, of course, by "WalMart" I mean not only the company itself but the millions of Americans who think they can't live without it.

Do the Democrats have the guts to go against this tide? My guess is probably not. But, get this, too: sooner rather than later, whether we like it or not, we're going to have to replace WalMart with an entirely different system for retail trade -- probably resembling the system of multi-layered local trade networks that were destroyed by WalMart. And the further off we put this task, the more difficult it's going to be. So, real political leadership will have to inform the public that the time has come to start making other arrangements.

Instead of supporting the fiction that happy motoring can continue forever, the Democrats should create an "Apollo Project" to restore the US passenger rail system, too. (We hear a lot about an "Apollo Project" to develop a miracle fuel for our cars, but that ain't gonna happen and we'd be much better off devoting that investment to public transit.) This will baffle and piss off a lot of the public, but it is necessary if we are going to survive as an advanced civilization. Please notice, by the way, that I am not suggesting we deprive anyone of the right to drive a car, only give them the option of getting somewhere by train instead. And don't worry, the politicians will not have to do a thing to restrict automobile use -- circumstances will do it for them as the world plunges into a permanent oil crisis that does not go away.

Another thing the Democrats can do with their new power is reorient the activities of the US Department of Agriculture -- and especially legislated cash subsidies -- away from the "agribusiness" Big Boys to small-scale, local farmers. We are silently and stealthily approaching a crisis situation with the American food supply. Most localities now only have a two or three-day food supply, and any number of crisis events in the offing could disrupt the three-thousand mile chains of frozen pizzas and Cheez Doodles that the public depends on for basic sustenance. We desperately need to reactivate what's left of the productive land around our towns and cities, and to repopulate it with people who can grow real food.

The Democrats will have to contend with the imminent cratering of suburbia whether they like it or not. The "housing bubble" is the first leg down for a development pattern that has no future. What's out there now is a vast over-supply of exactly the kind of houses in the kinds of places that will not have value in an energy-scarcer world. The overbuilding of tract houses is a tragedy caused by reckless and irresponsible behavior in the lending industry and in the government officials who regulate interest rates and the credit supply. The investments are already lost, and the individual carnage is going to be extreme, but the depth of the problem will reveal itself slowly for two reasons: 1.) both homeowners and realtors will desperately try to maintain the fiction that these properties still have high value, and 2.) individuals who are in trouble with their mortgage payments will never reveal their dire situation to their friends and neighbors because it is too humiliating. The news about default and re-po will only arrive with the moving vans (if the individuals can afford to hire them).

The collapse of suburbia will be the Democrats chief inheritance from the "free-market" economically neo-liberal Republicans who were too busy money grubbing at all levels to notice that there was such a thing as the future. The tragedy of suburbia will finish off whatever is left of Reagan-Bush1-Bush2 Republicanism -- although the truth is that Bill Clinton did as much to promote this way of life, indeed, to turn suburban development into a new basis for the US economy when manufacturing crapped out.

The nation as a whole -- however it reconfigures itself politically in the aftermath of this fiasco -- is going to have to come to grips with a lot of hard truths. One will be that "energy independence" means a whole different scale and system for daily life, not just "new and innovative" fuels for cars. As long as we are stuck in a foolish national wish-fest aimed at keeping all the cars running and propping up all the trappings of car-dependency, we will remain lost in a wilderness of our own making. And whoever the next president of the US turns out to be, whether a Democrat or the leader of a party that has not yet coalesced, will have all that he-or-she can do to keep this nation from completely falling to pieces.



POSTED: 9 October 2006 - 6:30pm HST

We are on top of the Peak

an Australian"truck-train" of BP oil pulled by a Volvo tractor

Oh Six End days
by James Howard Kunstler on 9 October 2006

Against the background of everything else happening in the financial markets is the apparent circumstance of peak oil. Even The New York Times joined the chorus in a Sunday editorial, saying:

"Our demand for petroleum products strains the limits of the global capacity to supply them. In past decades, if a pipeline broke in Nigeria, Saudi Arabia might compensate by setting workers to pumping more oil. Now, with little additional capacity, rising prices are necessary to balance out supply and demand.

No more increasing capacity = peak oil."

It's as simple as that. We now have nine and a half months of "rearview mirror" action to look back and see that world oil production has retreated from its all-time high of just over 85 million barrels a day (m/b/d) achieved in December 2005 (just as geologist Kenneth Deffeyes of Princeton had predicted). For 2006, production has remained in the 84 m/b/d range every month reported so far, while demand has exceeded that.

Texas oil man Jeffrey Brown, a commentator at, the outstanding oil discussion group on the Internet, makes the point that Saudi Arabia is at the same point statistically (in terms of ultimate recoverable reserves) that Texas was at in 1972 when production there peaked. The world's four greatest oil fields are in depletion (Burgan [Kuwait], Daqing [China], Cantarell [Mexico], and Ghawar [Saudi Arabia]) and these have accounted for over 14 percent of the world's oil production. (Ghawar alone accounts for over 60 percent of Saudi Arabia's production.) The North Sea has peaked and production there is "crashing." Venezuela has peaked and its oil is shitty heavy crude. Indonesia (an OPEC member) has peaked and is now a net oil importer. Nigeria's political chaos is making production increasingly difficult-to-impossible. Production in the Canadian tar sands is not making up for losses elsewhere. The US is down to about a four-year supply of conventional crude and condensates while we import 70 percent of the oil we consume. Discovery of new oil (including Chevron's largely hypothetical deepwater "Jack" finds) is barely covering a fraction of the world's consumption. So it goes...

