Posted on 31st December 2012 by Administrator in Economy |Politics |Social Issues


This is a must read.

A thoroughly entertaining and comprehensive summation of where and why we have come to this point in history. Kunstler has an outstanding grasp on the interaction of debt, oil, and the unsustainability of our economic system. His predictions at the very end of the article are on the outrageous side. He always underestimates the ability of the powers that be to keep the game going longer than one would think. His predictions will eventually prove correct, but probably not in 2013.

Forecast 2013: Contraction, Contagion, and Contradiction

By James Howard Kunstler on December 31, 2012  8:25 AM

     The people who like to think they are managing the world’s affairs seem fiercely determined to ignore the world’s true condition — namely, the permanent contraction of industrial economies. They just can’t grok it. Two hundred years of cheap fossil fuel programmed mankind to expect limitless goodies forever on an upward-swinging arc of techno miracles. Now that the cheap fossil fuels have plateaued, with decline clearly in view, the hope remains that all the rackets of modernity can keep going on techno miracles alone.

Meanwhile, things and events are in revolt, especially the human race’s financial operating system, the world’s weather, and the angry populations of floundering nations. The Grand Vizier of this blog, that is, Yours Truly, makes no great claims for his crystal ball gazing (Dow at 4,000 – ha!), but he subscribes to the dictums of two wise men from the realm of major league baseball: Satchel Paige, who famously stated, “Don’t look back,” and Yogi Berra, who remarked of a promising rookie, “His whole future’s ahead of him!”

In that spirit, and as for looking back, suffice it to say that in 2012, the world’s managers — and by this I do not mean some occult cabal but the visible leaders in politics, banking, business, and news media — pulled out all the stops to suppress the appearance of contraction, and in so doing only supplied more perversion and distortion to the train of events that leads implacably to an agonizing workout, or readjustment of reality’s balance sheet. There’s a fair chance that these restraints will unravel in 2013, exposing civilization to a harsh new leasing agreement with its landlord, the Planet Earth.

On a personal note, I published a book in 2012 titled Too Much Magic: Wishful Thinking, Technology, and the Fate of the Nation. By an interesting coincidence, folks in the USA were engaged that year in manifold strenuous exercises in wishful thinking, ranging from fantasies of “energy independence,” to belief that central bank interventions could take the place of productive economic activity, to the idea that winks, suggestions, and guidelines were an adequate substitute for the rule of law, to the omnipresent mantra invoking “technology” as the sovereign remedy every problem of existence (including the problems caused by technology), to the dominions of utter stupidity where climate change deniers hold hands with the funders of “creation” museums. Since wishful thinkers, by definition, are allergic to arguments against wishfulness, my book failed to make an impression. Anyway, gales of propaganda were blowing across the land, especially from the oil and gas fraternity, with the added cognitive dissonance hoopla of a presidential election — so the public was left wishfully bamboozled as it whirled around the drain of its hopes and dreams.

The Oil and Money Predicament

If you understand the basic formula that ever-increasing cheap energy resources were the fundamental condition for industrial growth for two centuries, then you must realize that they are also behind the modern operations of capital, especially the mechanism that allows massive volumes of interest on debt to be repaid — hence behind all of contemporary banking. And if you get that, it is easy to see how the end of cheap energy has screwed the pooch for modern finance.

In fact, let’s step back for a panoramic view of what happened with that relationship in recent times: In 1970 you get American peak oil production at just under 10 mmbd (million barrels a day). This chart tells the story:

US Oil production 1920 to 2012

 US oil prod plain_edited-2.jpg

   That event was little noted at the time, but by 1973, the rest of the world was paying attention, especially the OPEC countries led by the big exporters in the Middle East. All they had to do was look at the published production figures and by 1973 the trend was apparent. They apprehended that US production had entered decline — predicted by American geologist M. King Hubbard — and that they, OPEC, could now put the screws to the USA. Which they commenced to do during a decade of rather messy oil crises (messy because they were accompanied by geopolitical events such as the Yom Kippur War and the 1979 revolution in Iran). OPEC could put the screws to the USA because our still-growing industrial economy required a still-growing oil supply — the growth of which now had to be furnished by imports from other nations. The catch was that those other nations raised the price substantially, virtually overnight, and since everything in the US economy used oil in one way or another, the entire cost structure of our manufacture, supply, distribution, and retail chains was thrown askew.

The net effect for the USA was that our economy went off the rails for a decade and lots of strange things started happening in the financial sector. They called it “stagflation” — stagnant economic activity + rising prices. It was hardly a conundrum. The OPEC price-jackings of 1973 and 1979 made everything Americans had to buy more costly, in effect devaluing the dollar while throwing sand in the gears of industrial production. Meanwhile, dazed and confused American industry started losing out to Japan and Europe in things like electronics and cars. Price inflation was running over 13 percent in the late ’70s. Interest rates skyrocketed. When Federal Reserve chair Paul Volker aggressively squashed inflation with a punitive prime rate of 20 percent in 1981, the economy promptly tanked.

Now look at this chart:

US Oil Consump.jpg

Notice that our oil consumption kept rising from the early 1980s until the middle of the early 2000s. Now look at the circle in the chart below. That rise of production from the late 1970s to about 1990 is mostly about production from the Prudhoe Bay oil fields in Alaska — one of the last great discoveries of the oil age (along with the North Sea and the fields of Siberia). US production did not regain the 1970 peak level, but it put a smile on the so-called Reagan Revolution and on Margaret Thatcher’s exertions to revive comatose Great Britain.

Post Peak Bump up from Alaskan Oil

US Oil Prod + Alaska_edited.jpg

Now look at the price of oil (chart below). You can see what a fiasco the period 1973 to 1981 was for US oil prices: huge rapid price rises in ’73 and ’79. But then the price started to fall steeply after 1981 and stayed around the same price levels as its pre-1973 lows.

1970s Oil Price Spike and Thereafter


Notice the price started to fall after 1981 and landed close to its pre-1973 levels by 1986 and hung out there (though more erratically) until the mid-2000s. Because of those aforementioned last great giant oil field discoveries, OPEC lost its price leverage over world oil markets. Through the 1980s and 90s the price of oil went down until it reached the modern low of about $11 a barrel. That was when The Economist magazine ran a cover story that declared the world was “drowning in oil.” It was the age of “Don’t worry, be happy.”

The price behavior of the oil markets after 1981 had interesting reverberations in both the macro economy and the financial sector (which is supposed to be part of the macro economy, not a replacement for it). A consensus formed in business and politics that it was okay to yield manufacturing to other nations. It was dirty and nasty and caused pollution, so let other countries have it. We followed the siren call of clean and tidy forms of production: “knowledge work!” The computer revolution had begun in earnest. The  financial sector began its metastasis from 5 percent of the economy to, eventually, 40 percent, and really cheap oil prompted the last great suburban sprawl-building pulsation into the Martha Stewart bedecked McMansion exurbs. In effect, financial shenanigans and sprawl-building became the basis for the vaunted “Next Economy.” It lasted about 20 years.

That incarnation of the US economy failed spectacularly as soon as oil prices started to creep up in the early 2000s. And, of course, the final suburban sprawl boom went hand-in-hand with all the shenanigans in banking. So when it all blew up, beginning in 2007 with the collapse of Bear Stearns, the USA was left with a gutted economy, insolvent banks, and a living arrangement with no future.

The Current Situation

We’re now entering the seventh year of a smoke-and-mirrors, extend-and-pretend, can-kicking phase of history in which everything possible is being done to conceal the true condition of the economy, with the vain hope of somehow holding things together until a miracle rescue remedy — some new kind of cheap or even free energy — comes on the scene to save all our complex arrangements from implosion. The chief device to delay the reckoning has been accounting fraud in banking and government, essentially misreporting everything on all balance sheets and in statistical reports to give the appearance of well-being where there is actually grave illness, like the cosmetics and prosthetics Michael Jackson used in his final years to pretend he still had a face on the front of his head.

