Earthside Comments: Though we have been forecasting the demise of our consumer economy for years now, it is still rather breath-taking to see it actually collapsing before our very eyes.
The first news report here tells the tale in vivid colors -- the corporate elitists running the central government are panicked and delusional. There isn't any such thing as $7.4 trillion for them to lend ... this is make-believe stuff meant to provide cover just long enough for them to complete their looting and escape to Paraguay.
And, by the way, if you think Obama is going to just as magically create a couple of trillion dollars for building and rebuilding infrastructure, well ...
So, frankly, we recommend that you enjoy this year's holiday season -- because it may very well be the last one that is reminiscent of the last half of the twentieth century. James Kunstler explains this below.
Report: Government Prepared to Lend $7.4 Trillion | Houston Chronicle
The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago.The unprecedented pledge of funds includes $2.8 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.
When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.
“Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about,” said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. “The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones.”
Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government’s rescue effort.
The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14. ...
... The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.
“It’s unprecedented,” said Bob Eisenbeis, chief monetary economist at Vineland, New Jersey-based Cumberland Advisors Inc. and an economist for the Atlanta Fed for 10 years until January. “The backlash has begun already. Congress is taking a lot of hits from their constituents because they got snookered on the TARP big time. There’s a lot of supposedly smart people who look to be totally incompetent and it’s all going to fall on the taxpayer.” ...
... Bloomberg has requested details of Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral.
Collateral is an asset pledged to a lender in the event a loan payment isn’t made.
“Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,” Bernanke said Nov. 18 to the House Financial Services Committee. “We think that’s counterproductive.”The Fed should account for the collateral it takes in exchange for loans to banks, said Paul Kasriel, chief economist at Chicago-based Northern Trust Co. and a former research economist at the Federal Reserve Bank of Chicago.
“There is a lack of transparency here and, given that the Fed is taking on a huge amount of credit risk now, it would seem to me as a taxpayer there should be more transparency,” Kasriel said.
Bernanke’s Fed is responsible for $4.4 trillion of pledges, or 60 percent of the total commitment of $7.4 trillion, based on data compiled by Bloomberg concerning U.S. bailout steps started a year ago.
“Too often the public is focused on the wrong piece of that number, the $700 billion that Congress approved,” said J.D. Foster, a former staff member of the Council of Economic Advisers who is now a senior fellow at the Heritage Foundation in Washington. “The other areas are quite a bit larger.”
The Fed’s rescue attempts began last December with the creation of the Term Auction Facility to allow lending to dealers for collateral. After Bear Stearns’s collapse in March, the central bank started making direct loans to securities firms at the same discount rate it charges commercial banks, which take customer deposits.
In the three years before the crisis, such average weekly borrowing by banks was $48 million, according to the central bank. Last week it was $91.5 billion.
The failure of a second securities firm, Lehman Brothers Holdings Inc., in September, led to the creation of the Commercial Paper Funding Facility and the Money Market Investor Funding Facility, or MMIFF. The two programs, which have pledged $2.3 trillion, are designed to restore calm in the money markets, which deal in certificates of deposit, commercial paper and Treasury bills.
“Money markets seized up after Lehman failed,” said Neal Soss, chief economist at Credit Suisse Group in New York and a former aide to Fed chief Paul Volcker. “Lehman failing made a lot of subsequent actions necessary.”
The FDIC, chaired by Sheila Bair, is contributing 20 percent of total rescue commitments. The FDIC’s $1.4 trillion in guarantees will amount to a bank subsidy of as much as $54 billion over three years, or $18 billion a year, because borrowers will pay a lower interest rate than they would on the open market, according to Raghu Sundurum and Viral Acharya of New York University and the London Business School.
Congress and the Treasury have ponied up $892 billion in TARP and other funding, or 12 percent.The Federal Housing Administration, overseen by Department of Housing and Urban Development Secretary Steven Preston, was given the authority to guarantee $300 billion of mortgages, or about 4 percent of the total commitment, with its Hope for Homeowners program, designed to keep distressed borrowers from foreclosure.
Most of the federal guarantees reduce interest rates on loans to banks and securities firms, which would create a subsidy of at least $6.6 billion annually for the financial industry, according to data compiled by Bloomberg comparing rates charged by the Fed against market interest currently paid by banks.
