At the Age of Limits conference near Artemis, Pennsylvania on May 25-28, I was asked to speak on rentier debt and the collapse of debt-based finance. This is a somewhat difficult subject, so I decided to talk about the subject more generally–how growing debt fits in with economic growth and growth of energy supplies, and how inability to keep increasing this debt makes any existing tendency toward collapse worse. In this post, I would like to share this presentation with readers.
Slide 1
Let’s start by talking first about a subject fairly far removed debt–the difference between the systems created by nature and systems created by humans. The reason why I bring this difference up is because if we were only dealing with natural systems, there would be no need for debt. It is only when we start dealing with man’s systems that debt becomes an issue.
Natural System vs. Humans’ Growth Based System
Slide 2 – Natural system vs humans’ system
We all know what the natural system looks like: the combination of birds, animals, trees, the sky, the many tiny organisms, the soil, rocks, and everything else in the world that is present without man’s intervention. Human systems represent things that humans make, such as trucks and roads, and cars, and buildings, and electrical transmission systems. In a way, all human systems are interconnected, so we can think of them as one big system, created by humans.
Slide 3. Natural systems don’t grow
Natural systems don’t expand in size over time. Individual plants and animals grow and mature, and in the process become larger. But then they die, their bodies decompose, and eventually different organisms grow. Rocks decompose and form soil. This soil erodes, but, in time, it is replaced with new soil through the erosion of rocks.
There can be an expansion in the number of one type of animal, but eventually these animals will tend to eat too many of their prey, and the number of predators will drop, to stay in line with the amount of their food source. There can be a shift in mix of types of plants and animals, but the change is in the mix, not a long term growth in the overall quantity of plant and animal life.
Natural systems don’t need any assistance from humans. They have been around for billions of years. There is no need to finance anything.
Outsmarting the Natural System
Slide 4. Human systems are very different
In the natural system, each type of plant or animal produces more offspring than is needed to replace itself. The normal order of the natural system is such that only the best adapted plants or animals relative to the particular surroundings will survive. Many of the offspring do not survive to maturity.
Humans, since the earliest times, have had difficulty with this arrangement. Humans, because of their intelligence, have found ways to outsmart at least part of the “survival of the fittest” arrangement that would keep our numbers similar to those of other primates, such as gorillas or chimpanzees–probably fewer than 1,000,000 humans in total in the whole world.
Well over 100,000 years ago, humans discovered the use of fire, and the fact that fire could be used in many ways–to cook food so that new types of food could be eaten, and so that more nutritional value could be extracted from food that was eaten, to keep warm, and to drive animals from one area to another, so that animals could be more easily killed and eaten. In the same time-frame, humans began using spears to better kill prey. About 35,000 to 45,000 years ago, humans learned to hunt with dogs, and thus increased the amount of prey they could kill.
This pattern of finding ways around natural limits has continued to this day. The use of farming, starting about 10,000 years ago, allowed a great expansion in population. The use of trade to import food from a distance further increased the number of humans who could live on the earth. There were numerous other discoveries, including burning peat moss, and the use of water power and wind power, before coal was brought into common use in the 18th century. In the 20th century, the petroleum use surpassed coal. There were also many other advances that helped humans avoid natural limits–for example, the discovery of antibiotics, and the widespread use of electricity.
At the bottom of Slide 4, I have represented the long-term pattern of growth by a line that gradually slopes more and more upward, as we move to later periods. Even in the earliest period, there was some upward slope, but this may have been offset by setbacks. The amount of growth gradually increased, but still was not particularly evident to those living at the time, because of inherent fluctuations. The greatest growth has come in the last 100 years.
Slide 5. Reasons human system is growth based
There are two basic reasons why human systems are growth based:
(1) Humans find ways to get around “survival of the fittest”.
(2) Entropy–Whatever humans build eventually falls apart. Humans have to keep to keep building more, just to stay even. Even advances like discovering antibiotics and herbicides have to keep being repeated, or nature finds ways around our advances.
The combination of these factors means that humans have been, and continue to be, on a constant growth tread-mill. There have been examples of small societies that have managed to keep populations flat for relatively long periods, and there have been many societies that have collapsed while others have expanded. The overall aggregate impact of human has been, however, has been one of gradual growth in numbers and material wealth.
Graphic Representation of Natural System and Humans’ System
Slide 6. Humans’ system started out as a tiny part of nature’s system.
Slide 6 shows my view of how very early humans fit in with the natural system, back in the days before man discovered fire and spears and learned how to hunt with dogs. Humans were part of the natural system, just like other animals. Their population was no doubt relatively low, and stayed low, perhaps varying with climate change and food availability.
Slide 7. Humans’ system grew to overwhelm nature’s system
Slide 7 shows my view of what humans’ system looks like now. It has grown in size, so that in many places it overwhelms the natural system. Humans’ system takes resources from nature, and sends its pollution back to nature. Thus it is tied to the natural system, whether we recognize the situation or not.
The Nature of Growth
Slide 8. World population growth
If we look at a graph of world population, we see that growth has been particularly evident in the last 100 or 200 years.
Slide 9. Nature of growth
It appears to me (based on GDP statistics of Angus Maddison for the last 2000 years) that prior to the use of fossil fuels, most of the growth was simply population growth, as humans were able to increase their food supply. It was not until fossil fuels were added that there was a big increase in standard of living.
Slide 10. Growth provides many benefits.
Economic growth of the type we have had since the growth in the use of fossil fuels provides many benefits. If the economy is growing fast enough, there is rising demand for homes, so home prices tend to rise. The prices of individual stocks rise, and there are more jobs available, some of which pay well. Governments find that the taxes that they collect rise, even without raising the tax rate. This helps governmental stability.
Slide 11. What is needed for a growth-based system?
How can humans’ system be made to grow? Clearly one thing that is needed is increasing amounts of materials from the natural world; another is a way of transforming these materials into goods and services that people want or need.
A less obvious thing that is needed is a way for people to be able to pay for the goods and services, in advance of the time that they earn the money to buy these things. This is where “rentiers” come into play. Rentiers provide the credit that allows people to buy goods and services that would normally require a large accumulation of wealth.
Debt was first used about 5,000 ago, back in the days of early agriculture, according to David Graeber’s Debt: The First 5,000 Years. At that time, large temples acted as purchasers and sellers of goods and services. People brought goods to the temple to sell, and also bought other goods. The temples kept running tabs. Those who bought more than they sold were in debt.
Rentiers and Debt
Slide 12. Who/ what are rentiers?
Rentiers are enablers of debt. They allow people to buy things that they couldn’t otherwise pay for. Rentiers include banks and other parts of the financial system.
There have been rentiers for 5,000 years, but the growth in rentiers has been greatest since World War II. The need for debt is greatest when one wants to increase the rate of growth.
Think of the United States after World War II. The world had come through the long economic depression, and things were finally looking better after World War II. The soldiers were coming home again, and would soon be unemployed. If only citizens could afford to buy new cars and new homes, there might be jobs for these returning soldiers.
Slide 13. Non-government debt growth after World War II.
Government debt had been ramped up prior to World War II (allowing it to buy tanks and airplanes and to employ more soldiers), and now was being paid down (not shown on Slide 13). If demand was to be kept up, and even raised, private citizens and businesses needed to be encouraged to go into debt, allowing citizens to buy things like cars, refrigerators, and new homes. Slide 13 shows that non-government debt was ramped up after World War II. This stimulated the economy because it allowed more people to buy “big ticket” items, and helped ramp up job growth and energy use.
Slide 14. World Energy Consumption
If we look at a graph of world energy use (from my post, World Energy Consumption Since 1820 in Charts) we see that world energy consumption really began to rise after World War II–that is, the same time non-government debt was being added.
Slide 15. Per capita energy consumption since 1820
The growth in energy consumption since World War II is even larger on a per-capita basis. Most of this growth was in fossil fuels–in oil and natural gas, and, recently, in coal. Without fossil fuels, our per capita energy consumption in 2012 would be below that in 1820, and our lifestyles would be much different.
Slide 16. World population grew at the same time as non-governmental debt and energy.
Slide 16 shows that if a person looks at a graph of world population growth, there is a very distinct upward “bend” after World War II. This is precisely the time that energy use grew rapidly, and debt use grew rapidly.
How Debt Growth Works – And Eventually Doesn’t Work
Slide 17. How the debt-based system works
The basic way our financial system works is that when a person or business or government needs money, that money is loaned into existence. This allows a business to expand, or a person to afford to buy a car or home that he or she had not saved up money for. What happens is that increasing debt allows demand to be higher than it would otherwise be, so that natural resources (including oil, gas, and coal) are extracted more rapidly than they otherwise would be. This allows what we measure as the “economic growth” rate to be higher than it would otherwise be.
There are a couple of catches with this system:
1. The money to repay the debt is not loaned into existence at the same time the principle is loaned into existence. As long as the economy is growing fast enough, this is not a problem, because economic growth allows future production to be enough higher than current production to pay back debt with interest. But if the economy ever slows down, there is a problem.
2. The process of increasing extraction of natural resources through the use of increased debt doesn’t work indefinitely, because at some point resource extraction starts getting constrained, and pollution becomes more of a problem.
Slide 18. Our debt-based system depends on growth
Slide 18 illustrates the way that a growing economy helps to make repaying debt easier. With a growing economy, the size of the “economic pie” grows pretty much every year. This growth means that even if a fixed amount of debt plus interest needs to be paid back, relative to the growing base, it is less of a problem. It is easy to see this situation for a government, but a similar situation exists for individuals. If the economy is growing, on average, people will find themselves getting promotions and will find new jobs available when they lose old ones, so that, for example, repaying home loans tends not to be a problem.
Clearly, the reverse is true if the economy is shrinking. Even if the economy shows zero growth these is a problem, because there is not enough to growth to cover the interest. If interest rates are lowered to almost zero (do very low interest rates sound at all familiar?), the inability to cover the additional cost relating to paying back interest, but even this becomes burdensome.
It might also be pointed out that with a flat or shrinking economy, it becomes more and more difficult to pay for promised social programs, such as social security retirement programs and unemployment programs. These programs become a larger portion of a stable or shrinking pie, and thus become harder and harder to fund. European countries (which have been very generous with their social programs) are having particular difficulty with these problems now, as well as difficulty with repaying their debt.
Slide 20. Humans’ system can’t keep growing forever
The reason why growth in resource extraction cannot continue forever is related to Figure 20, whch I also showed earlier. At some point, resource extraction becomes constrained. Higher demand for oil tends to lead primarily to higher prices for oil, rather than to much more oil actually coming out of the ground. Pollution of various kinds, including carbon dioxide pollution, becomes more and more of a problem.
Everything I can see says we started reaching the point where oil resources became restrained about 2004 – 2005, when oil prices started going up, and oil extraction did not rise by much. Since that time, world oil extraction has grown very slowly, constraining economic growth. The 2008-2009 recession seems to me to be very much associated with this constriction, as are the debt problems we are now seeing around the world, especially in Europe.