Where finance is concerned, the basic implication of peak oil is pretty stark: an end to industrial expansion (i.e. "growth"). All the alternatives to oil will not keep the industrial economies expanding -- they can only slow down a contraction, and only marginally so. The trouble with this picture is that finance is a system that uses paper markers to represent the hope and expectation for the expansion of wealth. These markers are currencies, stocks, bonds, option contracts, derivatives plays, and other certificates that are traded in open markets. If there is no longer any hope of increased wealth in the world, then all those tradable paper markers become losers. Their value unwinds and imagined piles of wealth evaporate into thin air.

The unwinding process depends on the psychology of the people who own these certificates. If they do not understand the global oil situation and its implications, then they will continue to hope for and expect expanded wealth, and thus continue to regard their paper certificates as credible markers of value. And that is largely the case at the moment, since most of the playas in the financial markets are not paying attention to the peak oil story, or don't believe it is for real.

Two special and transient circumstances are now propping up the financial markets. One is that for practical purposes the world is virtually at peak, meaning this is an extra-special time of strange behavior (like the point in the apogee of a steep sub orbital flight in which passengers become momentarily weightless).

Supply and demand for oil are only beginning to go out of whack (that is, demand just barely exceeding supply). Even at this early stage, the oil markets themselves are showing stress, as hoarding behavior sets in and induces wider swings of price volatility. But these swings in oil prices -- such as the one we're in right now, where prices have crashed 20 percent since the panic buying (hoarding) of June and July -- send false signals to the financial playas. The main false signal is that all is well on the global oil scene...there's no real supply problem...and hence no threat to the continuing expansion of industrial production and its associated wealth-generating activities. This signal just tells the playas to buy more paper markers. Thus, the stock market goes up.

The second special and transient circumstance is that so much wealth has already accumulated along the way to peak, that financial markets take on a life of their own -- as existing wealth "invests" itself in more paper markers hoping and expecting to "grow" into even more wealth. The problem here is that existing wealth is actually being squandered, since the paper markers will only lose value as the hopes and expectations vested in them dissolve in disappointment. But we haven't quite reached that point yet.

In simply bidding the markets up, the system has spun off even more gobs of presumed wealth. Some of this "liquidity" -- say, in the checking accounts of people who work for Goldman Sachs -- has found its way into Manhattan condominiums, or Aspen McMansions, and filtered through the system to everyone from the lawyers who write up the pre-nuptial agreements to the guys who sell the furniture to the people who drive the delivery trucks that bring it to the door, to the men laying tiles in the new bathrooms.

The basic insanity of a system that presumes vastly increased wealth where none will occur, has led to further distortions in finance. The most obvious one is the so-called housing bubble. The misplaced extreme expectation in the ever-increasing value of paper wealth, led to the hijacking of mortgages by financial playas who bundled them into odd lots of tradable debt (promises to pay) and used them to leverage abstruse bets (hedges) on the behavior of other kinds of paper markers (currencies, interest rate differentials, commodity prices) -- very profitably as long as all playas believed that industrial societies that run all oil would continue to grow, to produce more wealth. The level of abstraction in these rackets -- their distance from the reality of productive activity --is self-evident.

But they were so successful that the profligate creation of ever more mortgages became an increasingly reckless and irresponsible enterprise. Contracts were made with house-buyers who had no record of credit worthiness and often no real proof of income. Contracts were made on terms (interest payments) that were deceptive, even ruinously false, for the house-buyers. The reckless reassignment of lending risk into ever more abstract layers of deferred obligation, and the ease of credit that ensued, allowed millions of ordinary people to acquire real property on unrealistic terms, which had the affect of bidding up the price of houses that these owners will eventually have to surrender for nonpayment.

a suburban scene from video game "Grand Theft Auto Vice City" set in Florida in the 1980's

That process is now underway. The reckless creation of mortgages had the further effect of stealing demand for house-building from the future. So many new houses were built and then sold to people who will probably have to surrender them, and then so many more beyond that were built in the expectation and hope that reckless mortgage creation would continue forever, that there is now a massive over-supply of total existing houses while the pool of suckers for new ruinous mortgages has shrunk to zero.

Similar excesses in all the other lending and debt sectors, including "non-performing" credit card obligations and government deficits, will also unwind and thunder through the system.

Meanwhile, the false signal from the oil markets that has been broadcasting for eight weeks will come offline and a new signal will come on as prices go back up. The pause in bidding for future oil induced by the panic over-buying of the summer will end. The heating season is here. It's 40 degrees out in upstate New York this morning and the furnace is cranking. The Chinese and the Indians and even the people in France have not stopped using oil, even if Americans have put their Winnebagos up on blocks for the season.

As the price of oil goes back up, the financial markets will get a new signal that running industrial societies has just gotten more expensive again. That will dampen hopes and expectations for increased wealth from these societies. Meanwhile, the air will be coming out of millions of mortgages, and the loss of value will spread among playas holding these bundles of mortgage debt (i.e. promises that money spent on houses is being paid back, which it won't be). At the same time the houses themselves will lose value as the pool of potential buyers shrinks to nothing. That is, the inflated value (high price) of these assets will deflate.

As this occurs, there will be far fewer wage-earners putting up additional houses, fewer furniture sales, fewer trips by delivery truck drivers and fewer tile-jobs in the McBathrooms.

This is why I view the fall melt-up of the stock markets as a swan dive. We're at the apogee now, just as the world is at the apogee of its oil production. I confess, I thought the reality of our economic predicament would be recognized by the playas and their markets sooner than it has. It turns out the the chief luxury of the final cheap oil blowout has been the artificial support of unrealistic hopes and expectations.

see also:
Island Breath: Progressivism Past & Present
Island Breath:Disassembling America
Island Breath: Calm Before the Storm
Island Breath: Take a good look at America
Island Breath: Sunken Ship of Empire
Island Breath: Petro-Collapse