When Giants Fall: No green shoots here

I have been making bullish noises of late, but I am fully cognizant of all the downside risks.  So for the sake of presenting both sides to this argument, I want to highlight the ‘dark’ side in this post based on a book I have just read.

If you are an American investor or just an American citizen interested in where things are headed in this country, I recommend you read the book “When Giants Fall” by Michael Panzner,  You are not going to find any of the bullish noises I have been making in it.  Nevertheless, it is a must read if you want to be fully equipped to deal with the worst-case scenario for the American hegemon.  By the way, if you’re looking for a feel-good story, this book is not the place to go.”

The narrative goes a bit like this: The United States has overreached and has been living beyond its means for at least a decade.  This can no longer continue in the wake of a bubble and bust of epic proportions.  As a result, Americans will need to accept a lower standard of living for the foreseeable future.  Part of this somewhat apocalyptic view is predicated, not on the global markets but on the very real possibility that we are reaching a point where demand for available natural resources (oil, water, industrial commodities) outstrips supply.  In Panzner’s view, this prospect will diminish America’s role on the global stage and usher in a chaotic multi-polar struggle made all the more dangerous by the presence of weapons of mass destruction.

I see this as a combination Peak Oil meets Jared Diamond/Collapse view.  Now, if you asked Panzner about green shoots, he would probably laugh in your face.There are no room for green shoots in this book.  My take on his thesis is two-fold.  First, I agree with some of the larger themes about imperial overstretch, diminishing natural resources, and over-consumption.  However, I am not of the view that there is anything inevitable about the course of events in the face of those challenges.

Give Panzner’s book a look. It is definitely food for thought, especially if you are considering downside scenarios and their implications. For now, I am taking the opposite view.

  1. aitrader says

    In Panzner’s view, this prospect will diminish America’s role on the global stage and usher in a chaotic multi-polar struggle made all the more dangerous by the presence of weapons of mass destruction

    Panzer makes some valid points, even if he is a bit skewed to the “doomer” side of things.

    Sending a warning about these issues is good copy and perhaps even good journalism. But have we thought about the new structure of the global economy in light of these issues? Oil does look to be on the brink of a supply shortage, even if we are in the midst of a glut right now (“brink” meaning 2-3 years here). What will the global economy look like with oil at a permanent price above $300 a barrel in today’s dollars? What will this do to world trade? Who will be the winners and losers?

    The global economy will not disappear as oil shocks continue to hit. Short term it will likely be a pattern not unlike an undamped shock absorber. I believe this trend is part of a fundamental structural transformation of the underpinnings of cheap energy hence a fundamental transformation of the bedrock of our global economic system.

    How that transformation will look ten and twenty years down the road is my interest.

  2. barryschaeffer says


    When I read your optimistic take before, I wondered if the -6% GDP in Q1 was too optimistic. Karl Denninger says that the Q1 number includes a “trade balance shift credit” that puffs the GDP number from -9% to -6%.

    See his article below, because I think we’d like your take on a lot of what he says.



    1. Edward Harrison says

      Barry, he is living in yesterday’s reality. What he says is true regarding pulled forward demand and trade. But all of that is pretty much irrelevant.

      Don’t underestimate the power of printing money. The stimulus is probably going to induce a cyclical rebound regardless of whether people like you and me think it is a fake recovery. Even Roubini is saying this.

      The structural problems the article speak to exist, yes. But, they existed in a more muted form in 2002 and we still got a cyclical rebound and bear market rally. My view is he needs to remove his ideological bias and look at the available evidence.

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