James Howard Kunstler | Money for Nothing

Tuesday, 11 May 2010 10:01 By James Howard Kunstler, t r u t h o u t | Op-Ed | name.

James Howard Kunstler | Money for Nothing
The European Central Bank in Frankfurt, Germany. (Image: Jared Rodriguez / t r u t h o u t; Adapted: cleanzor, U-g-g-B-o-y-)

The European Union came up with a trillion dollar bail-out for itself at the dawn's early light. It already goosed the Euro back above $1.30 -- just when they hoped a lower Euro would help them move a few more export goods off the shelves. I expect that Mrs. Merkel is already catching an earful. A few hours earlier, her coalition of Christian Democrats and free Democrats got their joint ass kicked in a North Rhine - Westphalia local election....

I mention these events reluctantly, knowing how averse we Americans are to news out of Old Europe, that boring backwater of sclerotic cafe lay-abouts, socialistic train service, and less-than man-sized portions of things that real men don't eat anyway.

The question begging itself here, of course, is how Europe intends to come up with roughly a trillion in bail-out money. Sell Portugal to China? Cut Greece up into bait and catch whatever fish are left in the Mediterranean Sea? Frankly, I'm stumped. Talk about robbing Peter to pay Paul.... All the European nations are already so hopelessly enmeshed in chains of unfulfillable counter-party obligations that the bail-out might as well be a game of musical chairs played in the Large Hadron Particle Collider, set to the tunes of Karlheinz Stockhausen. The European bail-out is, in fact, an absurdity. I predict that the effect of the announcement will last all of one trading day on the stock markets.

The truth is that the imbalances of global finance are so grotesque now that the whole money system is hanging together with nothing but spit and prayer. I get rafts of e-letters every week warning of a supposedly-coming global currency -- a companion idea to the notion of a one-world government. Both are idiotic fantasies. Events are taking the nations of the world in the other direction: towards break-up, down-sizing, down-scaling. Likewise, if major currencies such as the Euro and the dollar blow up, they're much more likely to be replaced by more local bank-notes backed by gold than by some hypothetical Amero or Globo-buck.

At seven a.m. Eastern time, the European stock markets were zooming, and Bloomberg even carried a wonderfully mysterious headline saying Greek Bonds Rally. That was especially rich -- like, who in the fuck is going to load up on Greek bonds now? Is there a pension fund somewhere run by such dimwits that they would sell their positions in the Goldman Sachs issued Timberwolf CDO in order to get in on the new bargain in ten-year Greek sovereigns? I hope those pensioners are prepared to spend what remains of their lives selling chestnuts from pushcarts on the streets of Oslo, because they sure won't be clipping coupons in front of any World Cup telecast.

As if life in the USA wasn't surreal enough last week. Once upon a time, the stock market was a place where people with capital went to look for productive activity to invest in -- say, a company devoted to making soap flakes, an underpants factory. Now the market is a robot combat arena where algorithms battle for supremacy of the feedback loops. Thursday's still-baffling fifteen-minute "crash" was an excellent demonstration of the diminishing returns of technology. People too-clever-by-half, aided greatly by computers, have now gamed the investment indexes so successfully that these markets no longer have anything to do with investment -- they're just about shaving micro-points of profit at high volumes by micro-milliseconds off mere differentials in... math! This is truly quant heaven, a place where only numbers matter and there is no correspondence to anything in the real world. In other words, last Thursday's bizarre action was a warning that the American stock markets have flown up their own aggregate ass.

These algo-robots may be elegantly complex, but they are really no more than triggering mechanisms, and Thursday's -- whatever it was -- glitch, let's say, ought to be regarded as a mere preview of coming attractions for a full-on feature clusterfuck in which the putative contents of these stock markets get sucked into a black hole so vast that the trading desks will have to find a way to arbitrage infinity to ever again catch a glimpse of America's receding wealth. And it could all happen in a finger-snap.

Why would anybody not heavily medicated stay invested in the stock markets? Well, the answer must be that they're not. The few still hanging around are the institutionals with nowhere else to go, the pitiful pension funds or the pathetic college endowment funds desperately chasing "yield" in a world where once-sturdier instruments yield zirp-o -- and these poor chumps are getting played and played out. The only other remaining marketeers are -- you guessed it -- the too-big-to-fail banks, the Federal Reserve, and possibly the US Treasury itself playing front-running games and algo stunts and black box buy-ups, and carry-trade rackets, and -- let's not forget -- outright swindles.

We tend to forget that all this hugger-mugger once had a relation to real economies. The basic truth about real economies -- at least the industrial-strength ones -- is that they cannot be successfully managed on the basis of revolving debt in the context of no growth -- and no growth is exactly the bottom line of the peak oil story so revolving debt is finished for now. Speaking of oil, the Deepwater Horizon disaster (still ongoing) has gotten so boring to the editors of The New York Times that further news about it has been banished from the front page of the paper. Too depressing, I guess.

In the meantime, though, rest assured that whatever else is going on out there, credit default swaps never sleep.

This article has been published on James Howard Kunstler's blog.

Last modified on Wednesday, 12 May 2010 10:39