Weekly Curmudgeon: Either/Or

As we enter the Christmas shopping season (I heard a rumor once there was a religious basis for December 25th, but darn it if I can see beyond the plastic lawn Santas to know for sure), we face a lot of uncertainty in the markets.  It is also safe to assume that the average person may be facing enough shortages either in the checking account or credit card max to really go all out this season.  Many businesses are depending on a robust shopping season to get into the black on the ledgers this year, but how much "wealth" is evaporating in this country?  My favorite curmudgeon, James Kunstler, has a particularly bleak outlook for the month of December in his weekly column:

The great debate among those of us on the Economy Deathwatch seems to be whether the debacle we observe around us will resolve as a crash or a slow-motion financial train wreck. It seems to me that at every layer of the system, we're susceptible to both -- in tradable paper, institutional legitimacy, individual solvency, productive activity, real employment, "consumer" behavior, and energy resources. Some things are crashing as I write.

Is Kunstler just a scrooge?  Or are we entering a very difficult period and long, cold winter?

The dollar is losing about a cent every three weeks against other currencies. A penny doesn't seem like much, but keep that pace up for another year and the world's "reserve currency" becomes the world's reserve toilet paper. Oil prices are poised to enter the triple-digit realm, the psychological effect of which may be jarring to 200 million not-so-happy motorists. The value of chipboard-and-vinyl houses is tanking beyond question.

While the US dollar is back on par with the Canadian dollar, the USD has fallen to yet another low against the Euro (1 Euro = 1.47 USD as of this morning).  Believe me, I'm glad my last job paid me in Euro cash because I've been able to make that money stretch much further than I would have figured even back in August before I left for the old world.  Oil did drop a little this week, but Kunstler points out in a website update, "Also, crude oil price down $3 on announcement by Saudi Arabia that they intend to increase oil production. Apparently, Wall Street hasn't heard their previous stated intentions to raise production -- which Saudi Arabia consistently failed to do."  Intentions are one thing, but no one is quite certain if Saudi Arabia can actually produce more oil.  If or when it comes to light Saudi Arabia has passed their Peak Oil point, promises such as the one this week will not be met with lowered prices in the market.  Either laughter or outright weeping is more likely.

It's hard to describe what constitutes the bulk of the stuff moving through the world's financial markets for the simple reason that it was purposely-designed to be so abstruse and provisional that traders would be too intimidated to ask what it represents -- and the growing terrified suspicion is that it's mostly worthless. By this I refer to the global freak show of derivatives, concocted "plays" on hypothetical "positions," credit default swaps, arbitrages in imagined "differentials," nifty equations, hedges, promises, algorithms executed by robots, and "off-book" wishes chartered in the Cayman Islands. Probably all of them, in one way or another, are just scams, since they are unaffiliated with productive activity.

I think while Kunstler is a bit cynical, he's got an extremely valid point: what exactly are these people producing, except numbers on a hard drive?  Shifting pieces of paper around is not the same as making toasters or Xbox consoles.  The financial sector strives to produce hot air, nothing tangible.  Ninety percent of what goes on in the financial realm is fantasy, at least from where I'm sitting.  Something is very wrong with people can make money through buying a selling money.  I can't wrap my head around that.  Throughout my life, I had to make money by doing something tangible, whether I was waiting tables (tangible result: full bellies), bartending (tangible result: drunks), roadie (tangible result: I got to go to Norway and be paid to do it) or used CD seller (tangible result: 16 year old misanthropic teenagers got their underground death metal CDs).

...this leads into the very real realm of poor choices, fiscal and fiduciary irresponsibility, deliberately deceptive policy, criminal malfeasance, and the broad abandonment of standards in acceptable behavior by people in authority. A lot of observers attribute this to the Gordon Gecko ethos -- the discovery back in the 1980s that "greed is good," which was meant to trump a previous ethos that life is tragic.

I think if the business world didn't have the government covering their asses, no doubt enormous numbers of leaders in finance would face criminal charges.  From the time I started actually taking note of the outside world (early to mid 80s), it has seemed that the only thing that matters is making money, no matter who you stomp on to do it.  In fact, we idolize and worship the greediest business leaders.  Hence the "success" of Donald Trump, who I am still convinced couldn't survive thirteen seconds in a situation where he had to clean his own room, grow his own food or put air into a leaky tire.  Kunstler, meanwhile, has a particularly dire view of the coming weeks:

at the risk once again of sounding extreme, that the structural and systemic sickness in the finance realm is now so severe that it is hard to imagine we will get through the month of December without some major trauma in the markets. In fact, I'd go so far as to predict a thousand-point drop (or more) in the Dow just in this week after Thanksgiving. Real wealth "out there" is evaporating like popsicles dropped on the floor of Hell's fifth circle....At the risk of sounding even more extreme, I would be hard put to believe any reports that "consumer" spending in the days following Thanksgiving will match the hopes and wishes of economic officialdom. My own hunch is that average Americans are so maxed out on debt that they don't know whether to shit or go blind. Perhaps lot of them are willing to take a last step into fatal insolvency in order to put a plasma TV screen under the Christmas tree and appear as heroes to their families. If that's the case, it would only imply a greater bloodbath in credit card default thundering through the system in February and March, which would only deepen the carnage in collateralized debt instruments further up the food chain.

Kunstler wrote the column on Monday and right now the markets seem to be doing their usual up/down puppet dance, so perhaps his prediction of a market collapse will have to wait, but he may have a valid point on people putting off the credit card realities for a few more months in order to ensure their children they will have the latest "Tickle Me Elmo" fad toy of the season or the Nintendo Wii.

For many years now, it seems the average person in the United States has followed the lead of the Bush administration: buy now on credit, perhaps pay later.  Perhaps not.  Even under optimal circumstance, that's not a particularly healthy way to manage one's wallet, yet so many people have massive debts.  Eventually this will all come due.  The first go-around appears to be the sub-prime mortgage fiasco earlier this fall.  I don't think any one person has the answer, but we need to take a close hard look at those controlling the Magical Wealth in this country.