Galveston Economic Report
David Stanowski Publisher
by David Stanowski
07 March 2009
I feel like a passenger on the Titanic; after it hit the iceberg. However, in the surreal nightmare that I'm in, the other passengers refuse to believe that the ship is sinking! We all felt the collision, heard the Captain give the "abandon ship" order, and the alarm is still sounding, but I am the only one moving towards the lifeboats! Everyone else is going to the dining room for a sumptuous dinner.
I can see the iceberg that we hit, the ship is listing 30 degrees to port, and going down fast, but life on this luxury liner seems so much nicer than what may lie ahead in a lifeboat that the other passengers would rather remain aboard, and indulge themselves until the very last minute, rather than making an effort toward ensuring their own survival.
I hope I wake up soon!
If you are one of only a handful of people who would like to start moving towards the lifeboats, then you should find this article very compelling. However, if you still think that Business-as-Usual is going to work, you probably won't like what it has to say.
Who is to blame for sailing our national economy into an iceberg? Many, many people; some in the private sector, and a lot of politicians.
1913 was the year that income tax was enacted and the Federal Reserve was formed, so that could certainly be seen as the beginning of the end; but, more recently, Nixon severed the Dollar's last tether to gold, in 1971, which unleashed some very destructive forces. His comment was, "We're all Keynesians now!" Thanks to Nixon, those policies have lead us to the point where; "We're all Socialists now!"
The first thing that Nixon's "new monetary system" did was to create a decade of stagflation. After stagflation was rung out of the economy, the FED started creating the credit and leverage that launched an enormous Bull Market in stocks, in 1982. The amount of credit and leverage grew to unprecedented levels as it transformed this Bull Market into a Bubble. As the end drew near, more and more people came to believe that they could quit producing anything and make a very comfortable living just trading stocks.
During the illusion of prosperity that this created, in the 1990's, the government decided that it would just be wonderful if more low-income people owned their own homes, so Clinton took steps to make this happen. By the time that Bush took over, the Stock Market Bubble had burst, and Greenspan was creating more credit than the world had ever seen in a frantic effort to delay what we are facing right now; a financial collapse! Unfortunately, the delay allowed a Real Estate Bubble to form, as well as another stock market top.
The Real Estate Bubble was unlike anything ever seen in history due to the extreme amount of leverage available in this market compared to stocks. Like the Mania of the 1990's that created so many stock traders, the Real Estate Bubble made people believe that this country could live on little more than rehabbing and flipping houses back and forth to each other. This attitude allowed the financial sector to further over shadow the production of goods. By the time Wall Street figured out how to "securitze" mortgages, we were doomed. All connection with reality had been lost!
When it all began to unravel, between 2005 (real estate) and 2007 (stocks), it was foolish to expect politicians to right the ship when they were the ones that had made so many bad decisions that lead to it hitting the iceberg!
Bush turned to the same financial "experts" whose policies had created the problem. Their solutions were more borrowing and spending, which is what caused the problem, and bailouts; spreading the losses from those who caused them to the nation as a whole. 53% of the voters wanted change, so that's what we got!
Maybe the reason that more people aren't heading for the lifeboats is because they believe that the new Captain will pull off a miracle, and the ship won't actually go down. For a look at how the new Captain has handled the ship, so far, I turn to James Kunstler.
Kunstler spent years savaging Bush for his "gross negligence and incompetence", and he became one of the first True Believers in the hope and promise of the new Obama Era, so his bona fides as a commentator strongly biased in favor of the New Captain are well settled. For this reason, he should be a good indicator of how well Obama is doing. Here are a few of his recent comments:
"The attempted re-start of revolving debt consumerism is an exercise in futility. We've reached the limit of being able to create additional debt at any level without causing further damage, additional distortions, and new perversities of economy (and of society, too). We can't raise credit card ceilings for people with no ability make monthly payments. We can't promote more mortgages for people with no income. We can't crank up a home-building industry with our massive inventory of unsold, and over-priced houses built in the wrong places. We can't ramp back up the blue light special shopping fiesta. We can't return to the heyday of Happy Motoring, no matter how many bridges we fix or how many additional ring highways we build around our already-overblown and over-sprawled metroplexes. Mostly, we can't return to the now-complete "growth" cycle of "economic expansion." We're done with all that. History is done with our doing that, for now.