The secondary tactic has been intervention in markets wherever possible and the intemperate manipulation of interest rates, all of which has the effect of defeating the principle purpose of markets: price discovery — the process by which the true value of things is established based on what people will freely pay. For instance the price of money-on-loan. The functionally less-than-zero percent interest rates on money loaned between giant institutions like central banks and their client “primary dealers” (the Too Big To Fails) essentially pays these outfits for borrowing, which is obviously a distortion in the natural order of things (because it violates the second law of thermodynamics: entropy) as well as an arrant racket. The campaign of intervention and manipulation also deeply impairs the other purpose of markets, capital formation, by the resultant mismanagement and misallocation of whatever real surplus wealth remains in this society. What’s more, it allows these TBTF banks to become ever-bigger monsters which hold everybody else hostage by threatening to crash the system if they are molested or interfered with.

Which brings us to the third tactic for pretending everything is all right: complete lack of enforcement and regulation by all the authorities charged with making sure that rules are followed in money matters. This includes the alphabet soup of agencies from the Securities and Exchange Commission to the Commodities Futures Trading Commission, to the Federal Housing Authority, and so on (the list of responsible parties is very long) not to mention the Big Kahunas: the US Department of Justice, and the federal and state courts. Aside from Bernie Madoff and a few Hedge Fund mavericks nipped for insider trading and arrant fraud, absolutely nobody in the TBTF banking community has been prosecuted or even charged for the monumental swindles of our time, while the regulators have behaved in ways that would be considered criminally negligent at best, and sheer racketeering at less-than-best, in any self-respecting polity. The crime runs so deep and thick through all the levels of money management and regulation that one can say the whole system has gone rogue, up to the President of the US himself, the chief enforcement officer of the land, who has not lifted a finger to discipline any of the parties involved. The  fact that Jon Corzine, late of MF Global, is still at large says it all.

Fourth-and-finally, the news media in league with the public relations industry have undertaken a campaign of happy talk to persuade the public that everything is okay and all the machinations cited above are kosher so that there is absolutely no political agitation over these crimes against their own interest, which is to say, the public interest. The PR/media happy talk racket is also aimed at maintaining various subsidiary  fictions about the economy, such as the fibs that the housing market is bouncing back, that “recovery” is ongoing, and that the channel-stuffing monkeyshines of the car industry amount to booming sales of new vehicles. Perhaps the most pernicious big lie is the bundle of fairy tales surrounding shale oil and shale gas, including the idea that America will shortly become “energy independent” or that we have “a hundred years of shale gas” as President Obama was mis-advised to tell the nation. It is pernicious because it gives us collectively an excuse to do nothing about changing our behavior or preparing for the new arrangements in daily life that the future will require of us.

The Shale Ponzi

Well, because that’s what it is: a Ponzi scheme, aimed at gathering in sucker-investors to boost share prices of oil and gas companies, with the hope that some miracle will occur to make financially broke societies capable of paying three or four times the price for oil and gas than their infrastructure for daily life was set up to run on, back when it seemed to be running okay. This is just not going to happen.

Let’s start with shale gas. The gas is there in the “tight” rock strata, all right, but it is difficult and expensive to get out. The process is nothing like the old conventional process of sticking a pipe in the ground and getting “flow.” It’s not necessary to go into the techno-details (you can read about that elsewhere) but to give you a rough idea, it takes four times as much steel pipe to get shale gas out of the ground. I have previously touched on the impairment of capital formation due to machinations in banking – themselves a perverse response to the loss of capacity to pay back interest at all levels of the money system, which was caused by the world’s running out of cheap oil and gas. (Note emphasis on cheap.) The net effect of all that turns out to be scarcity in another resource: capital, i.e. money, rather specifically money for investment in things like shale oil and gas.

Ironically, plenty of money was available around 2004-5 when the campaign to go after shale oil and gas got ramped up over premonitions of global peak oil. How come there was money then and not now? Because we were at peak cheap oil and hence peak credit back then, which is to say peak available real capital. So, the oil and gas companies were able then to attract lots of investment money to set out on this campaign. They brought as many drilling rigs as they could into the shale oil and gas play regions and they drilled the shit out of them. Natural gas was selling for over $13 a unit (thousand cubic feet) around 2005, and it was that high precisely because conventional cheap nat gas production was in substantial decline.

That was then, this is now. As a result of drilling the shit out of the gas plays, the producers created a huge glut for a brief time. They queered their own market long enough to wreck their business model. Unlike oil, nat gas is much more difficult to export — it requires expensive tankers, compression and refrigeration of the gas to a liquid, seaboard terminals to accomplish all that (which we don’t have), so there was no way to fob off the surplus gas on other nations. The domestic market was overwhelmed and there was no more room to store the stuff.  So, for a few years the price sank and sank until it was under $2 a unit by 2011. Since shale gas production is just flat-out uneconomical at that price, the companies engaged in it began to suffer hugely.

In the process of all this a pattern emerged showing that shale gas wells typically went into depletion very quickly after year one. So all of the activity from 2004 to 2011 was a production bubble, aimed at proving what a bonanza shale gas was to stimulate more investment. It required a massive rate of continuous drilling and re-drilling just to keep the production rate level — to maintain the illusion of a 100-year bonanza —  and that required enormous quantities of capital. So the shale gas play began to look like a hamster wheel of futility. After 2011 the rig count began to drop and of course production leveled off and the price began to go up again. As I write the price is $3.31 a unit, which is still way below the level where natural gas is profitable for companies to produce –say, above $8. The trouble is, once the price rises into that range it becomes too expensive for many of its customers, especially in a contracting economy with a shrinking middle class, falling incomes, and failing businesses. So what makes it economical for the producers (high price) will make it unaffordable for the customers (no money). Because of the complex nature of these operations, with all the infrastructure required, and all the money needed to provide it, the shale gas industry will not be able to go through more than a couple of boom / bust cycles before it begins to look like a fool’s game and the big companies throw in the towel. The catch is: there are no small companies that can carry on operations as complex and expensive as shale requires. Only big companies can make shale gas happen. So a lot of  gas will remain trapped in the “tight” rock very far into the future.

Obviously I haven’t even mentioned the “fracking” process, which is hugely controversial in regard to groundwater pollution, and a subject which I will not elaborate on here, except to say that there’s a lot to be concerned about. However, I believe that the shale gas campaign will prove to be a big disappointment to its promoters and will founder on its own defective economics rather than on the protests of environmentalists.

Much of what I wrote about shale gas is true for shale oil with some departures. One is that the price of oil did not go down when US shale oil production rose. That’s because the amount of shale oil produced — now about 900,000 barrels a day — is working against the headwinds of domestic depletion in regular oil + world consumption shifting to China and the rest of Asia + the declining ability of the world’s exporters to keep up their levels of export oil available to the importers (us). We still import 42 percent of the oil we use every day.

The fundamental set up of life in the USA — suburban sprawl with mandatory driving for everything — hasn’t changed during the peak cheap oil transition and represents too much “previous investment” for the public to walk away from. So we’re stuck with it until it manifestly fails. (Life is tragic and history doesn’t excuse our poor choices.) The price of oil has stayed around the $90 a barrel range much of 2012. Oil companies can make a profit in shale oil at that price. However, that’s the price at which the US economy wobbles and tanks, which is exactly what is happening. The US cannot run economically on $90 oil. If the price were to go down to a level the economy might be able to handle, say $40 a barrel, the producers of shale oil would go broke getting it out of the ground. This brings us back to the fact that the issue is cheap oil, not just available oil. As the US economy stumbles, and the banking system implodes on the incapacity of debt repayment, there will be less and less capital available for investment in shale oil. As with shale gas, the shale oil wells deplete very rapidly, too, and production requires constant re-drilling, meaning more rigs, more employees, more trucks hauling fracking fluid, and more capital investment. This is referred to as “the Red Queen syndrome,” from Lewis Carrol’s Through the Looking Glass tale in which the Red Queen tells Alice that she has to run as fast as she can to stay where she is.

The bottom line for shale oil is that we’re likely to see production fall in the years directly ahead, to the shock and dismay of the ‘energy independence’ for lunch bunch. 2012 may have been peak shale oil. If the price of oil does go down to a level that seems affordable, it will be because the US economy has been crushed and America is mired in a depression at least as bad as the 1930s, in which case a lot of people will be too broke to even pay for cheaper oil. Hence, the only possibility that America will become energy independent would be a total collapse of the modern technological-industrial economy. The shale oil and gas campaign therefore must be regarded as a desperate gambit by a society in deep trouble engaging in wishing and fantasy to preserve a set of behaviors that can no longer be justified by the circumstances reality presents.

