Mulling It Over

John Michael Greer had another thought-provoking post this week, and I am still mulling it over. This is actually his second response to a paper by David Korowicz, which I am still in the process of reading. The first time around, JMG had this to say:

Korowicz argues, if I may oversimplify his careful prose, that the current global financial system is a tottering mess that could come apart at the seams in no time flat, and it’s under stress already from a variety of factors, including peak oil. If and when it comes apart, he suggests, the entire structure of letters of credit and currency flows that supports global trade in little luxuries like enough food to eat could quite readily come apart also, producing a fiscal cardiac arrest that could shatter supply chains and bring most nations’ economies to a screeching halt in a matter of days or weeks.

Is this a plausible scenario? It’s considerably more than that, for a close equivalent happened in late 1932 and early 1933 in the United States.... as banks folded one after another, the basic trust that makes a credit-based economy function evaporated; nobody could be sure if the bank that received their deposits or their loans would still be there the next day, bank runs followed, and the whole economy shuddered to a halt....

Could that happen again, on a global scale? You bet. It’s the sequel, though, that didn’t get into Korowicz’ analysis. Faced with the imminent reality of national collapse, the US government did not sit on its hands, which is what those with the capacity to do something are always required to do in fast collapse theories. Instead, it temporarily nationalized the entire American banking system, declared that all assets held by the banks were owned by the government until further notice, made private ownership of gold by US citizens illegal, and ordered every scrap of gold in the country much bigger than a wedding ring sold to the government at a fixed, below-market price, with stiff legal penalties for anybody who tried to hang onto their gold stash....Flush with seized bank assets and confiscated gold, the government poured money into the nationalized banks, which could then meet every demand for funds, stopping the panic in its tracks.

It is this argument that JMG continues in this week's post:

Korowicz is quite correct in suggesting that the current global financial system is a house of cards that could easily come crashing to the ground, taking a quadrillion dollars or so of imaginary wealth with it and dealing the world’s industrial societies a staggering blow.

It’s purely his suggestion that this could cause the global economy to freeze up, not for weeks, but for years or even longer, that strays out of the realm of realism into territory mapped out well in advance by Western civilization’s penchant for apocalyptic fantasies. In the real world, of course, governments facing sudden financial collapse don’t just sit on their hands and make plaintive sounds; they take action, and there are plenty of actions they can take ... and while it’s always popular to say "It’s different this time," I hope my readers recall how often, and inaccurately, these same words get used in the not unrelated field of speculative bubbles.

At the risk of sounding like another deranged adherent of apocalyptic fantasies, I am going to say, "It's different this time."

It's different this time because of scale. Everything is bigger and more connected and more interdependent now than it was in the 1930's; it may be a tired maxim, but true nonetheless, that the bigger they are, the harder they fall -- which is the whole concept behind 'too big to fail.' The failure of a giant creates a chain reaction that can quickly devolve into collateral damage on a previously unknown scale.

It's different this time because of the speed at which things happen now -- the current speed of international communications would have been inconceivable a few decades ago. Take, for example, the coronation of Queen Elizabeth in 1953. At that time, extraordinary measures were taken to share the event with Canadian subjects:

Millions across Britain watched the coronation live, while, to make sure Canadians could see it on the same day, RAF Canberras flew film of the ceremony across the Atlantic Ocean to be broadcast by the Canadian Broadcasting Corporation, the first non-stop flights between the United Kingdom and the Canadian mainland. In Goose Bay, Labrador, the film was transferred to a Royal Canadian Air Force CF-100 jet fighter for the further trip to Montreal. In all, three such voyages were made as the coronation proceeded.

source Wikipedia

Contrast that to someone today using a smartphone to record the Queen's Diamond Jubilee and posting it on Facebook moments later.

And last, but not least, it's different this time because of the now precarious state of governmental legitimacy, a topic which JMG also addresses at length in this week's post:

A successful political system of any kind quickly establishes, in the minds of the people it rules, a set of beliefs and attitudes that define the political system as the normal, appropriate, and acceptable form of government for that people. That sense of legitimacy is the foundation on which any enduring government must build, for when people see their government as legitimate, no matter how appalling it appears to outsiders, they will far more often than not put up with its excesses and follow its orders.

So the question becomes, if the financial sector were to fail, and if the government were to attempt to react massively and quickly enough to stave off economic collapse, would gun-toting Tea Partiers hand over their gold and allow their banks to be nationalized by an Obama administration? Or a Romney administration, for that matter? Or would we have an armed revolt just-in-time to ensure cascading disaster?

Not sure you're right on this one, JMG.

And They Lived Happily Ever After

I’m a sucker for happy endings. If a book or movie doesn’t have a happy ending, I don’t want anything to do with it. That’s part of why I spend so much time peering into my crystal ball, trying to understand where we’re headed. As I look at the near future, I see us falling inexorably into turmoil – but what comes after that? I’m trying to look far enough into the future to find the happy ending. Which brings me to John Michael Greer and where I believe he has it wrong.

