The
Federal Reserve itself has been instrumental in promoting abnormality
by doing everything possible to prevent the work-out of bad debts in
the system. Since money is loaned into existence, and loans are debts,
the work-out of bad debt suggests the discovery that a lot of money has
disappeared -- which is exactly the case. The Fed has postponed the
work-out by sucking up truckloads of impaired, untradable securities in
exchange for loans to giant banks who don't have enough cash on hand to
pay their janitors.
Personally, my theory has been that the specter of peak oil pretty
clearly implies the inability of industrial economies to continue
producing real wealth in the customary way. In the face of this, either
consciously or at a more mystical level, the worker bees in banking
recognize that, in order to maintain their villas in the Hamptons,
money has to be loaned into existence some other way (than in the
service of industrial productivity).
We've tried just about everything else. There was the so-called
service economy, an attempt to replace manufacturing with hamburger
sales. Then there was the information economy, in which work would be
replaced with knowing about stuff. Then there was the tech thing, which
was about bringing internet companies that existed only on the back of
cocktail napkins to the initial public offering stage of capitalization
-- which allowed a few-hundred-or-so thirty-year-old smoothies to
retire to vineyards in the Napa Valley, while hundreds of thousands of
retirees lost half the value of their investment portfolios. Then
there was the housing boom, which was all about the creation of more
suburban sprawl under the theory that houses (or "homes" in the jargon
of the realtors) represent an obvious sort of wealth, and therefore
that using houses as collateral would allow humongous sums of money to
be loaned into existence -- along with massive fees for structuring the
loans into bundles of bond-like thingies.
This has all failed now because the racket went too far. Every
possible candidate for a snookering got snookered. Too much collateral
for which there were no takers went into the ground. The insane run-up
in house values made a downward price movement inevitable, and as soon
as the turnaround happened, it fell into the remorseless algebra of a
deflationary death spiral. More importantly, however, this society ran
out of tricks for loaning money into existence and instead began to
experience the pain of money thought-to-be-in-existence being defaulted
into a vapor -- and worse, these defaults led to logarithmic chains of
money destruction in its places of origin, the investment banks that
had created the racket.
The important part of this is that the money is gone. What makes
matters truly eerie is that the "bubble" in suburban houses has
occurred at exactly the moment in history when the chief enabling
resource for suburban life -- oil -- has entered its scarcity stage.
The logical conclusion of all this is not what the American public wants to hear:
we have become a much poorer society and are now faced with the
unavoidable task of making major changes in how we live. All the
three-card-monte moves at the highest level of finance lately amount to
an effort to avoid the unavoidable, acknowledging our losses. Certainly
the political fallout of all this will be awesome. But it's not about
politics, really. It's about the entire society's inability to form a
workable new consensus of reality.
It's hard to predict how long these institutions at the heart of
our economic system can linger in the "far from normal" limbo of
pretending that money has not been defaulted out of existence. Since
the same process is underway in Great Britain and Spain, places beyond
the control of Bernanke, Secretary Paulson, and the Boyz on Wall
Street, and since actions and reactions there will affect the destiny
of money here, its hard to escape the conclusion that we're at most
months away from the brutal recognition that Wall Street has managed to
bankrupt itself (and, by extension, the United States). This is dark
heart of the matter of which no one dares speak.
Meantime, on the ground, every mook and minion in the land sees
the gas pumps levitate beyond the $4 hash mark, and notes with
bugged-out eyes the double-digit price stickers on common supermarket
items, and feels the rush of blood from the extremities when some
check-out clerk at the WalMart declares that a certain proffered credit
card is maxed out, and some strangers in overalls -- the neighbors say
-- managed to hot-wire the GMC Sierra in the driveway, and took it
away....
The candidates for president will have a lot to talk about. I wonder if they'll dare to.
***
My new novel of the post-oil future, World Made By Hand, is available at all booksellers.