Slide 21. Slowdown occurs when oil prices rise
The reason why an economic slowdown occurs when oil prices rise relates to the fact that oil is used for necessities–growing food and for commuting to work. A rise in oil prices does not result in a rise in families’ incomes, especially in oil importing countries, which is what the United States and most of Europe are. A family will tend to cut back on discretionary spending, such as going out to restaurants, or buying a new car, or buying a more expensive home.
As a result, there will be layoffs in discretionary industries–for example, restaurants, car manufacture, and home building. People in these industries will be laid off from work. Some of those laid off from work will default on loans. Value of homes will tend to fall, as few people are in the market for a move-up home. Government spending on unemployment claims will increase, at the same time that tax revenue drops (or flattens) because fewer workers are employed. Governments find themselves in increasingly distressed financial condition, because they cannot afford to pay promised benefits, and their debt burden gets higher and higher. If this all sounds like the economic news of the last few years, in both Europe and the United States, it shouldn’t be too surprising, given the high price of oil, and our the dependence of our economies on oil.
Problems with the Rentier Debt System
Slide 22. Issues of the debt-based system
The biggest issue with our debt-based system is the system tends to collapse, once adequate growth to sustain the whole system occurs. We appear to be rapidly approaching this point. It will also collapse at a closely related point-—when the amount of debt becomes so high that the governments cannot afford to pay the interest on debt, and keep up other programs.
Another issue is that as the economic condition of people in oil importing counties is reduced, governments of these countries find themselves less able to collect taxes, at the same time they would like to stimulate the economy. Promised retirement programs also become harder to fund. This means that the governments of oil-importing economies will find themselves under increasing tendency to collapse, as high oil prices lead to recessionary tendencies.
Another issue of the rentier debt system is that too much money is transferred to the finance system and to those collecting interest (as opposed to paying interest). People at the bottom of the economic order find themselves barely able to make ends meet, and borrow to try to cover necessities. The interest rates these individuals are charged are far higher than the interest rates paid by borrowers who are deemed more “credit-worth”, such as governments.
Another issue is that as the price of oil rises, too much money is transferred to countries involved with oil extraction, at the expense of oil-importing countries. This transfer of funds to oil exporting nations tends to depress the economies of oil importing nations. There are theoretical ways that the funds of oil exporting nations might be recycled, but increasingly, these countries find that they need these funds to pacify the demands of their own populations, so that recycling occurs less.
What Is Ahead?
Slide 23. Some possible impacts of defaults
We have already talked about some of impacts that are already occurring–financial systems under stress, with some countries appearing to be near default. The question is what may happen next.
If there are defaults in one or two countries–say Greece and Spain–the financial problems seem likely to spread to banks in other parts of the world, through derivatives and through banks carrying debt relating to the defaulting countries. There also seem to be any number of countries in weak condition–for example, Egypt–and the problems of these countries may worsen as well.
Another likely outcome would seem to be that new loans will become less available. If a particular country has recently defaulted and seems to have no way of paying for new oil imports, they may have difficulty getting loans. But even those not directly involved with defaults may find it much more difficult to get loans, because the financial condition of banks will be worse, and some banks may fail. A reduction in available loans will tend to lead to economic contraction, and make any tendency toward collapse worse.
We can speculate on all kinds of other things that happen. I will not elaborate on the Items shown on Slide 23, except to say that cheap oil has enabled a lot of what we have today–an international trade system that allows the formation of large countries, and that allows large countries to interact to a much greater extent than a few hundred years ago. There would seem to be a possibility that most of the advances of the last few hundred years will disappear as the availability of cheap oil disappears.
Can we solve our problems by getting rid of rentier debt?
Unfortunately, no. We are now reaching resource limits, primarily in oil, but also in other resources, such as fresh water, and also with respect to pollution. Humans were on a growth trajectory to reach these limits, with or without rentier debt. Rentier debt allowed us to reach these limits faster than we might otherwise have reached them.
Now that the bubble has been inflated, and we seem to be near collapse, getting rid of rentier debt won’t really “fix” the situation. It is basically too late. The future direction would seem to be contraction, and this will almost certainly eliminate most rentier debt. Our task now would seem to be to deal with all of the dislocations that occur when defaults occur and to develop new financial system(s) that can handle continued contraction.
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This isn’t about Republican v Democrat!! Or who is President — don’t you get it? It’s gone too far to be fixed. The nations of the world need all their tax revenues to pay interest on existing debt, and must borrow again to find the funds to run the nation.
Gail:
I agree with your assessment of the origin of the current situation, and I can explain this cogently to others. However, after doing so, I hear the objection that the price of oil has been going down due to decreased demand, and that it clearly isn’t to blame for the recent stock market woes. “See?” people say to me, “Oil isn’t the problem, the [greedy 1%, tax-and-spend democrats, illuminati, space-aliens, whatever] is the problem.”
“Sure,” I reply, “the economic impact has currently outstripped the supply problem, but that’s temporary–we’re still running out of oil.” But then people shrug and change the subject. I feel like I’m missing something here.
Of course, I know myself well enough to see that I more than half-desire a sudden crash-event due to my own discontent with both the modern system and my inability to get out from under it–a sudden crash would solve my problems and create the kind of world I’d be better suited to living in. So the fact that I can’t convince others makes me wonder if I’m deceiving myself–not that we AREN’T running out of oil, just that I don’t understand it well enough to believe for the right reasons.
Anything you could do to help explain the current big-picture would be of help. Thanks!
I’ve long held that humanity will go out with a whimper, not with a bang.
That is not a popular nor well-liked scenario. I tend to get shouted down in doomer/prepper circles.
We are genetically programmed to react to events, and poorly prepared for long-running processes. Army marching on your border? That’s an easy one to figure out! Temperatures going up to scalding over the next century? Hmmm… let’s commission another study…
Preparing for a crash is simple: get through the crash with reasonable health intact, then live on dead people’s stuff. Preparing for an ongoing dilemma — now that requires some work and some tough life-style choices.
Since getting through an ongoing predicament is the more difficult thing to do, that’s the one I’m working on. I think the preparations for a long predicament will work fairly well in a sudden crash, as well, with some reservations.
Personal security will be more important in a crash, and American’s love affair with guns fuels enthusiasm for this scenario. In the long quandry situation, excellent relations with your greater community is going to be more useful than any number of guns.
Assuming there is some sort of economy and government left (a big “if”), the sudden crash might at first appear to favour the debt-ridden, which might be where you are deluding yourself. Hyper-inflation wipes out debt. But be careful, lots of dead people tend to cause deflation, as there are fewer competing for resources. That land that you’re leveraged to the hilt on? Hyper-inflation could wipe out your debt, but what if dead people’s land is available for the squatting? You’ll be so far underwater you’ll have to walk away. On the other hand, a sudden crash might make the banks “forget” you owe them money — to me, that’s not very likely! Behind every mortgage are people who are counting on the income from it.
Assuming you are preparing for a slow muddle, and are continually supplying more and more of your own food and energy, at some point, it’s going to be worth more to your neighbours and community to keep you around than to take you down. As mega-farms are less able to provide for the masses, small, low-energy productive farmland will hold its value, as long as people need food. But in the sudden crash scenario, perhaps productive farmland will be worthless, as the smaller population is able to forage.
Big questions. No easy answers. But I still think “boiling frogs” is the scenario to prepare for — someone prepared for a slow crash will fare better in a fast-crash world than vice-versa.
The price of oil determined by an auction system which assures rich countries get all the oil they want, while the demand destruction hits poorer countries first. This produces rows of ambulances parked outside Pakistani hospitals that have no fuel, despite the desperate need.
The bidding system will drive prices up in a spiral when supplies are short, and in a downward spiral when demand is failing. You won’t have much success trying to convert people to Peak Oil believers during times of falling demand, but just wait a few months and it will be back up again.
Nobody is talking about whether pricing oil by auction is sensible. What we need is a controlled market which aims to stabilise the price, but apart from being “socialism” (i.e. fair to all), it would require the controlling agency to realistically look at future oil production in the light of Peak Oil. To do that would show that the future is going to be one of declining oil availability, and that makes economic growth impossible, which is something that the leaders cannot acknowledge under any circumstances.
So the leaders understand Peak Oil very well, (probably better than we do, because they have access to better data) but they cannot admit it publicly.
As a further problem, the tight energy budget means it is not going to be possible to complete a transition to renewables, due to the need for a huge energy investment in building new infrastructure at a time of energy shortage. We can make a start on the transition, but we cannot complete it. If we had started decades ago when spare oil supplies were available, we could have done it, but it wasn’t profitable, because oil was cheap, and we didn’t take the long-term view.
This can be proved mathematically by looking at the energy budget for a renewables project (say a PV manufacturing plant) and calculating the timing of Energy Invested and Energy Returned. see http://www.peakoil.org.au/news/index.php?energy_profit.htm This methodology can be applied to any technology, with any ERoEI, Lifetime and annual growth. All fail the test.
Two further questions, then: First of all, what about the claims that OPEC tries to charge enough for oil to allow the producers to grow (or stay afloat), but not so much as to bankrupt buyers (who are bidding only what they can afford)? People quote economists to me, and while that doesn’t mesh with what I know about supply and demand, I’m not sure how to refute it.
Second, I’m also continually told that PV manufacturing processes are getting better, that the price of panels is falling, and that we’ve still got more than enough natural gas to compensate. I always retort that the problem is LIQUID fuel, not fuel generally, but this gets the objection about affordable natural gas compression stations and about diverting petroleum to where it is needed, and using other forms for stationary consumption.
Of course, I realize that the basic question is whether or not someone is willing to believe that the world as we know it won’t just keep getting better (or isn’t already getting worse). But I know more than a few doomers who think we’ve got lots of oil, and that the national debt and the specter of inflation will be our real downfall, instead. Perhaps I shouldn’t take it so hard when people don’t get what I’m saying.
CNG is a low-density fuel — lighting, cooking, etc.
My back-of-envelope calculations indicate that the energy required to compress enough to give you a couple-hundred-mile driving range is equal to the energy in the fuel itself! “Affordable natural gas compression stations?” Try “net energy loss!”
So you’re on the right track insisting that liquid fuel is the issue. It’s not your problem that they are in denial and won’t listen!
OPEC are price-takers not price-makers. The only way they can manipulate the price is by how much they produce, and all but Saudi Arabia produce flat out all the time. Saudi is the swing producer, but it takes a while for the price feedback to become a production response. In the meanwhile the price fluctuates at auction.
It is common to hear Saudi make the accusation that speculators are driving the price up. This is not the case because the speculators eventually have to sell their paper contracts for delivery to refiners or stockpilers, and no refiner is going to pay more than the spot market price, so once a month when the NYMEX Futures contract matures, the price is forced to converge on the spot market price. This may produce a profit for the speculators, or a loss, depending on their earlier gamble. There is no way the speculators can drive up the price, because they are trading in derivatives.