Macro-economic Issues

Major fissures began to show in the Ponzified global financial system in 2012 and it is hard to imagine them not yawning open dangerously in 2013. All the Eurozone countries are in trouble. Its collective economy has been tanking faster than the US economy because the member nations can’t print their own money and it is harder to conceal the financial tensions between debt accumulation and government expenditures. These tensions end up expressed as “austerity” — meaning fewer and fewer people get paid, which makes people angry and makes governments unstable. Bailout procedures are transparently laughable under the European Central Bank and the other bank-like “facilities,” giving money to governments so that they can give it to insolvent banks, so the banks can buy government bonds, which only stuff the banks with more bad paper, and take the national debts higher. Several Euro member countries are contenders for default this coming year: Greece, Spain, possibly Italy, and perhaps even France, which is now a basket-case dressed in Hollandaise sauce.

A perfect storm in the global bond market has formed with Europe crippled, Canada and Australia entering their own (long-delayed and spectacular) housing bubble busts, the USA sharply losing credibility as it fails to politically address its balance sheet problems — or even continue to pretend that it might — and Japan utterly floundering under a new lack of commitment to nuclear power, the need to import virtually all the fossil fuels it needs for its industrial economy, a consequent negative balance of trade (for the first time in decades), and a deadly debt-to-GDP ratio around 240 percent. Many observers see the new Japanese government under Shinzo Abe as determined to inflate his own currency away to nothing in an effort to unload exports and erase debt, and nobody understands how that strategy turns out well. My own view, expressed here before, is that Japan is on a fast track to become the first advanced nation to opt out of industrialism and go medieval. It might sound like a joke, but its not. And it would be consistent with Japan’s historic cultural personality of making stark choices, even if it was not clearly articulated in the political theater. The journey to that destination could include a war with China, which also would be consistent with Japan’s suicidal inclinations, so clearly displayed in its last major war with the US.

The global bond market is held together with baling wire and hose clamps. Since money is loaned into existence (in the words of Chris Martenson) the global financial system is underwritten by its bonds, and the bonds are underwritten only by the faith that issuers can pay the interest due to bondholders. Risk rises in an exact ratio as that faith wanes. And interest rates must rise hand-in-hand with that rising risk — unless the ruling authorities (central banks and governments) conspire to repress them. These “unnatural” interventions will only cause the trouble to be expressed elsewhere in collapsing currencies and economies. It is already happening under the various ZIRP regimes, setting up a feedback loop in which it becomes even less likely that bond-holders will be paid and more faith erodes until nobody wants any bonds and the market for them seizes up and all that paper becomes worthless.

These days, the only sovereign nation in the Eurozone with real financial credibility (i.e. tangible surplus wealth) is Germany. The European Central Bank has only a printing press and the European Financial Stability Facility only pretends to have access to pretend money. At some point, the Germans will have to decide whether they truly want to pick up the tab for all the unpaid bills of the Eurozone. Either they pay for life support for their customers or they let them go under and either way, they end up in the black hole of a contracting export economy, which is to say depression. Now, imagine Germany having to bail out France. Wouldn’t that be a moment of plangent historical symmetry? I’m not the only one to propose that Germany may shock the world in 2013 by pulling out of the Euro on short notice and taking shelter behind the Deutschmark. It may limit the damage, but otherwise they are stuck where they are geographically and as the other nations in Europe ride their economies down, Germany’s will contract, too.

One idea behind the Eurozone was to get its members so economically interdependent that war would be an unthinkable option. The period following the Napoleonic Wars (1815 – 1914) was exceptionally peaceful in Europe, too. Then, the 20th century rolled onstage with the unspeakable horror of two consecutive “world wars.” They occurred amid a phenomenal uptrend of increasing industrial wealth and burgeoning technology. Note that the defeat of the French army at Waterloo in 1815 was accomplished by a coalition of British and German (Prussian) forces. (The teams change through history.) Note also that the end of the long peace of the 19th century, the First World War, was a trauma the real cause of which continues to mystify the historians — did England, France, Germany care that much about Serbia to destroy their economies? The Second World War was an extension of the unresolved business of the first, especially the question of who owed what to whom for all the damage. One thing we do know: the world was not prepared for the consequences of industrial-strength warfare with high tech weapons: the massacres of the trenches, aerial bombing of cities full of civilians, and the assembly-line style crematorium.

The atom bomb finally sobered folks up in 1945. The ensuing period has been another age of peace and plenty in Europe. The next act there will be played out against the backdrop of declining wealth and unraveling techno-industrial complexity. It may be a set of low-grade grinding struggles rather than an operatic debacle like the two world wars, and it will surely include internal civil strife in this-or-that country, which could turn outward and become contagious. The next time Europe finds itself a smoldering ruin, the capital will not be there to rebuild it. I’m not sure whether it matters all that much whether the single currency Euro survives or not. Everything economic is hitting the skids in Europe now led by plunging car sales. Record high youth unemployment is epidemic, including now in France. The debt problems there can only be solved by deleveraging and/or default. The chance of coordinated cooperative fiscal discipline among the Euro member nations is nil. I see Europe poised to follow Japan into a re-run of the medieval period, though much less willingly. The quandary is: how do you have a wonderful and peaceful modern culture without an economy to support it.

The United Kingdom stands outside the Euro currency club (though it is in the European Union of trade agreements) but London remains the financial hub of the continent, if not the money-laundering center of the universe. The financial mischief there is allowed to go on because washing and rinsing money is the only major industry left in Old Blighty. Its own finances are in terrible disarray, the people have been subject to painful “austerity” for some time before the PIIGS started squealing, and its energy resources are dwindling away to nothing. The governing coalition of David Cameron’s Tories and the Nick Clegg’s Liberal Democrats is cracking up under the austerity strain, with Nigel Farage’s Independence Party creeping up in the polls. With the LIBOR scandal entering the adjudication phase, monkey business in the London gold and silver bullion market, and half the world’s daily churn of interest rate derivatives, “the City” (London’s Wall Street) is one black swan away from provoking a world-scale financial accident that could daisy-chain through all the world’s big banks and create a “nuclear winter” of capital. It’s too bad the UK didn’t keep making chocolate bars and those wonderful tin soldiers I played with as a child. Instead, the nation became a casino with a lot of excellent Asian restaurants. It is nicely positioned to be the whipping boy for the rest of Europe as everybody’s fortunes turn down, but it has enough military hardware to strike back and cause a whole lot more trouble. Imagine England becoming the Bad Boy of Europe in the 21st century, having to be disciplined now by the Germans!

Russia is a few wealthy cities in an enormous flat alternative universe of ice and fir trees. Perhaps global warming will perk up the long-suffering Russian people. Meanwhile, 50 percent of Russia’s economy is tied to its oil and gas production. Their great Siberian fields are petering out just like the Alaskan and North Sea giants that were discovered around the same time.  They have been throwing huge numbers of drilling rigs into depleting fields to keep production up and pursuing some “tight” rock plays with help from the USA’s Halliburton and Schlumberger, with few environmental protests in the wilds of Siberia, and. I’m not persuaded that exploration for oil in the offshore Arctic region will have a great outcome. Where does the capital investment come from if every other advanced industrial economy is broke? Even if the sea ice melts it will be difficult and expensive to work in the Arctic seas, and the thawing permafrost of Siberia will leave an endless soggy patch of mosquito-infested mush between the offshore rigs and customers in Europe and elsewhere. Anyway, those customers will be increasingly impoverished and hard-pressed to pay for ever more pricey oil. The Russians may be hopeful that climate change will boost their crop yields and make their portion of the earth comparatively more habitable — but it’s more likely that thawing permafrost will prang the entire human experiment.