So far -- after two weeks in office -- the Obama team seems bent on a campaign to sustain the unsustainable at all costs, to attempt to do all the impossible things listed above. Mr. Obama is not the only one, of course, who is invoking the quest for renewed "growth." This is a tragic error in collective thinking. What we really face is a comprehensive contraction in our activities, especially the scale of our activities, and the pressing need to readjust the systems of everyday life to a level of decreased complexity.
For instance, the myth that we can become "energy independent" and yet remain car-dependent is absurd. In terms of liquid fuels, we're simply trapped. We import two-thirds of the oil we use and there is absolutely no chance that drill-drill-drilling (or any other scheme) will change that. The public and our leaders can not face the reality of this. The great wish for "alternative" liquid fuels (bio fuels, algae excreta) will never be anything more than a wish at the scales required, and the parallel wish to keep all our cars running by other means -- hydrogen fuel cells, electric motors -- is equally idle and foolish. We cannot face the mandate of reality, which is to do everything possible to make our living places walkable, and connect them with public transit. The stimulus bills in congress clearly illustrate our failure to understand the situation. ...
That seventy percent of the economy is over, especially the part that allowed people to buy stuff with no money. From now on people will have to buy stuff with money they earn and save, and they will be buying a lot less stuff. ...
Washington is evidently seized by panic right now. I don't know anyone who works in the White House, but I must suppose that they have learned in two weeks that these systems are absolutely tanking, that the previous way of life that everybody was so set on not apologizing for has reached the end of the line. We seem to be learning a new and interesting lesson: that even a team that promises change is actually petrified of too much change, especially change that they can't really control.
The argument about "change" during the election was sufficiently vague that no one was really challenged to articulate a future that wasn't, materially, more-of-the-same. I suppose the Obama team may have thought they would only administer it differently than the Bush team -- but basically life in the USA would continue being about all those trips to the mall, and the cubicle jobs to support that, and the family safaris to visit Grandma in Lansing, and the vacations at Sea World, and Skipper's $20,000 college loan, and Dad's yearly junket to Las Vegas, and refinancing the house, and rolling over this loan and that loan... and that has all led to a very dead end in a dark place.
If this nation wants to survive without an intense political convulsion, there's a lot we can do, but none of it is being voiced in any corner of Washington at this time. ...
We have to reactivate our small towns and cities because the metroplexes are going to fail at their current scale of operation. We have to prepare for manufacturing at a much smaller (and local) scale than the scale represented by General Motors.
The political theater of the moment in Washington is not focused on any of this, but on the illusion that we can find new ways of keeping the old ways going. Many observers have noted lately how passive the American public is in the face of their dreadful accelerating losses. It's a tragic mistake to tell them that they can have it all back again. We'll see a striking illustration of "phase change" as the public mood goes from cow-like incomprehension to grizzly bear-like rage. Not only will they discover the impossibility of getting back to where they were, but they will see the panicked actions of Washington drive what remains of our capital resources down a rat hole. ...
This striking poverty of imagination may lead to change that will tear the nation to pieces."
09 February 2009
"A creepy feeling ushers in President's Day this year as the suspicion grows that nobody in charge of anything knows what what to do next. ...
Amid all the anxiety and raging cluelessness, one thing is clear: we're doing everything possible to evade reality.
The reality we can't face is that one way of life is over and a new one is waiting to be born. ....
Now we've arrived at the moment of wreckage. Meanwhile, Barack Obama sailed into the White House on a tide of "hope" for "change." The change was unspecified, by both Mr. Obama and the general public (and the news media that audits its thinking). What is dogging many of us who supported Mr. Obama is the delayed entrance of much-vaunted change. At this moment of "stimulus" and TARP-II, it seems to have been about a desperate attempt to preserve the hypertrophic debt economy of "miracle" mortgages, blue-light-special shopping on credit cards, and endless happy motoring at all costs. And by "all costs" I mean literally bankrupting our society at every level to keep on living as if it were still 1999. This naturally alarms those of us who perceive a need for more drastic reprogramming in American life."
