The worldwide economic and financial collapse could be coming soon to a town near you. In case you haven’t noticed the entire world is enveloped in an unprecedented deflationary collapse of equities, real estate and commodities. It is not just the magnitude and breadth of the collapse that is stunning, it is the rapidity of the meltdown, which is sweeping like a Santa Ana driven wildfire all over the world and the impact here could be severe. With the exception of Corpus Collosum’s Jonathan Schechter, I see very little mention in our local publications of how this collapse could impact Jackson Hole. In talking with friends and acquaintances, I have been stunned by the level of ignorance and insouciance from these very intelligent people about the factors causing this economic crisis and what consequences it might pose to our isolated alpine valley far from the madding crowds of Wall Street.. How did it happen? The proximate cause began within the last decade as deregulation of financial markets and a flood of cheap money from Al Greenspan’s Fed led to a credit and debt bonanza as mortgage brokers rushed to offer loans to anyone with a pulse. These loans were then repackaged as CDOs and other securities baptized by wink and nod credit rating agencies who reaped huge fees which were then marketed by poorly regulated investment banks to the entire world as high yield low risk securities virtually backed by quasi government agencies within the Federal Government. Just to be safe, the buyers utilized the insurance from CDS(credit default swaps) another entirely unregulated enterprise which purportedly insured these CDOs against default.. CDS’s were offered by scores of companies including the world’s largest insurance company, AIG. Unfortunately, the reserves were nowhere near sufficient to cover the risk of default. The amount of leverage to market these securities exploded as the Bush administration lifted leverage limits about 5 years ago. It was a classic bubble with asset prices rocketing skyward fueled by greater profits fueling more investment and borrowing by consumers as they borrowed on these assets to fuel yet more consumption and investment until “Poof!”. It ended. But the problem didn’t end there. The bankers and their political allies using a “shock doctrine” developed from the Iraq War shocked the congress into a sudden massive taxpayer bailout of the greedy incompetents who caused this fiasco, putting on yet more debt onto the American public which has seen the national debt double under the Republican Bush administration to over $10 trillion. And it is nowhere near over. These defaults and the ensuing deflation is rippling around the world in an interconnected world financial system of derivatives, credit and other forms of leveraged debt which is threatening to bring this world to its knees. The response here and abroad has been to flood world markets with more debt and credit to try to jumpstart a world economy dependent on debt and credit. But these solutions pose a huge risk of inflation longer term and even failure in the near term. Einstein once said” We can’t solve problems by using the same kind of thinking we used to create them”. So now we have a world tottering over the precipice of what could turn into a world deflationary depression. And yet there is one more piece to this puzzle of how and why these distant events may soon impact our lives here in Wyoming.
That is the almost certain reality of a peaking in world petroleum production. The International Energy Agency (IEA) will release its long awaited World Energy Outlook in a few weeks that may mark a huge change in the perceived availability of oil. Many governments and government entities and consulting firms, among them the USGS, CERA, the EIA, and energy officials in the UK have projected stable supplies out as far as 2030. The Financial Times of London recently leaked excerpts of this IEA paper, that suggest a significant decline in worldwide oil production with or without massive investment in exploration and infrastructure. The worldwide credit collapse is already curtailing such projects worldwide. Within as little as 2 to 5 years we may see production falling behind demand even with huge investment. That will mean big price increases for oil and likely all energy sources. These increases may start to occur just as the world is trying to work its way out of what could be a deep recession. Any way you slice it, the United States and the World are saddled with stalled growth and huge deficits and a good many of us will be suddenly poorer. This country and the world are almost certainly looking at rising unemployment and bankruptcies on a scale not seen since the great depression. So let’s get to the crux of this essay. How will it affect us here in Northwest Wyoming?
We are a region dependent upon discretionary spending and tourism. We make nothing of value and we are at the tail end of many supply chains. We cannot feed ourselves. We cannot even feed our subsidized elk herds. We are a long way from where our visitors live. We started to lose visitation when gasoline hit $4 a gallon and most people still had their homes, their jobs and some money. How many will come when that changes, when fuel costs climb to $5,$10 or $15 a gallon or worse becomes scarce or rationed? When those people begin to lose their jobs? When their 401K and IRA accounts don’t bounce back ?
I certainly have no idea how the current situation will play out but I take it as a given that this is a pause in our real estate boom and a real estate decline going forward seems inevitable. As a community I hope we can come together to do contingency planning for coping with what could be a pronged and deep recession and trying to design a valley economy and an even more livable community that is not so dependent upon wealthy visitors for its prosperity and survival.