Monday, September 01, 2008

Coup de Grace

As I write at 6:30 Eastern Daylight Time, Hurricane Gustave grinds out of the Gulf of Mexico to make landfall on the Louisiana Coast at Port Fourchon, the marshalling yard for the oil and gas industry -- where the oil companies move people and equipment to the rig zone offshore. The storm spent the wee hours of the morning chewing through a wad of offshore drilling platforms and, perhaps more importantly, the Louisiana Offshore Oil Port (or LOOP), where all the oil supertanker ships from Middle East come to offload their cargos. It will probably be days before we know what was chewed up out there -- not to mention the spaghetti-like network of pipelines that run all over the shallow bottom to carry the oil and gas from the platforms to the refineries just up the Mississippi corridor between New Orleans and Baton Rouge.

So, at this hour nobody knows yet what the outcome will be, either for the city of New Orleans and its suburbs, or for the oil and gas industry. My guess is that enough oil and gas will come off-line, be shut-in, or get disrupted to severely affect the normal operations of America for a couple of weeks. At the least, our just-in-time gasoline and diesel supply system will take a forced time-out. Those refineries on-shore are in the path to get hit. If they are damaged then we'll probably see shortages of motor fuels all over the eastern US.

If we see a shortage of motor fuels, we may also get a disruption of trucking for the just-in-time food delivery system that keeps the supermarkets stocked. So, there is a possibility that Americans will experience both fuel and food shortages this back-to-school week -- and in some places it may be be the not-back-to-school week if there is any trouble getting fuel for the yellow bus fleets. There has also been chatter about possible far-reaching damage to the old-and-fragile electric grid if this storm trips just the right switches, but that's in the category of idle talk for now.

All the above is unknown so far, and I won't even venture to guess what may happen in the city of New Orleans itself -- except that the morale of its citizens must be badly strained as three years of re-building gets undone and the long-term future becomes an even more dubious proposition.

Projected damage estimates on CNN early this morning ran into about the $30-billion range. This hit, and the potential disruptions to the everyday economy, could be the shot that finally pushes the long-teetering banking system over the edge. Surely the insurance industry, which is tied to banking and its worthless alphabet securities, will not be in position to cover all its billions of dollars in payouts. This may be what finally stops the game of musical chairs in which insolvent banks pretend to be capitalized by showing up for loans at the Federal Reserve's teller cages. For instance, when last seen before the Labor Day hiatus, Lehman Brothers was desperately scrambling for life-support from anybody and anything with a few billion spare bucks. As the hiatus ends and real-life reasserts itself, Lehman may finally find itself free-falling into the abyss, and the chain of mutual obligations, cross-collateralizations, and Ponzi plays connecting it to the other banks could break, bringing on a domino fall of insolvent banks and institutions.

All the hurricane action has come at a bad time for the Republican Party. The roll-out of John McCain's ridiculous and cynical choice of a running mate, complete with pompom pumping cheerleaders, will remain front and center in the public's consciousness now while the party delegates go through a few procedural motions in Minneapolis -- taking it light on the funny hats, and the other usual festive hijinks, which would only seem indecent against the background of a profound natural disaster. Despite the poll numbers currently showing a fairly close race between Obama and McCain, the Republicans are well on-track to being regarded as "the party that wrecked America." So it's fitting that their quadrennial meeting should be solemn and restrained.

This official last day of summer, Labor Day Monday, with roughly twenty percent of America's oil production getting chewed up, and the financial markets shut down, and the public in other places than the Gulf states kicking back with weenies and burgers, or watching the hurricane on TV, may be the last day of seeming normality in this country for quite a while to come.

Source - James Howard Kunstler


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