The price of PV panels IS falling, but that is due to over-capacity in China, where production is subsidised. US PV manufacturers have been going out of business left , right and centre.
US natural gas prices are currently distorted by the “boom” in gas from tight formations using fracking. This boom has been going for 3 or 4 years, and if you extrapolate that out to 3 or 4 decades, you get a completely false impression. Those that entered the boom early are now realising that tight gas needs lots of expensive drilling with a short lifetime of production, and that their business plans don’t really make sense with low prices. Some have even failed to convince their bankers they are viable and have gone out of business.
This doesn’t stop politicians from extrapolating the impossible, because anything that sounds like good news is repeated over and over.
There is one good point in all of this: the IPCC’s forecasts of the amount of fossil fuels that will be burned in the decades ahead must follow IEA forecasts, otherwise they would be criticised for getting their figures wrong. IEA’s forecasts, which don’t accept Peak Oil, Gas and Coal, are way too high, so predicted Global Warming in the “do nothing” scenarios is way too high. If you use peakist numbers for fossil usage, the temperature should peak in ~2045 at +1.4 C and fall slowly thereafter. This might still be catastrophic, but nowhere near as bad as IPCC predicts. Anyway, Peak Oil on its own is going to be enough to crash civilisation, so Global Warming is scarcely a problem.
It is my understanding that the IPCC’s forecasts of fossil fuel use are a lot higher than the IEA forecasts of fossil fuel use. For example see this Oil Drum post. Also see this more recent post by Dave Rutledge.
I probably need to write more posts on some of these issues.
It is very hard to get a sense of proportion, when people talk about these various issues. What tends to happen is that the renewables and the hoped for solutions are very small in relationship to the oil consumption, and the substitutability not very direct. There is a huge amount of investment that would be needed for making the change, but nowhere to get the investment from. So nearly all of these things will necessarily remain as ideas, rather than as solutions.
I think the determination of who gets the oil is a little more complicated than you say, because energy exporters with small populations can often afford to subsidize the price of oil. These countries tend to use more oil.
Also, there are details about how oil fits in with other energy supplies. If a country can ramp up coal use (like China and India), they can stretch their oil use.
So as a practical matter, it doesn’t necessarily follow that the “rich countries get more”. Poorer countries can use more, if it fits in with their overall energy use well. It may be easier to add a few motorcycles than more semi-trucks to an economy.
I need to write a post on the issue. I think the big issue is that we have a lot of weak links (banks, finances of transporting oil, perhaps derivatives markets), that tend to fail at the same time as oil prices go down. Governments are soon to topple as well, especially where they have big debt and unemployment.
No one may see the result as being related to oil–which is frustrating for people who would like to see that “their cause” was ultimately the problem. It may all look like a financial failure.
“Our task now would seem to be to deal with all of the dislocations that occur when defaults occur and to develop new financial system(s) that can handle continued contraction.”
For a few modest steps in that direction, see http://www.publicbankinginstitute.org/, http://steadystate.org/, http://www.monetary.org/
Can I pick you up on technical point. You said that interest is not created. This a common misconception. Money is not only created by a bank when it lends money but also when it pays employees, pays for goods and services or purchases assets. This money goes into general circulation which eventually comes back as “interest” money. Doesn’t invalidate the rest of your argument but will be picked up on by peak oil denyers
I would have to think about that. Do you have a reference to an article talking about the issue? Insurance companies pay employees all of the time (and make other similar payments), and those payments are not created by the insurance companies–they come out of the insurance companies’ profits. It seems like it would be similar when banks pay employees. The banks make money when the interest that is paid on loans is greater than their cost of making the loans, and it would seem like those profits are what are paying employees.
As you know, most people misunderstand the banking process. They think that money gets transferred from people who are paying back their debt to people who are taking out new debt when in fact money is actually being destroyed and created respectively. In the same way, they think that the interest that the bank receives is just transfered to shareholders(as dividends), employees, etc. when in fact this ‘interest’ money is being destroyed and created in just the same way. Originally I also thought that ‘interest’ money wasn’t created until I read otherwise. I’ll try to find a reliable reference source for you.
I can’t believe that this technical point is actually true in the real world. It seems as implausible as the assertion that all markets, everywhere and always, are stable, which I have also read somewhere. If this were true, why doesn’t it also apply to interest on government debt? But people worry about the government sinking under the weight of servicing the national debt. Why not “Oh, its all right. The economy is creating the money to pay the interest” ?
Just because it is implausible doesn’t make it not true. Interest money is created in advance in the manner I described. However you do raise the valid question as to why are people worried about paying back the interest if it has already been created. A very interesting question. The money is out there in circulation but it has not got back to people who need to pay back the interest!
Purely an example; lets take Greece, maybe they bought something, like fighter jets or something, from a US company by borrowing the money and assumed a 2% growth rate. When they failed to grow at this rate they then struggle to pay the interest payments while US company are sitting on mountain of cash. The money is out there but just not in Greece’s hands.
I see your assumed 2$ growth rate as inflation that is endemic in the modern economy, not a thing that is *caused*by* fractional banking. What school of economic theory pushes this nonsense?
Purely as an example: lets take an economy in which all money is backed 100% by Gold in bank vaults and Gold coins whose Gold content is true to their purported value. Where does the money for interest come from in such a situation? I say it doesn’t come from anywhere because what’s really happening is that some theorists lay claim to a phenomenon that already has an explanation and count it again to support their wooly headed maunderings.
But I have little respect for any economic theorizing so don’t take offense at my lack of respect for this idea in particular. 😉
Gail, a couple of points regarding the data presentation of natural -v- human systems.
Human energy production/consumption is only about 1/6th that of natural systems (ie photosynthesis). With the caveat that human systems are a subset of natural systems, therefore using the term in the sense of natural systems other than human systems.
About 35% of the terrestrial production (20% of the global production) is used for human consumption (ie … crops, grazing, hunting and fishing, lumber, fibers)
Although I understand your point about human systems impacts on natural systems, I think your presentation of human systems triangles shown as dwarfing natural systems triangles is misleading. Consider the two charts I present here. It is the second one that shows the impact. This single species, homo sapiens, has managed to corral ~20% of the global net primary production to serve our needs. And of course, it is our ability to generate and use 17TW per year of (primarily) fossil fuels that allows us to do that.
“Human energy production/consumption is only about 1/6th that of natural systems (ie photosynthesis)”
Do you have a reference and a context for this?
I have read (I think in The Oil Drum) that humans in North America expend about 50% more energy than is collected by all the plants in North America. That made such an impression that I copied the graph accompanying the article.
Given that Americans consume some 25% of all energy used by humans, I could see that averaging out over the entire planet to something closer to your figure, but I’d like to understand the difference.
I run through the numbers here:
http://rhinohide.wordpress.com/2012/06/16/a-few-quick-global-energy-stats/
I think you are dead on about resolving the differences between the global stats and the US stats you recall. The US very likely consumes more energy than is captured by the US biosphere.
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Nice comments all above. I thought of a shameful point while reading through the blog. As evolved as we are supposed to be as humans, we still keep continuing on our current course of population increase while at the same time, wasting resources, plowing over prime farmland to feed urban sprawl. If we are to advance as modern society, we all have to change our mindset. I look at the loan and finance system as an entity we have to feed, but the more we feed it, the larger it grows and subsequently requires more food. Can it go on forever? Time will tell. Should I take out large loans in the hope that debt will eventually be forgiven? Right now I am almost completely debt free and am getting prepared for the eventual collapse if or when it comes. What worries me with a resource collapse in the northern regions is dealing with the winters and short growing season at best. Life could get very miserable really quickly. Many don’t realize how we depend on imports from other countries to survive. My wife have an acreage in a tropical country where our family can be self sufficient when the stuff hits the fan. In areas like Canada, winters can be nasty or deadly.
Thanks for all the food for thought and wear your safety glasses when the stuff hits the fan.
Take care.
Gail: Thanks for some valuable context for the pickle in which we find ourselves. I have long felt that governments trach economic growth in a way that is naive and misleading. Likewise the metrics used for tracking debt are less than helpful. Debt / GDP, for instance, is a dimensional number approximating the number of years to pay down the current debt if all production were devoted to that purpose — as if. I suggest that attention should focus instead on the change in debt balances (including unpaid interest). For instance, an adjusted GDP, GDPA = GDP less (Change in debt) would measure the portion of the year’s economic growth that is actually paid for. Likewise (Change in Debt) / GDP tells what fraction of current growth is financed by debt and whether it is growing or shrinking. I’ve applied this to US national accounts and gotten no gee-whiz results — just a sober assessment of what’s going on. I think your arguments support tthe wisdom of tracking things this way. Phil Heckman
Thanks for your comment. GDP, the way it is currently measured, is truly a strange kind of measure. The more debt we add, the better GDP looks. I am not sure all readers are aware of how the current GDP measure works. GDP measures what is produced, without deducting the increase in debt to cause this increase in GDP. None of us would calculate our net worth this way.
Whatever GDP is, it is most emphatically not a measure of net worth. Net worth is a stock, GDP is a flow. To get an understanding of what GDP is or what it is not, I recommend reading a chapter in an economics textbook on GDP and national income accounting.
The national debt matters, but not as much as most people think it does. For example, Japan has a national debt that is double that of the U.S., but its people live longer and its unemployment rate is lower than that in the U.S.
There are all sorts of problems and limitations with GDP and related concepts such as net national product, national income, personal income, disposable income, and the GDP deflator. National income accounting was invented in the 1930s in the U.S. and Britain, and indeed these accounts helped the U.S. and Britain to mobilize for World War II. (Germany, Italy, and Japan had no GDP accounts during the War.) In the nineteen thirties, most output in the U.S. was agricultural or industrial. GDP works well with barrels of oil, bushels of wheat, and tons of steel. But how do we value services? How can we measure the productivity of a lawyer or a doctor? To tell the truth, national income accounting is a can of worms–but it is nevertheless very useful for one big thing: Increases in real GDP cause jobs to be created and unemployment rates to fall. Declining or stagnant real GDP causes unemployment to increase and the number of jobs in an economy to decline.
Hence, the great emphasis that economists place on growth rates in real GDP is not misguided nor is it irrational: It is all about jobs, jobs, jobs.
I do not expect a return to real GDP growth per capita in the U.S. In my opinion, the next twenty years will be one of stagnant or declining real GDP per capita, which translates to increasing unemployment rates and decaying infrastructure.
Sorry. I didn’t mean to suggest that net worth and GDP aren’t very different. Clearly net worth is a stock and GDP is a flow. But as actuaries, we seem to spend a lot of time looking at things that look like “net” stocks, and “net” flows. It is sort of disconcerting to discover that GDP is a flow, but is not on a net basis.
its really more like total cash flow compared with profit.
The worst thing about GDP (in my opinion) is that it is unbiased about whether income is “good” or not.
