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Ho ho ho! It’s that time of year again. Here’s JHK’s holiday classic: A Christmas Orphan.

11-year-old Jeff Greenaway hears his mom and dad argue one night after an office Christmas party. He infers from their garbled squabble that he is an orphan, found in a willow basket on the welcome mat outside their New York apartment. Thinking now that his parents are imposters, he steals away to Grand Central Station and buys a train ticket to Drakesville, Vermont, where he intends to start life all over again.
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Forcast for 2009

 
    There are two realities “out there” now competing for verification
among those who think about national affairs and make things happen.
The dominant one (let’s call it the Status Quo) is that our problems of
finance and economy will self-correct and allow the project of a
“consumer” economy to resume in “growth” mode. This view includes the
idea that technology will rescue us from our fossil fuel predicament —
through “innovation,” through the discovery of new techno rescue remedy
fuels, and via “drill, baby, drill” policy. This view assumes an
orderly transition through the current “rough patch” into a vibrant
re-energized era of “green” Happy Motoring and resumed Blue Light
Special shopping.
      The minority reality (let’s call it The Long Emergency) says that
it is necessary to make radically new arrangements for daily life and
rather soon. It says that a campaign to sustain the unsustainable will
amount to a tragic squandering of our dwindling resources. It says that
the “consumer” era of economics is over, that suburbia will lose its
value, that the automobile will be a diminishing presence in daily
life, that the major systems we’ve come to rely on will founder, and
that the transition between where we are now and where we are going is
apt to be tumultuous.
      My own view is obviously the one called The Long Emergency.
      Since the change it proposes is so severe, it naturally generates
exactly the kind of cognitive dissonance that paradoxically reinforces
the Status Quo view, especially the deep wishes associated with saving
all the familiar, comfortable trappings of life as we have known it.
The dialectic between the two realities can’t be sorted out between the
stupid and the bright, or even the altruistic and the selfish. The
various tech industries are full of MIT-certified, high-achiever Status
Quo techno-triumphalists who are convinced that electric cars or
diesel-flavored algae excreta will save suburbia, the three thousand
mile Caesar salad, and the theme park vacation. The environmental
movement, especially at the elite levels found in places like Aspen, is
full of Harvard graduates who believe that all the drive-in espresso
stations in America can be run on a combination of solar and wind
power. I quarrel with these people incessantly. It seems especially
tragic to me that some of the brightest people I meet are bent on
mounting the tragic campaign to sustain the unsustainable in one way or
another. But I have long maintained that life is essentially tragic in
the sense that history won’t care if we succeed or fail at carrying on
the project of civilization.
      While the public supposedly voted for “change” this fall, I
maintain that they underestimate the changes really at hand. I voted
for “change” myself in pulling the lever for Barack Obama. I regard him
as a figure of intelligence and sensibility, but I’m far from convinced
that he really sees the kind of change we are in for, and I fret about
the measures he’ll promote to rescue the Status Quo when he moves into
the White House a few weeks from now.

Where We Are Now

      Without
reviewing all the vertiginous particulars of the year now ending,
suffice it to say that the US economy fell on its ass and that the
“global economy” did a face-plant as well. The American banking sector
imploded spectacularly to the degree that investment banking actually
went extinct — as if a meteor landed on the corner of Madison Avenue
and 51st Street. The response by our government was to shovel “loans”
onto the loading dock of every organization that pretended to be
something like a bank, while “bailing out” an ever-longer line of
corporate claimants with a pitiable song-and-dance. The oil markets
went on a roller coaster ride. The housing bubble collapse grew to
avalanche velocity (taking out whole colonies of realtors, mortgage
brokers, and construction contractors in its path), the commercial real
estate sector developed hemorrhagic fever, retail drove off a cliff on
Christmas Eve, the stock market fell in the toilet, jobs and incomes
went up in a vapor, and tens of millions of ordinary citizens addicted
to revolving credit found themselves in a life-and-death struggle for
the means of existence. None of this is over yet.

