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Stocksplosion
By Jim Kunstler
04/24/07 "ICH"
-- --- Whenever somebody complains about "the lies that
George Bush & Co. told to get us into the Iraq war" (as Frank
Rich did in
The New York Times on Sunday),
I wonder how those lies compare to the lies that the American
public tells itself every day -- for example, that we could run
America without oil from the Middle East, or that hybrid cars
will save Happy Motoring, or that we can have an economy without
producing anything of value.
Meanwhile, the Dow Jones index went up over a hundred points the
same day that 32 people were massacred on a university campus.
And bear in mind that the massacre did not occur late in the day
but literally around the same time that the New York Stock
Exchange rang its opening bell -- so that as the body counts
mounted through mid-day, the stock markets only went higher!
They must have liked what they saw. Then, the rest of the week,
while the cable news Mommy-Daddies went through the familiar
rituals of bewildered hand-wringing, and NBC released the trove
of farewell videos sent in by shooter Seung-Hui Cho between
killings, the Dow piled on another 250 points to close at an
all-time record high just under 13,000.
Could the financial markets be more detached from reality, from
life on the ground (or in a free-fire-zone classroom) in this
nation?
Doug Noland over at Prudent Bear.com is right: we've entered a
euphoric phase of financial arbitrage capitalism with extreme
Ponzi overtones, a pyramid scheme of revolving credit rackets
and percentage spread plays completely abstracted from any
reality of fruitful activity. The reason we don't even call
"money" by its former name anymore is precisely because we
realize at some semi-conscious level that "liquidity" is not
really money. Liquidity is a flow of hallucinated surplus
wealth. As long as it flows in one direction, into financial
markets, valve-keepers along the pipeline, like Goldman Sachs,
Citibank, or the hedge funds, can siphon off billions of buckets
of liquidity. The trouble will come when the flow stops -- or
reverses! That will be the point where we will rediscover that
liquidity really is different from money, and if we are really
unlucky we'll discover that our money (the US dollar) is
actually different from real wealth.
Noland and others recognize the severe distortions in the
finance sector, and they are surely correct to flag the implied
dangers. But even these clear-eyed observers survey the
disturbing finance scene without factoring the global energy
situation. In a nutshell: world oil production seems to have
peaked about 10 months ago. Being just past peak, there is still
a huge amount of oil going into world economies. But being just
past peak we are now seeing how complex systems proceed toward
instability and breakdown when the underlying energy flow turns
toward contraction.
The situation in finance is particularly sensitive and acute
because an overall contraction in available energy means the end
of industrial expansion (a.k.a. "growth") at "normal" rates of
three to seven percent annually. More to the point, it means
that certificates, contracts, deals, plays, and rackets pegged
to the expectation of growth will lose their legitimacy.
Meaning, stocks, bonds, collateralized debt obligations, hedges
-- anything that represents the hope and expectation for
more-of-anything -- will no longer be understood to represent
real value.
The current euphoric hysteria should therefore be viewed as a
form of disorder in its own right. The players in the markets
are making their moves based on misunderstood signals. They
think the world is awash in energy and prosperity. They believe
Cambridge Energy Research Associates (CERA) and the Chairman of
the Federal Reserve. They believe that the mortgage fiasco and
the associated imploding housing bubble are just a couple of
temporary zits on the handsome WASPy face that Wall Street
presents to the world. In the background, though, feedback loops
are aligning to rock the systems we depend on for daily life in
the real world. Capital will become unavailable. Food will grow
scarce. Trade will be interrupted. Mobility will be constrained.
And an awful lot of pissed-off people will be poised to fight
over the table scraps of industrial civilization.
Jim is the author of "The Geography of Nowhere," "Home From
Nowhere," "The City in Mind," and nine novels, including most
recently "Maggie Darling, a Modern Romance," published in
January 2004. Visit his website
http://jameshowardkunstler.typepad.com/
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