Take the BP Gulf oil disaster. Please! (Ka-ching.) You might think that it should have a negative impact on GDP — after all, it was a disaster for many small local businesses, right? But BP, FEMA, and local governments spent a MINT on it — all of which goes into the “plus column” of GDP. Likewise, if any business creates a big pollution mess, then they or someone else gets paid to clean it up, GDP goes up, but if there had never been a pollution mess in the first place, GDP would have been neutral.
There are a number of alternative indices that make an attempt to provide a measure of “goodness,” such as the GPI (Genuine Progress Indicator) and Bhutan measures their progress through a government-tracked happiness index.
Advertising would seem to be something that should be banned if we want people to be happier. Constantly wanting more can’t make anyone happier.
There is a Buddhist saying that feeding desire is like giving salt water to a thirsty man – it feels good but ultimately only worsens his condition. Far better to make friends with Thirst.
Italy’s economy has not grown for an entire decade. No debt restructuring will work if it stays stagnant for another decade. Even Germany is not immune, with an average growth rate of only 1.5%. German officials know that with a declining population, in five to seven years the country is likely to grow at an annual rate of just 1%. That’s not much of an engine for Europe.
Gail,
This is another great post! Very sober view and illustrative, clean slides to go with it.
I agree that even if we could transition to debt-free money tomorrow we would still be in big trouble, ressource-wise, but I still think that the development of an economic system that is at least *capable* of functioning in a zero-growth (or negative growth) world ought to be *the* top political priority.
Presently, the only fair, viable, global and debt-free monetary system I know of is Bitcoin. The inherent ability of Bitcoin to function even during steep negative growth is the #1 reason why I support it with a passion.
I wonder how many people with US living standards the world would be able to sustian for millennia. I’m guessing 100-200 million?
Hi Gail:
Another great post. I believe financial collapse is just a prelude to worldwide civilizational collapse and that it will happen very quickly. In Tainter’s chronology of societal collapses, most took hundred years or more, but they were not planetary wide civilizations and they did run on petroleum. Take just 10-20% of fossil fuel energy out of our complex systems and the wheels will come off very fast. Predictions of course are risky, but it’a hard not to see something cataclysmic happening in the next few decades.
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Homo Sapiens is a part of nature and follows the same general set of rules as well. the main recent difference is that as top of the food chain predators, we became SOOO successful that all checks and balances on total population were rendered moot.
As Gail has noted, once Homo Sapiens learned to control Fire, there was a large expansion in numbers, but it levelled out. Simple control of fire was not enough to overcome the rest of the checks on total population. Only once Agriculture came on the scene did the relentless Exponential growth begin in earnest.
The problem of course has been vastly exacerbated accessing the thermodynamic energy of fossil fuels, which vastly increased food supply and also enabled moder medicines that combat diseases. So we are in vast overshoot now in the absence of the energy inputs, which means a substantial Die Off of Human Population is imminent.
The main questions now revolve around timelines, which few Pundits are willing to commit to. Dmitri Orlov for instance will define 5 Stages of Collapse, but he won’t predict how long it will take to get to Stage 5. Gail will present many charts and graphs, but she won;t make a prediction how long the whole game takes to collapse either. We all KNOW by now its going to collapse (with the exception of a few Cornucopians who think Cold Fusion or Zero Point Energy is just around the corner), but in the absence of knowledge how long it will take just defining the parameters for the Collapse does not provide the individual with a great tool to handle it.
The problem is this: If it is going to take 50 years or more for the Collapse to completely manifest itself, you may be better off continuing BAU in your life if you are one of the ones lucky enough to still be eployed or have Investments you live off of still paying off. On the other hand, if a Sudden Stop is imminent with complete collapse of the Banking System, hanging on to BAU is not a good plan. In this case, you need to GTFO of Dodge NOW, before the Lights go Out in your Big Shity and before JIT delivery of Food stops.
You can try to Straddle the Two Worlds, as I do. Live in a low population zone but continue to work inside the system as it functions now. It still remains unpredictable though how a rapid collapse would affect even low population zones like where I live. In any event, you must in some way if you expect to SURVIVE what is to come here to make some decent PLANS for it. This is what we engage in Daily on the Doomstead Diner.
For those of you interested, today I posted up a Grand Unified Theory of Collapse on the Diner Blog.
http://www.doomsteaddiner.org/blog/2012/06/09/grand-unified-theory-of-collapse-gutoc/
We also have an interesting thread in progress inside the Diner Forum on the Social, Philosophical and Religious implications of Collapse.
http://www.doomsteaddiner.org/forum/index.php?topic=468.0
New inputs are always welcome in trying to figure out how to negotiate what is coming down the pipe here.
RE
(Note to Gail: Very comprehensive piece overall, I will repost it on the Diner Blog)
It is very hard to find a place far enough outside of Dodge to go to. Most people have to make a living now, as well. So for many people, the answer is clear–they cannot do things too different than what they have been trained for, and are doing already. Even people who have their choice (for example, retired people) often want to be near family members, and this limits what they can do as well.
So I think adapting (a little) in place is probably all most people can do. It is not clear this approach will really “work” if changes come quickly, but as a practical matter, for most people, it is all they can do.
One thing everyone can do is be more appreciative of the things we have now–heated and air conditioned homes, vehicles, ability to travel, grocery stories, and many other modern conveniences.
Gail, I think this is a common delusion that isn’t very helpful.
I can buy the “near to loved ones” argument, and I can understand the “need to support my family” argument, but I know LOTS of people who have a family and still manage to live very lightly, very directly, very healthily, and very happily, making their living directly on the earth.
Indeed, it is those who think they don’t have a choice who are most unhappy.
It is really quite possible to quit your job, sell most of what you have, and take up with an organic farm somewhere. For the most part, they’ll be happy to feed and house you in exchange for your work — work that is really a free education in future living. This is the “underground railroad” out of the mess we’re in.
It may not be possible for 300 million Americans to do so, but it is certainly possible for those who wish to do so, precisely because so many people are either ignorant or in denial.
So, let’s say one is neither ignorant nor in denial, but they just can’t bring themselves to “jump off the cliff” of civilization. Grow food. Or at least get started learning how to do so. You can trellis beans on an apartment balcony. You can plant corn in the front yard of a suburban house. You can go work an allotment on the weekend.
Each day, with each choice, ask yourself, “Is this taking me closer to a sustainable future?” You won’t be able to say “yes” every time, but if you at least ask the question, you’re on the right path.
“One thing everyone can do is be more appreciative of the things we have now…”
While I understand the sentiment — and even indulge in it from time to time — I prefer to be disdainful of what we have now, while seeking a more direct form of happiness.
My appreciation of civilization is at a lower, more basic level. I appreciate dimensional lumber for free at the landfill. I appreciate being able to order seed from across my bioregion — even while refusing to buy it from across the continent. I appreciate books, and grudgingly, the Internet. I appreciate living off the fat of civilization, even while knowing that as more are forced to do the same, it will get more difficult to do so.
I preach an unpopular gospel that does not jibe with appreciating the finer points of civilization: learn to appreciate the simplest gifts of life, and you’ll lose your taste for the complicated ones.
Amen. I’ve never understood the statement “I’m bored” because, how could anyone be bored when there’s so much on display in nature at all times?
“It is very hard to find a place far enough outside of Dodge to go to. Most people have to make a living now, as well. So for many people, the answer is clear–they cannot do things too different than what they have been trained for, and are doing already. Even people who have their choice (for example, retired people) often want to be near family members, and this limits what they can do as well.”-Gail
When you have Significant Others in the mix as most do, removing yourself from civilization (at least to the extent that is possible at all right now) can be very problematic. chances are all your SOs do not agree with you collapse is imminent, and they may be right.. Evenif they do agree it is coming down the pipe, they don’t want to give up the Air Conditioning and the SUV just YET.
If you currently are one of the Lucky Ones who still HAS a job, QUITTING it seems to most people COMPLETELY psychotic. How many Actuaries do you suspect would give up their 6 figure job with an Insurance Company to go dig up Beets on an Organic Farm, even if they KNEW collapse was just around the corner from their own actuarial analysis? Not many of course, so they will stay with it just one day or one hour too long, and the hese out thWindow will shut on them..
Anyhow, for those who do try to straddle the Two worlds as I do, there is a 3rd Option, the Planned Bugout. In a PB, you pre-identify places you can get to with better long term survival potential than the probably quite densely populated place you currently live. You prepare yourself with the right skills and you prepare by making connections in the way places. They exist all over the lower 48, I hiked almost all of them in my youth. In Appalachia, in the Smokey Mountains, there are places to run and hide when TSHTF. In the Rocky Mountains there are also, and in the Bayous of Lousiana as well.
Are any of these perfect retreats? No they are not, and they will have their own sets of problems also when TSHTF, but they are way better than the Big Shities will be. Becaue in fact most of the population looiving in those places will never leave them, not on this side of the Great Divide anyhow. They will wait one day too long to get out, and then like with Katrina, they all will not be able to exit fast enough before the Cat 5 hits.
Anyhow, IMHO anyone who does not prep for a Bugout if/when it becomes necessary is a fool, or simply one who doesn’t even want to try to survive the aftermath of this Civilization Collapse.
No more A/C? No more Jet Skis? No more Hawaiian vacations? No more Facebook? No more Lindsay Lohan? Who wants to live in that world, right?
RE
http://www.doomsteaddiner.org
You are very right about the significant other issue. If you are single, you can do as you choose. But if you have a significant other, it makes a difference. It is pretty much necessary to find a solution that “works” for both of you.
There are also very real differences in options available to people living in different countries. In the USA, we have quite a bit of farmland, and a tradition of “picking up and moving to another place”. But in much of the rest of the world, this is not the situation. A person in, say, Japan, will probably not find any organic gardening communities nearby, even if they want one.
Reverse Engineer, I respect your approach, but disagree with it. But I’m glad you’re doing something, which is more than 99% of the sheeple are doing! And who knows; you may be right.
I think your “bug out” approach works well in the face of a crash. But what happens if there is no discernible crash? What happens if, day by day, week by week, year by year, things continue to get worse and worse, but not bad enough to trigger the “bug out” reflex?
The “bug out” approach works well if the water is boiling when you’re dumped into it. But in the “boiling frogs” scenario, there’s going to be a lot of skeletons next to bug-out bags, surrounded by piles of freeze-dried food wrappers, taken by surprise by the surprise ending that never came.
This is not an event, folks — it’s a process.
But none of us has a perfect crystal ball. If civilization’s demise is event-like, then the “bug out” people will do quite well afterward, surviving on dead people’s stuff. And, grasshopper-like, they get to “enjoy” civilization while it lasts, while the “ants” who undergo voluntary privation in preparation simply end up deprived. Am I somewhat close to your point-of-view here?
Although the “transition in-situ” approach may carry some additional risk in a sudden crash, but it has vastly better potential in a “boiling frogs” scenario.