16 February 2009
"The public perception of the ongoing fiasco in governance has moved from sheer, mute incomprehension to goggle-eyed panic as the scrims of unreality peel away revealing something like a national death-watch scene in history's intensive care unit. Is the USA in recession, depression, or collapse? People are at least beginning to ask. Nature's way of hinting that something truly creepy may be up is when both Paul Volcker and George Soros both declare on the same day that the economic landscape is looking darker than the Great Depression. ...
In the broad blogging margins of the web that orbit the mainstream media like the rings of Saturn, an awful lot of reasonable people have begun to ask whether President Obama is a stooge of whatever remains of Wall Street, with Citigroup and Goldman Sachs's puppeteer, Robert Rubin, pulling strings behind an arras in the Oval Office. ...
Dear Mr. President, you are presiding over an epochal contraction, not a pause in the growth epic. Your assignment is to manage that contraction in a way that does not lead to world war, civil disorder or both. Among other things, contraction means that all the activities of everyday life need to be downscaled including standards of living, ranges of commerce, and levels of governance. ...
The wealth of several future generations has already been spent and there is no equity left there to re-finance.
It's not too late for President Obama to start uttering these truths so that we can avoid a turn to fascism and get on with the real business of America's next phase of history -- living locally, working hard at things that matter, and preserving civilized culture. What a lot of us can see now staring out of the abyss is a new dark age. I don't think it's necessarily our destiny to end up that way, but these days we're not doing much to avoid it."
23 February 2009
What Kunstler is so painfully describing is that the "change" has been from incompetence to cluelessness, so if you are not moving towards the lifeboats, because you thought it was no longer necessary; you are most likely headed for a rude awakening! Nothing has changed for the better since the new Captain took over!
This article is not one of political commentary, it is about SURVIVAL! I have started to pull together the most reasonable and practical ideas from an array of thoughtful analysts, which I will attempt to piece together into an image of the most probable economic landscape over the next few years. It will certainly be quite different than the recent past.
I do not foresee a survival scenario that envisions running off to the mountains or the desert to hold up in some sort of fortified bunker, with a load of supplies, and the weapons to defend them, as either desirable or advisable. I don't think that a scenario which imagines a continuation of an affluent consumer-based society powered by a whole array of Green-energy gadgets and devices is realistic, either.
Since we could find ourselves in our lifeboats for a number of years before we wash ashore to some "new version of normal life", we need to design them so they will not begin to "come apart" after only a few months, by finding ways to cooperate and network with others on a number of different workable ideas.
Gerald Celente: Trend Forecaster
If the City of Galveston was a ship, it would hardly be a luxury liner like the H.M.S. Titanic, or even a solid and hard-working freighter. As much as those of us who live here love this City, the more apt analogy in our case might be something more in line with an aging pleasure boat in a state of disrepair.
Since the S.S. Galveston recently found itself tossed and battered by a major hurricane, before it hit the iceberg with the rest of the world, our ship is really taking on water! As neighbors gather on front porches to discuss an informal plan of action, as business owners meet in coffee shops to decide what to do next, and as the Galveston Community Recovery Committee convenes to find "consensus" on our formal "recovery plan"; what are they all focused on? For the most part, they are working on a recovery plan that they assume will take us back to the world that existed before the crisis.
I recently submitted a letter to the GCRC suggesting that we consider what the City will do if we aren't given much funding beyond just what we need for basic repairs, and we do not find ourselves returning to the economy that existed in 2005-2006. The letter was not posted on the GCRC web site, and was not considered by the Committee. This should confirm the fact that the official position of the Committee, and, therefore, the City government is that we must all pretend that nothing has really happened in the world to change the fundamental landscape of our lives.
This is all part of a larger phenomena that some have recently referred to as "The Conspiracy of Optimism", which is the fine art of ignoring reality and pressing on with plans that require a long series of very positive events in order to succeed. Continuing to be part of this conspiracy will be deadly for this city!
