INDEX - ECONOMYwww.islandbreath.org ID#0806-08
SUBJECT: BANKING ON THE BRINK
SOURCE: DAVID WARD email@example.com
POSTED: 23 MARCH 2008 - 12:00pm HST
Black Swans Everywhere
image above: a pair of black swans with chicks
by James Kunstler on 22 March 2008 in jameshowardkunstler.com
After a one-day reprieve from total meltdown in the financial markets, news media cheerleaders for the most reckless gang of bankers in world history declared the crisis over on Good Friday (with the markets safely closed). Whew, that's a relief. Problem solved. And just in time for baseball season, too, so none of the Banker Boyz have to sell their sky box leases.
Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke
What is meant by 'meltdown,' by the way, since the word is used so promiscuously by myself and others. I'd define it as the shock of recognition that many big institutions are worse than flat broke and are therefore powerless to conduct normal operations. By 'worse than flat broke' I mean they are so deep in hock that all the accountants who ever lived, in the life of this universe and several others like it, using the fastest parallel processing computers ever built, could not keep up with their compounding accelerating losses (now approaching the speed of light).
The current vacation from reality on Wall Street may last a few more days, or even a couple weeks, but it seems as though a whole flock of black swan events is circling the sky over Financial-land and is about to blot out the sun. By black swan, I refer to the concept popularized by Nassim Nicholas Taleb in his recent book of that name, namely unexpected events of great power that tend to change the course of history.
For the moment, with the crisis 'contained,' and the Boyz getting ready to air out their Hampton villas for the coming season, we are once again primed to be blindsided by potent random events that nobody saw coming. The trouble is, there are enough potent potential fiascos already visible on the horizon.
The mortgage fiasco is still just gathering steam as it moves from the non-payment stage to the default and repossession level on the grand scale. Even the political wish to bail out feckless mortgage holders will stumble on the mammoth clerical task of administrating the process, especially since we've barely begun to sort out who actually holds the mortgages after they've been minced into a fine mirepoix of securities off-loaded onto countless dupe 'investors' ranging from municipal funds in obscure corners of foreign nations to countless public employee retirement plans.
No matter how the authorities try to 'nationalize' the sucking chest wound of bad mortgages, the body of finance will flat-line -- and the American public will get stuck with the bill from the intensive care unit. Those who, for some weird reason, continue to pay their way and meet their obligations, will be none too pleased to pay for misdeeds of the deadbeats and their banker-lenders. This portends a taxpayer rebellion, which may translate into a voter rebellion.
It's too bad the current presidential candidates have been unable to address the unfolding economic nightmare. Their collective silence on the matter suggests that they don't have a clue what to say about it. As the nightmare plays out and black swans flock in to blot out the sun, and the hedge funds come a'tumbling down, and more big banks blunder into black holes, and businesses big and small across the land shutter up their operations, and the unemployment rolls swell, and families are thrown out of their houses even when bailouts are supposed to be saving them (but the bureaucracy can't get the paperwork done in time) -- well now, they are going to be one pissed off bunch of people. What will they do at the conventions? Our outside the conventions?
In the deeper background of all this is the all-important oil story that nobody in politics or the media wants to pay attention to. Notice that in the fervid unloading of assets this past week, as investors dumped their positions in the commodities markets, the price of oil remained stubbornly above $100-a-barrel when it was all over on Thursday afternoon. Well, maybe they'll ratchet down a little further this week, but the trend line will prove to continue remorselessly upward in the months ahead.
Peak oil is for real. The supply can't keep up with global demand, even if it dips in the USA. And more portentous sub-plots develop in the story every month. Export rates are falling at a steeper rate than depletion rates. The exporting nations are not only buying more cars and running more air-conditioners, they also need to use more energy to lift the oil they've got out of the ground.
Another sub-plot is the fact that the equipment used world-wide to drill for oil and recover oil and move oil around the planet -- all that equipment is now so old and rusty that it can barely do the job, and it is going to start failing altogether unless investments are made to replace it, which nobody is making.
