National Commentary

Nicholas F. Benton: The Wheels Are Coming Off

U.S. Treasury Secretary Hank Paulson has a certain blunt style of speech, both in carefully-chosen words and a Soprano-like delivery, as exemplified by his speech at Chatham House in London yesterday.

This mode was clearly amplified by the fact that he had no real good news, at least concerning anything on the foreseeable horizon, and even the sweeping reforms in the U.S. regulatory system he proposed won’t translate into law any time soon.

So, as he was speaking of merely “limiting the impact of market stresses” by, for example, under the best of circumstances, “allowing major financial institutions to fail,” even a pale improvement in the day’s Dow performance turned sharply south, heading toward that seemingly-mythical “bottom” that may still be nowhere in sight.

Paulson’s candor could be called refreshing, if hardly encouraging. Those listening carefully to his remarks found them veritably dripping with pessimism and nowhere indicating either a silver lining or reference to a turnaround.

So much for the second-half rebound that pundits were promising when the market first started to dive earlier this year.

The fact is that a “perfect storm” is taking shape, identified by Paulson as the triple threat of housing, energy and credit crises all deepening simultaneously. It’s the environment that’s making the arguments of Michael J. Panzner’s impending “financial Armageddon” forecast (as outlined in his book by that name) seem more and more credible.

The fact is that for the last few years, the feisty and prophetic Falls Church News-Press, my paper circulating its 35,000 or so copies weekly inside the Washington, D.C., beltway and getting even more attention, globally, on its web site, has been alone among general interest newspapers anywhere to provide routine coverage on the emerging energy crisis, in the form of Tom Whipple’s weekly column on “Peak Oil.”

The fact is also that everything Whipple began describing in his weekly columns in April 2005 is proving true in spades. Even while Brookings Institution and other so-called experts categorically dismissed the notion of “peak oil,” the proposition that as extraction capacity for oil passes its peak, prices rise and scarcity ensues, it is far more widely acknowledged today.

The consequences of “peak oil,” of course, loom far more ominous than what can be described in terms of a mere “business cycle.” The planet is running out of oil, plain and simple, and even tapping new offshore or Alaskan fields would only temporarily postpone that reality.
Given the lack of cyclical references in Paulson’s speech yesterday, it is plausible to assume that he recognizes this fact, even if not explicitly acknowledging it publicly.

So, the entire foundation of the U.S. economy in the post-World War II period, of unimpeded consumption, rooted in oil, is now beginning to crack.

It started with President Eisenhower’s substitution of a national interstate highway system for rail as the nation’s primary transportation mode in the 1950s. Anyone who profited from the subsequent orgy in oil consumption, from oil producing nations and multinationals to car manufacturers and suburban development magnates, joined in promoting boundless American consumerism, its cornerstone being longer and longer commutes to further and further-distanced suburbs, in bigger and bigger cars, with larger and larger credit card spending limits.

There can be little doubt that the three-headed hydra of economic distress now threatening to devour the nation is all connected to the overextension of this one post-war process, exacerbated by greater global competition for depleting resources.

It’s like somebody forgot to pay the electric bill at the biggest shopping mall in America. All of a sudden, it’s lights out. It may take awhile, but the outcome is inevitable.

Lighting candles in the individual retail outlets at this mall will not replicate the conditions before the blackout. That’s most likely what the U.S. economy now faces. Moreover, the rest of the planet is not immune from the same fate, as even emerging economies depend on exports that become prohibitive as the price of fuel continues to rise.