Volatility

December 9, 2009

Mirage of Sodom

 

20. And the Lord said, Because the cry of Sodom and Gomorrah is great, and because
their sin is very grievous,
21. I will go down now, and see whether they have done altogether according to the cry
of it, which is come unto me; and if not, I will know.
 
– Genesis 18
 
“The Circus Circus is what the whole hep world would be doing if the Nazis had won the war.”
 
– Hunter S. Thompson, Fear and Loathing in Las Vegas
 
Dubai’s infamous set of artificial islands, dubbed “the World”,  are like a pointillist painting. From close up they’re just a bunch of dots. Only from orbit do they resolve into a map of the continents.
 
Similarly Dubai itself looks like a city and a society only from far away and from socioeconomically up on high. From close up, it’s just a splattering of the sweat and blood of slaves.
 
The financial world has been transfixed by the spectacle of Dubai’s impending debt default, at the vanguard of the commercial real estate debt overhang. Dubai is $80 billion in debt, of which 60 is held by the supposed GSE Dubai World, and what’s specifically in question here seems to be the $26 billion in “Islamic bonds”, sukuks, issued by DW’s Nakheel construction entity, which are slated to come to maturity on December 14. Evidently they can’t pay and want to extend and pretend for six months. Meanwhile nobody even knows what’s the real legality of these bonds. Two such bonds have already defaulted, one from Kuwait.
 
Everyone had assumed Dubai itself was good for all the debts, and at worst oil-rich Abu Dhabi would always be there to backstop oil-poor Dubai. But this expectation seems to have broken down, as AD said it would only make $15 billion available to Dubai banks, not DW, while Dubai itself has proclaimed that it does not necessarily backstop DW’s debts. The whole thing is full of portents, on the largest scale.
 

So now, less than five years later, you can go up on a steep hill in Las Vegas and look West, and with the right kind of eyes you can almost see the high-water mark — that place where the wave finally broke and rolled back.

 
(I hope HST wouldn’t mind if I borrow from his great lines to describe a very different phenomenon, one he found just as ugly as I do.)
 
The religion of debt as “progress” has run up against its practical and moral limits. Resources and real economic production cannot sustain the Tower of Debt Babel. This has been the high water mark, and now the whole wave must roll back, leaving behind a nasty mess. The progress flacks will still argue that Decadence is Progress. The curve of slavery can perhaps continue rising for awhile, and with the help of that, and props like Green tech, slave surveillance tech, it might be possible for the system to play the shell game with funny debt money for a few more years yet. But this is End Game.
 
Dubai is a neoliberal model city. It’s nominally dedicated to providing “services” only tangentially related to any real economy – finance and tourism, both on the globalist level. (So even if they still had oil let alone any other resource their activity vastly exceeds their resource base.) It’s really a sybaritic parasite perched on the backs of slaves. It’s set up as a monument to wingnut welfare. By all accounts the privileged class, natives and expatriates, are the worst kind of scum. They’re an obscene combination of incompetence, stupidity, arrogance, and callousness. Their ruler, Sheikh Mohammed, is simply the oil magnate equivalent of a brain dead drunken yahoo tourist.
 
Everything here was built by slaves. They are lured from places like Bangladesh, Sri Lanka, the Philippines, and Ethiopia with promises of high wages and good work conditions. They arrive already in debt. Their passports are illegally confiscated. They are then herded into hideous work and living conditions for wages so low (lower than even the meager wage they could’ve gotten at home) it takes them years to even work off their original debt. 
 
All of this has been “constructed” not even toward the pretense of any higher ideal, any better, more human way of life. Instead, it’s brazenly set up to enable an inferior parasite class to indulge its every hedonist and sadist whim. It’s intentionally as infantile, wicked, and ugly as possible.
 
Dubai represents the cutting edge, and the most honest manifestation, of the neoliberal variety of fascism. A place like Las Vegas is in the same ballpark, but we must really look to Wall Street and Washington to fully appreciate the identity. Here too it’s the same essence. The people are the same inferior, incompetent parasite class who produce nothing, who suck the blood of those who do produce, and who go about it all with the same vile sense of entitlement which has always identified the real nazi welfare cohort of this world.
 
The only slight difference is the level of overt Gilded Age conspicuous consumption, and that they pay lip service to ideals like “capitalism”, “democracy”, “freedom”, “America”, even religion, even as they defile all of these with every action and every thought. (By contrast, in Dubai everyone, even nominal “dissidents”, gives the same boilerplate rationale in response to ever being questioned about their slaves: This used to be desert, my ancestors had things hard, we worked hard….(So implicitly they now deserve to live off slavery. They also claim the slave conditions are not the norm, but just abuses on the part of bad apples among the employers. The authorities are simply overworked, and that’s why abuses can occur. Strange – the police are always able to immediately go into action the second any worker gets uppity, let alone the rare times there’s any kind of labor unrest. They don’t seem “overworked” then.) They must be taught that in school. They stick to the lines with excellent discipline.)
 
