Friday, February 20, 2009

Change we can believe in?

It's February and the market is down almost 25% since Obama was elected. The major financials have lost over 30% of their remaining value since Obama announced his non-plan to "save" the banks two weeks ago. We've got people like Rick Santelli on CNBC Thursday doing a major league rant about government subsidizing 'bad behavior' and calling for a "Chicago Tea Party". Meanwhile GM seems to have written off Saab and thrown it to the wolves/creditors. And today's market is just barely above its 2002 low of 7286. That's before adjusting for inflation. The volume of wealth that is being destroyed around us is monumental and we are not going to be able to pay for everything we think we deserve much longer. In fact, at the pace we're destroying wealth, the United States will be a very backward nation in a few more years.

Friday, February 13, 2009

What Does a Likely Collapse Scenarios Look Like?

The most likely short term collapse scenario that I can envision is similar to what was described in Lessons From Argentina's Economic Collapse (PDF). That would be a financial implosion so drastic that it basically either collapses central government or leaves central government so ineffective that it might as well not exist, at least in terms of providing services. The least likely short term collapse scenario that I can envision is global thermonuclear war. But saying it is the least likely doesn't mean you should ignore it. It simply means that an extraordinary number of conditions would have to line up in the short term for that to occur.

What's Wrong with "Coming Chaos? Maybe Not"

Preface: I recently decided to write about collapse scenarios in response to a really bad article over at TOD. But as I began working through how to present this problem, I realized that it was far too large for one article and might need several of its own. So watch for more articles on the general topic of collapse scenarios over the next few months. This first article addresses the flaws in the article that I recently read over at TOD.

One of the problems with the recent Coming Chaos? Maybe Not article at TOD began with horrendous assumptions. Among those assumptions is the time worn cliche that "doomers" are preparing for "Mad Max" and nobody can survive "Mad Max". Here's the opening statement from that article: "A sizable subset of what some on this site call “doomers” are convinced that the demise of the petroleum economy will bring social breakdown and a violent struggle of all against all." Such a blatant strawman should never have been put in any article by anyone seriously researching the "doomer" community, yet the Coming Chaos? Maybe Not article began with that assumption then attempted to disprove it when it wasn't even valid!

Thursday, January 22, 2009

Where is Texas Going

Living in Texas and occasionally commenting about it, I get some Texas related responses now and then. Recently Speedy asked what I thought was in store for Texas over the next several years. I don't have a single scenario but rather look at a range of scenarios for Texas (or any other location for that matter).

My optimistic scenario says that the US will get its financial house in order, slowly but painfully, learn to live within its means, and stop acting like a global empire. Those changes would produce dramatic changes here at home, not the least of which would be a more local focus and stronger control of the US/Mexican border. Stronger control could work out well if Mexico gets its own house in order as well by allowing both nations to create a fully operational guest worker program that avoids the illegals problem while providing access to jobs in the US (and Mexico).

But my pessimistic scenario is far closer to what is currently unfolding around us. Mexico is sliding into collapse as the government loses more and more control of anything other than Mexico City, as oil revenues plunge, and as dollars from the US dry up. Meanwhile the US seems hellbent on finding the worst of all possible solutions to its own fiscal crisis. Downstream this will result in one of two options occurring. Either the US will become a fully fascist state (instead of a simply proto-fascist state) or the US will collapse entirely. A fully fascist US would be a bad thing for Mexico regardless. Either Mexico would get absorbed into a greater political entity to be controlled from Washington, or the border would be sealed and illegal immigrants rounded up and dealt with, one way or another. Neither of those are desirable outcomes but they are what might happen if things implode badly.

On the other hand, a collapse by the US might be the best thing to happen to Mexico. There is a high probability that Texas would form the nucleus of a new nation and that nation would have extensive ties to Mexico, in all probability. That nation could consist of any part of Texas, the states immediately surrounding Texas, plus possibly Alabama and Georgia.

In any event, the ongoing events thus far simply indicate that we're all going for a ride that no one in the US has ever been on before. Either we're going to find fiscal sanity, social insanity, or we're all going to part ways. None of those scenarios is "business as usual" for Mexico by dumping its social issues over the border, so Mexico ought to begin facing those problems right now. Of course, they won't do that, which will make the ensuing nightmare all the worse.

Tuesday, January 20, 2009

Hail to the Chief!

First off, I welcome our new president. But in addition to that, I urge everyone else to immediately start scaling back your expectations. My own expectations are not terribly high. I expect Barack Obama to try to do what he believes is right, to make some good choices and make some bad choices, and that, because of his government centric mindset, some of those choices will turn out far worse than he expects. But many, many Americans believe Obama is the second coming of Kennedy-the-myth (not Kennedy-the-man). They are expecting Camelot all over again, magic wand waving and a restoration of prosperity with no real pain. It is these people who are going to become the most disappointed and most disillusioned of all.