The Year Ahead

Much of what has been lost in 2008 will not be recovered: enterprises, personal fortunes, chattels, reputations.
     I expect a period of euphoria to mark the early weeks, perhaps
months, of the Obama team. It will be a relief to have a president who
speaks English correctly and has experienced something like real life
prior to politics. Restoring credibility and legitimacy in leadership
will be a big deal. If nothing else, we may recover a collective sense
of consequence from a president who tells the truth, even the harsh
truth. The age when it was enough to claim that “mistakes were made”
might be over. A sign of this sort of change may be the commencement of
prosecutions for misdeeds in banking and securities that are now
destroying the entire system of deployable capital. A good place to
start will be an investigation of Henry Paulson for insider trading
stemming from Goldman Sachs’s shorting of its own issued
mortgage-backed securities when Mr. Paulson was the company’s CEO.
Beyond his case, there should be enough work at Attorney General Eric
Holder’s office to employ a line of law school graduates stretching
from Brattle Street to the planet Mars. It will be salutary for the
nation to see those who engineered the banking collapse come to greater
grief than the mere surrender of their Gulfstream jets and Hamptons
villas. By the way, being allergic to conspiracy theories, I don’t
believe for a minute that there is some kind of shadow elite of
“Bilderburgers” standing in the background to protect these grifters —
and I also believe the reason these paranoid notions persist is because
it is otherwise hard to account for the extravagant irresponsibility of
the Bush circle and its servelings.
     Apart from “cleaning up Dodge,” so to speak, and from issues of
collective character-and conscience-in-office, I worry that the
avalanche of troubles already ongoing will overwhelm Mr. Obama and his
people. It’s also well worth worrying whether they will pursue policies
similar in kind to the ones pursued by Bush, namely throwing money at
everything and anything, and it sure looks like they are planning to do
just that. I am especially concerned about an “infrastructure stimulus”
project aimed at highway improvement at the expense of public transit.
This would be the epitome of a campaign to sustain the unsustainable.
We need to begin planning right away for a transition away from
automobiles, not in order to be good socialists but because Happy
Motoring is at the core of our unsustainability trap. The car system is
going to fail in manifold ways whether we like it or not, and it will
fail due to circumstances already underway. For one thing, it will
cease to be democratic as the remnants of the middle class find it
impossible to get car loans, or pay for fuel, or insurance, and that
will set in motion a very impressive politics-of-grievance setting
apart those who are still able to enjoy motoring and those who have
been foreclosed from it. Contrary to what you might make of the the
current situation in the oil markets, we are in for a heap of trouble
with both the price and supply of petroleum (more on this below). And
there is no chance in hell that any techno rescue remedy to keep all
the cars running by other means will materialize.
      A consensus in the blogoshpere says that the stock markets will
rebound strongly during the first Obama months. This is possible just
on the basis of pure “animal spirits,” but the Obama Bounce will occur
against a background of continued dismal business and financial news.
It will appear to defy that news. By May of 2009, the stock markets
will resume crashing with the ultimate destination of a Dow 4000 before
the end of the year. Meanwhile, jobs will vanish by the millions and
companies will go bankrupt by the thousands, especially in the
so-called service sector, and in all the suppliers of such, along with
the landlords in all the malls and strip malls. The desolation will
mount quickly and will be obvious in the empty storefronts and
trash-filled parking lagoons. In the event, two things will become
increasingly clear to the nation:
that the consumer economy is dead, and that there is no more available
credit of the kind that Americans are in the habit of enjoying.
     We’ll turn around early in 2009 and discover that we are a much
poorer nation than we thought because from now on credit will be
extremely hard to get for anyone for anything. The businesses that
survive will have to keep going on the basis of accounts receivable.
This is the area where the crash of giants will be heard. I’ve been
saying since publication of The long Emergency
that comprehensive downscaling in all our activities, from farming to
business to schooling to governance, will be the categorical imperative
of the years ahead. Giant enterprises requiring giant loans to get from
quarter to quarter will tend to not make it. Borrowing from the future
will become a practical impossibility as past bad debts from previous
borrowings continue to unwind, cease performing, and get written off.
This argument implies that the federal government will tend to flounder
just as General Motors, Citicorp, Target Stores and other gigantic
enterprises will tend to flounder. It would be sad to see a President
Obama so hamstrung and helpless, and it is largely why I see his role
as largely symbolic — as a reassuring presence encouraging the
distressed public to bravely bear their hardships, and to be kind and
helpful among their neighbors.
     Households, like businesses,
will have to pay as they go from earned income. The house as ATM is
over. Credit cards are maxed out and credit ceilings are lowering like
the ceiling in “The Pit and the Pendulum,” preparing to slice-and-dice
the old “normal” of family life in America. Bankruptcy will be the new
Nascar. A lot of families will lose everything. They will sift and
disperse into the housing owned by other family members — parents,
siblings — and a strange new not-altogether comfortable kind of
togetherness will become common. Over time, a lot of people will go
looking for casual work “under-the-table”( and probably low-paying). To
some degree, these workers will begin to look and act like a new
servant class, and before too long they may be absorbed into the
households of people who employ them. There will be plenty of room for
them there.
      Counties, municipalities, and states will join in the bankruptcy
fiesta. It would be reasonable to expect collapsing services as a
result. This would be a situation fraught with danger — of rising
crime, of public health emergencies as water systems are not kept up
and sewage treatment becomes unaffordable. I don’t imagine the federal
government stepping into every Podunk or Metropolis from sea to shining
sea and propping up these services. People will have to cope with
danger and deprivation.
      2009 may be the point where we begin to understand what kinds of
places will be more hospitable to human society further ahead. I
maintain that our giant urban metroplexes have way overshot their
sustainable scale and will contract severely. With all the economic
hardship, we ought to expect a lot of demographic churning, people
leaving hopeless places and moving on to something more promising. I
believe we will see them move to smaller towns and smaller cities. The
reorganization of the rural landscape into smaller-scaled farms has not
begun to occur — though 2009 might be very hard on agribusiness, given
the shortage of capital and if oil begins to march up in price by late
winter. Eventually, the rural landscape will require the labor of many
more people than is currently the case. Whatever else happens, 2009
will surely see a massive return to home gardening as budgets become
strained to the extreme. As the New Urbanist Andres Duany said
recently, “Gardening is the new Golf!”

