the profit

I've been reading some of Jim Kunstler's old blog pieces from five years ago, to see if he really has the kind of prophetic mojo I credit him with. Seems he knew there was a "current crisis of capital" back in May of 2005, when the information sources most widely available to "the consumers" were celebrating the non-stop growth of real estate values, and crowing that the party would never end.

But those in the know, including a lot of high-finance types like Henry Paulson, understood exactly what was happening and where it was going (and were playing their strategy real close to their vests). Kunstler said at that time that the "crisis in capital" derives from the fact that the American economy produces fewer and fewer things of enduring value -- and more and more fluff in the form of Star Wars movies -- so any financial paper or instrument that pretends to represent the nation's longer-term prospects is in danger of not being taken seriously. The wealth accumulated in the US in the second half of the last century is actually shrinking now, since our industrial base is withering away, and whatever investment we are capable of making has been increasingly directed into the "hard assets" of houses. The catch is that the "investment" in houses is almost all credit -- mortgages, promises to pay most of the money later. The catch of the catch is that the cost of obtaining credit (interest rates) remains supernaturally low and the standards for creditworthiness have ceased to exist. The catch of the catch of the catch is that a lot of the mortgages are adjustable, meaning the cost of borrowing doesn't necessarily stay supernaturally low. It can float with rising interest rates.

Finance professionals know that these conditions are perverse and perilous. That's why they call it a "housing bubble." The moiling "consumer" masses only know that the dollar-value of their houses goes up ten percent or more every year, while stock and bond portfolios go sideways. So they ignore any supposed peril and keep flipping the houses. Finance professionals know that sooner or later grownups in other countries who buy our financial paper will decide that our long-term prospects are a joke, and that we will have to raise the interest rates a lot to keep them buying. When that happens, the tears begin to flow from the mortgage-holders.

Very few people other than JK were predicting that the bubble would end as badly as it did, or that it was the bubble to end all bubbles, not least because of the connection between easy credit and cheap oil, which in May of 2005 was becoming alarmingly high priced, sometimes nosing up over $50 a barrel!

Today it's a third again higher than that, and is flirting with $75 a barrel as I'm typing this. Nobody is expecting that price to back off much, even in times of very low demand for gasoline such as we're experiencing now. That and the fact that most of the eight million or so jobs we've lost over the last couple of years aren't ever coming back should tell you that the idea of "recovery" is silly and Pollyanna-ish, and that what we're looking at is the necessity of readjustment to fundamentally altered conditions of life.

What's the best way to deal with this? Well, you could buy a little patch of land somewhere and build a cob cottage on it, like the one in the picture. I swear these places look like Hobbit houses. Then you could learn to grow a tomato -- in a cooler climate that might require a greenhouse -- and then, since you've got the greenhouse up already, you could put in a high-octane marijuana plant to keep the tomato company. Pot is the number one cash crop in much of the country, and profits from it might subsidize a robust and ambitious food-growing operation.

Kunstler has been saying for years that the economic future of this country, if it has one, will see agriculture once again moving to the center of things, along with modes of transportation we usually think of as strictly historical, especially railroads. We may be disillusioned today, but don't forget that the actual meaning of that word, "dis-illusioned" has an up side.