By the way, Americans blame the familiar private oil companies for all the trouble with oil in their lives -- Exxon-Mobil, Shell, et al -- but they don't seem to know that oil nationalism is in the driver's seat now. The old private 'majors' are only producing five percent of the world's oil. The rest is coming from the national companies -- Aramco, Petrobras, Pemex, et blah blah -- and the very operations of the oil markets are entering a phase of radical instability as they move away from auctioning their stuff on the futures markets and start making long-term favored customer contracts instead.
The bottom line is that high prices for oil is hardly the only thing America has to worry about. Pretty soon the US will have to worry about getting the oil at any price -- meaning, we're in for shortages and supply disruptions sooner rather than later.
Also unbeknownst to most of America, the financial markets reflect all this instability around the basic resource of oil because industrial economies like ours are set up in such a way that they can't run without cheap and reliable supplies of the stuff. So the least little twitter in the reality-based world of peak oil means that everything to do with money and capital investment will naturally go batshit, since our expectations for increased wealth -- i.e. 'growth' -- are predicated on the activities driven by oil.
It will be interesting to see what new machinations are unveiled this week. Whatever else this catastrophe is, it's a good show from the cheap seats.
SUBJECT: THE US BANKRUPTCY
SOURCE: DAVID WARD firstname.lastname@example.org
POSTED: 24 MARCH 2008 - 4:30pm HST
Living in Collapse
by Jason Godesky on 15 June 2007 in http://anthropik.com
The common narrative of the 20th century in the Western world is one of triumph—the triumph of republican governments and the so-called “free market” over fascism and communism, the triumph of economic growth, even the technological triumphs of putting men on the moon, and detonating the first nuclear bombs. In contrast to Eric Hobsbawm’s “long nineteenth century” from the French Revolution in 1789 to the outbreak of World War I in 1914, the “short twentieth century” spanned from 1914 to the collapse of the Soviet Union in 1992. Francis Fukuyama famously called this “the End of History,” asserting, “What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”
What we’ve examined in this series presents a very different view of the 20th century’s place in history. The European empires, particularly in the “long nineteenth century,” reached an historically-uparalleled apex in global social complexity, consolidating the earth and its human population under a minimum of imperial governments, while also passing the point of diminishing returns for further investments in complexity. The energy source for this era of imperialism, coal, directed European empires towards territorial acquisitions. However, the shift from coal to petroleum brought with it a violent re-alignment of political power, shifting from the traditional European coal centers in Britain, France and Germany, to the significant oil producers, the United States and the Soviet Union. The Soviet Union suffered from an overly complex government, but it collapsed ultimately as a result of peaking oil production.
Meanwhile, the shift from coal to petroleum led to global independence movements and the end of European imperialism. Instead, neocolonialism contiues to exploit former colonies in a system of globalization that maintains an imperial core consisting to some degree of the former European imperial centers, but increasingly the new imperial center in the United States. This more subtle form of empire is itself a clear sign of collapse, however, with proliferating de jure independence movements that eliminate the established level of European imperial complexity, as well as the rise of various “rhizome” networks, from multinational corporations to terrorist networks, that defy the conventional, Cartesian definition of the nation-state, and represent the next step down towards collapse.
Rather than the century of civilization’s triumph, then, it becomes clear that the 20th century was the first 100 years of global collapse. At the end of the 20th century, most of the world was in some state of collapse. As Joseph Tainter argued in Collapse of Complex Societies, the competition between states in a peer polity system keeps any of them from truly collapsing on their own; today, the IMF, the World Bank, and various other forces (well-portrayed in the pharmaceutical and illegal arms trades by the 2005 movies The Constant Gardener and Lord of War, respectively) “prop up” collapsed states from the remaining pillars of complexity. This state of pseudo-collapse brings with it the worst of both worlds: the strife, poverty and violence of collapse, without the opening spaces and opportunities that a full collapse brings with it. By the end of the twentieth century, most of the world existed in such a state, with the United States and Western Europe essentially propping up complexity across the rest of the world. For most of the world, collapse is not a future possibility, but a very present reality.