Also I’m taking a karmic approach. Two of us have been living on a thousand a month for fifteen years. Before that, I was making mid-six-figures. I suppose I could have continued that way, while preparing for a “bug out.” But in those fifteen years, I have not involuntarily supported oil wars through my taxes, my carbon footprint has been minuscule, and I’ve bought a sum total of perhaps 20 gallons of gasoline. (Haven’t found a biodiesel chain saw yet…)
And you know what? I don’t feel deprived at all! I milk goats every morning. I plant lots of trees and seeds. And I only see a TV once or twice a year, while visiting relatives. Life after the crash (that is yet to come) is good!
One final thought: there is going to be a heck of a culture shock for the bug-out crowd, no matter how prepared they feel with one foot still in the Unreal World. Those who embrace the real world of physical limitations today will simply shrug and carry on.
Before enlightenment, chop wood and carry water. After enlightenment, chop wood and carry water. I will miss the Internet, though… 🙂
The monetary system practically guarantees the bug out event, so to speak. The banks will muss up, money won’t be available, and to paraphrase, just in time will become just isn’t there. (tm someone else). I am finding it hard to justify a gradual decline.. At the very least, once globalization breaks down, new lower complexity governments are likely to occur.
I agree that trying to operate with one foot in each world is the best solution while trying to keep your job as long as possible. However the very real problem that is happening now regardless of say financial system collapse is that people are already losing their employment. This is what i call getting kicked off the train. Since central banks around the world are currently just managing contraction the day that you personally get swept up in it via job loss all of the sudden you are thrown into the new world of needing to provide for yourself in a very untraditional manner.
From my experience there are very few jobs today for the unemployed and it crosses ALL industries now short of maybe federal government jobs. Once you get kicked off the train you are lucky to get an interview much less a job that pays anywhere near what you used to make even if you land one. Also many peoples extended families are finding themselves unable to help out much cause they are getting squeezed too. So really forget about financial system collapse, what people need to be preparing for is extremely long term unemployment. In almost every case this is all that will matter in our personal situations. I believe many of us will find ourselves without work before the dollar or the U.S. banking system collapses. If you do make it until that point that is great but for a large majority of us I see unemployment as the single greatest threat to our existence in the BAU world in the near to medium term.
You are quite right: Unemployment is going to become the biggest personal trouble and social problem of the next twenty years. To keep unemployment rates down, real GDP growth of at least 3% (and perhaps more) is an absolute necessity. I think there will be little if any real GDP growth in the future, and as oil and other fossil fuels become more and more expensive, I expect real GDP growth to turn negative.
Much of current U.S. unemployment is structural, i.e. due to people living in the wrong place or lacking the right skills to get a job. Currently there are about two million job openings in the U.S., and businesses would very much like to hire people to fill these jobs. But they cannot get the skilled workers that they need, even with very high salaries and good packages of benefits. IMO, the binding constraint on oil production is now the limited number of petroleum engineers and chemical engineers. Also, there are not enough highly skilled welders in the U.S. (or the world) to make the critical welds on oil and gas pipelines that are being built and that are being planned.
Honestly i believe the structural argument is a MSM and wall street narrative that was manufactured to explain what they dont understand. That is there is not enough economic growth to accompdate hiring these so called jobs that cant be filled. After WWII there were many unskilled workers that found work simply cause there was so much demand for labor and economic growth to accomodate hiring at any cost.
We saw the same thing in the 90’s where people that had no background in computers were trained as programmers or re-tooled as network admins etc. remember the old saying if you had a pulse you could get a job? This was the reality in corporate america back then. The truth today is companies are finding they dont actually need to hire people because again we are simply managing contractioin at all levels even in the private sector. So they post these jobs in anticipation of a “return to growth” someday but it doesnt come so they go unfilled. Add this to the fact that people currently with good jobs are no longer incentivized to take risk and leave their jobs even for slightly more money due to the extreme uncertainty.
You raise some good points: Most of today’s unemployment is “cyclical” rather than structural in nature. Exceptionally strong aggregate demand can shrink the number of structurally unemployed. By the way, there were a great many unemployed vets in the U.S. in 1946, 1947, and 1948; they used to come as tramps to our household, where my mother always gave them ham and eggs and all the toast they could eat. For the economy as a whole, 1949 was the first really prosperous year after the end of World War II.
There is an “iron law” in economics that says real GDP growth is prerequisite to lowering unemployment rates and that vigorous growth (say more than 4% per year) is needed to get unemployment down to frictional rates. (There are three main kinds of unemployment–frictional, from people changing jobs, cyclical due to lack of GDP growth, and structural, due to a mismatch between worker location or skills and jobs that are open.) Much structural unemployment is due to people being stuck in the wrong place. For example, the Iron Range of Minnesota has a high rate of structural unemployment because a lot of people live there in cheap houses and get by on welfare, minimum wage jobs, disability payments, etc. They cannot afford to move to, for example, the Twin Cities or to North Dakota, where the jobs are.
The only solution to unemployment is to share the available employment out amonst everyone. Everyone gets a little less but is fair. We’re all in it together, we help each other, we are part of a community.
I think you are right about unemployment being the biggest risk in the near to medium term. In fact, I expect that unemployment will just get worse and worse. The big issue then becomes, “What can the government you about unemployment?” Governments get into worse and worse financial condition as unemployment worsens, because they collect fewer taxes and need to pay out more in benefits.
There are theoretical ways that the problem can be fixed, but as a practical matter, it seems like it would be difficult. For example, the government can buy up large farms and teach unemployed people to farm in labor intensive manner, that also maintains the soil. It can allocate farmland to would-be farmers.
There are a lot of practical difficulties, though. Buying up farms would be terribly expensive. As long as oil is available, the energy intensive approach can produce huge amounts of food more cheaply than the high labor approach. To prevent erosion, it is best to use perennials, but perennials may not yield as much food as annual plants. Also, it weather conditions are bad one year, the farms may not provide enough food for laborers.
So maybe what eventually happens is that the political system collapses (perhaps along with the financial system) because leaders cannot find a way out of citizens’ unemployment problems.
I don’t see how the political system can collapse without taking the legal system and courts with it. Then surely the rentiers will see a drop in their receipts. To the extent that the financial system relies on law to enforce its contracts, it will surely collapse, IMHO.
All of these things are closely tied together, so I expect that collapse will come from several directions all at once. We can argue about whether it is from the financial system collapsing, or the political system, or too much unemployment, or something else, but it seems like they all pretty much are tied together.
“Reverse Engineer, I respect your approach, but disagree with it. But I’m glad you’re doing something, which is more than 99% of the sheeple are doing! And who knows; you may be right.
“I think your “bug out” approach works well in the face of a crash. But what happens if there is no discernible crash? What happens if, day by day, week by week, year by year, things continue to get worse and worse, but not bad enough to trigger the “bug out” reflex?”-JS
I disagree with your approach as well JS, which of course is what makes the whole process of noodling out just what to do here for a given individual or family group an interesting problem to work out.
First off, as WC mentions,the moment you lose your job and your McMansion is in foreclosure and creditors are hounding you for a student loan that never will be wiped off the books is the moment the Crash has come for you. You probably are eligible for your 99 weeks on the Dole, and if you really are serious about staying inside the system you might blow your foot off “accidentally” with a shotgun and collect SSDI.
On the other hand, the day you lose that job can be your Day of Liberation as well. That is the day you are given license to go Walkabout, as the Aussies put it. The day you get to walk into the Mountains one last time and kiss Industrial Civilization goodbye for yourself, forever more. No cell phone, your creditors are NOT going to track you down out there. Long as you have not Gone Postal before leaving, they won;t be sending the Dogs after you.
Insofar as the SO issue is concerned, this is obviously easier for the Solitary Man, but families can do it also. Recently on recommendation from Ben in discussion at the Diner, I visited a website of a family living the Nomadic Life in a Teepee. 2 year old and 5 year old children in tow. You should be hooked up with someone of similar mindset to pull this off of course, but isn’t that who you should be married to anyhow? When you lose your job also, your family is just as off the cliff as you are. What do you do as alternative here? Drop your kids off at Child Protective Services for a life in the Foster Homes meat grinder because you can’t afford to care for them anymore?
In looking at your own choice of a shelter in place Doomstead, the problems with this are myriad once the social collapse reaches a critical mass. As in Argentina, Doomsteads are subject to regular Home Invasions. It is unlikely that if many people are off the financial cliff that you will safely be able to Milk your Goats.
Besides this is the problem of Property Taxation, which is the minimum form of Goobermint Confiscation you will face as things get worse. You may currently have income enough to pay your taxes, but what happens when the taxes go Up and the Investments you have from your 6 Figure years disappear in an MF Global theft? What happens when the bigger Goobermint structures break down and the local Sherriff and his cronies or a band of ex-national guard decides to make your neighborhood their fiefdom? You only truly own what you can Protect and Defend yourself, and unless you have a small army, you cannot protect a Doomstead.
Finally, the reality for more than 50% of the population is that they can’t afford to buy a Doomstead with Goats and Chickens and a permaculture garden. They are in debt up to their eyeballs and can’t unload the McMansion except in a short sale which nets them nothing. They probably have only a couple of months worth of Savings and little to nothing saved in an IRA. The choice you made 15 years ago in truth is not available to them at all. Perhaps they can go to work as a Serf on somebody else’s Doomstead, but who wants to be beholden to a petty Landlord in this version of neo-Feudalism?
While such a choice is not generally available to most people with limited eans, the Planned Bugout is avaialble to nearly all who are healthy and willing to commit to learning how to live the primitive life. In the Diner, we discuss the myriad ways in which you can prep up for this and not have to instantaneously depend on knapping Stone Tools and so forth, though that is worthwhile to learn.
During WWII, the French Resistance to the Nazis began with one man who left for the woods the day the Nazis rolled their tanks into his little town. He was just one man, and his neighbors considered him nuts. In time, their were 20,000 members of the French Resistance living in those woods. In the face of Fascism, you cannot protect your property and you are subjugated to the whim of the State. If you do not smell the stink of Fascism here already, you must have a bad sinus infection. It has only just begun as well.
You want some CHANCE at Freedom? When the Big Show comes to a Theatre Near You, run away. Run away far and run away FAST. Run into the deep Bayou where no Tanks can roll. Or like the Swiss and the Pashtuns of Afghanistan, run into the Mountains. Preferably really BIG Mountains. The Great Wall that God built to protect the Independent souls of the world.
RE
http://www.doomsteaddiner..org
Note: I reposted an excerpt from this debate as a Feature on the Doomstead Diner Blog under the title “Doomstead Shelter-in-Place vs Bugout and Rewilding”
http://www.doomsteaddiner.org/blog/2012/06/10/doomstead-shelter-in-place-vs-bugout-and-rewilding-the-debate-continues/
RE
Thanks for the reply, RE. I think it’s good that people are preparing in different ways for subtly different scenarios. That’s more chance of someone being successful than if we all agreed to do things the same way.