I have only been reading the archdruid a short time, so I may be mischaracterizing his prognostications, but he did write recently, “one of the lessons the past offers is that the fall of civilizations is a slow, uneven process.” I’m not sure what he means by ‘the fall of civilizations’ as it applies to life-as-we-know-it, nor am I certain what he means by ‘slow,’ but I do have my own take on where we might be going and how fast we’re getting there.

I believe that life-as-we-know-it is about to change drastically and forever and that the process will be anything but slow. It will, however, be uneven. If you live in Monroeville, Alabama where the paper mill that was one of the town’s biggest employers has now shut down, life-as-you-know-it has already changed. If you live downriver from TVA’s Kingston coal-fired power plant, life-as-you-know-it has already changed. If you lived in Plaquemines Parish, Pass Christian or Dauphin Island prior to Katrina, life-as-you-know-it has already changed. But are these isolated events – life as it has always been – or are these events part of a newly emerging pattern of disaster?

The answer to that question is a long one. It begins with money. Money is a shared fiction – dollar bills have no intrinsic worth and for the most part our money today isn’t even that tangible – it’s nothing more than numbers in a computer. As long as we all agree to share the fiction, things go along pretty smoothly, but lately the fiction is wearing thin. Chris Martenson does a very easy-to-understand crash course in global economics but the bottom line is this: our financial system is based on growth. Without growth, everything falls apart. Our whole economy is essentially a Ponzi scheme where tomorrow’s assumed growth is what pays today’s bills. To keep everything greased and in running order, we must spend money we don’t have to buy things we don’t need. If we stop spending – because we’ve been laid off from the mill or the business where we worked is now wiped off the planet by a tidal wave or just because we’ve decided that we don’t need all that junk – then the dominoes begin to fall, and once they start falling, they will have to play themselves out. I don’t see how it can happen any other way. We cannot sustain infinite growth in a finite world – eventually we will run up against the wall of limited resources and I believe that eventually is now. Yes, there are great new ideas out there – cradle-to-cradle manufacturing, for example -- but the scale of the necessary changeover and the pressures of limited time and funding mitigate against a smooth transition. And as with any transition, there is hardship. What happens to lumber jacks and coal miners if we no longer need their services? What happens to Chinese manufacturers if we no longer buy their plastic salad shooters?

After money, we have oil. Oil is the wonder resource – it not only provides cheap, abundant energy, but it provides it in an easy-to-refine-and-use form and leaves us with side benefits -- the chemical concoctions that make agri-business a going concern and provide us with our ubiquitous plastics. But oil is running out. Okay, we’ve only used about half of the world’s supply, but it was the easy, cheap half. And as demand eventually outpaces supply, we will see both rising prices and shortages. Rising oil prices means that the price of everything goes up. Considering the shaky foundation of the all-mighty dollar, we could even see hyper-inflation. Shortages could just mean long lines at the gas pump but they could mean much worse, especially if they occur during a long, cold winter. And if there is a sustained disruption in our oil supply, we could see something that looks like this:

Almost overnight, gas stations are running on empty. The trucking industry is unable to deliver groceries to the stores. The airline industry is unable to get its airplanes in the sky. International commerce grinds to a halt as cargo ships sit idle in ports. Farmers are unable to get gas for their equipment or fertilizers for their fields. Construction equipment sits rusting. The power industry is unable to deliver coal to power plants. The power grid is still viable but unreliable. In a desperate measure, the U.S. government starts rationing gasoline. First priority are the military, emergency responders, and public works. Second priority are truckers transporting food and/or coal. Third priority are farmers and coal miners. Private vehicles are last on the list. Many of those who still have jobs are forced to quit as they can no longer get themselves to work.

Yes, but it doesn't have to be oil. We can build electric cars, wind mills, solar arrays, and generators powered by the tides. We can use passive solar and geo-thermal to heat our homes and photo-voltaics to power our television sets. Maybe, but here again, the scale of the necessary changeover and the pressures of limited time and funding mitigate against a smooth transition. And none of the above can replace oil’s side benefits.

I’m not even going to go into the possibility of war, water shortages, or extreme weather events due to climate change because I think that we already have enough ingredients for a breakdown in civil order. People who are out of work, out of food, and out of hope but who have ready access to guns won’t sit quietly by and wait for things to get better. That takes me back to my previous post.

What???? I thought she was giving us a happy ending. Well, stay tuned . . .

Dark Thoughts on a Bright Morning

I'm suffering from cognitive dissonance. I log onto the web and read in the blogs of people like Dimitry Orlov, John Michael Greer, and James Howard Kunstler that we are already well into national collapse and that our economy will only get worse, much, much worse, never, ever to recover. Then I turn on the TV and everyone, from the President to the man-on-the-street, is talking about 'things getting back to normal' with the question being 'when,' not 'if.' I look outside the window and the world looks the same today as it did yesterday. I go to Wal-Mart and the shelves are stocked, people are buying, and we are still a nation of abundance. Kids are going off to college and getting degrees in public relations and business administration. The neighbor ladies are planning their shopping trips as if they were mini-vacations. Golf courses are selling memberships, Creekstone is selling multi-million dollar mansions, and the stock market is selling stocks. Have I bought into the insane ramblings of fringe kooks? I ask myself that question almost daily and every time the answer is the same: our whole economic model is based on an absurd fallacy of infinite growth in a finite world. We may be able to eke out a few more months, even possibly a few more years, of business-as-usual, but business-as-usual cannot last much longer. So it isn’t what the pundits are writing that convinces me, it is the truth as I see it. I admit to the possibility of being wrong, but until convinced otherwise, I must live within the parameters of this reality.