Barack Obama, be he saint or devil, did not create this mess but he is surely going to be blamed for a large part of it as it unfolds. This is inherently unfair but it's how things work. Carter created the recession of 1979-1982 but Reagan got blamed.

While the media swoons over the Obama presidency, in the worst case scenario, he may be about to face multiple tests in the near term. The first and most immediate domestic test will be California suspending welfare payments on February 1, if they carry through with that threat. His other tests are likely to be external and involve the Middle East. Gaza remains a problem, as does our relationship to Iran, and our slowly souring relationship with Pakistan.

In the longer term, he is probably looking at several hundred thousand jobs lost per month over the first year of his presidency. The upper bound currently looks like it may be around 6 million jobs lost for 2009 but that's the upper bound. A more reasonable estimate might be in the 2.5-4 million range. Interestingly, that's the number of jobs he claims he can "create" in one year via government edict. Sorry, Mr. President, but I don't buy that line. It smacks too much of wishful thinking to me.

Additionally, several of our European neighbors are facing bankruptcy, or the practical effects of that even if they don't formally declare it. The British pound and the Euro are both falling hard lately, with the pound leading the way amid open discussions of British defaults. There is rioting in Iceland, Ireland, and Latvia over politicians and bankers and failing economies. Those losses and the civil unrest that accompanies them are not far from the front doors of North America. And yes, I include the smug Canadians in this. The proverbial crap is close to hitting the proverbial fan.

Time is already running out for a president just sworn in, through no fault of his own but rather because of the size of the mess bearing down upon him. Over at TAE, Ilargi yesterday suggested that Obama may be The Shortest President ever. Unstated by Ilargi is the corollary that Obama may be the last US president as this nation dissolves in financial ruin.

As for me and mine, I have gates to repair, garden plots to clean up, and seeds to begin sprouting for planting in 6-8 weeks. The world is not going to stop revolving but many human institutions may stop functioning. If you're still not prepared, I strongly urge you to wander over to SurvivalBlog. Begin reading the archives and implementing as many pieces as you can while you can. All of our choices are becoming more constrained with each passing day.

Monday, January 12, 2009

Inauguration Approaches

So Obama's been elected and promptly declares the current economic crisis to be worse than he was originally led to believe. He plans the amazing-self-sizing fiscal stimulus package of roughly $800 billion dollars that, over the last 10 days, has promised to create 1.5, 2, 2.5, and now 4 million new jobs (all without the price tag changing at all). And have you noticed who is on his transition team, advising him on matters economic? Hmmm? People like Robert Rubin, disgraced chief of Citigroup who resigned over the weekend? And this is supposed to be the administration that will bring us "change". Uh, yeah, right. With friends like this, I fear the change that is coming.

For a little anecdote, the people of this country don't buy Obama's words much, from what I can read. Last week the BATF issued a notice to FFL holders allowing them to photocopy the existing form 4473, until more supplies could be made available. For those that don't know what a 4473 is, it is the form used to record the sale of a firearm from a dealer (Federal Firearms License - aka FFL holder) to a private citizen. In other words, firearms sales have been so brisk under the threat of an Obama administration that the BATF has run out of gun sale forms.

The price of oil hit a remarkable low today of $39 per barrel. This simply reinforces, to me, the scope of the economic collapse that is underway. Peak oil is real and oil supplies are definitely finite but economic collapse has been so swift and so widespread that it has reduced demand for oil below current supply levels. Thus far the data indicates that global demand has plummeted by over 3 million barrels per day in just the last few months of 2008. Given that further economic dislocation is a near certainty, we can expect further falls in global consumption. On the bright side, this leaves a bit more oil for use further in the future. I'm not going to hold my breath hoping that it's used wisely though. Homo sapiens doesn't seem to possess that trait.

Here at home I discovered something unusual. Crops in this part of the US are now growing through the nominal "winter" months. My strawberries, cauliflower, and brussel sprouts positively love the cooler temperatures compared to the heat of south Texas summers. We should have fresh cauliflower at the dinner table tonight, for example. It did get a wee bit too chilly for the pepper plants though so not everything is going to grow through December and January in south Texas.

Stoneleigh recently did a wonderful primer on The Special Relativity of Currencies. It's a must read piece and I highly recommend it. I don't have much more to say other than to answer one question I was asked, which was "Well, what does the beginning of a depression look like?" And my response was, "This is what the beginning of a depression looks like." The instant gratification generation apparently expects an instant depression. It won't work that way. The stock market crash in 1929 led to the bottom of the Great Depression in 1934 - five years later. We're only about 18 months into this mess right now and there's plenty more to come. So, as they used to say, "Don't touch that dial! There's more to come!"