There are fewer cheerleaders for China and its economic fortunes than a year or so ago, as deep problems in banking and politics reveal themselves, along with the troubles plainly visible in their slumping export markets. If people in the USA and Europe don’t buy all the flat screen TVs and plastic stuff then China is going to choke on industrial overcapacity. (It already is.) They have accomplished some marvelous things recently, especially compared to the cretinous lethargy of the USA — for instance, building a great continental high speed railroad line and a huge solar energy industry — but they face the same fundamental quandary as all the other industrial nations: declining fossil fuel resources with no comparable replacement on the horizon. Their positioning for the coming great contraction vis-à-vis the aforementioned advantages in solar and rail transport must be offset by an opaque, corrupt, and despotic political regime, a huge and potentially restive population of laid-off urban factory workers, and a chaotic banking system. They have laid in a lot of “reserves” in the way of US treasury paper and stockpiled much valuable construction material (steel, copper, cement, etc), but what does that really mean? If they dumped the treasuries, or even systematically divested, they could trash the bond market and the dollar. And what might they do with all the construction material in an economy with sinking demand for new buildings?  Will they need more super-highways as the price of gasoline makes car ownership less affordable?

China appears to be accumulating big supplies of gold bullion — they have also become the world’s number one producer of mined gold, eclipsing played-out South Africa. That could give them a lot more room to maneuver in a world of vanishing resources and collapsing economies, at least in terms of being able to swap for food and fuel. They may be attempting to establish a gold-backed currency to replace the dollar for international trade settlements. Doings at the ASEAN Summit in November suggests they are engineering just such a new reserve currency for the world to run shrieking to when America’s foolishness and cowboy swagger becomes too much to take — though US dollar dominance was based as much on America’s (now bygone) rule of law in money matters as America’s sheer economic power, and China remains Dodge City where the rule of law is concerned. The world might not be so eager to be pushed around by the Yuan. But it may be accomplished by financial coup d’état whether the world likes it or not. My forecast for China in 2013 is a widening crack in the political façade of the formerly omnipotent ruling party, organized agitation by unemployed factory workers (with government blowback), bullying of their senile neighbor (and historical enemy) Japan, and sullen, peevish behavior toward their ailing trade partners, Europe and especially the USA.  Worldwide economic entropy cancels out China’s putative advantages in cash reserves, stockpiles of “stuff,” and government that can do what it pleases without a loyal opposition tossing sand in its gears.

Contrary to the wishful thinking of Tom Friedman, globalism is winding down. The great contraction leads back to a regional and local reorganization of activity in all nations. The world becomes a bigger place again with more space between the players and a larger array of players as big nations break up into autonomous states. This is really a new phase of history, though it is only just beginning in 2013.

Outlying Territories

Literally anything can happen in the Middle East, up to the initiation of an event that resembles a world war. As a general proposition, there are just too many people inhabiting this region of the world and the political tensions among them reached critical mass in 2013. The meltdown will continue with enough critical frailty to prang the region’s oil exporting capacity, it’s main source of wealth and power. It just wouldn’t take much. King Abdullah of Saudi Arabia is pushing 90. His subjects are getting more numerous, collectively poorer, and more anxious about their future. The country is surrounded by failing regimes. I forecast overthrow of the Saud family’s long grip on power this year, with a struggle among other entitled families there and finally an Islamic revolution adding spice to the political upheaval.

I doubt that Israel will try to attack Iran’s nuclear factories without overt consent from the US government, which will be withheld from Israel, on account of the difficulties ongoing in the US economy.

Overall I expect gross deterioration of civil order, living standards, and oil export markets in the Middle East. The US will be foolish to intervene.

South America gets a little poorer, Argentina defaults again, but this continent remains a sleeping backwater in the world — perhaps proof that the hedge funders fleeing to sanctuaries in backwaters like Uruguay may have made a great call.

Mexico is the exception. Whatever economic and political sickness the US suffers will infect our neighbor to the south. Too many people there competing for not enough stuff. There will be blood (as the old movie title goes).

Turning 9,000 miles to the east, can Pakistan become a worse basket-case of a nation. I suppose they could, if taken over by their homegrown Islamic maniacs. India next door will be rocked by the great global economic contraction. The two countries, well armed with atomic bombs are a bad combo. Unfortunately, a distracted world cannot pay much attention.

Woe to Markets

Between government and central bank interventions, accounting fraud, control fraud, the computer hugger-mugger of algorithmic trading, and AWOL rule of law, the financial markets have practically destroyed themselves. They can’t be depended on to express the real value of things and capital formation struggles against the headwinds of peak cheap energy on top of massive fraud and swindling. The markets can only blow up. When the wreckage clears and new, smaller markets form, as they will, they must operate differently, with new rules and restraints, because the blow up of today’s markets will be such a trauma that nobody will venture to engage with them if they don’t. A world without simplified and honest capital, commodity, and equity markets would beat a quick path back to a dark age, and in the process a lot of people will die of cold and starvation.

The full workout of all that may be some years further out, but the blowout will commence in 2013. The glue that held these markets together was faith that they meant something — and that faith has been pissed away by fools in high places who drained all the honesty out of them. It was a classic case out of the Joseph Tainter playbook: diminishing returns of ever-increasing complexity addressed with ever-more layers of complexity, larded with systematic lying based on mystifying, opaque jargon, sanctioned statistical misreporting, felonious cronyism, and scuttling of the rule of law. In short, the markets have been taken over in effect by a criminal racketeering syndicate. In doing this, so much resilience has been removed from these market structures that they are riddled with rot, like a mansion infested with carpenter ants. In other words, borrowing a term from Taleb, they are hopelessly fragile. Any little vibration could reduce the whole creaking arrangement into a heap of rubble and ashes. There’s plenty of vibration available out there. Events are humming.

The debt mountains in the USA and elsewhere far overshadow the equity and commodity market molehills, and unpaid debt will eventually overcome all the forces of untruth. Debt is a subsidiary of the force known as reality. Its will cannot be denied, even by Goldman Sachs, JP Morgan, the US Treasury, and the Federal Open Markets Committee. And the unwinding of unpaid debt, honestly acknowledged or not, will thunder through the system sucking wealth out of advanced societies so efficiently that it will make the Seven Plagues of the Bible look like a flat tire on a sunny day.

So, finally my picks for 2013:

— Dow 4000 (What!? Did he say that!? Again!?). Even the algos will run squealing into the underbrush this time.

— Gold $2500 by 12/31/2013 (and headed higher) after a Q-1 deleveraging swoon. Silver $125. Uncertainty trumps greed and fear.

— Two-way Stagflation — massive asset deflation combined with high energy and food costs. Americans go broke fast, go hungry, go nowhere.

— California, Illinois, and New Jersey ask broke the federal government for bailouts. The federal government pretends to bail them out. Austerity has a field day.

— Despite willingness to do so, the Federal Reserve can no longer “print” money to overcome the deflationary contraction of wealth. They are finally “out of ammunition.” They will try nonetheless. Consequently some nations will stop accepting dollars for trade, possibly the Middle Eastern oil exporters. That would be very bad news.

— Shale oil and gas production stop increasing, possibly turns around to decline. The event hugely demoralizes “energy independence” cornucopians.

— Gasoline shortages return to the USA on a scale last seen in the 1970s. Cause: broken oil market allocation system. Some regions suffer more than others.

— Drought continues in the US heartland. The grain belt withers in 2013. Dixieland cooks like a chicken-fried steak. Food costs go crazy. The American public finally begins to freak out when confronted with $9 boxes of Cheerios.

— A major earthquake hits the West Coast.

Have a nice year everybody.

Apologies for any typos.

The Kunstlercast podcast resumes in January!

  1. Administrator says:

    I sent a link of the article over to Zero Hedge. I hope they print it.


    31st December 2012 at 10:36 am

  2. sangell says:

    Rising energy costs could have an impact but they haven’t yet.

    50 years ago I could get two McDonalds hamburgers,a french fry and coke for 50 cents. Today it would cost about $4.00. A gallon of gas cost 30 cents. Today it costs around $3.50. So some might say ‘aha McDonalds prices went up by a factor of 8 while oil has gone up by a factor of over 11, oil is outrunning the price of everything else and we are doomed! But we aren’t taking mpg into consideration. That 1962 Ford Falcon was lucky to get 15 mpg and equivalent new Ford compact car is going to get better than 25 mpg. Gas, along with maintenance, has made driving cheaper today than eating at McDonalds was in the era of the 15 cent hamburger.


    31st December 2012 at 11:03 am

  3. Administrator says:


    The majority of vehicles sold in the U.S. are pickups, SUVs and minivans. Many get less than 20 mpg.