Why this obsession of mine? I am trying desperately to understand where we are and where we are headed so that I may make intelligent decisions in the here and now. Three questions remain – how bad will it get, how long do we have, and what can I/should I do? I don’t have the answer to any of these questions, but I spend an inordinate amount of time reading what others have to say and considering their take on things.

Dimitry Orlov uses the collapse of the Soviet Union as a model for what’s to come, but I think the differences are as important as the similarities and if he addresses those, I haven’t yet found it.

I believe the collapse of the United States will be worse than that of the Soviet Union for many reasons, the first of which is widespread gun ownership. In the USSR, guns were in the hands of trained professionals. These trained professionals, after the collapse, became a danger to society, but they were limited in number and they were for hire. In the US, guns are in the hands of petty thugs, organized crime, militant survivalists and AngryWhite Men. Cities will be hardest hit, but small towns won’t be immune. The bloodbath is likely to be horrific. In the beginning, I see the National Guard and local authorities being used as peace enforcers, but as collapse accelerates, they are as likely to become part of the problem as part of the solution. In cities, violence is likely to be random and chaotic in the beginning, but becoming more organized as time goes on. Thugs will form gangs, gangs will organize into competing Mafiosi, Angry White Men will shoot anyone who comes to the front door, and all the elements will be at odds. Sarajevo comes to mind. In the small towns, it may be just loonies who go on shooting sprees. But in some towns, there will be local thugs who band together to grab power and take control of dwindling resources. Angry White Men will stand in opposition. In some places, thugs will win. In others, they will be wiped out and Angry White Men will take control, which may or may not be any better. And in still others, coalitions will be formed. I don’t think national and state governments will disappear entirely, but I do think they will become increasingly irrelevant. Who ends up in control of the towns’ daily life and resources will depend on the comparative strength of local groups and their respective willingness to work together in peace.

Another reason the US will be worse off than the USSR is the old adage, “The bigger they are, the harder they fall.” The average American lives a life of much greater ease and prosperity than the average Soviet ever did. We have farther to fall, so the trauma will be that much greater. Adding to that is the American sense of entitlement and invulnerability – “it can’t happen here” is so basic a belief as to be almost unshakeable. The Russians, however, have a fatalistic mindset. They see life as struggle, and, indeed, their history has been one of constant struggle. So, not only will we have further to fall, we are psychologically ill-equipped to deal with harsh realities. Nor are we equipped to deal with the physical realities – public transportation is all but non-existent, supply chains are long, and farming has become, for the most part, agri-business. Rare is the family farm with horses and oxen or the blacksmith with fire and forge. The Soviet Union had not advanced so far as to have almost obliterated the old ways of doing things.

Moreover, the collapse of the Soviet Union was a rather isolated event. While their country was imploding, the rest of the world was going its merry way. It won’t be that way with the collapse of the US – in part due to a global economy that relies upon American consumerism and the American dollar, in part because the international web of finances binds our fates together, and in part because we share a common, fatally flawed economic model. The poor countries may fare the best – once we stop exploiting their resources to feed our insatiable appetite for stuff, they may have a chance to recover what they have lost. I hope they do. But it won’t be a collapse of the USA, it will be a global collapse with much more dire consequences.

The energy equation is also significant. Russia had enough oil and natural gas to supply not only its own needs, but to export in exchange for hard currencies. The US has no such luck. Not only is our own supply of cheap, abundant energy insufficient, but the global supply will soon become increasingly tight and expensive. As the shortfall becomes more and more apparent, the nations with oil are likely to begin hoarding it for their own use or selling it to the highest bidder. And when it is gone, it is gone. We’ll find some alternatives, but nothing will replace what we have squandered.

And lastly, the collapse of the Soviet Union occurred during a time of relative peace, prosperity, and climate stability. The collapse of the United States will occur during a time of potential resource wars, global poverty, and climate instability. Everything will be falling apart at once. Epidemics are likely to sweep across the world, natural catastrophes are likely to accelerate, and the food distribution chain is likely to disintegrate at a time when the world is not able to respond.

There are, however, some ways in which the US may fare better than our Soviet counterparts. For one, we are not an uneasy collection of conquered nations – we are truly a united people with a united fate. For another, our politicians are elected, not selected, and we do have more freedom than the average Soviet ever imagined. We have churches with a long tradition of reaching out to those in need, and we have a heritage of pioneering spirit. I watch Americans pull together to fight a flood, to rescue a community torn apart by tornado, or to comfort the victims of random violence. I see the upsurge in home gardening, the renewed interest in raising chickens and keeping bees, the inventiveness of earthships and alternative housing. I sense that there are great untapped resources in America just waiting to be unleashed. I think Americans, not all, but a significant number, will rise to the occasion in ways that will surprise everyone, myself included.

To be continued . . .