The whole structure is not only morally and aesthetically vile but unsustainable. Neoliberalism in general, and Dubai among the first, is running up against what Toynbee called the “nemesis of success”.
 
Facing the fact of living on a harsh desert with few natural resources except for some oil, Dubai chose the path of greed and excess. They leveraged the oil wealth into an inverted pyramid of debt. They used the debt to try to build themselves into a finance and tourism center. This was a questionable strategy to begin with, since it relied upon permanent exponential growth to service the debt and maintain a bloated finance sector in existence, and keep an international jet set of rich tourists flowing in. So they were already completely dependent upon infinite oil and infinite debt. Since these financiers and tourists could go anywhere they wanted, Dubai went all the way in styling itself a tax-free Gilded Age playground. So their energy and financial extravagance went way beyond even what was already unsustainable in its inception.
 
Dubai represents the extreme of psychopathic narcissism and hedonism, all built on profligate debt and slavery. Sodom was never like this.
 
Industrial civilization has been based upon building layer upon layer of complexity over the oil platform. But eventually the reality-based forces of economics and physics intrude to render the process counterproductive. Joseph Tainter described it as a vise grip between the rising costs and dwindling payoffs of increasing complexity. The larger, more complex, more top-heavy a structure, a city, a country, an economy, a civilization gets, the more energy and wealth it must expend merely in maintaining itself against external pressures and internal entropy. For awhile adding complexity may add value, but eventually the returns diminish and then go negative. Here the nemesis of success is to keep adding layers when that no longer works.
 
In Dubai’s case, they started with nothing but some oil. The problem? There was no sustainable way to become super-rich by Western standards. So right from the start the gilded path depended completely upon debt. Already the first layer of complexity was extremely tenuous and utterly dependent upon outside forces. Add to this the monumental energy required to electrify the place and most of all the desalinate the obscene amount of water required. (To even stand still and do nothing there requires drinking three times as much water as in a temperate clime, let alone to serve a mega-sin city with a golf course and an indoor ski hill as just some of the more extreme examples of the general profligacy.) This complexity as well is built on sand, and not just literally.
 
Now that the globe has entered a Depression, suddenly the bankers and tourists aren’t rolling in the way they used to. Suddenly the chariot races and gladiatorial games are sparsely attended. Suddenly the rents aren’t piling up sufficient to do the one and only thing Dubai must do in order to keep making its obscene expenditures: service the debt. 
 
As fun as it would be to enclose Dubai in a physical bubble and leave it there to live or die by its own resources, Dubai at least does in theory have recourse to the outside forces it depends upon. When it cannot sustain its complexity, when it defaults, it runs to mommy.
 
Or that’s what everyone assumed it would do if worst came to worst.
 
Let us compare this to America’s nemesis of success. Unlike Dubai, America started out with vast resources of almost every kind. It used these to build a real manufacturing economy. Gliding on the wings of oil it had enough extra wealth to add a service economy as well.
 
The great shock to this came with the American oil Peak in 1970, the structural problems of the gold-based dollar (exacerbated by the self-inflicted political and economic wound of Vietnam), and the oil shocks of the 70s. America was now living beyond its means.
 
Facing this, America could have rationally and morally adapted, transformed to a steady-state economy, rationally deployed the oil that was left, and all Americans could have shared a reasonable social and economic life indefinitely.
 
Instead class war from above prevailed. The strategy was: Financialize the economy, close the gold window, float the fiat reserve currency (which would now really be grounded in oil, as OPEC agreed to price and exclusively receive dollars), and import ever growing amounts of oil. They blew up the exponential debt economy, launched the neoliberal offensive, and sought to enshrine consumer indebtedness to temporarily maintain the illusion that America had a middle class even as actual wealth was concentrated in ever fewer hands. They bloated up energy consumption with suburban sprawl and the intensification of the personal car model of social infrastructure.
 
Now these layers of American complexity have become untenable. Resource and economic limitations (oil and overproduction on behalf of too little distributed wealth, the ultimate contradiction of capitalism) have brought the American machine to a thudding halt. Does America retrench, fall back, let the system unwind? You betcha it does NOT. Instead it adds another layer of complexity, the permanent bailout and the permanent war. These are somehow supposed to prop up the Tower.
 