Yet, in the imperial core, collapse seems like a distant and unreal threat. If the 20th century was the first 100 years of collapse, the West certainly didn’t experience it as such. Roman authors similarly mentioned the glory of their empire, expressing a similar faith in their abiding civilization, after the Third Century Crisis and well into the period that modern historians recognize as the empire’s collapse. The watershed moment for Roman awareness of collapse really happened in 410 CE, when Alaric sacked Rome—in his Commentary on Ezekiel, Jerome famously wrote, “…the bright light of all the world was put out, or, rather, when the Roman Empire was decapitated, and, to speak more correctly, the whole world perished in one city.” While Roman authors seem oblivious to the trends of collapse that modern historians note prior to 410, after Alaric’s sack of the city, Roman authors increasingly take on a post-apocalyptic tone. The image of the Visigoths cresting the Capitoline Hill reverberates down as the image of Rome’s fall, even though the Western empire went on for another 66 years. Historians chart the decline and fall of Rome as a long, complex process, which it ultimately was. The beginning of the Third Century Crisis around 235 is as good a starting point as any, and similarly, the ascent of Odoacer as King of Italy, ending the de jure rule of the Western Roman Empire in 476 would be an equally justifiable, and equally arbitrary, end point. In between, 241 years elapsed, a long decline by any human standard. And yet, those who lived through it experienced it as a sudden, even apocalyptic event: the sack of Rome on 24 August 410 CE. They did not recognize any of the preceding as collapse, and what came after was as desperate an attempt to keep the pieces together as Justinian’s campaign to retake the Western Empire from 533 to 552.
The “long decline” is always an academic exercise. It is the perspective of an historian with hindsight, looking back and tracing the patterns that led to collapse, as well as the continuing attempts to maintain a way of life afterwards. It does not describe the experience of those who live through such events. Contemporaries experience collapse as a swift transformation of their society; they might notice things getting somewhat worse beforehand, and desperate attempts to hold their way of life together in the aftermath, but for the most part, collapse is experienced as a sudden transformation. It’s historians in future centuries that are able to distinguish the “long decline.”
This can be understood also in terms of inflection points; looking at a curve in total, we can see that it has a general, smooth shape. Yet, the inflection point represents a shift in the direction of the curve. By the same token, if you look at the track of a roller-coaster, you can see that it makes a smooth curve; yet, when actually experiencing that curve first-hand, there is a distinct point where the slow click-clack of the upward climb gives way to the sudden rush down.
There are distinct differences between our situation and that of the Roman Empire, however. While the Romans did face some problems of soil depletion and erosion, these were not acute crises that brought down the empire. Rather, the Roman Empire largely choked on its own complexity. More importantly, the Roman Empire, and all previous civilizations, were part of a general trend of escalating complexity.
Each civilization in the past left fertile soils, mineral deposits, and other resources that future civilizations would need. The trend of Western civilization was a constant move west, to find soils not yet destroyed by agriculture—Persia and its attempts to conquer Greece; the Greek city-states and their Italian colonies; the Roman Empire stretching into Germany, France, Britain and Spain; the medieval kingdoms of Germany, France, Britain and Spain, and their eventual colonies in the New World; the United States after its revolution and the doctrine of “Manifest Destiny” pushing into the west; and finally, the Green Revolution once we ran out of new frontiers to coqnuer and to cultivate. Each one left less for the successive civilization, but while Rome fell, Teotihuacan, China, and even Byzantium could continue on uninterrupted, while soils and mineral resources untouched by past civilizations remained on the frontier. With the exploitation of fossil fuels and the emergence of a globalized peer polity, that trend has reached its inevitable conclusion.
There are no more fertile soils that have not been exhausted; there are no more fossil fuel or mineral resources in economic quantities and close enough to the surface to mine without an industrial infrastructure; there is no corner of the globe where complexity can continue uninterrupted when global complexity collapses. From the long view, it is clear that civilization is a momentary blip in human history, an anomoly born from a very specific constellation of geographic and climatological factors. As Alfred Lotka noted in 1925:
"The human species, considered in broad perspective, as a unit including its economic and industrial accessories, has swiftly and radically changed its character during the epoch in which our life has been laid. In this sense we are far removed from equilibrium—a fact that is of the highest practical significance, since it implies that a period of adjustment to equilibrium conditions lies before us, and he would be an extreme optimist who should expect that such adjustment can be reached without labor and travail. … While such sudden decline might, from a detached standpoint, appear as in accord with the eternal equities, since previous gains would in cold terms balance the losses, yet it would be felt as a superlative catastrophe. Our descendants, if such as this should be their fate, will see poor compensation for their ills and in fact that we did live in abundance and luxury."