Not included in the calculation of pledged funds is an FDIC proposal to prevent foreclosures by guaranteeing modifications on $444 billion in mortgages at an expected cost of $24.4 billion to be paid from the TARP, according to FDIC spokesman David Barr. The Treasury Department hasn’t approved the program.
Bernanke and Paulson, former chief executive officer of Goldman Sachs, have also promised as much as $200 billion to shore up nationalized mortgage finance companies Fannie Mae and Freddie Mac. The FDIC arranged for $139 billion in loan guarantees for General Electric Co.’s finance unit.
The tally doesn’t include money to General Motors Corp., Ford Motor Co. and Chrysler LLC. Obama has said he favors financial assistance to keep them from collapse.
Paulson told the House Financial Services Committee Nov. 18 that the $250 billion already allocated to banks through the TARP is an investment, not an expenditure.
Zombie Economics | Jim Kunstler
Though Citicorp is deemed too big to fail, it's hardly reassuring to know that it's been allowed to sink its fangs into the Mother Zombie that the US Treasury has become and sucked out a multi-billion dollar dose of embalming fluid so it can go on pretending to be a bank for a while longer. I employ this somewhat clunky metaphor to point out that the US Government is no more solvent than the financial zombies it is keeping on walking-dead support. And so this serial mummery of weekend bailout schemes is as much of a fraud and a swindle as the algorithm-derived-securities shenanigans that induced the disease of bank zombification in the first place. The main question it raises is whether, eventually, the creation of evermore zombified US dollars will exceed the amount of previously-created US dollars now vanishing into oblivion through compressive debt deflation.My guess, given the usual time-lag factor, is that the super-inflation snap-back will occur six to eighteen months from now. And the main result of all this will be our inability to buy the imported oil that comprises two-thirds of the oil we require to keep WalMart and Walt Disney World running. At some point, then, in the early months of the Obama administration, we'll learn that "change" is not a set of mere lifestyle choices but a wrenching transition away from all our familiar and comfortable habits into a stark and rigorous new economic landscape.
The credit economy is dead and the dead credit residue of that dead economy is going where dead things go. It came into the world as "money" and it is going out of this world as a death-dealing disease, and we're not going to get over this disease until we stop generating additional zombie money out of no productive activity whatsoever. The campaign to sustain the unsustainable is, besides war, the greatest pitfall this society can stumble into. It represents a squandering of our remaining scant resources and can only produce the kind of extreme political disappointment that wrecks nations and leads to major conflicts between them. I don't know how much Mr. Obama buys into the current adopt-a-zombie program -- his Treasury designee Timothy Geithner was apparently in on this weekend's Citicorp deal -- but the President would be wise to steer clear of whatever the walking dead in the Bush corner are still up to.
All the activities based on getting something-for-nothing are dead or dying now, in particular buying houses and cars on credit and so it should not be a surprise that the two major victims are the housing and car industries. Notice, by the way, that these are the two major ingredients of an economy based on building suburban sprawl. That's over, too. We're done building it and the stuff we've already built is destined to loose both money value and usefulness as the wrenching transition goes forward.
All this obviously begs the question: what kind of economy are we going to live in if the old one is toast? Well, it's also pretty obvious that it will have to be based on activities productively aimed at keeping human beings alive in an ecology that has a future. Once you grasp this, you will see that there is no reason to despair and more than enough for all of us to do, so we can recover from the zombie nation disease and get on with the next chapter of American history -- and I sure hope that Mr. Obama will get with the new program.
To be specific about this new economy, we're going to have to make things again, and raise things out of the earth, locally, and trade these things for money of some kind that we earn through our own productive activities. Don't make the mistake of thinking this is optional. The only other option is to go through a violent sociopolitical convulsion. We ought to know from prior examples in world history that this is not a desirable experience. So, to avoid that, we really have to put our shoulders to the wheel and get to work on things that matter, and do it at a scale that is consistent with what the world really has to offer right now, especially in terms of available energy.
