Endgame  

Once upon a time I used to have a slot called "Friday Night Fear Mongering" which I eventually abandoned as I became entirely disenchanted with the doomer community. While I'm still over the doomers, I kind of enjoyed this example from John Michael Greer (aka the Archdruid) looking through a particularly dark glass at the US economy - Endgame (I'm not sure if the title is a nod of the head towards Dennis Jensen, or just a coincidence).

A different reality pertains within the Washington DC beltway. Where states that fail to balance their budgets get their bond ratings cut and, in some cases, are having trouble finding buyers for their debt at less than usurious interest rates, the federal government seems to be able to defy the normal behavior of bond markets with impunity. Despite soaring deficits, not to mention a growing disinclination on the part of foreign governments to keep on financing the same, every new issuance of US treasury bills somehow finds buyers in such abundance that interest rates stay remarkably low. A few weeks ago, Tom Whipple of ASPO became the latest in a tolerably large number of perceptive observers who have pointed out that this makes sense only if the US government is surreptitiously buying its own debt.

The process works something like this. The Federal Reserve, which is not actually a government agency but a consortium of large banks working under a Federal charter, has the statutory right to mint money in the US. These days, that can be done by a few keystrokes on a computer, and another few keystrokes can transfer that money to any bank in the nation. Some of those banks use the money to buy up US treasury bills, probably by way of subsidiaries chartered in the Cayman Islands and the like, and these same subsidiaries then stash the T-bills and keep them off the books. The money thus laundered finally arrives at the US treasury, where it gets spent.

It may be a bit more complex than that. Those huge sums of money voted by Congress to bail out the financial system may well have been diverted into this process – that would certainly explain why the Department of the Treasury and the Federal Reserve Bank of New York have stonewalled every attempt to trace exactly where all that money went. Friendly foreign governments may also have a hand in the process. One way or another, though, those of my readers who remember the financial engineering that got Enron its fifteen minutes of fame may find all this uncomfortably familiar – and it is. The world’s largest economy has become, in effect, the United States of Enron.

Plenty of countries in the past have tried to cover expenses that overshot income by spinning the presses at the local mint. The result is generally hyperinflation, of the sort made famous in the 1920s by Germany and more recently by Zimbabwe. That I know of, though, nobody has tried the experiment with a national economy in a steep deflationary depression, of the sort that has been taking shape in America and elsewhere since the real estate bubble crashed and burned in 2008. In theory, at least in the short term, it might just work; the inflationary pressures caused by printing money wholesale could conceivably cancel out the deflationary pressures of a collapsing bubble and a contracting economy – at least for a while.

The difficulty, of course, is that pumping the money supply fixes the symptoms of economic failure without treating the causes, and in every case I know of, governments that resort to it end up caught on a treadmill that requires ever larger infusions of paper money just to maintain the status quo. Sooner or later, as the amount of currency in circulation outstrips the goods and services available to buy, inflation spins out of control, the currency loses most or all of its value, and the economy grinds to a halt until a new currency can be issued on some sounder basis. In 1920s Germany, they managed this last feat by taking out a mortgage on the entire country, and issued “Rentenmarks” backed by that mortgage. In the wake of the late housing bubble, that seems an unlikely option here, though no doubt some gimmick will be found.

It’s crucial to realize, though, that this move comes at the end of a long historical trajectory. From the early days of the industrial revolution into the early 1970s, the United States possessed the immense economic advantage of sizeable reserves of whatever the cutting-edge energy source happened to be. During what Lewis Mumford called the eotechnic era, when waterwheels were the prime mover for industry and canals were the core transportation technology, the United States prospered because it had an abundance of mill sites and internal waterways. During Mumford’s paleotechnic era, when coal and railways replaced water and canal boats, the United States once again found itself blessed with huge coal reserves, and the arrival of the neotechnic era, when petroleum and highways became the new foundation of power, the United States found that nature had supplied it with so much oil that in 1950, it produced more petroleum than all other countries combined.

That trajectory came to an abrupt end in the 1970s, when nuclear power – expected by nearly everyone to be the next step in the sequence – turned out to be hopelessly uneconomical, and renewables proved unable to take up the slack. The neotechnic age, in effect, turned out to have no successor. Since then, for most of the last thirty years, the United States has been trying to stave off the inevitable – the sharp downward readjustment of our national standard of living and international importance following the peak and decline of our petroleum production and the depletion of most of the other natural resources that once undergirded American economic and political power. We’ve tried accelerating drawdown of natural resources; we’ve tried abandoning our national infrastructure, our industries, and our agricultural hinterlands; we’ve tried building ever more baroque systems of financial gimmickry to prop up our decaying economy with wealth from overseas; over the last decade and a half, we’ve resorted to systematically inflating speculative bubbles – and now, with our backs to the wall, we’re printing money as though there’s no tomorrow.

Now it’s possible that the current US administration will be able to pull one more rabbit out of its hat, and find a new gimmick to keep things going for a while longer. I have to confess that this does not look likely to me. Monetizing the national debt, as economists call the attempt to pay a nation’s bills by means of a hyperactive printing press, is a desperation move; it’s hard to imagine any reason that it would have been chosen if there were any other option in sight.

What this means, if I’m right, is that we may have just moved into the endgame of America’s losing battle with the consequences of its own history. For many years now, people in the peak oil scene – and the wider community of those concerned about the future, to be sure – have had, or thought they had, the luxury of ample time to make plans and take action. Every so often books would be written and speeches made claiming that something had to be done right away, while there was still time, but most people took that as the rhetorical flourish it usually was, and went on with their lives in the confident expectation that the crisis was still a long ways off.

We may no longer have that option. If I read the signs correctly, America has finally reached the point where its economy is so deep into overshoot that catabolic collapse is beginning in earnest. If so, a great many of the things most of us in this country have treated as permanent fixtures are likely to go away over the years immediately before us, as the United States transforms itself into a Third World country. The changes involved won’t be sudden, and it seems unlikely that most of them will get much play in the domestic mass media; a decade from now, let’s say, when half the American workforce has no steady work, decaying suburbs have mutated into squalid shantytowns, and domestic insurgencies flare across the south and the mountain West, those who still have access to cable television will no doubt be able to watch talking heads explain how we’re all better off than we were in 2000.

Those of my readers who haven’t already been beggared by the unraveling of what’s left of the economy, and have some hope of keeping a roof over their heads for the foreseeable future, might be well advised to stock their pantries, clear their debts, and get to know their neighbors, if they haven’t taken these sensible steps already. Those of my readers who haven’t taken the time already to learn a practical skill or two, well enough that others might be willing to pay or barter for the results, had better get a move on. Those of my readers who want to see some part of the heritage of the present saved for the future, finally, may want to do something practical about that, and soon. I may be wrong – and to be frank, I hope that I’m wrong – but it looks increasingly to me as though we’re in for a very rough time in the very near future.