The oil scene

     Many
were stunned this year to witness the parabolic rise and fall of oil
prices up to nearly $150 and then back around $36 by Christmas time.
Quite a ride. I said in The Long Emergency that volatility
would be the hallmark of post peak oil because it was obvious that
advanced economies could not absorb super high prices and would crash
in response; that at some point after crashing, these economies
would respond to the new lower oil price, resume their cheap oil
habits, and build to another price rise. . . and crash again. . . in a
declension of ever-lower industrial activity.
      What I
probably didn’t realize at the time was how destructive this cycling
between low-high-and-low oil prices would actually be in the first
instance of it, and what a toll it would take right off the bat. We can
see now that our first journey through the cycle took out the most
fragile of the complex systems we depend on:
capital finance. As a result, a huge amount of capital (say $14
trillion) has evaporated out of the system, never to be seen again (and
never to be deployed for productive purposes). It will be harder for
the USA to rebound from the grievous injury to this crucial part of the
overall system, and Europe has foundered similarly — though the
European nations are not burdened to the same degree by the awful
liabilities of suburbia.
     Even if these advanced economies —
throw in Japan too — remain moribund, the price and supply prospects
for oil look ominous. My own guess is that the price of oil has
overshot on the low end just as it overshot on the high end, and that,
when all is said and done, we’ll still see an upwardly trending price
line over the long haul. The plunge, which began right after the $147
peak in July 2008, was as much the result of banks, hedge funds, and
individuals dumping oil investments and positions to raise cash as it
was a matter of the markets predicting a sharp fall-off in economic
activity (and supposedly oil consumption). The truth is that demand
destruction for oil in the USA has been surprising mild compared to the
drop in price. Jim Hansen’s Master Resource Report
says that gasoline consumption dropped from 9.29 million barrels a day
in 2007 to 8.99 million barrels a day for 2008. That’s not much of a
fall-off, especially compared to the price drop.
      As Julian Darley of the Post Carbon Institute
put it recently: “There won’t be any energy bail-out.” And, as many
other people have noted, the recent plunge in oil prices strongly
implies future supply destruction, since so many planned oil
projects have been suspended or cancelled because they are economic
losers at $40-a-barrel (or even $70). Even projects well underway, such
as Canadian tar sand production, have been scaled back or shut down
because they don’t make sense at current prices. Some of these other
newer projects will now never get underway — they have missed their
window of opportunity with so much capital leaving the system — and so
the hope of offsetting very-near-future depletions in old giant oil
fields looks dimmer and dimmer.
       Those depletions are very
serious. For instance, Mexico’s super-giant Cantarell oil field, the
second-largest ever discovered after Saudi Arabia’s Ghawar field, has
shown a 30 percent depletion rate in the past year alone. (Pemex had
forecast a 15 percent rate entering the year.) Cantarell provides over
60 percent of Mexico’s total production, and Mexico is America’s third
largest source of imports — just after Saudi Arabia (#2) and Canada
(#1). Obviously, Mexico soon will lose its ability to export oil, and
as that occurs, America is going to feel more than pinch — more like a
two-by-four upside the head. In short, remorseless depletion is
underway and we are less likely now than even a year ago, to make up
for it.
      At some point, then, demand, even if slightly lower, will catch
up with declining supply. My prediction for 2009 is that we will see
two things occur, possibly at the same time:
a resumption of rising prices, and spot shortages. I say this because
the global economic fiasco is sure to produce geopolitical friction,
and inasmuch as America has to import almost three-quarters of the oil
we use, the prospect for trouble is great.
     The tragic part of
all this, of course, is that the temporary plunge in oil prices has
prompted an incurious American public to assume, once again, that the
global oil predicament is some kind of a fraud. Given the flood tide of
fraud they have been subject to in banking and investment matters, I
suppose you can’t blame them from thinking that everything is some kind
of a scam. Given feeble car sales this season, there are reports that
an increasing percentage of those sold now are are trucks and SUVs.
     Though I give Boone Pickens high marks for stepping up to the
leadership plate, I’m not altogether on board with his energy proposal
for swapping natural gas for gasoline in motor fuels while we swap out
wind power for natural gas in electric power generation. I don’t
believe that the ballyhooed shale-gas-plays of the last few years will
prove-out long-term, as some huckster’s claim. They are expensive to
drill and run, and they all tend to deplete very quickly — around one
year. I’m not convinced we have the capital or the resources even to
come up with the steel necessary to drill for it. Anyway, the last
thing we need is a way to prolong our car-dependency.
      In the meantime, there are still those who hope (as described
above) that various alt.energy systems will insure the continuation of
Happy Motoring. This is an idle hope, and 2009 will be very sobering
for those who imagine that hybrid cars, or electric cars, or “air”
cars, or natural gas cars, or any other kind of car technology will
save the day. Even if President Obama mounts an “infrastructure
stimulus” program, it will not keep up with all the necessary routine
road repair that our highway system requires. The extreme financial
hardship faced by localities and states insures that they will have to
postpone a lot of expensive highway maintenance — even if the federal
government fixes a big bunch of bridges and tunnels — and so we face
the interesting prospect that our roadway systems will enter their own
deadly zone of systemic failure even before the whole car issue is
settled.
     I am waiting to see whether Mr. Obama will undertake a restoration
of passenger railroad service. I’ve said enough about this in the past,
but it’s worth reiterating that a failure to get comprehensive
passenger rail service going will be a sign of how fundamentally
unserious we are as a nation.