    You forgot wages in your calculation. The average hourly wage in 1963 was $2.30. Today it is $19.19. That is only an increase of 8.3. This before subtracting the various taxes, fees, health insurances, etc from those wages. Most of these taxes and insurance premiums didn’t exist in 1962.

    An average new home price in 1962 was $12,500. Today it is $270,000, 21 times as much.

    Exponential growth won’t continue because it is mathematically impossible.


    31st December 2012 at 11:40 am

  4. sangell says:

    They didn’t make SUV’s then but the average family sedan wasn’t far from it and I compared apple to apple a Ford Falcon to a Ford Fusion or whatever they call the small basic Ford sedan today.

    1962 Chevrolet Impala


    1962 Chrysler Newport Station wagon, the SUV of its era.


    Ford Falcon



    31st December 2012 at 12:32 pm

  5. Stucky says:

    It’ll be a cold day in hell before I read a 6,684 word Kunstler post.


    You may now proceed to hit the Thumbs Down button.


    31st December 2012 at 12:36 pm

  6. Anonymous says:

    Reading of austerity;

    . “‘In terms of the loss of incomes and outputs, this is as bad as a world war.’ he said. The rise in government debt has prompted calls for austerity – on the part of those who did not receive the giveaway. ‘It would be astonishing if people weren’t asking big questions about where finance has gone wrong.’” -Andrew Haldane, Bank of England


    31st December 2012 at 1:04 pm

  7. Stucky says:


    Those are BEAUTIFUL cars …. especially the early ’60’s Impala’s. Gorgeous.


    31st December 2012 at 1:10 pm

  8. CT-Hilltopper says:

    My dad had that Impala in the picture above and drove it until many many many many many…years later, when he drove it to the local mom and pop grocery store and the engine fell out of it. Literally.

    I am sorry to say that I never, as a teenager, liked being driven around in that car, and would go to any lengths to get out of being seen in it.

    Today, my father has been gone for ten years, and I would let him drive me anywhere in that car if I could just get him and my mother back.

    It’s amazing how the years tend to put things in perspective.


    31st December 2012 at 1:12 pm

  9. OF says:

    “I’m not the only one to propose that Germany may shock the world in 2013 by pulling out of the Euro on short notice and taking shelter behind the Deutschmark.”

    The fact that Hollande is a socialist AND a weak brain makes it easier for Merkel to actually do something like that. Only, she keeps preaching if the Euro fails, Europe will fail. But then again, maybe this constant preaching may be a contra indicator, after all.
    Fact is, she has early isolated German banks from contagion via Soffin, making a stunt like leaving the Euro nearly overnight technically possible.


    31st December 2012 at 1:13 pm

  10. OF says:

    Great article. I might translate it for my folks….


    31st December 2012 at 1:15 pm

  11. Anonymous says:

    It’ll be a cold day in hell before I read a 6,684 word Kunstler post. -Stucky

    As my madre said, “If you dont have anything nice to say – then don’t say anything at all.”

    And she was right.

    An actual photo of StuckenMoob



    31st December 2012 at 1:15 pm

  12. Stucky says:

    Seems only fair to post JK’s 2012 predictions.

    ==================================== =

    Jim Kunstler’s
    Forecast 2012
    Gird Your Loins for Lower Living Standards

    There’s a lot to be nervous about, even if you don’t subscribe to the undercooked Mayan apocalypse lore moving through the gut of the Internet like a Staphylococcus-infected tamale. The casual observer might say that nothing seemed to give on the world scene in 2011 despite the Fukushima meltdown, the Arab Spring uproars, the train wreck of European finance, the disappearing act at MF Global, and the assorted injuries done to the Kardashian brand by the giant walking dildo Kris Humphries.

    I demur. On close examination, the industrial world underwent complete zombification in 2011. Its member states and their institutions are now lurching across the stage of history like so many walking dead. Whole European nations are dead, their citizens squirming around the ruined bones of failed speculative condo projects, housing estates, and luxury hotels like botfly larvae. The USA lies in complete moral ruin despite the exertions of ten thousand evangelical preachers in dusty back-road tilt-up chapels from Texas to Carolina, several new museums of Creation Science, and the shining example of former Senator Rick Santorum. Just look at how we behave, from the cloakrooms of Congress to the piercing parlors of West Hollywood to the 7-Elevens of suburban Maryland: a nation of thieves, racketeers, reality TV sluts, wannabe road warriors, light-fingered gangsta-boyz, and crybabies living in an anomie-drenched decrepitating demolition derby landscape of failure. When everybody is a zombie, whose brains are left to eat? Echo answers…. On to the predictions for 2012 then.

    The biggest political shock awaiting us is the massive disruption of the major party nominating conventions next summer, when thousands of angry citizens descend on Tampa and Charlotte demanding a reality test. The parties will attempt to go about their ritual business, ignoring the mischief outside the convention centers, and both parties will make the mistake of siccing the cops on the protestors. The result will be a much bigger mess than the one I personally witnessed on the streets of Chicago, 1968, when the party hacks anointed the grinning sell-out Hubert Humphrey to run against Ole Debbil Nixie. Just before getting tear-gassed on Michigan Avenue that night, I saw some kid hoisting a sign that depicted the nominee with a Hitler mustache over the epithet: Mein Humph! It made my night, despite the subsequent retching in the gutter.

    The two major parties are completely bankrupt zombie organizations and this election may be their last stand – if they even survive the conventions. Neither of them can come to grips with the reality-based issues of the day: epochal financial and economic contraction, peak energy (and many other resources), climate change, the absence of the rule of law in banking, and generational grievance – or, perhaps more to the point, the manifestations of these giant trends as presented in unemployment, debt slavery, foreclosure, bankruptcy, homelessness, hunger, and X-million family tragedies. Both parties can only promise the return to a bygone status quo that is largely mythical.

    President Obama, the putative “progressive” – spokesman of the Ivy League, Silicon Valley, Lower Manhattan, and all the other precincts where “folks” imagine themselves to be advanced thinkers – can’t even wrap his mind around the simple fact that we will never be “energy independent” if we think that means running 260 million cars and trucks, no matter how many algae farms we pretend to invest in. Here is man who ought to know better and either doesn’t, or is lying about it. He has other failures to answer for, too. Why, following the Citizens United decision in the Supreme Court, did Mr. Obama not prompt his party to sponsor federal legislation (or a constitutional amendment) that would redefine a corporation as not identical in “personhood” to a human being? Why does he still employ an Attorney General who has not started one prosecution for financial misconduct amid a panorama of arrant swindling and fraud? (Ditto: heads of the SEC, CFTC, etc.) And why did he not object loudly to the provision in the latest defense appropriations bill that allows for the capricious arrests and indefinite detention of anyone in the USA on suspicion of “terrorism?” Does this graduate of Harvard Law remember what habeas corpus means?

    A lot of voters projected on Mr. Obama some notion of supernatural brilliance – our Hollywood fantasies are rife with wishes to be saved, and therefore redeemed, by our former victims – but he turned out to have a pedestrian mind. Could he possibly believe we have “a hundred years of natural gas” in the ground? Or that we’re in a position to ramp up another cycle of industrial economic “growth?” Or that we can continue the web of cruel rackets that passes for medical care in this country? When the Democratic Party re-nominates Obama, it will be sealing its death warrant, and it will be on its way to the same cosmic vacuum where the memory of the Whigs lingers on.

    Meanwhile, the Republicans labor to convert themselves into the party of corn-pone Nazism with all their unconcealed lust to push everybody around under the plastic eagle rubrics of “Freedom” and “Liberty.” Look at the dismal lineup of morons, hypocrites, and religious fanatics arrayed for the Iowa caucus: a doctor who is also a creationist!? A leveraged buyout artist! A grifter fresh from K Street! A lady Christian theocrat wholly owned by the “dominionist” New Apostolic Reformation cult! A George W. Bush imitator showing symptoms of early onset senility! The whole posse is preoccupied with things supernatural. And being so dedicated to things unreal, they’re the prime representatives of the suburban clusterfuck, who will do anything to keep that obsolete machine running, even if it means national suicide, because they lack the brains to understand where history is taking us and what the mandates of reality are shouting at us about the urgent need to reorganize American life. They are also the vassals of corporate despotism – where the Democrats are mere footservants. They masquerade as “job creators,” but they promote the off-shoring of every activity that corporate America can shed in its quest for ever-greater executive compensation. The lip-service they pay to “freedom” is belied by their intent to control everybody’s personal life, commoditize the public interest, and sell out their grandchildren’s future for a few extra rounds of golf.

