Revolution insurance

I love a good apocalypse scenario. If you push me a bit I'll come out of the doomer closet. This is to say: I'm not optimistic about the immediate future. Admittedly, that's not exactly a groundbreaking position. Observe current reality and before long one easily concludes that we're in deep shinola. But I need my doom anchored by the sensible. Or at least some theory that appears so. Peak Oil is good for the doom prone. It makes sense. It makes certain actions on the world stage make sense. We are in the beginning stages of The Long Emergency - as Kunstler put it. Primarily this early stage is characterized by denial and a vacuous capacity to load up on hope and delusion in all its forms: inane entertainments, vanity as a way of life, even politics and news becomes morphs into entertainment in this phase. Of course, most obviously, this is the point in a great power's decline when politicians pedal hope and delusion as policy. Bread and circuses.

Taking a long view of Peak oil theory and its economic tentacles - it seems to me a lot of it has been correct so far.

Our dollar is backed by more than the "full faith and credit of the United States". It is backed by a commodity called oil. If you wanna buy oil, you gotta have dollars. American dollars. Everyone wants oil so everyone buys dollars. Or at least they did until recently. We all owe a big round of applause to whoever conned the world into making the oil trade the dollar trade. We had a hell of a run. About 4 decades.

The peaksters have been warning about this fly in the oil-ment for a while. It would have been fine and dandy if the petrodollars were backed by oil from the U.S. But we crossed over the hump into oil production decline decades ago. Drill here drill now will never change that.

This slush fund of credit from other oil hungry nations became the DOT com and then the housing bubble. Houses became the average Joe's ATM, enabling him to buy all manor of vanities made in those places that were buying our dollars. Everything was dandy. Every one's back was being scratched. Of course, the whole mess came crashing down. It was musical chairs on a grand scale. Everything was infinite - except the one thing that wasn't: oil. With all the talk last year of crazy derivatives, A.R.M.s and bogus wealth - that fact that oil skyrocketed to 145 dollars a barrel just before the financial crash was lost. Everything is connected to oil.

Then the economy and oil both crashed. This makes sense. Demand for energy falls for the homeless and unemployed. The response to this has been yet another incursion of Keynesian economics. And a rather half ass one at that.

(I'll interject here that they greatest Keynesian of the last 50 years is not Obama by a long shot - It's Reagan. Ronnie pumped billions into military spending. It worked. The economy came back to life after the 70's oil shocks. Reagan is called a "conservative" by conservatives since he primed the pump at both ends - cutting taxes and increasing spending. But the military money was borrowed, just as Keynes said it ought to be.)

My hunch - my current pet theory - is that Keynesian economics works wonders for a nation near or at its peak in power - that, nevertheless, suffers a set back. But it is bad economics when a country has passed its peak. A solid company borrowing some cash to get through in bad times is normal and often wise. Same for a nation borrowing - in essence- from itself. We pay down our debt in good times - as Clinton did in the 1990s. Or started to. Reagan borrowed. Clinton paid back.

The trouble is that America is not such a good investment anymore. Sometime during the last 8 years we passed our peak. Historians will argue about what the exact moment was. I'm going with the Iraq invasion for now. The reasons for it are varied but in the end it was an oil war. The invasion was the moment we refused to adjust to our new reality and began slipping into delusion. Instead of moving toward becoming a "post-oil" nation - our leadership decided we'd expend treasure and blood to ensure our place in the oil universe. I'll repeat a general theme I've had here for years - the Iraq invasion was about China - not Iraq. For nearly 100 years the tagline for the West in the Middle East has been simple: Oil must flow West. We took the oil so that others would not. In the process we became overstretched as every great power eventually does. Rome, Britain, the U.S.S.R. - take your pick.

The exact moment our decline started is irrelevant. We are in it. Can it be reversed? I suppose. But there is no faction with power taking steps toward revival - or any that have any real interest in it. The immediate goal is to keep America a viable as a going concern for the time being. Revolution insurance. The Prez has given the Secretary of Commerce a lot of power of late: I hereby delegate to you the functions of the President under section 1512 of the National Defense Authorization Act for Fiscal Year 1999 (link is PDF). And where did the good Secretary fly off too with his new powers? China, of course. He's there now with the power to sell U.S. missiles. (another PDF link) Missiles might keep them buying dollars for a bit longer. Man, oh, man do we need them to keep buying dollars.

Obama's primary job is to serve his masters - the Goldman Sachs crew that chose and promoted him - the folks busy building very comfortable lifeboats. He's perfectly suited for this task. He's the ultimate "bread and circus". No one with real power believed McCain could pull off the next act. Obama on the other hand - now that's an inspirational leading man. If Obama can thread the needle in the next few years - keeping the downtrodden in line while keeping the mega rich in mega riches I will be surprised and relieved.

Being an apocalypto by instinct - I do not see us coming back from the latest borrowing spree. We've got little to bargain with. China is starting to realize that Indians want to buy stuff too- and now they can. Pakistan is exploding. He seems to hope Iran and Afghanistan would just go away. Meanwhile the oxymoronic phrase "jobless recovery" is fast becoming a painful insult to the masses.