Reply #90: What Next? (James Kunstler)

[Demeter]

http://www.worldnewstrust.com/wnt-reports/news/what-next-james-kunstler.html

The Peak Oil story was never about running out of oil. It was about the collapse of complex systems in a world economy faced by the prospect of no further oil-fueled growth. It was something of a shock to many that the first complex system to fail would be banking, but the process is obvious: no more growth means no more ability to pay interest on credit... end of story, as Tony Soprano used to say.

There was a popular theory among Peak Oilers the last decade that the world would enter a "bumpy plateau" period when the global economy would get beaten down by peak oil, would then revive as "demand destruction" drove down oil prices, and would be beaten down again as oil prices shot up in response -- with serial repetitions of the cycle, each beat-down taking economies lower -- the only imaginable outcome being some sort of quiet homeostasis. This scenario did not play out as expected. It was predicated on a mistaken assumption that all systems would retain some kind of operational resilience while ratcheting down. Anyway, the banking system was mortally wounded in the first go-round and the behemoth is dying hard.

The last desperate act of the banking system in the face of Peak Oil's no-more-growth equation was to engineer species of tradable securities that could produce wealth out of thin air rather than productive activity. This was the alphabet soup of algorithm-derived frauds with vague and confounding names such as credit default swaps (CDSs), collateralized debt obligations (CDOs), structured investment vehicles (SIVs), and, of course, the basic filler, mortgage backed securities. The banking system is now choking to death on these delicacies.

The trouble is that the EMT squad brought in to rescue the banking system -- that is, governments -- can't remove these obstructions from the patient's craw. They don't want to drown in a mighty upchuck of the alphabet soup....