    I think this gang, too, will be sent packing by the mobs of 2012. I have a nagging intimation that some third party candidate will emerge. The two personalities I keep seeing in that role are Howard Dean and Michael Bloomberg. Both of them are imperfect, but both of them are clear-headed and action-oriented, and I have a feeling that both of them are stewing in the background over the spectacle of idiocy, inertia, and dithering they see at every political compass point. Maybe somebody else will crawl out of the woodwork. I’ve said before in the weekly blog that conditions could deteriorate so badly that a Pentagon general might have to step into national leadership just to keep the grocery stores supplied with basic rations – but that is an outcome in my personal asteroid belt of probabilities.

    Whatever party ends up running things, and whomever fronts it, is going to be in for a helluva wild ride. The USA is diving into an economic depression that will make the 1930s look like a Busby Berkeley production number. Compressive contraction will have its way with us, whatever Ben Bernanke thinks. There will simply be less activity of the kinds we’re used to – Big Box shopping sprees, hamburger sales, theme park visits, house closings, you name it – than our hypertrophic system requires to keep its own destructive momentum going. Instead, the whole thing will just topple over, inert, like a 99-cent gyroscope giving into the forces of entropy. There will be a lot of bewildered, angry, dispossessed people from sea to shining sea. Not a few of them will “act out,” that is, start breaking things, stealing things, targeting easy prey, hurting bystanders, and even tangling with police. Personally, I don’t believe in the internment camp meme so popular among the doomer paranoiacs, but surely a lot of people will be cooling their heels in some slammer – while many other miscreants will just get away with crimes against persons and property.

    The global banking system was on death-watch all through 2011. Somehow the various doctors in the central banks and finance ministries were able to muster enough accounting legerdemain to give the appearance of a system still showing a pulse. But in a compressive debt deflation, there are only so many accounting tricks you can pull off as money (and wealth) literally disappears down a cosmic worm-hole. In Europe, the process has moved from the margins toward the center. The people of Greece, Portugal, Ireland, Spain, Italy, Belgium will have less income, fewer government services, lost wages and pensions, less comfort than they have had for a couple of generations. Meanwhile, France is drowning in bad paper and the German banks are choking on it. There is really only one plausible outcome and that is default. The reckoning of the bondholders is at hand. Everybody will get poorer simultaneously – and if not, there will be not just regime change but civil war and revolution. The fantasy of a fiscal union in Europe is impossible because it means two things: that Germany will have to issue orders to everybody else; and that Germany would have to pick up the tab for everybody else while telling them what to do. Both are intolerable and implausible. Let’s just think of the Euro experiment as an interesting side effect of the peak energy era… now drawing to a close.

    These professional economists with their jabber about QEs and “financial repression” and bond-term “twists” and debt-to-GDP ratios are missing the point. The advanced industrial nations will not be re-jiggered onto any “growth” runway. Rather, we’re entering the rutted wagon-road of de-industrializing and un-advancing. What awaits us in a “time-out” from hyperbolic technological progress. Forget about Ray Kurzweil’s nanobot nirvana. That is not in the cards. Instead, wrap your mind around life in an economy organized around farming, with a much sparser distribution of big urban centers, and far fewer people overall. Don’t imagine for a moment that your grandchildren will be zinging across the landscape in electric cars sampling one theme park after another while “networking” with “friends” on cyborg social networks implanted in their brain jellies. Think of them grooming their mules in the summer twilight. Anyway, you get the picture: everything that the finance ministries and treasuries and central banks are affecting to do is mere shadow theater performed in support of wishful thinking.

    The question, then, is what kind of hardship and disorder will attend our journey out of the industrial era into post-technological age we are entering. Will we just turn the world into a Michael Bay movie and blow everything up? Or will we make some graceful descent and retain what is really best about the human spirit?

    2012 will be the year of internal strife in these “advanced” nations, of people fighting over the table scraps of modernity among their own, in their own backyards, a desperate sorting out of the remnants. I don’t think we’ll see fighting between the European nations until the internal conflicts are resolved and that will take a few years.

    The hot-spots for 2012 are very likely to be in the Middle East. You already know that. What could be more obvious than the tinderbox character of that region? Islamic extremism is poised to take over governments (and armies) in Egypt, Syria, Libya, possibly Algeria, and probably Pakistan. Iran lost its mind decades ago and seems determined to dominate the region by means of a strategy that can only get it into trouble (and perhaps the whole world if it goes really badly). Saber-rattling is one thing; making an actual move something else. Block the Straits of Hormuz? Not if you don’t want Teheran to turn into an ashtray. That may happen anyway if Iran rattles a nuclear saber. Germany, France, Britain, and Italy, all struggling with terrible problems at home, would breathe a sigh of relief if the mullahs were chastened. The chatter around the Web about an Israeli preemptive attack never ceases. But it is a possibility.

    Oh, and don’t forget Turkey. Formerly the “sick man” of Europe, Turkey has become strangely resurgent, prompting some recollections that the Ottoman Empire actually administered over much of the Middle East until 1914, and not with complete incompetence, either. They just sort of imploded from empire fatigue, which is not the worst way to go down, if history is taking you there anyway. But empires come back, too, and what passes for Turkey today is a polity that in one incarnation or another has been around since the ancient Greek days, and was, for quite a long while, Rome Release 2.0.

    Don’t be surprised if some hostilities break out between Turkey and Iran, since a battleground named Iraq lies between them. Iraq is a basket-case despite an immense reserve of oil under its sands, and having had the US military babysit it for eight years. The last American combat units left Iraq this fall, but there are still plenty of US soldiers there, maintaining our garrisons and keeping an eye on things. The question is: can they control what the Kurds do in the north, and whatever meddling Iran engages in around the Basra oil region in the South? These American support troops remaining in Iraq could find themselves looking like a ham-and-cheese sandwich between a lot of crusty mischief north-and-south. The Turks have already had a dustup or two with Syria lately – Syria occupies a big wedge between Turkey, Iraq and the Mediterranean Sea – and Turkey will take a dim view of that nation falling into the hands of Islamic extremists if Assad gets booted.

    All bets are off in Egypt. Anything can happen there.

    The dangerous position of Israel vis-à-vis all these quarreling players is probably as bad as it has been in two generations. An attack by a neighbor or getting caught in a crossfire between neighbors would stimulate a lusty response, and perhaps World War Three. As if the world needed this added aggravation. It makes my kishkas ache just to think about it. Sometimes I wonder why the whole Israeli nation doesn’t just pack up and move to Nebraska.

    2012 is the year that China proves to be a mortal nation and rolls over with a very bad case of the vapors. Their banking system is a sham. Their property bubble is a fiasco. Their government has no formal legitimacy and will install a new leadership group this year, while exports crash and mass factory layoffs happen. There will be a lot of pissed off people in China, and they may express themselves politically in ways that have seemed unthinkable for decades. The aura of social control looms large in China, but an aura is a light garment not recommended for stormy political weather. 2012 could be the year that China begins its journey into a “Balkanized” collection of smaller autonomous parts, which is the big fat trendline for all the nations of the world, including the USA.

    It is hard to think about the bizarre case of India, a nation with one foot in the modern age and the other in a colorful hallucinatory dreamtime. Their climate-change related problems are doing heavy damage to the food supply. Their groundwater is almost gone. The troubles of the wobbling global economy will take a lot pep out of their burgeoning tech and manufacturing sectors. It wouldn’t be surprising if these travails prompted distracting hostilities with its failed-state neighbor, Pakistan. Pakistan, with its inexhaustible supply of Islamic maniacs could easily start a rumble with some crazy caper like the Mumbai hotel assault of two years ago, but this time India would answer with a heavy cudgel, perhaps even a nuclear sortie designed to neutralize Pakistan’s dangerous toys at a stroke. And that would be that. Like cleaning out an annoying neighborhood crack house. It’s not a very appetizing scenario, but what else can you do about failed states with nuclear bombs?