My last shot: living in a different country with subtly different values, I think it will be better to make yourself invaluable to your neighbours than to be off on your own. Your thoughts seem to be coloured with typical American polarization — an “us vs. them” way of looking at things. My imagined scenario is more like the final scene of the movie Witness when the Amish folk formed a non-violent “witness circle” around the bad guys, and Harrison Ford shouted, “What are you going to do, kill them all?”
I think of Benjamin Franklin’s admonition: “If we don’t hang together, surely we will hang separately.” Going off to live in the mountains as a hermit, constantly looking over your shoulder, is not for me. We’re going to need each other — even if my neighbours don’t realize it yet!
The notion of tenancy is a whole ‘nother discussion. I don’t see the difference between squatting on some land you think is useless to others and being subject to tax seizure. Either way, you can be uprooted. It seems my plan is to become too valuable to uproot, whereas yours is to simply move on if things get hot. It’s hard to plant walnut trees in the latter scenario…
Thanks also JS for continuing with a very interesting comparative discussion of philosophy here.
One thing I would like to correct is the notion you have that I support this as a Solo Adventure, in fact just the opposite is true. For long term survival, the individual is toast. As I mentioned in my first comment here, currently we have a topic being explored on social organization and principles for a neo-tribal community.
http://www.doomsteaddiner.org/forum/index.php?topic=468.0
Now, on the “Us vs Them” idea. First off, I am not confronted with the issues of living in a foreign country, this is something you eventually may have to deal with though. However, even in Alaska there is bound to be fracturing in the community if things get really bad. You are generally best off anywhere you fit with the dominant ethnic, racial and religious group. So for instance, I would not recommend anyone who was not Han Chinese to set up a Doomstead anywhere in Asia. I wouldn’t recommend anyone who was not Hispanic to set up anywhere in South or Central America either.
If you take Africa or the Middle East as examples of what occurs under conditions of extreme privation, this is where you see ethnic groups and tribes essentially massacring each other in genocidal warfare. Now, you may be of the opinion “that can’t happen here”, wherever here is for you, but I assure you it can.
In any given place, you will find a few different types of people. There are those who will work cooperatively for the common good. There are those who will seek to live off the generosity of others. There are those who will steal directly from others and there are those who will seek to control all and sieve off of their labor. The larger the community size gets, the more of each type you find floating around, though I suspect the percentages don’t change much.
The thing about being a “have” in any such society (which a Doomstead “owner” is) is that it makes you a target for both the Have Nots and the Control freaks. This is fundamental to why the Ownership paradigm creates so much strife in society overall. The best way to reduce your potential as a target is to own as little as possible. Essentially, have nothing worth stealing, or if stolen you can’t replace easily enough.
What you truly need to live is really very little. Shelter, clothing if you live in a cold climate and a few tools, about all of which you can make out of stone, bone or wood. The Inuit and Athabascans up here lived for millenia using little fire, making all their own clothing and building shelters as needed. Anybody who thinks Homo Sapiens needs ANY of the trappings of modern society to live pretty well simply doesn’t know their anthropology very well.
Beyond those things, all you realy need is food, water and air to breathe. If the area is low enough in population, all those things can be found also, even in really marginal environments like the Kalahari Desert. Alaska cold as it is in the winter is nowhere near that marginal. The fisherie is still the best left in the world, I know places along the coast the crabs and prawns are as plentiful as FRNs coming off the printing press of Helicopter Ben.
Anyhow, in the paradigm I consider best, the key to survival is your independence from the trappings of modern society and knowledge enough to go out and live where few people have the skills for it anymore. Such places do exist still in the Lower 48, they most certainly still exist here. Its fairly common here for some folks to spend 2 or 3 years out in the bush. It can be done. As a long term project though, going it alone is not a good idea. IMHO 20-30 people minimum, better 100, better still 1000. You all need to share a common philosophy and values though and have mechanisms to resolve disputes and other issues.
Finally, on the issue of “squatting” versus “ownership” and getting booted off your land goes, your perspective is one of a person who believes in the concept of Private Property with respect to the land. I do not subscribe to that idea. Nobody can own the land. That is God’s Gift to all Mankind, as steward for all the other creatures that he depends on to live as well. It is of course possible for one group of people to force another group off the land they live on, this represents the course of human history. However, you go far enough out where few others will go or care to live, you have way fewer problems with this. Again, if others don’t think its worth stealing from you, they wont take it. In any event, in this situation all you need to do is wait them out. Few will be venturing out into the Bush, they will be too busy fighting with each other for the last scraps of food on the Walmart shelves.
RE
My first reaction is to say in dismay, “But what are we hermits in the forest supposed to do in your world of groups of 20-30 ?” I bet they mostly just gossip about each other.
If I was in a group of 20-30, in a tropical rainforest environment in Far North Queensland, Australia, I would probably be the one telling them how to recognise all the forest species, what they are called, what you can eat, and what you should avoid. How to move quietly through the forest, so that you surprise the dinner, instead of the other way around. They will be whining about how it used to be better back when you could drive to town and get a hamburger and coke, and bleating about when iPhones are going to start working again.
I vote that in this brave new world, there is still going to be room in the landscape for people who can do better on their own.
I don’t think humans do well at “going it on their own.” What happens, the first time you turn an ankle?
We have benefitted from social groups for hunting way back in the hunter-gatherer days. We learned to use dogs to help with hunting, ages ago. If we forget all the things we learned, we will truly have difficulty.
What happens if I turn my ankle ? I would crawl home or die, I suppose. Life as a hunter-gatherer is much more risky than modern suburbia, and requires a different outlook on life, self-reliance and risk. In a group of 30 suburbanites, I would be more worried about them turning their ankles and expecting me to carry them home.
This is really a response to Gail’s comment about a man and dog:
There have been suggestions that man learned to hunt in groups by observing wolves hunting in packs. Dogs are the line of wolves that learned to hunt with early humans. The relationship is mutual evolution under natural selection within both species.
But your skepticism about going it alone is well taken. The person who lived alone in the deep past was a member of a tribe that circuit of camp sites that were visited on an annual bases. ( Driving the herd animals to high pastures, and stuff like that.) It was adaptive for the tribe if an older member stayed behind at the winter camp to look after things there. And perhaps tend an agricultural plot that would be harvested by the whole tribe when they returned in the fall.
Another reason was, no doubt, that older people grow set in their ways and somewhat cranky. They withdraw to the edge of the encampment to avoid the noise and hubbub. Or older males who had difficulty being defferent to a younger male who had assumed the chiefdom. It was a tenuous existence, but was a choice that some surely made.
For the TRUE Individualist Dave, you do have to strike out on your own.
Tribes maintain cohesion by having all sorts or conventions everyone agrees to. Taboos. If you cannot find a group of people who can agree on a common set of principles for living as a group, you can’t have a Tribe.
If you are not concerned with issues of Reproduction, you can go out on your own and do the Hermit thing, at least if you are good enough at primitive living you can. Long term though, a bunch of Hermits living in the rainforest of Queensland is not very sustainable for Homo Sapiens as a species.
Besides that, you could run into the problem where the Tribes of 20-30 look at solo Hermits as Long Pig. This presents it’s own set of problems.
RE
The roman empire took about 400 years to collapse completely.
Even post that it continued to have an effect via Christianity – its most enduring invention – for another 1000.
A lot depends whether there is another vibrant culture that has a ‘right’ answer to take over. And whether there is anything worth taking over…
That tends to accelerate decline.
Does anyone know why we are not seeing hyperinflation? My understanding is that when the money supply is increased dramatically, inflation should follow. But I assume massive money creation has been occurring since they stopped reporting the M3 statistic some years ago. Why hasn’t there been higher inflation? Anyone know?
Christine Hansen
We are not seeing hyperinflation now because the Federal Reserve System and other central banks do not want hyperinflation. The Fed has targeted 2% inflation as measured by the Consumer Price Index, and it has come close to achieving this goal. Central bankers know what causes hyperinflation and how to stop it from happening. Note that in 1979-1980 Volker became Chairman of the Fed U.S. inflation rates were in the double digits and tending to rise. Volker promised Jimmy Carter to stop the rise in inflation rates, and he did so–simply by raising interest rates to the 20% range. Raising intererest rates (enough) will always get inflation rates to go down.
Currently the Fed has an easy money policy with exceptionally low rates of interest. This easy money policy will almost certainly continue so long as U.S. unemployment is 8% or above that number. Nevertheless, the easy money policy probably will not trigger rising rates of inflation, because there are large amounts of unused land, labor, and capital goods (buildings, machinery, trucks, computers, tools) in the U.S. If and when unemployment rates (the headline number) fall below 5%, then increasing rates of inflation are likely to be a problem–probably not until then.
My understanding is that because the stimulus has not gone into the hands of consumers, but rather to banks to balance their toxic assets, it has not increased inflation to the point of hyperinflation. Hyperinflation only occurs when the real economy is flooded with dollars, thereby allowing for huge price increases of goods due to the capacity to support such prices.
We will see deflation before hyperinflation. While its popular to say the Fed has “turned on the printing presses” the fact is they haven’t done that at all. They’ve just added numbers to bank balance sheets. Until the physical money supply is increased, hyperinflation isn’t going to happen. We are witnessing a 30 yr debt bubble burst and with that comes reduced purchasing capability and lower prices because there’s less credit available with which to make those purchases. This can only mean one thing, deflationary depression.
Justin,
I see what you mean about the distinction between the “real economy” and creating money for the banking sector. Thanks.
“This can only mean one thing, deflationary depression.”
The notion of deflation does not seem compatible with rising human numbers and diminishing resources.
If you’re orbiting the earth in a spacecraft, stuffed with billions of dollars of money and ten minutes of air, how much will you have to spend to get another minute’s worth of air?
We’ll probably see — we are seeing — coincident inflation and deflation. The housing crash versus gas prices is but one example.
Food and energy must inflate as fossil sunlight becomes more and more dear. What will deflate? Things that compete for food and energy — consumer electronics, second homes, collectable art; I can think of lots of examples of deflation.
In addition, wages will deflate. This is because human labour competes for food and energy, so the less energy available for labourers, the less valuable their labour.
The only possible wrinkle I see is if (when?) some conflagration reverses the trend of growing population. The Limits To Growth model predicts about 2030 for a big uptick in deaths and resulting depopulation. Not until fewer people need to eat will the cost of food and energy go down.
I agree with you about inflation, long term. Short term it appears we will have deflation as part of the credit cycle.
One thing that is in the back of my mind is whether the system can simply “break”. Is it possible that bank balances will simply disappear, either because the banks lack electricity and “forget” what our balances were, or because the government cuts off access to our bank accounts (except for a very small amount), as happened in Argentina and other places?
Then inflation may not happen. We may have to figure out ways to keep our systems working (for example, paying people) or manufacturing and transport of goods will break down all together.
I think this scenario is very possible. It could be blamed on a solar flare, for example, and would be said to be “just an accident.” But strangely, all of our debtor balances would somehow still be preserved, also “by accident.”