Right or wrong, I have to prepare for the future in a more realistic way!
As we try to apply the lifeboat metaphor to the crisis we face, it quickly becomes much more complex for two very fundamental reasons. First, the lifeboats that we need to save us from our sinking ship do not exist! As alluded to above, in order to survive, we will have to actually design and build our own lifeboats!
Operation Lifeboat will be an effort to pull together the ideas, resources, and people to allow those, who choose to do so, to construct workable lifeboats.
Secondly, the transition will probably be fairly slow; until it isn't. This means that we will all have to maintain our lives aboard ship until it is actually time to get into the lifeboats we are building. Businesses and jobs will go on more or less as usual, as will other aspects of day-to-day life. And then one day, it will be time to abandon ship.
Is the need for a lifeboat an absolute certainty? Of course not; but it is becoming a higher and higher probability every day! However, if you still remain unconvinced that our economy has not been damaged badly enough to make building a lifeboat a good idea, it may be time to review "The Case For a Super Bear Market".
It's time to start designing and building!
Some elements in this country have railed against life in an industrial society for at least forty years. They have advocated forcing everyone to adopt a radically different lifestyle, with an often-deceptive propaganda campaign, even when industrialization was popular and desired by most people. Now that industrialization is being forced to go through a radical transition, proponents of our current lifestyle refuse to see the need to make major adjustments. Others believe that we can retain the rampant consumerism and comforts of our previous life by switching to Green solutions, when that lifestyle was built on cheap and abundant fossil fuels; a situation that can not be duplicated with Green energy at this time. I do not agree with any of these viewpoints and merely seek pragmatic methods to design and build my lifeboat.
If the stock market and economy continue to plunge, later this year, as outlined in "The Case For a Super Bear Market", it is quite possible that crude oil will get down to $10-12/barrel, again. This would be very helpful as it would relieve some of the financial burden that we will all be facing by providing lower energy costs. Unfortunately, there is no Green energy, at this time, that can compete with oil at $100/barrel, let alone at $10-12/barrel, so the smart move would be to stay on an oil-based economy, at least until some kind of recovery can unfold.
However, with the Greens now firmly in control of the federal government, they do not plan to allow us to enjoy low oil prices as a relief from the other economic problems we will be struggling with. Their plan is to tax fossil fuels to raise prices to the point where they are higher than Green energy alternatives! They believe that this will be "good for us in the long run". That may be true, but as Keynes himself said, "In the long run, we're all dead!"
A recent article made the case that popular support for environmentalism has peaked and will be on the wane for many years, due to the receding fear of commodity shortages. Likewise, the proposition that man-made Global Warming is a threat to our planet is unraveling with so much data showing conflicting results. People are beginning to realize that the "computer models" that "proved" that there is man-made climate change, and that it will soon be catastrophic, have been developed by the same sort of people who used computers to "securitize" mortgages with the same flawed and inaccurate results!
Raising energy prices, by using tax policies, during a depression, will help to crush the economy, and lower our standard of living even more than necessary which will probably unleash a very negative social backlash that the Greens are not prepared to deal with!
THIS is the CHANGE that was promised during the election, and the in the end it will be disastrous and very unpopular!
"But hidden in the details was an even larger tax increase on everyone. Obama wants to create a cap-and-trade program for carbon emissions. This is expected to generate $79 billion in 2012, $237 billion by 2014, and grow to $646 billion by 2019. These will be payments by energy companies (primarily utilities) to the government. That will cause utilities to have to raise the prices they charge customers for energy. Such a level of taxation is eventually 4-5% of total US GDP. That is not small potatoes. And since the wealthy do not use all that much more power than the rest of us, it will affect the lower incomes disproportionately."
It will take money out of consumers' pockets and transfer it to the government. You can call it cap-and-trade, but it is a tax. And a huge one. Anything that will take 4% of GDP away from consumer spending is not business friendly. And by driving the cost of energy up, it will drive high-energy-using businesses away from the US to developing countries where energy is cheaper. It will make it even harder for people to save money and drive up costs for the elderly and retired. But it will make the environmental lobby happy." FrontLine
Designing the Lifeboat
The most critical component of the lifeboat will probably be security. The crime rate will begin rising as the economy declines further and unemployment soars. This country has cultivated a large dependent class that will become very unhappy if the government checks are reduced or don't come at all.