    Turning to Japan….That sore beset kingdom is suffering all the blowback of modern times at once: the Godzilla syndrome up in Fukushima; a demographic collapse; an imminent bond crisis; the collapse of export market partners; and a long, agonizing death spiral of its banks. I stick by a prediction I tendered back in March, after the deadly tsunami: Japan will decisively opt for a return to pre-industrial civilization. Why not? The rest of the world will be dragged kicking and screaming to the same place. Let Japan get there first and enjoy the advantage of the early adapter – back to an economy of local, hand-made stuff, rigid social hierarchy, folkloric hijinks in whispering bamboo groves, silk robes, and frequent time outs for the tea ceremony.

    Russia? The big bear might have just sat out another decade and enjoyed its remaining fossil fuel supply, but the temptation to project power is a demanding habit, so they make all sorts of noises about watching Iran’s back – though mutual hatred abounds – and generally rushing into the power vacuum occupied by a US with dwindling mojo. There were stirrings of political discontent just few weeks ago, after the rigged early rounds of national elections, and who knows where that will lead. Vlad Putin has held things together there impressively after the meltdown of the 1990s, but apparently the tranquil veneer is thin. Except for two big cities, the sprawling nation is broke and decrepitating, with little to offer the world but oil and gas – not an inconsiderable offering, but one with certain limits especially as they drain their oil fields for export cash. The rule of law is also pretty sketchy there. The government, as ever, is a kind of gangster affair, only this time one that allows some people to get really rich, not just connected. Their 70-year experiment with Marxian dogma has probably put them off ideology for a few centuries to come, which means less money spent on prisons for people with independent thoughts and more for call girls and home furnishings. I imagine that Putin will maintain his grip through the year. The Russians will appreciate relative order more when they see a few other countries devolve into internal conflict.

    I don’t see much action around South America this year. Some Americans are already fleeing to Argentina. Perhaps they’ll enjoy it, but there is always the menace of property confiscation, and worse. Brazil will continue to appear vibrant while it grows more population, shoving it toward eventual ruin. They will see setbacks in the development of their deep-sea oil due to an international shortage of investment capital.

    Mexico’s fortunes depend on its oil industry, Pemex, which faces remorseless depletion. Revenue from oil production and (dwindling) exports can’t hope to keep up with continuing population growth (and ever more poverty). These trends suggest a continued loss of control for the central government and more territorial fighting among the drug gangs and other criminal mafias. As long as all those loose heads roll on the south side of the Rio Grande the US will just tut-tut off to the side. But if the gangs get bold and start venturing cross border to make mischief we will make like Woodrow Wilson did and send the regular army down to spank them. It would be a satisfying diversion for that portion of the US demographic that enjoys Ultimate Fighting on TV, though it won’t get them their job back at the Pontiac plant.

    The global oil picture is not so reassuring. The fragility of our supply is simply unnoticed by commuters enjoying Lady Gaga on their iPods. Meanwhile, our politicians retail fantasies of endless domestic reserves, which is total horse shit. Global exports are in remorseless decline, apart from geopolitical fissures and strains that could just paralyze allocation cold. If a hot war breaks out in the Middle East, you’ll see the American supermarket shelves empty in three days. Won’t that be fun. Note, too: the manias over shale oil and shale gas will reveal themselves as just more bubbles in a long cavalcade of bubbles, and both will begin to founder on a shortage of investment capital. The shale plays will prove to have been a national self-esteem-building program, not any part of an energy policy.

    The abiding question as we turn the corner into the New Year is: how come Jon Corzine is still at large? (Not to mention Angelo Mozilo, plus the entire executive floor of Goldman Sachs, and about 5000 other assorted Wall Street grifters still on the loose.) There is plenty of dire talk that the collapse of MF Global, and the shenanigans around its demise involving the evaporation of segregated accounts, has gravely and permanently damaged the entire investment industry, but especially the commodities funds, who can no longer depend on the Chicago Mercantile Exchange to honestly clear trades and regulate behavior. The whole affair, and the thundering silence from the oval office, makes Barack Obama seem not just inept but somehow complicit in the looting of America. As if he needs another mark of discredit in his record of consistent fumbling. There are signs that a lot of people who still have something resembling money invested in various funds will go to cash in the weeks ahead, including under-the-mattress style. The distrust and paranoia is palpable now, with the frenzies of Yuletide bygone for another year. After all, why trust banks, especially the TBTF monsters. Such a mass move could take the starch even out of highly manipulated equity markets.

    Nemesis may have her day, though. Jamie Dimon might have just gone a swindle too far for the fates to ignore him another year. JP Morgan looks to be in a peck of trouble for its role in the confiscation of MF Global accounts, not to mention its hijinks in the precious metals markets. The impudence of these rascals! In a nation when all sorts of people are murdered every day for little more reason than being in the wrong place at the wrong time, is it not a wonder that some poor swindled Grampa with nothing left to live for has not tossed a Molotov cocktail through the window of a Wall Street watering hole known to be frequented by banking poobahs? Perhaps this sort of action awaits us in 2012.

    Longtime readers of this blog know how much I love predicting the Dow Jones Industrial Average to crash down to 4000 every year. I never disappoint – though I am often disappointed. In 2011, the SP index managed the delightful trick of finishing a fraction below its previous January kickoff. The stock markets have churned in range-bound purgatory for a decade while the price of a jar of pickles has multiplied four-fold. Applying the calculus, and given the pickle-DOW differential, I’d say my call was actually pretty good. In any case, this year I change the tune slightly: I predict the DJIA will go to 4000, with the catch that the number is only a way-station to 1000, which it will hit in 2014. We may be short of snow here in the Northeastern US – thanks to La Nina – yet not short of confidence that the mills of the Gods grind slowly, but grind exceedingly fine.

    Finally, look for the publication of my next book round July 2012, a non-fiction work titled Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation… from The Atlantic Monthly Press. In a week, I begin work on World Made By Hand 3.

    Good luck to you in 2012, and report any suspicious characters adorned with ear-plugs, quetzel feathers, and carrying obsidian knives to your nearest office of Homeland Security.


    31st December 2012 at 1:27 pm

  13. Stucky says:

    Anonymous —- aka, Colma

    I’ve been compared to a lot worse than Andre the Giant …. however, the resemblance is uncanny.


    31st December 2012 at 1:31 pm

  14. Olga says:

    Which brings us to the third tactic for pretending everything is all right: complete lack of enforcement and regulation by all the authorities charged with making sure that rules are followed in money matters.

    I thought the recent renaming of the “Fiscal Cliff” to the “Descent into Lawlessness” a brilliant description of where we are headed.

    The totally immunity from any legal consequences to the banksters’ massive crimes is mind-boggling. You know when the law is openly ignored to benefit the insiders the end can’t be too far off.


    31st December 2012 at 2:51 pm

  15. Olga says:


    I was only able to get it airborn the one time …


    31st December 2012 at 3:03 pm

  16. SSS says:

    Colma (Anon)

    I bet Stucky looks more like this famous big guy.



    31st December 2012 at 3:06 pm

  17. SSS says:

    Or maybe Stucky likes to dress up like this famous big guy (he was over 7′ tall) on Halloween.



    31st December 2012 at 3:18 pm

  18. Ron says:

    I glanced it over.Kuntster is a dweeb.Talks a lot and says little.


    31st December 2012 at 3:42 pm

  19. Stucky says:


    We starting a new holiday tradition here? New Year’s Eve Stucky Bashing?

    WTF????? Go suck my StuchenBallz.


    31st December 2012 at 3:52 pm

  20. AWD says:


    Hey, I’m Richard (Stucky). I’m suffering from man boobs too. I started to find solutions. I browse around the internet, asking fitness consultants, asking my friends (who suffer the same), and more.. I compile all my search results in this $27 FREE Report.
    What you will discover?

    The best solutions to get rid (reduce) of man boobs. Exercises and so forth…
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    Dressing tips for man boobs sufferers. (How to disguise your man boobs…)
    Man boobs diet? (What foods that make your boobs getting worse?!)