“Is it possible that bank balances will simply disappear…”
I don’t have a reference handy, but I recall hearing of this already happening, as a result of mortgages being sliced and diced into derivatives and some of those going into default, some lucky people discovered that no one really knew who held their mortgage any longer — a case of complexity exceeding available energy, perhaps?
Of course, the opposite can also happen — some new mortgage owner demanding payments that have already been made — so hang on to those cancelled cheques, folks…
I’m afraid that is all spin, as so much is nowadays. The mortgage contracts are still held at the bank, and won’t be forgotten or lost. The note that says the bank has a lien over the property (and hence a “AAA-guaranteed” interest stream) will have been sold to another party in exchange for cash, and I’m sure the bank will have a record of who that was. The notes then get bundled and used as collateral for a mortgage-backed security, but the note stays with the bundler. It is worth a lot of money, so they don’t just “go missing”.
So why can’t they find them ? Because the bundler has used them TWICE as security – in a clear case of fraud which threatens to unravel the entire industry. Why doesn’t the government investigate the fraud ? Because they don’t want to unravel the whole industry. They are all in it together – government, Fed, banks, mortgage-backed fund managers, insurance companies, all pumping the bubble bigger, because the alternative is collapse.
When the electricity goes off the banks have to close their doors, because the security systems won’t work, the safe won’t open and the computers won’t work. This will panic the public, who will withdraw their money if they eventually open again. This will crash the banking system. Businesses won’t be able to pay suppliers, or sell on credit terms, so they will shut. Without food in the shops, or water coming out the taps and the sewerage not magically disappearing, no phones, internet, TV, most people will flee the cities looking for food for their crying children. The system can break that easily.
Good examples!
It is because we are in the deleveraging part of the cycle. More debt is being paid back than new debt being issued. i.e. more money is being destoyed than created. Therefore money is coming out of circulation. This is deflationary. The Fed is printing money (QE)now to counter act this. The money printing that the Fed is doing is termed “sterilized” because in theory it can be taken out of circulation again if inflation gets too high. In practice they won’t do this because inflation is the historical way of getting out of too much debt as austerity or default is not politically attractive.
This is a good explanation as far as it goes, but it does not speak to the vast sums sitting idle in corporate treasuries or being rolled into bonus pools. Cheap money encourages hoarding cash. Treasury yields are hardly worth the trouble and expense of transfering the funds. The magic of finance allows corporations to make money without doing business.
I think the point is that money has already BEEN destroyed, and that’s the problem. People have paid good money for worthless bits of paper. Fractional banking – the blessing in a finance limited resource rich situation is a curse in a resource poor oversupply of money.
Someone has to recapitalize the banks whose securities have lost so much value. Or the banks go bust.
My read is that real home prices do not rise over long periods of time.
http://www.ritholtz.com/blog/wp-content/uploads/2011/04/2011-Case-SHiller-updated.png
You might be right. But over short periods of time, if there is a real economic “boom”, prices seem to go up.
Larry’s correct that housing does not appreciate over long periods of time at least in Amsterdam which with 600+ years of residential real estate pricing has the longest continuous records for any city. Prices for commercial real estate in New Amsterdam have been even worse in the past century. Commercial office space was 30% cheaper in 1999 than 1899. http://economics.mit.edu/files/5887
Wile E. Coyote is off the cliff: all that remains is to feel around with the big toe for ground and then to look down: http://m.financialsense.com/financial-sense-newshour/guest-expert/2012/06/08/simon-a-mikhailovich/financial-derivatives-the-ticking-time-bomb
Gail says we can’t just get rid of the debt, but we can, and it has already been done at least once in the history of the USA, and many times by other nations during previous half dozen centuries. The debt of the Confederacy was abrogated by Section 4 of the 14th Amendment. That section provides that federal government wont pay and forbids any individual State to pay this debt. Since the States of the Confederacy were back in the Union when this Amendment was ratified, it applied most particularly to them.
As a matter of fact, our federal government will never pay off the debt. To attempt to do so would cause a breakdown of our society. There just isn’t enough money in cash to pay, and of course, it can’t be borrowed by a government that is behaving so insanely. But it can be abrogated, provided a suitable political pretext is constructed (note the word pretext is particularly approprate here. It is the text that comes before some action).
I do not have a pretext that I can suggest. I do not advocate abrogation. But I predict that it will happen before we have fully withdrawn our troops from Afghanistan.
Throughout history the commonest way for governments to repudiate debt was through inflation. I think that will happen with all major currencies over the next twenty years. When push comes to shove, rapidly increasing rates of inflation are much more likely than is debt deflation. In all of history, debt deflations are rare; inflations are frequent.
I am sure that the government would like inflation, if it can engineer it.
This time around, the inflation approach doesn’t seem to be working as well, though. It seems like engineering inflation becomes more and more difficult, if people’s buying power is tied to the availability of increasing amounts of debt, and there are increasing debt defaults. It is also difficult to raise workers salaries, so as to be better able to handle the debt.
Neither the U.S. Federal Reserve system nor the U.S. Congress has made a major effort to create inflation. On the contrary, the Fed has announced and approximately achieved a rate of inflation as measured by the Consumer Price Index of 2% per year.
Here is how to create an inflation rate of 5% to 10% per year:
1. Have the U.S. government run a deficit of two trillion dollars per year.
2. Have the Fed purchase the two trilion dollar deficit with quantitative easing (printing money) with long-term debt.
Note that some months ago Paul Krugman advocated that the Fed should announce, and then go on to achieve a 5% annual rate of inflation goal for each of the next five years. That policy would work to boost nominal GDP growth up to acound 5% and perhaps somewhat higher. At the same time, real GDP might be declining, but because of the inflation the real burden of debts would be declining.
The Fed has… achieved a rate of inflation as measured by the Consumer Price Index of 2% per year.”
But doesn’t the CPI exclude energy and food, because those prices are “too volatile?”
That’s sorta like declaring that people are not getting older by excluding their age from the statistics that are gathered.
I suspect anyone who buys food or gasoline would laugh at such figures. Perhaps digital cameras and big-screen TVs have not inflated, but last I checked, you can’t eat those.
The 2% rate of growth in the U.S. Consumer Price Index includes both energy and food prices. The concept that you refer to is called “core inflation,” but it is not the index the Fed uses for measuring inflation.
The Consumer Price Index is probably not the best index for measuring how much inflation exists. In my opinion and that of many (probably most) economists, the Gross National Product deflator provides a better measure of inflation. For historical and political reasons, the Fed uses the CPI number and is likely to continue to do so. Why? Well, for one thing, cost-of-living adjustments in Social Security benefits are based on the CPI.
John Williams over at shadostats.com claims that the CPI greatly understates the true rate of inflation. I think he is essentially correct, but unfortunately his methodology is secret, and he has never explained how he gets from U.S. government numbers to his numbers.
So Don, are you saying that if the cost of gas doubles and the cost of food doubles, but the value of your house falls 50%, inflation is, on average, zero?
If you do not like the U.S. government numbers for inflation, then go over to shadowstats.com and use the numbers that John Williams does. I’m inclined to believe that his numbers are better than the Government numbers, but I cannot prove this opinion to be true.
It is pretty clear that much of the debt that is in place can never be paid back.
I have not studied what happened with previous debt jubilees. There are clearly many organizations that depend on debt being paid back, as promised–for example, insurance companies, banks, and pensions plans. Canceling debt has very definite social repercussions. Should a person who has paid 5% down on a house get possession of the house, without paying anything more? Should people who have paid into pension plans automatically lose their pensions, even if they have paid in for many years? Should insurance policies all become worthless? What would debt jubilees do to banks, and to international trade?
I don’t know what the problems have been with jubilee in the past. We have so much more debt now, and its character is so interwoven through society, that getting rid of it (or perhaps more accurately, debt evaporating, without our doing anything further) is likely to cause huge dislocations.
Paul,
Gail’s question was not whether we can get rid of the debt, but whether we can solve our problems by getting rid of the debt. To that, her answer is ‘no’ and she’s right because it does not solve the underlying problems like resource constraints (not to mention cultural barriers to a steady-state or even shrinking economy.)
The example you give is fascinating, but it is still only government or other public debt. To do even this much, the central government would have to be willing to totally smash the power of the banks (since so much of their balance sheets is public debt). Whether this could happen without a revolution is not clear, since the banks’ power is so tremendous.
It *could* create the money necessary to pay off its own debt (by directly creating the money instead of borrowing it from the Federal Reserve), but of course it would first have to smash the power of the banks (who are very jealous of the ownership they have of the monetary system).
In the long run, it does not matter because smashing the banks does not bring back any of the quality fossil fuels or ores which are gone forever.
Gail,
Very nicely organized! There *are* others trying to make these links but most fail to find a “flow” which will lead the reader along without confusion. This talk would definitely be worth repeating.
The talks were each 90 minutes, including discussion. This is more time than most organizers ever consider giving anyone. With this much time, it was possible to go through a lot of subjects together–it makes kind of a long post, though.
IMHO, it is a given that we will have no growth because of resource
depletion. There will be shrinkage for a while, perhaps collapse to a
very small economy followed by a modest recovery, but never again
sustained growth. I think debt abrogation will be part of the future,
whether we plan for it or not. Gail does say that canceling debt won’t
do any good. My post was a response that, IMO, canceling debt won’t do
any extra harm either. In support of no extra harm, I cite an instance
where we’ve done a debt cancellation in the past and the harm that it
might have caused then was so minimal that it is totally forgotten now.
I like the blog. It is the only place where the current situation is analysed using more the one field. Your analysis includes a bit of everything such as economy, biology, anthropology and much more. I am getting tired of those web site that see this crises as a economical crises only. Fixing the political and economical system and everything will be alright again,I am very fed up with these web sites and so call specialist.
Year are right: “Fixing” our economic problems by tweaking the system seems to be a popular topic. I don’t think people are willing to see that our problems go much deeper.
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Excellent post, even if heretical to economists in their economic mists. Thank you!
Fire enabled the cooking of grains that were otherwise indigestible, and without that digestibility much of agriculture would be pointless.
Clothing allowed humans to survive outside tropical climates, overcoming a significant constraint on population.
Good point about clothing. There are a whole lot of “inventions,” some very early on, that have allowed man to expand his range and use more of the natural resources in the world.
Before George W Bush left office, he gave the GOP and it’s one percent the gift that just keeps on giving. He changed the cup from being half full to half empty after 8 years of “deficits don’t matter”, deregulation and unregulated cowboy spending that turned into the worst financial crisis in human history.
The American economy doesn’t have debt or oil crisis. These are problems that can be fixed with leadership and education. Today’s American crisis is a confidence problem of the 99% who have been thrown under the bus by Republican deregulation, neocon wars and its attempt to drown the government in debt to kill social programs. That’s right, the one percent want to pay for there past wars that protected their wealth with your hard earned Medicare and Social Security funds. Believe me, Saddam Hussein had no interest in attacking me and my little wealth. What we see today is more about the powerful gaining and keeping control.