But the system was already doomed, the economy already a zombie. This new layer simply renders it all even more top-heavy, and the inevitable crash will simply be more destructive and complete.
 
Unlike Dubai, America, and the globalization/financialization structure as a whole, has no mommy to run to when it finally defaults once and for all.
 
And on this island Earth, we are all as if inside a physical bubble.
 
So what does the Dubai default signify? It’s the Bear Stearns of indebted countries. The unwind must happen, and we can see how the plight of Dubai is a version of the plight of Iceland, of Latvia, of Greece, of Lithuania, Hungary, and so on, and soon of the UK itself. Is the IMF ultimately solvent? The World Bank?
 
Dubai World traverses the future path of our own Fannie and Freddie. These are nominal GSEs, and these were temporarily bailed out as everyone expected them to be. But they’re still tottering, still insolvent without the bailout. And then the government added all the big banks, AIG, GM, and god knows what else to the Too Big to Fail system.
 
But America is at the summit of the Tower. Unlike for Dubai World, for Dubai, even for Abu Dhabi, for America there is no appeal, no mommy to run to. It must in the end default, because it must deflate.
 
Much pain could have been avoided if America had simply let the debts go bad. Write them down. Much pain has been instead piled on, as a system becomes locked into a way of doing things, its “nemesis of success”.
 
The whole dam is going to burst. Cracks are forming everywhere, leaks breaking out. Let them spurt. maybe if we’re lucky it can let out some of the pressure before the whole thing bursts, as it must someday, and soon.
 
Dubai World is one exemplary leak. Dubai and the UAE clearly intend for the broader system to plug it. (And why not – it’s scrambled to plug every other hole.) The system powers are simply going to stick their fingers in hole after hole, stretch out their legs, try to grow new arms.
 
But the cracks will spread far faster than globalized central banking can spread to cover them. It’s simply not possible for even such thieves to steal that much money. There was never such wealth in existence in the first place. The Tower of Babel is built out of worthless paper.
 
When the dam bursts, it’ll sweep them all away, forever.
 
 
13. Escape for thy life; look not behind thee, neither stay thou in all the plain;
escape to the mountain, lest thou be consumed…
 
23. The sun was risen upon the earth when Lot entered into Zoar.
24. Then the Lord rained upon Sodom and upon Gomorrah brimstone and fire
from the Lord out of heaven;
25. And he overthrew those cities, and all the plain, and all the inhabitants of
the cities, and that which grew upon the ground.
26. But his wife looked back from behind him, and she became a pillar of salt.
27. And Abraham gat up early in the morning to the place where he stood before
the Lord:
28. And he looked toward Sodom and Gomorrah, and toward all the land of the
plain, and beheld, and, lo, the smoke of the country went up as the smoke of a
furnace.
29. And it came to pass, when God destroyed the cities of the plain, that God
remembered Abraham, and sent Lot out of the midst of the overthrow, when he
overthrew the cities in the which Lot dwelt.
 
-Genesis 19 
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5 Comments

  1. Very nice use of God’s Word as literature. To boil this down to a sentence: we may have reached the limit of unserviceable debt, although our leaders will do everything possible to reinflate before too many dominos begin falling at once. Are we in the position of watching from the air the beginnings of a five hundred car pile up on the fog bound freeway? Then again, you couldn’t see it from the air with the fog there, could you?

    Comment by jake chase — December 9, 2009 @ 11:10 am

  2. Lots of apt metaphors occur, don’t they?

    That’s one domino theory which is true, except that once again letting the dominoes fall as they must would hurt the fatcats most of all, the rest of us not so much.

    But as always, they want to make everyone else pay to keep their dominoes from falling, for their benefit only.

    (It’s actually foggy here right now. We had an unexpected snowstorm, then rain, and now I guess it’s a little warmer. I can only barely see across the street.)

    Comment by Russ — December 9, 2009 @ 3:39 pm

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    Comment by Secret Success — February 23, 2010 @ 2:43 am

  4. […] unwind, which may roll up the EU itself, with incalculable consequences. We still have zombie Dubai, still extending and pretending. And providing eschatological backdrop as well as threatening […]

    Pingback by Signal Lanterns « Volatility — June 6, 2010 @ 2:57 pm

  5. […] and weekends in neon-lit nightclubs.   The comparison with the post-capitalist, purely globalist worthless thug-and-slave decadence of Dubai is clear. And this is where we’re headed everywhere.   What would happen when Western […]

    Pingback by We’re All Lumpenproles Now (Part 3) « Volatility — August 19, 2011 @ 3:23 am


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