Dow Jones Industrial average is falling on its ass again. Bailout or no bailout. The truth is that the economic comeuppance has finally arrived and pushing more toilet paper into the holes won't hold the dam. Thus my prediction for January 2009:
DOW 5000
Read below to find out why I'm forecasting collapse.
The problem with the American economy is not the lack of cash liquidity. It's not even falling house prices although this hits a little closer to the heart of the matter.
The true problem lies in the fact that America has been racking up the credit card bill for several decades and the bill is due now. No amount of empty paper printing can remedy the problem without crashing the greenback and causing hyperinflation.
Alas the problem is even worse than that. Not only has America racked up gynormous debt it also spent its money very foolishly. Not only has America spent the borrowed money on mindless consumption of quickly depreciating items (cars, TVs, vacations etc) it utterly failed to invest in things that matter: education, infrastructure and manufacturing base.
That said, all of the above can be rectified with appropriate policy that rewards long term investment in yourself, your children and your fellow Americans instead of feeding the consumption orgy.
Alas, things aren't likely to go very smoothly because America also stands guilty of the greatest misallocation of resources in the history of humanity - the project of American suburbia. Not only is this type of living arrangement unsustainable on the future energy diet (yes, peak oil is real and it is here, now) it created a huge predicament when it comes to reclaiming the land that was lost to the ravages of suburban sprawl. Suburbs wrecked much of America's valuable farmland that will be difficult to reclaim thanks to the incessant use of pesticides and natural gas based fertilizers on suburban lawns.
Fuel prices are not coming down (ever) yet most Americans are stuck in a habitat where motoring is basically mandatory. The population density of most suburbs makes it nearly impossible to effectively provide public transport. Notice that work commute is the easiest part of this problem. Factories, offices and industrial parks tend to be more concentrated and make for convenient bus/train stops. Not so much with shopping, services, entertainment and schooling. The suburban landscape forced all those activities just far enough out of people's backyards that they can't comfortably walk or cycle in order to partake in those things yet thanks to the zoning laws those venues are spread apart enough from each other that it's hard to envision any sane public transport system providing reasonable access to all of them.
So now, here we are in a place where the last piston of the US economy - the American consumer is sputtering and choking on the fumes of his debt. Meanwhile the increasing energy prices and the skyrocketing cost of borrowing is putting the average Joe between a rock and a very hard place.
What is lamentable about our current leadership is that there is very little recognition of the systemic and structural nature of this crisis. To put it bluntly, the American dream as it has been preach for the last few decades is dead and buried. No amount of financial gimmickry (including the Mother of All Bailouts) will cover this ugly truth for very long.
The unsustainable way of living that was promoted and propagated by both parties (albeit more so by the evil one) is coming to an abrupt end and collectively we can make the choice of recognizing this fact or ignoring it and trying to hold the economic avalanche for a few months longer.
When looking at the platforms of both parties it's clear that they have made the choice of propagating the myth of every American being able to live sustainably in her cul-de-sac. The discussion of energy independence is purely limited to ideas about the next car fuel instead of recognizing that the problem lies not in the kind of cars we drive but the fact that we drive incessantly. The fact that neither party has rebuilding of America's public transport (especially its rail system) as a major policy platform shows how unserious we are about the predicament of the end of cheap oil. Credit spending has allowed Americans to absorb the rocketing gasoline prices but as evidenced over the past couple of weeks, this "solution" has ran its course.
Now is the time for real answers not "bailout" gimmickry.
As always, half of the solution is to recognize the root of the problem. And the problem can be restated as foolws:
America keeps spending borrowed cash on a living arrangement that has no future. America is failing to educate its youth and is failing to provide the type of programs that will lead to sustainable growth that is in sync with the realities of the world's energy situation. Namely building its cities in a way that they are accessible without utter reliance on a personal automobile and providing for usable, clean and safe public transport.
None of these problems have easy or quick fixes. There is not going to be a hydrogen economy or an electric/solar economy. The current industrial infrastructure took over 100 years to build and that was with seemingly endless abundance of fossil fuels. Now that the energy situation is much more dire there is simply not enough oil and gas left for us to smoothly transition to a new way of powering everything we do. Not to mention all the outstanding technical challenges associated with building either hydrogen electric or battery electric cars. Forget those things. It's not going to happen.
The focus from now on should be on building our future in a way that is sustainable, environment friendly and affordable given the constraints that mother nature is placing on us. We have to abandon the suburban dream, re-localize everything we do. Starting with the way we live and work and grow our food. The days of a 5,000 mile ceasar salad are drawing to a close. We will have to get used to eating stuff that is grown close to where we live. Likewise the Walmart "warehouse on wheels" will soon see its demise as fuel prices and the lack of cheap credit make it a losing proposition. Not to mention the lackluster demand for Chinese salad shooters from the financially (and mentally) exhausted American consumer.
In spite of all this grim forecasting I don't think it's irrelevant how we vote in this upcoming election. Being much more reality grounded, the Democrats are far more likely to understand the gravity of the problem facing us and more willing to change the course of this country in ways that are productive to our long term being. Between the steady, calming nature of Obama and the infantile tantrums of John McCain I have a good idea whom I want at the helm in the days of economic collapse. My only reservation being that whoever becomes the next president (almost certainly Barack Obama) will become a tragic figure upon whom the blame will be laid for the failure to prop up the myth of the American way of life. It won't be his fault as he will be largely powerless in preventing it.
However, there is at least a chance that someone like Mr Obama can persuade the American people that a completely new way of thinking has to be applied in order to solve this country's problems. May he stay strong in these times of complete failure of our basic assumptions. If Barack Obama is able to prevent a full on societal and economic collapse and move the country in the direction of sustainability, I will regard his presidency as a shining success regardless of Dow Jones being at 10,000 or 5,000 or 1,000 at the end of his term. And that's assuming the stock market even exists as an entity in the short term.
Good luck Barack. And I admire your courage for even wanting this job.