Don’t believe for one minutes that what happen to the world economy in 2008 wasn’t intentional. It’s poorly regulated and unregulated rentier debt that’s is the problem. Which helps keeps the 1% in power. A well managed and regulated economy works for all citizens. Unregulated shoot em up leadership is where we are now.
I think leaders are at this point getting close to desperate, trying to keep the appearance of continued growth going. So as long as more governmental debt is possible, leaders will spend more than they take in. They will also do whatever they can to try to keep the stock market going up. I don’t see a way that a “well managed and regulated economy” will work to save us now–we have too many basic underlying problems.
I don’t think what happened to the world economy in 2008 was “intentional”. It may have been close to inevitable, based on the huge amount of debt that was built up. The contraction caused by high oil prices made certain that it happened, because there was way too much debt relative to the underlying possibility of repaying the debt.
I think leaders of today are more concerned about their own personal wealth and power than their constituents well being. There is plenty of wealth in this country. They just don’t want to pay for their services supplied by the government. A lot of the stock market is undervalued because of the cash demands and confidence destruction of the 2008 financial crisis. The companies are making record profits and getting more powerful basically controlling government. America could have built a transportation system today twice as energy efficient if we where well managed and regulated. Again, just another self make crisis for more oil profits. You don’t have to go very far here in Southern California to realize $4 a gallon gas isn’t slowing anyone down and/or stopping mortgage payments.
It’s just too much for me to believe that those smart CEO bankers didn’t see the crisis coming when they where selling mortgages that reset at higher interest rate after a few years based on unlimited home appreciation . Sure it was inevitable with the lack of regulation in the mortgage market place, so clearly intentional. As long as the United States is the ultimate military power it can print all the money it wants .It’s part of the perks of being a superpower. It just might mean some price adjustments on some things (inflation).
We are still far from collapse. But, there are a lot more people today not living the American dream here in America.
I am not sure that the distinction between rentier debt and other debt is a valid one. By definition, rentiers do not work; they collect interest from debt (or possibly dividends from stocks). In 1900 the rentier class was in the U.S. far larger than it is now. Nevertheless, this large class of rentiers did not hinder economic growth.
Note that the projects that rentiers tend to invest in are just as productive as any other kind of debt. If, perchance, there is not going to be any more real economic growth at all, then the returns to rentiers is sure to decline. On the other hand, the return to all investors and creditors will also decline.
In 2012, the rentier class is relatively small compared to 1900. I do not see it as a big problem. A much much bigger problem is the entitlement class, especially those who have been promised generous pensions.
I have not really researched the rentier class, as such, so I was not intending to make much of a distinction.
I was taking rentier debt as including debt created through financial institutions as well as through bond markets. Modern pension programs are funded by debt through bond markets in particular, so a person could argue that the rentier class has grown as the population collecting pensions has grown.
Also, in many ways it is the banks, and the high paid employees of banks, that are enriching themselves through increased debt.
Excellent summary of where we our global society stands. Thank you for providing the pertinent facts in a very concise manner. The facts you discuss are something pretty much every one on earth needs to clue themselves in on. I never see a discussion of any of these basics on the news, on financial websites, by analysts, etc. I think people what to remain blissfully ignorant in general.
> I never see a discussion of any of these basics on the news, on financial websites, by analysts, etc.
Not in the mainstream media anyway, but there have been lots of discussions elsewhere on this since the ground-breaking Limits To Growth report.
What I don’t see anywhere is discussion about what happens in the inevitable collapse. Yes of course banking is going to collapse, of course Peak Fossils is going to make it impossible for civilisation to rebuild (rebuilding takes energy). There are going to be more wars as the strong fight to keep their position of advantage. But what is the best thing to do to steer a way through it ? Taking the story as far as this article does is just going over old ground.
We will be back in balance when the food and fuel the Human population needs is met by photosynthesis in the locality. Take it from there.
“But what is the best thing to do to steer a way through it?”
Grow food! Follow Permaculture: “catch and store energy.” And we aren’t talking batteries here — more like catch and store the products of photosynthesis.
Dave, other writers/bloggers who are energy-depletion aware and who try to identify possible ways of going through the ongoing/upcoming simplification/bottleneck are Dmitry Orlov (ClubOrlov.com), John Michael Greer (thearchdruidreport.blogspot.com), George Mobus (questioneverything.typepad.com). There are many others but the latest posts from these 3 are relevant to your question. JMG’s latest advises to, individually, collapse now to avoid the rush (HA), through building resilience, self-sufficiency…permaculture is definitely in there somewhere.
Indeed there are writers looking forward. None though use data and charts the same painstaking way that Gail does, and so to me they come across as less convincing. What I would like to see is the problem being given the actuarial treatment. Where future choices occur, one would need to assign probabilities for each choice, and pursue each of them to their logical conclusion. A set of multi-branched futures would thus be laid out, with their assigned probabilities, so that we could see the future landscape more clearly, and make better decisions.
“The best thing to do to steer a way through it”?????
My dear man, what makes you think that YOU out of seven billion should be entitled to so pilot your survival?
Who says entitlement has anything to do with it? It’ll be a matter of good fortune, and we can only hope that Amundsen was right in saying that fortune is nothing more than being prepared.
good stuff..but from a philosophical point – one detail.
Human beings are natural and what they do is natural and is no different from other species. NO SPECIES IS EVER IN BALANCE. That is a curious myth propounded by those who have not studied ecosystems. The reality is that populations of any species will expand into ecological niches, and, if they destroy it, crash back to a low level. Locusts are perhaps the most commonly recognized example, but its the same for all. Mathematical modelling of food/browser/predator relationships shows that the so called balance is in fact a chaotic strange attractor with massive fluctuation levels.
Man is doing what any dumb species does: breeding to the limits of its food supply and when it has exceeded it and the possibility of future supply will crash back to about one tenth of the level.
Since a large part of its food supply depends on energy, it will be an energy crisis that starts the process.
You and I will be unlikely to see its end.
Very true, I often think that the human population as a whole behaves not at all differently then a bacterial colony in a petri dish (they use all the available “food” then die off).
I agree about the energy supply triggering the collapse, but disagree as to its timing. I think that we are on the brink now. I can’t see a way of coming back from the brink, even with the development of gas extraction by the process of fracking, because we need energy in liquid form for transport and agriculture etc. There just isn’t the time available to build up the gas infrastructure before the ungazi hits the fan.
I think there is a fundamental difference between what most other species do and what humans have done.
When a non-human species reaches resource limits, it tends to crash until resources recover.
The difference is that humans have become dependent on non-renewable resources that will not recover form tens of millions of years. Due to our clever exploitation of these resources, we are further into overshoot than most other species ever get.
I agree with you in general that the difference between humans and other species tend to be one of degree, rather than some absolute. But the degree to which we have gone beyond a chaotic cycle that roughly repeats itself is incredible. Unlike the hare and lynx, humans will probably never regain their current peak, because the systems humans have depleted will not recover, at least not in the time span of the usual lifetime of a species.
I agree that any species expands to fill available niches. We have just done better than most species in expanding and taking over new niches. We assume we will continue to find new ways around limits, but this is looking less and less likely.
I think you are right that energy crisis will start the process of a crash. But the energy crisis may look more like a financial crisis, because the financial system is so tightly tied in with the energy system.
“the energy crisis may look more like a financial crisis, because the financial system is so tightly tied in with the energy system.”
When all you have is a hammer, the whole world looks like a nail.
I’ve been exploring a theory that the Great Depression had energetic underpinnings, but all you see in the history books are financial reasons.
I think all we’ve really got is a screwdriver, and every financial crisis is missing the energy screw that holds everything together.
I agree. It is starting to look more and more like energy is tied in with every financial crisis. I think if we look back far enough, soil erosion is involved as well in many. Without soil, it is very hard to grow food.Reply
I am fascinated at the failure to recognize the systemic nature of the collapse underway. “It’s energy”, “It’s climate”, “It’s economics” are all equally skewed thinking. The latter, most of all. Economics is nothing more than a philosophical extension of ecosystem services. None can see the full picture until they stop seeing the pieces and start seeing the whole.
energy prices > higher food prices > hunger > energy expended to end hunger > more energy
climate changes > higher food prices > hunger > more energy to grow replacement food > energy prices
What’s the real difference between these two? Nothing.
The issue is that we are reaching limits in many ways. Oops!
I bed to differ. the issue is really that our problem-solving is bifurcated. Can’t do sustainability that way. By the same token, if you do sustainability, you don’t need to worry about all this stuff nearly as much. Most of what is discussed can’t be part of the future.
I completely agree with your ideas, save one exception. Whereas most species are held in check by predators, disease, and other factors, we have not. The result is that there are upper and lower population “bounds” in nature in which species typically exist. These limits are typically not exceeded, and species extinction rates are low. We are different. With unchecked growth, we are now taking out multitudes of other species. Our ecological role now has now changed to be the purveyor of the current mass extinction, equalled only in geological time. Only, we are intelligent enough to understand that we have an ethical choice in the matter.
“Whereas most species are held in check by predators, disease, and other factors, we have not.”
Rubbish. We are held in check by disease..and our predators are very SMALL ones. Viruses and bacteria.
We found a fossil energy niche, stripped it clean, expanded like anything and will die back. It really is that simple.
If we don’t voluntarily limit our procreation people will simply have shorter less pleasant lives.
Who knows but that the existing aboriginal hunter gatherer populations are not whats left of some massively older civilization that has vanished without trace?
Given a low enough population density and a few flints and sticks, the stone age is not particularly hard to undertake.
Man has also teetered on the edge of extinction before…
http://en.wikipedia.org/wiki/Mitochondrial_Eve
The human population is also held in check by lack of food, especially in poor countries. We could theoretically share more, of course, but that doesn’t seem to be in our genes. Looking at aboriginal populations we see a genetic predisposition to share with a tribe of up to 150 or so, but not 7 billion. Once the local tribe gets too large, a sense of “us” and “them” develops, and we quite happily try to kill “them”, even though some of “us” will die in the process. If that is not a population control I don’t know what is.
Bearing in mind of course that billions of humans alive today are alive as a direct result of the Green Revolution, which turned oil into carbohydrates into people.
“Sharing” is all well and good in a rainbow unicorn system. But Leo is right: humans found the fossil energy niche, and are in the process of stripping it clean. The downturn there will be reflected in a downturn of human numbers that resulted from the stripping.
In the many years I worked in the Land Grant colleges of agriculture (on the then-new sustainability side), I got to meet many of the researchers whose work contributed to the Green Revolution. The eye opener for me was how many of them had witnessed starvation during their time abroad fighting in World War Two, particularly the starvation of children. They returned committed to feeding the masses, took agricultural degrees on the GI Bill, and devoted their lives to the vision of having food to give children in memory of those they watched starve.
The oil economy and the carbohydrate food economy are one and the same thing. The unraveling will be painful. Nature and evolution revolve around population ecology, not around individual or cultural whims.
I hadn’t thought about putting it that way–
Well said.