In my view -- and I know this is controversial -- a much larger proportion of the US population will have to be employed in growing the food we eat. There are many ways of arranging this, some more fair than others, and I hope the better angels of our nature steer us in the direction of fairness and justice. The prospects of a devalued dollar imply that we very shortly will not be able to get the all the oil-and-gas based "inputs" that have made petro-agriculture possible the past century. The consequences of this are so unthinkable that we have not been thinking about it. And, of course, the further implications of current land-use allocation, and the property ownership issues entailed, suggests formidable difficulties in re-arranging the farming sector. The sooner we face all this, the better.
As the fiesta of "globalism" (Tom Friedman-style) draws to a close -- another consequence of currency problems -- we'll have to figure out how to make things in this country again. We will not be manufacturing things at the scale, or in the manner, we were used to in, say, 1962. We'll have to do it far more modestly, using much more meager amounts of energy than we did in the past. My guess is that we will get the electricity for doing this mostly from water. It may actually be too late -- from a remaining capital resources point-of-view -- to ramp up a new phase of the nuclear power industry (and there are plenty of arguments from the practical and economic to the ethical against it). But we have to hold a public discussion about it, if only to clear the air and get on with other things, namely the new activites of alt.energy. But I would hasten to warn readers (again!) that we'll probably have to do these things more modestly too (don't count on giant wind "farms"), and that we are liable to be disappointed by what they can actually provide for us (don't expect to run WalMart on wind, solar, algae-fuels, etc).
In any case, we're not going back to a "consumer" economy. We're heading into a hard work economy in which people derive their pleasures and gratification more traditionally -- mainly through the company of their fellow human beings (which is saying a lot, for those of you who have forgotten what that's about). Our current investments in "education" -- i.e. training people to become marketing executives for chain stores -- will delude Americans for a while about what kind of work is really available. But before long, the younger adults will realize that there are enormous opportunities for them in a new and very different economy. We will still have commerce -- even if it's not the K-Mart blue-light-special variety -- and the coming generation will have to rebuild all the local, multi-layered networks of commercial inter-dependency that were destroyed by the rise of the chain stores. In short, get ready for local business. It will surely be part-and-parcel of our local food-growing and manufacturing activities.
I hate to keep harping on this -- but since nobody else is really talking about it, at least in the organs of public discussion, the job is left to me -- we have to get cracking on the revival of the railroad system in this country, if we expect to remain a united country. This is such a no-brainer that the absence of any talk about it is a prime symptom of the zombie disease that has eaten away our brains. Automobiles (the way we use them) and airplanes are utterly dependent on liquid hydrocarbon fuels, and you can be certain we'll have trouble getting them. You can run trains by other means -- electricity being state-of-the-art in those parts of the world that do it most successfully. I know that California just voted to create a high-speed rail link between Los Angeles and San Francisco. It's an optimistic sign, but it shows more than a little techno-grandiose over-reach. High speed rail would require a mega-expensive re-do of the tracks. We need to scale our ambitions for this more realistically. California (and every other region of America) would benefit much more from normal-speed trains running every hour on the hour on tracks that already exist than from a mega-expensive, grandiose sci-fi program that might not get built for ten years. The dregs of the Big Three automakers can and should be reorganized to produce the rolling stock for a revived railroad system.
Even amidst the financial carnage underway right now, the public is enjoying a respite from high-priced gasoline, but it is due to be short-lived. As I've already said, we are in danger not just of oil prices going way back up again, but of losing access to our supplies from the exporting countries. In other words, we're just as likely to face shortages as high prices, and soon. Oil shortages are certain to produce a political freak-out here unless we get our heads screwed on right -- and this means that Mr. Obama had better prepare quickly for a comprehensive action plan in the face of such an emergency (which has to include a robust public information initiative).
In the meantime, Mr. Obama must dissociate himself from all activities aimed at the care-and-feeding of zombies. Mr. Obama is correct that there is one president and one government at a time, and since this is the case in reality, he must avoid being contaminated by the choices they make as their clock ticks out. Obviously, world markets might be more disturbed if Mr. Obama were to step up and actively contradict everything that is being done to cultivate zombies right now. He is in a very delicate position. But being a man of intelligence and sensibility, he may successfully navigate this rough passage.
That this melt-down is building straight into the Christmas holidays is one of those accidents of history that leaves one reeling in wonder and nausea. The cable networks better be prepared to bombard the public with round-the-clock showings of It's A Wonderful Life, because they're going to need all the moral support they can get as zombies stalk through the silent night, holy night.
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