The Specter of Inflation

      This
is the “other shoe” that a lot of people are waiting to drop. Right now
we are caught up in a compressive debt deflation as mortgages stop
“performing” and loans of all kinds are welshed on. Since money is
loaned into existence, and a great many loans are not being repaid,
then a lot of money is going out of existence. That’s what I mean when
I say that capital is leaving the system. At the same time, the Federal
Reserve has made good on its promise to drop money from helicopters if
necessary to prevent an implosion of the banking system (as all that
older money goes out of existence), and so it’s now a question as to
when the amount of new money will exceed the disappeared old money. (Of
course when I say money, I mean “money,” because we are dealing here in
a shadow realm of assumed value.) In any case, there is bound to be a
lag period between the time that the Fed’s money is dropped from the
choppers and the time it actually filters through the banks and other
recipients to the so-called “real economy” of people who buy and sell
real things. The credible estimates I hear run between six and 18
months.
       I’ll only venture to guess that we could see the
start of serious inflation sometime in 2009. To some extent, all
currencies are now free-falling together, some at slightly faster rates
than others, but the situation of the US dollar is so grotesquely dire,
and our structural imbalances so monumental, that it is hard to imagine
that our currency will not win the international race to the bottom.
Gold resumed its movement upward against the dollar a week before
Christmas, and that may be an early sign. The government — and anyone
badly in debt — benefits much more from inflation than deflation, so
every effort will be made to avert the latter. The trouble lies in the
government’s dumb incapacity to control dangerous things that it sets
in motion, so that an inflationary campaign to avoid compressive
deflation can so easily lead to a fiasco of super or hyper inflation —
the kind that kills governments and turns societies into murderous
monsters. I’ll forecast the that the US dollar is worth 40 percent of
its current value by next Christmas.