Before Bush left office, he had the military working on plans to control "civil unrest". Obama has a scheme for some kind of national "police force". The CIA and think tanks are preparing plans for dealing with civil unrest, too. A lot of people are very concerned about this; for a very good reason!
Demonstrations and riots have already started in Europe, China, and other parts of the world. How long will it take for problems to begin in our cities?
Life in your lifeboat will rely heavily on your ability to defend yourself!
Lessons from Argentina's Economic Collapse
Much of the time, the current food production, transportation, and distribution system will probably still operate fairly well, but a backup system will definitely be needed. Since the food industry is very sensitive to energy prices, at every stage of the process, if energy prices rise dramatically, so will food prices.
Many people will start growing some of their own food, but some will not be able to, and others will choose not to, and will need to trade for their needs. The major seed companies are reporting an increase in sales, so the transition has already begun.
Most people will not be able to grow all of their own fruits and vegetables, so the real answer is to develop a network of local farmers and growers that can produce the needed quantities. This is also true with meat, because it will be difficult to raise farm animals in towns and cities. Some people, in Galveston, may try raising chickens (and eggs), and we are fortunate to live on the Gulf where we can "harvest" seafood, but we need to develop the resources to perfect the skill of subsistence fishing.
Say Goodbye to CSAs, Farmers' Markets and Roadside Stands
Much of the time, the current municipal water system will probably still operate fairly well, but a backup system will definitely be needed. During sporadic outages, we may be forced to find a source for our own personal water supply. We may have to go to the Mainland to fill containers, or maybe a personal desalinization system would make sense.
Life will go on without electricity, but when it is not available, it will remove many of the comforts of modern living: home heating and cooling, refrigerators, radios, TV's, computers, and lights. Much of the time, the current electric generation system and grid will probably still operate fairly well, but a backup system will definitely be needed. Even if the power is still flowing, we may be forced to cut back usage dramatically due to falling incomes and high energy taxes. During sporadic outages, we may want to have our own personal electric generation systems, or we will simply have to go without electricity.
It will probably not be practical to consider systems that can produce our current household loads. We may have to settle for enough power just to run a refrigerator/freezer, and/or a computer. Generators that burn gasoline and/or ethanol might work, as well as small wind turbines or solar panels, if prices ever get low enough. Solar-powered battery chargers may be able to keep battery-powered devices working. There is also the possibility that small home ethanol stills could produce enough alcohol to run generators.
Part of our preparation process will be to start making hard copies of important information and documents which won't be accessible on computers during power outages.
As jobs disappear, more and more people are going to have to develop their own business. Successful businesses in the lifeboat will have to target the necessities of life much more than "discretionary spending". It will probably be much easier to make a living running a hardware or an auto parts store than a jewelry or antiques store.
Many of the successful businesses that have developed during the post-WWII boom rely on discretionary spending in the leisure/entertainment/travel/recreation sector; the areas that are most likely to take a big hit in an economic collapse! Unfortunately, the City of Galveston relies very heavily on this sector with our restaurants, hotels, cruise ships, etcetera.
There is also a good chance that repair services of various kinds will be successful as the cost of throw-away consumerism becomes too expensive. For example, shoe repair shops have already seen a dramatic rise in business, and people will turn to repairing older cars, to keep them running, as opposed to trading them in every 2-3 years.
Finally, many small businesses will be forced to adopt a home-based model to escape the high costs of operating from a store front. Cities will also need to promote flea markets and other ways to allow businesses to operate as mobile vendors.
BusinessWeek recently made a list of businesses that should prosper in the Depression:
The new rules of investing will exclude the old buy-and-hold approach in the stock, real estate, and bond markets. If deflation accelerates in another leg down, later this year, anyone holding these investments faces crippling losses.
People living on pension plans must develop contingency plans in case the pensions are reduced or eliminated.
