Yes...but!

April 14 2008

Home > Columns >Yes...But! Year 8-23

Barcelona. Site of the 1992 Olympics. A city full of churches, but with only one real religion: soccer, with its own unique place of worship: a 120,000 seat stadium.

Barcelona. A city of walkers, where sidewalks are thoroughly crowded - no wonder they are wider than the auto-reserved part – and where commercial and residential occupancies are totally intertwined: everybody can buy everything within a few blocks.

Barcelona. A city of apartment-condominiums. All ornate in appearance, dignified, with lots of sculptured stonework. These multi-storied buildings, many quite antique, all have balconies with fancy wrought-iron railings, each structure uniquely artistic, some with even Arabic looking facades, so different from the same-looking high-rises we often see.

We are in Barcelona because our youngest daughter’s husband chose this city for his sabbatical. Within a 2 mile radius I counted 10 bakeries and just as many churches – apparently people here at one time believed that “you shall not live by bread alone”- – also heavily used, but by tourists only, who admire the interiors, where Mary is the feature figure. I couldn’t help contrasting the current lack of religious devotion here with the real zeal I saw when our middle daughter lived in Beverly Hills, where, also within a short walking distance, I counted 10 synagogues, truly viable worship centres for the Jewish folk there.

Also I couldn’t help comparing Barcelona to North American cities. With the Oil Crunch coming, Barcelona or any old European town, has a much greater capacity to cope with the coming crisis than our spread-out–single-family-dwelling-automobile-dominated urban centres, all so Twentieth Century outdated. The old compact places are new again. The New World, built on cheap oil, has no future.

Why not?

Oil is one reason why in the USA real estate prices are sinking so rapidly. Soon a good portion of the population will have their mortgages exceed the real estate value. Combine this with rising food prices, stagnant wages, and the so vaunted high American standard of living will evaporate as mist in the summer heat.

This real estate deflation will go hand in hand with high inflation. There is not yet an economic term for this new phenomenon. The word “Colossal Collapse” comes to mind.

During the Great Depression in the U.S. in the late 1920s, early 1930s the dollar was linked to gold, preventing governments from printing more money because its supply was tied to the amount of bullion stored in Fort Knox. General deflation was the result. That limitation does not exist today. Printing more money is now seen as the miracle cure. It always leads to inflation. So does $100+ oil. So do high food prices. So brace for inflation: lots of it. Today if inflation were measured the same way as in President Carter’s days, the rate – including oil and food – would be 12 percent. Of course spending on unproductive war machinery and the military is always inflationary. Add the deficits, worsened by less tax receipts, and even higher inflation is the upshot. The ever lower American dollar adds icing to that cake. The extra medical costs for the tens of millions looking at retirement make the problems even more pronounced.

Of course the ROW, the Rest of the World, is affected as well. With so many trillions of American dollars floating around the globe, a currency that’s becoming less valuable by the day, a MAD situation is the result. MAD is an acronym for Mutually Assured Destruction, the name a relic of the cold war, but now more current than ever.

The USA has long been the world’s champion in everything. It will now be the main cause in bringing on the Colossal Collapse, the leader in the MAD race which will see the convergence of scarcer oil, food rationing and growing environmental dangers- the CO2 level has increased 35 percent since 2000. All this means that cities like Barcelona, geared to pedestrians, with access to a lot of local produce, will survive, where the North American metropolitan areas will have a much greater difficulty to cope.

Fortunately Canada is rich in natural resources and has run budget surpluses while the USA’s money situation is equivalent to a maxed-out credit card.

When the bidding war starts for the ever more precious commodities, such as oil and cereals, those holding the trump cards – meaning oil-producing nations - will refuse payment in ever depreciating American dollars, devaluating them even more, causing more American inflation.

The Canadian dollar will benefit. So will gold. So will dwellings in rural areas with a degree of self-sufficiency.

When historians look back to our times they will see the two presidential terms of George W. Bush as the crucial juncture. His misplaced ‘faith’ in rapture, his conviction that he and the true believers are heaven- bound and this earth is ‘a foreign strand, wilderness waste’ has dominated his actions. His Iraq fiasco, his tax policies, his environmental neglect, his failure to gauge the true global predicament, will have been the tipping point in bringing on this Colossal Collapse.