Geopolitics

      Well,
now, who the hell knows what’s in store. Aside from a few bombs here
and there, and pirates skulking around the horn of Africa, the world
scene was miraculously free of major incidents in 2008 — perhaps the
worst being a toss up between the September Mumbai bombings and the
fiasco in Georgia, where the US prompted Georgia President Mikheil
Saakashvili to send troops into the South Ossetia region and the move
was answered by overwhelming force from neighboring Russia, leaving the
US looking feckless and retarded for our troubles. But otherwise, there
wasn’t a whole lot of action out there.
       Until the last few
days of the year, that is. I’m sure the ever-growing cohort of American
anti-semites who send me emails will be tickled when I assert that the
Hamas rocket attacks against Israel of recent days guaranteed a sharp
response from Israel — and now, of course, Hamas is playing the
crybaby card:
“… what’d we do to deserve this…?” Well, you fucking fired a bunch
rockets into Israel. Did you ever hear of cause-and-effect? This matter
requires no further elucidation, except that it seems to suggest a
ramping back up of hostilities. I wonder if it is the beginning of a
new coordinated offensive by Islamic extremism aimed at taking
advantage of the West’s current economic plight (and the West’s
probable aversion to anything that will complicate its desired
recovery). We’ll know in a month or so, I think, since any coordinated
campaign (if such a thing were possible) might well be aimed at
confounding the new American president.
      The other hot corner
of the world right now is the India-Pakistan border where the
60-year-old rivalry, which has already produced three wars, looks to be
gearing up for yet another round. I’m not the first one to say that
Pakistan is an extremely dangerous regional player, being an economic
basket case, possessing a score or so of nuclear bombs, harboring more
Islamic fundamentalist maniacs than any other place in the world, and
having a government held together with duct tape and twine. The caper
in Mumbai last September could well have been construed as an act of
war, but somehow India kept its head. Who knows where this is going. .
. .
       So far I have only described what is already obviously going on.
Add to this the likelihood that Iran is closer to achieving membership
in the atomic weapon club. They’ve been spinning their centrifuges all
year and nobody has done anything about it. My guess is that neither
the US nor Israel will attempt to take out their facilities in the year
ahead. If Iran used a nuclear device against Israel, or anybody else,
they would be asking to become, in turn, the world’s largest ashtray.
End of story. A different story, though, is how Iran might behave if
and when the US Military presence in Iraq is reduced. I can imagine
Iran doing anything possible surreptitiously to gain control over
Iraq’s southern oil regions around Basra, but even the Iraqi Shia don’t
like the Iranian Shia that much. Anyway, iran’s economy has suffered
hugely from the fall in oil prices. That nation may be in for more
internal trouble than they have seen in thirty years since the Shah was
tossed out by the minions of Ayatollah Khomeini.
     There’s been a lot of sentiment the past year that as the US and
the Europe fall into economic disarray, China would emerge as the great
new hegemonic superpower. While it’s come a long way in a
quarter-century, China’s internal problems are still enormous and
worsening. They’re in trouble with water, food imports, mass
unemployment, and energy. They have locked in some oil contracts around
the world, but they are still susceptible to vagaries in the oil
markets and Black Swan events. As
the US consumer economy falls into a coma, and the shipping containers
from China to WalMart get sparser, the Chinese government will face the
wrath of millions of unemployed workers.
I believe they will
struggle through 2009, perhaps growing more surly as the US dollar
inflates and their holdings of treasury bills begins to look more like
a swindle.
      Russia may be suffering economically for the
moment due to the crash of oil prices, but they are energy
resource-rich — at least for the next couple of decades — and if they
don’t like the current price, they can keep more of their oil in the
ground until the price looks more attractive. I think Mr. Putin has the
confidence of the Russian people and will survive the current malaise.
      Japan remains a riddle wrapped in toasted nori. They’re beggaring
their own factory workers to stay solvent. Their banking sector has
been zombified for a generation. They import 95 percent of the energy
they use. Do they have a plan? One can imagine them sliding in
resignation back to something like the sixteenth century, giving up the
whole industrial circus as more trouble than it’s worth, just as they
once gave up on firearms.
      The over-arching geopolitical theme of 2009 will be the end of
robust globalism as we’ve known it for some time. Reduced trade,
competition for energy resources, sore feelings over debts and
currencies will drive the nations inward or, at least, direct their
energies toward their own regions. Note to Tom Friedman: the world
turned out to be round after all.

Conclusion

     The
big theme for 2009 economically will be contraction. The end of the
cheap energy era will announce itself as the end of conventional
“growth” and the shrinking back of activity, wealth, and populations.
Contraction will come as a great shock to a world of conventionally
programmed economists. They will toil and sweat to account for it, and
they will probably be wrong. Unfortunately, this contraction will do
its work in unpleasant ways, driving down standards of living, shearing
away hopes and expectations for a particular life of comfort, and
introducing disorder to so many of the systems we have depended on for
so long. People will starve, lose their homes, lose incomes and status,
and lose the security of living in peaceful societies. It will become
clear that the Long Emergency is underway.
      My hope for the
year, at least for my own society, is that we will transition away from
being a nation of complacent, distracted, over-fed clowns, to become a
purposeful and responsible people willing to put their shoulders to the
wheel to get some things done. My motto for the new year: “no more crybabies!”

____________________________________
My 2008 novel of the post-oil future, World Made By Hand, is available in paperback  at all booksellers.

About James Howard Kunstler

View all posts by James Howard Kunstler
James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

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