    31st December 2012 at 4:07 pm

  21. Stucky says:


    Let, MBI = Man Boob Inches
    Let, SZ – Shoe Size
    Let, SCSI = Stucky’s Cock Size Inches

    SCSI = (MBI / 2) -SZ


    SCSI = (46 / 2) – 13

    SCSI = 10 inches

    And … I wish you would Blow It.


    31st December 2012 at 4:17 pm

  22. Anonymous says:

    Bugger the bankers and politicians, bugger the bureaucrats, too.
    And if you’re one of them then bugger you.


    In the New Year, may your right hand always be stretched out in friendship but never in want.


    31st December 2012 at 4:34 pm

  23. flash says:

    anon , twas’ I.


    31st December 2012 at 4:35 pm

  24. sangell says:

    All the cars pictured above were family cars and not considered gas guzzlers in their day ( though today they sure would be. But there were gas guzzlers in 1962.

    The 1962 Super Stock Dodge with 413 cu. in engine.


    The 390 cu. inch Ford Galaxie leaving the parking lot



    31st December 2012 at 4:53 pm

  25. Colma Rising says:

    Wasn’t me….

    I spell “Stuchenmoobs” without a “K”.


    31st December 2012 at 5:26 pm

  26. Anonymous says:

    What AWD hopes to hook up with on New Year above

    And what he will bump uglies with on New Year below


    31st December 2012 at 5:40 pm

  27. SSS says:

    Look! Up in the sky. It’s a bird. It’s a plane. No, it’s Super Stucky. HNY, everyone.



    31st December 2012 at 5:53 pm

  28. Llpoh says:

    Nice looking cars one and all. But death trap pieces of shit. My partner collects and restores them. But he is the first to say they are piles of crap compared to modern cars. Brakes failed, tires went flat all the time,generators and batteries died, radiators crashed, et al. And in an accident, well, they tended to kill you.

    They were beautiful, but a recent Corolla kicks their ass for reliable,safe, and even comfortable.


    31st December 2012 at 7:14 pm

  29. Muck About says:


    The year after I got married, my father-in-law (bless his heart!) gave my sweetie and me a 1956 Olds Super 88 – in metallic green which was, without doubt, my favorite wheels until the day I bought a 1962 Buick Special station wagon that was a killer – put glass packs on it – drove it all over the USA and until the aluminum block argued with the copper radiator and they ate each other, really enjoyed it.

    Then I survived junkers until I got my sweetie at new 1982 Corvette – in a blahhhh maroon – which she promptly had repainted into an eye-knocker white with red pearls that is probably still zipping around the upcountry roads of Maui.. (I sincerely hope!)

    Cars are funny. Now, I drive a new Florida White Prius with as much pizzazz as a wet fart – don’t get me wrong – it’s got gobs of get-up-and-go but it ain’t no Corvette – but I like it as “transportation”. Some cars are transportation and some are “soul cars” and the Olds, the Buick and the ‘Vette were “soul cars” and made the driver feel a little extra special…..

    Let’s hear it for “Soul Cars”!!!!



    31st December 2012 at 9:00 pm

  30. Muck About says:

    Oh, by the way, I have no argument with JHK’s conclusions —- even the timing, which should be forgiven by anyone trying to predict anything – Sorry to get off-subject.

    It is pure luck to predict anything as far as timing is concerned. The one thing you can bet money on is that the shit will hit the fan sooner than you think it will and be far worse that what you think it will it will be.

    We have $215 trillion unfunded liabilities and 45% of 2013’s Federal spending will be “printed” by the Federal Reserve. That’s baked in the cake. A majority of the developed world is right there in the same boat – the EU, et al. The developing nations require that they accept funny money in exchange for real goods and services. This will not last for long. How “long” is “long”. Who the fuck knows.

    When it stops, Americans will find themselves, along with the EU countries, hungrier and poorer than before, by several orders of magnitude.

    JHK happens to be centered on fuel, oil, etc. He does mention financials – which will crash first, thereby, shoving the energy industry into the tank, thereby putting us into the end game real soon thereafter.

    I personally cannot believe the stupidity, the cupidity and the absolute criminal activity of the Federal (or perhaps “The Feral”) Government in allowing criminal activity to continue and expand just to try and “kick the can” just a little further down the road. There are going to be some of the bastards hung before it’s over. Or, our Capital will be burnt to the ground.



    31st December 2012 at 9:13 pm

  31. llpoh says:

    Good stuff, Muck. Soul cars indeed! I had a couple where milage was in gpm not mpg, big hemi engines and such. If I ever crashed one it would have taken my soul for sure. Lucky to have survived.


    31st December 2012 at 9:26 pm

  32. IndenturedServant says:

    Wouldn’t it be nice if the reduced availability of cheap, abundant energy actually prevented any more wars? Long after I’m gone, it will, but for now the bastards are going to kill each other (including us) by remote control.

    I don’t subject my wife to too much of the doom porn but I think this is one she needs to read. She is four years older than I am and she has had her heart set on buying a custom made travel trailer that we have already designed, plus something to tow it with so that we can travel the US. Emotionally I’m totally on board with the plan but I just cannot rationalize doing that anymore based on what I’ve learned over the last six years. She might try to divorce my ass if I appear to waver from the plan! Well, maybe not actual divorce but she will become damned difficult to live with! She deserves better but as William Munny said, “deserves got nothin’ to do with it”.

    I gotta come up with a new plan and this article might get her thinking about moving in another direction. I’m not holding my breath! We’ll probably end up destitute living in a ragged out piece of shit travel trailer in a shanty town so she might still get her dream….sort of.


    31st December 2012 at 10:50 pm

  33. llpoh says:

    IS – you said “”but she will become damned difficult to live with!” she is a woman, and as such she is by definition already difficult to live with. It is always a matter of degree.


    31st December 2012 at 11:43 pm

  34. ragdouche says:

    Ll: truer words have never been spoken.


    1st January 2013 at 9:08 am

  35. KaD says:

    Here are some other predictions for 2013 you may find interesting: http://www.naturalnews.com/038512_2013_predictions_insanity.html

    #1) The global debt collapse arrives
    #2) Obama administration attempts to gut the Second Amendment
    #3) Martial Law declared across America
    #4) Extreme shortages of guns, ammo, magazines as their barter value skyrockets
    #5) Tactical weapon strikes target Iran
    #6) Massive false flag attack carried out in USA and blamed on patriots
    #7) DHS arms the TSA and begins insane abuses of Americans on roadway checkpoints
    #8) The rise of the Resistance: Secret resistance groups begin to form across America
    #9) Attacks on the First Amendment accelerate as government seizes websites
    #10) The rise of violent rhetoric among the population as disagreements turn to threats
    #11) Global government makes its move
    #12) Accelerated mainstream media attacks on patriots, preppers and veterans
    #13) Disagreement with the government characterized a “mental disorder”
    #14) Continued rise in unemployment, food stamps, welfare as Obama accelerates deliberate destruction of U.S. economy
    #15) Criminalization of preparedness activities as government outlaws ammo storage of private citizens
    #16) Riots in the streets, followed by Martial Law
    #17) Deliberate food shortages used as a weapon of government control
    #18) Weather becomes even more radicalized, with droughts, floods, freezes
    #19) Solar weather gets nasty: Solar flares threaten communications
    #20) You will be told the answer to all our problems is “MORE government!”


    1st January 2013 at 12:06 pm

  36. Eddie says:

    $125 Silver? JHK, what are you smokin’ dude?

    Bring it on. That would make me shockingly rich. Therefore it can NOT happen. LOL.


    2nd January 2013 at 3:46 pm

  37. Bob says:

    It will take longer than one year (2013) for the Dow to reach 4,000, whenever it starts (probably later this year). Expect a bottom in the 2016-2017 timeframe, with some bouncing around after that. Expect a new economic boom to start in the early 2020’s, enabled by the clean slate left behind by the Great Vaporization of debt.

    Kuntzler may be right about oil — perhaps the next upsurge in economic activity may be fueled by some sort of post-oil energy solution. There will likely be a lot fewer people around, living in a larger collection of smaller countries. If we can avoid going into global thermonuclear war, it will have turned out to be just the unholy mother of all financial/economic corrections. I wish us all the best of luck in this new year.

    The stock markets will tell us when the shit has started to hit the fan in earnest.


    2nd January 2013 at 7:51 pm

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