There is no longer any doubt that we are heading for a deep, deflationary recession. But James Howard Kunstler is more worried about the “tidal wave” of monetary inflation that will follow. With the financial landscape washed clean, the economy will need to be rebuilt on productive enterprise.

James says the economic crises of the future will involve energy shortages and climate change.

In the near term, President Obama (perhaps) will face the unenviable task of preparing America for a change far more dramatic than his campaign slogan ever imagined.

More on the post-financial meltdown world from Whiskey & Gunpowder:

It’s fascinating to read the commentators in mainstream journals like The Financial Times and The Wall Street Journal all strenuously pretending that “the worst is over” (maybe…we hope…fingers crossed…hail Mary full of grace…et cetera). The cluelessness would be funny if it didn’t involve a world-changing catastrophe.

All nations that have reached the fork-and-spoon level of civilization are now engineering a vast network of cyber-cables that lead directly from their central bank computers to the Death Star that is hovering above world financial affairs like a giant cosmic vacuum cleaner, sucking up dollars, euros, zlotys, forints, krona, what-have-you.

As fast as the keystrokes create currency-pixels, the little electron-denominated units of exchange are sucked out of the terrestrial economies into the black hole of money death. That’s what the $700-billion bailout (excuse me, “rescue plan”) and all its associated ventures are about.

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To switch metaphors, let’s say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts cancelled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea.

The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand.

Then comes the second stage, the tidal wave itself — which in this case will be horrific monetary inflation — roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.

So, that’s what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean. There’s no question that stage one is underway. But we can be sure the giant wave of money recklessly loaned into existence in just a few weeks time will wash back through the global economy leaving a swath of destruction.

And then what? The societies of the world will be faced with the task of rebuilding systems of fruitful activity, i.e., real economies based on productive behavior rather than the smoke-and-mirrors of Frankenstein-finance con games. In fact, excuse me while I switch metaphors again, because the Frankenstein story — the New Prometheus — is yet another apt narrative to inform us what we have done. We have “played” with financial fire and brought to life a monster now bent on killing us. One question that this metaphor-narrative raises is: when will the angry peasant mob storm the castle with their flaming brands and cries for blood from the makers of this monster? Rather soon, I think.

Perhaps, in some countries (maybe the USA, if we’re lucky), this will take the more orderly form of systematic prosecutions, bringing to justice persons who perpetrated swindles involving the alphabet soup of investment “products” that have gone bad in so many accounts (and ruined so many individuals, institutions, and governments).

I think it has already begun with the inquisitors summoning the shifty Dick Fuld of Lehman Brothers — but there are hundreds of other characters like him out there, who scored untold millions of dollars in activities that were simply grand swindles. I wouldn’t be surprised if, eventually, Treasury Secretary Hank Paulson found himself in the dock to answer how come, when he ran Goldman Sachs (NYSE:GS), there was a special unit in the company dedicated to short-selling the very mortgage-backed securities that another unit in the company was so busy pawning off to every pension fund on God’s green earth.

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Apart from orderly prosecutions (which can certainly turn harsh and cruel), there is the possibility of sociopolitical upheaval — revolution, violence, civil war, war between nations, the whole menu of monkey-human mischief that afflicts mankind. We are not necessarily immune to it here in the USA, despite our cherished notion of exceptionalism, which would have us inoculated against all the common vicissitudes of history.

Anyway, prosecution through the courts, while perhaps satisfying the hunger for justice (or, more particularly, revenge), is not a productive economic activity. So, the question begs itself again: what will we do? Under the best circumstances we will reorganize our society and economy at a lower level of energy use (and probably a lower scale of governance, too). The catch is, it will have to be a whole lot lower. I think we’ll be very lucky fifty years from now to have a few hours a day of electricity to do things with.

The energy story and its handmaiden, the climate change situation, are both lurking out there beyond the immediate spectacle of the financial fiasco. Both these things imply pretty strongly that the economic relations currently unraveling will not be rebuilt — not the way they were before, or even close to it.

The best outcome will be societies that can practice small-scale “process-intensive” organic agriculture and equally small-scale process-intensive modes of manufacture in the context of very local sociopolitical networks. An accompanying hope is that we can remain civilized in the process. Personally, while I recognize the appeal (to others, not me) of the “singularity” narrative, which has the human race making a sudden evolutionary leap into some kind of cyborg-nirvana, I regard it as an utter bullshit fantasy that has zero chance of occurring, given our stark predicament.

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But returning to the short term, or “the present,” shall we say, there is the matter of how the U.S. gets through the election and then the first months of a new government, even while the larger fiasco continues. I’m voting for Mr. Obama. While I believe he will make a much better president than the addled old mad dog Mr. McCain has become, I feel sorry for anyone who is placed nominally “in charge” of things this coming year. The best a President Obama can do is offer some reassurance to a public that is totally unprepared for the convulsion now upon us. Mr. Obama will certainly not have “money” to “spend” on any of the promised social support programs that have been endlessly debated.

But he could clearly articulate the reality we’re facing, and ask not necessarily for “sacrifice,” as the common plea goes, but for something more and better: for bravery and resolute spirit, for intelligence and resilience, for kindness and generosity — among a people long unused to consorting with the better angels of their nature. He’s already begun to set the example by appearing in public with his sleeves rolled up. The change that has been in the air all year — that Mr. Obama has talked so much about — is coming in a bigger dose than anyone expected. I hope we’re ready to get with the program.

Source: What Now?