A Hot Mess

Guest Post by Jim Kunstler

It wasn’t until more than a week after Hurricane Katrina slammed into New Orleans in 2005 that the full extent of the damage was recognized and so it will go with the hot mess where Houston used to be. Mostly, it is inconceivable that the business activity which made Houston the nation’s fourth largest city and, according to Chris Martenson, equal to the 10^th largest economy in the world, will ever return to what it was before August 26, 2017.

The major activity there has been the refining and distribution of oil products, and no activity is more central to the functioning of the US economy. So the public and our currently clueless leaders across the political spectrum, plus a legacy news media lost in the carnival of race and gender freak shows, is about to discover the dynamic relationship between energy and an industrial economy.

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The pivot in this relationship is banking, which enables the conversion of oil’s raw power into everything else that goes on in a so-called advanced economy. The popular assumption is that federal disaster relief can compensate for all losses. That assumption may go out the window with the Houston flood of 2017. And no amount of federal aid can compensate for the hours, days, and weeks that will tick by as businesses struggle to return to something like their former level of normal operation.

Many businesses will never recover, especially the smaller ones that support the big one — the little tool and die shops, the construction outfits, the trucking and shipping concerns, the riggers and pipefitters, the cement companies, and so on. All of that activity existed in highly rationalized chains of on-time production and service and nothing will be on-time in Houston for a long time to come. The arguments over insurance coverage have not even begun, and then there is the question of how businesses in this perpetual flood zone will renew their insurance. Or how might they relocate to higher ground? And how do they pay for that? And where is higher ground in this vast, swampy lowland?

The public has been conditioned by frequent natural disasters to think that nobody has to eat the losses, so that in effect loss doesn’t exist, just as the nation’s central bank has engineered the belief that risk no longer exists in the management of capital. We sure had a nice demonstration of the latter, with the Dow inching over the 22,000 hashmark in overnight futures trading today. The exertions of the Federal Reserve in propping up the stock markets will have to go pedal-to-metal now to make up for the hole in economic activity that Houston represents.

Meanwhile congress is left to dither over two conjoined financial emergencies at once: authorizing emergency aid to Houston, and resolving the debt ceiling problem. The fault lines are already visible in the ill-feeling left over from Texas’s congressional delegation voting against aid for Hurricane Sandy’s rip through New York and New Jersey. Texas Senator Ted Cruz, for one, has reinvented his political philosophy overnight to accommodate federal aid for natural disasters, something he was not keen on before September 26.

I’d assume that these politicians have some normal human sympathies — yes, really — but that these emotions won’t stand in the way of their agenda for mutual self-destruction. Even if they manage to cobble together some kind of emergency aid package for Houston, the process will coincide with the Treasury running out of supposedly “actual” money — that is, money which can be accounted for by some method besides check-kiting. Another assumption du jour is probably the idea that accounting no longer matters, that bankruptcy no longer means anything. Pretty soon, those logical fallacies will manifest in an accelerated falling value of the US dollar.

Somewhere in this reverberating hot mess stands a character named President Trump. He acted out the customary disaster visitation ceremony last week, but I predict that the as-yet-revealed after-effects of Hurricane Harvey will put him in deeper and stinkier hot water than George W. Bush splashed through with Katrina.

Meanwhile, what’s that monster called Irma doing out there in the Atlantic?