Although there should be many trading opportunities, in the years ahead, investing in the lifeboat will consist of protecting your capital by putting it in cash and TBills, as well as gold and silver.
6. Repair and Salvage
Repairing things ourselves, and finding craftsman who specialize in doing this for us, will become a necessity. Salvaging discarded items from the consumer economy of the past may become an important part of the new economy. Some see landfills turning into the new "mines" for salvaging the things that we previously discarded.
It's difficult to tell whether the automobile will still be the primary mode of transportation for most families. The price of gasoline will probably decline, but will the taxation on gasoline and/or the lack of income still make it unaffordable for many?
It is unlikely that the funds will be available to expand mass transit dramatically. This means that we may be forced to do more walking or bike riding which is a practical alternative in the compact footprint of our City Center.
The current medical system has been falling apart for years, so it's hard to imagine it surviving the financial collapse. Passengers in the lifeboats are going to have to become far more self-reliant using diet, natural supplements, and exercise to stay healthy, and turning to natural remedies to deal with many aliments when they do arise.
Sweden's Government Health Care
The situation that we will face, if we do have to abandon ship, will be very challenging. History has shown that at some point, the citizenry of failing societies more or less choose to let their unsustainable systems topple over rather than continue the draining attempt to support the burden. It is likely that many, in the middle class, who have been working hard and playing by the rules, will become so angry and frustrated that they will simply abandon their posts in "the system", and allow the whole machine to grind to a halt. After years of tolerating a corrupt and moronic government, and paying the fare for a dependent class, they will reach their breaking point. Why should they bother any more?
The lifeboat outlined above is actually designed for a pretty tame scenario compared to the worst-case possibilities like regular terrorist attacks, world war, famines, and pandemics that are all well within the realm of possibility at this point in the historical and market cycles. Things are even worse in Europe, as this article attests: "Not only would we have to get used to the prospects of a systemic meltdown of our banking system, but entire nations may go down as well."
One other thing that the cycles point to are secession movements in various countries and regions. One very positive development is the initial move by at least eleven states to declare sovereignty from the federal government, if they over reach with more unconstitutional laws and regulations. Other states may soon follow suit. If any state were to take real action to become sovereign from the federal tyranny, it would offer hope that our march towards Socialism had a chance of being halted in its tracks!
It is ironic that most of the people who voted for change did so because they wanted a federal government that would make the final move to full-scale Socialism in order to "protect them", and "fulfill their every need"; however, in order to survive this crisis, we will be forced to move in the opposite direction. The government is not going to build effective lifeboats, in fact most of their "programs" will only aggravate the situation and make things a lot worse. Each of us will have to build our own lifeboat using our own individual efforts and "old fashioned" self reliance, but the survival of communities will depend on our cooperation as individuals.
Galveston should be a much better place to build a lifeboat than large cities, and probably better than many rural areas. Small towns would seem to offer the best mix of opportunities to network with neighbors and residents to establish a lifeboat economy, and to provide an effective security apparatus. Of course, Galveston is not a small town, it's a small city, which means we do have our share of inner city problems. Therefore, some small towns might be a better choice, but I'd much rather build a lifeboat in Galveston than in LA or Chicago, or most other places that I am familiar with.
For Miss Jacquelyn and I, our first order of business is to keep compiling information, so that we can start building our lifeboat. However, the whole premise of this strategy is to avoid the urge to isolate yourself inside some kind of protected fortress while everyone around you goes down the tubes, because they are unprepared. For this to work, some critical mass of people must also choose to design and build their own lifeboats, so that there are enough of us above water to keep an economy going, and save the community.
This means that the next step will be to make our information available to others, on an ongoing basis, and to exchange information and ideas with people all around the county. I will begin by posting what we find useful on one of our existing web sites, but, eventually, this effort will require its own space. Hopefully, this will inspire at least a handful of people in Galveston to move forward on their own designs.
At some point, when there is enough interest, meetings will be in order to further facilitate the exchange of ideas.
Hurricane Ike will probably prove to be a dry run for what it will be like in our lifeboats.
We may only have 6-10 months to prepare, so let the games begin!
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