The soil and mineral wealth a future civilization would need, we have already consumed. This was something past civilizations did not do—could not do, because they had not yet reached the level of complexity necessary to do so. This is why every historical collapse has allowed for later resurgence; collapses constituted temporary setbacks in overall social complexity, as no collapse ever eliminated quite all the complexity the civilization had already built up. Western Europe was a far more complex place after the Roman Empire than before it. Post-Roman Britain, for example, has been routinely underestimated and taken to be a decimated and desolate place, but more recent archaeological discoveries at Tintagel, Wroxeter and other locations have filled in a picture of a significantly more complex society than the Late Pre-Roman Iron Age (LPRIA) societies that the Romans conquered.
As Kenneth Dark illustrated so well in Civitas to Kingdom, the pre-Roman Celtic tribes formed the basis of the Roman civitates, which became the post-Roman kingdoms. There was a significant degree of continuity, and while there was a distinct collapse of social complexity, there was still legitimate town life, continental trade networks stretching all the way to Byzantium, and an integration of various other social systems completely lacking in the LPRIA. Historians as far back as Henri Pirenne in the nineteenth century have highlighted the trends of continuity in the Roman collapse; Fustel de Coulanges pointed out how the “barbarians” simply continued pre-existing Germanicizing trends in Roman society, while E.A. Thompson highlighted that for their part, the great aspiration of the Germanic tribes was Romanitas. More recently, Peter Brown and the study of Late Antiquity has highlighted this view. Rome left Western Europe a more complex place than it had originally conquered. Despite the various historical collapses, the general trend of history has been increasing complexity.
Why does this trend end with us? Because we have finally achieved a global civilization; we have finally eliminated the frontiers that allowed further complexity possible. We have farmed and depleted all of the arable land, we have mined all of the economic, near-surface ores, and we have brought together the entire world into a global system of complexity that must stand or fall as a single system. As Fred Hoyle wrote in "Of Men and Galaxy", with the unfortunate cultural chauvinism of his time:
"It has often been said that, if the human species fails to make a go of it here on Earth, some other species will take over the running. In the sense of developing high intelligence [sic] this is not correct. We have, or soon will have, exhausted the necessary physical prerequisites so far as this planet is concerned. With coal gone, oil gone, high-grade metallic ores gone, no species however competent can make the long climb from primitive conditions to high-level technology. This is a one-shot affair. If we fail, this planetary system fails so far as intelligence is concerned. The same will be true of other planetary systems. On each of them there will be one chance, and one chance only."
With our collapse, the trend of increasing social complexity ends as well, and the downward trend will be fast. Previous collapses were slower for the same reasons that they later allowed for recovery—because the larger arc of human social complexity had not yet peaked, because the earth had the resources to support still greater complexity. The downslope in our case will be much faster. Many will try homesteading, but homesteading requires healthy soils that we simply don’t have anymore. The loss of an industrial infrastructure will reduce metallurgy to scrap metal and eventually bog iron, and with diminished tools for metal-working and mining, even that will source will become increasingly difficult. Each shortfall accelerates the next. This has even been the trend in previous collapses. In “A Theory of Catabolic Collapse,” John Michael Greer highlighted the process by which this takes place:
"A society that uses resources beyond replenishment rate (d(R)/r(R) > 1), when production of new capital falls short of maintenance needs, risks a depletion crisis in which key features of a maintenance crisis are amplified by the impact of depletion on production. As M(p) exceeds C(p) and capital can no longer be maintained, it is converted to waste and unavailable for use. Since depletion requires progressively greater investments of capital in production, the loss of capital affects production more seriously than in an equivalent maintenance crisis. Meanwhile further production, even at a diminished rate, requires further use of depleted resources, exacerbating the impact of depletion and the need for increased capital to maintain production. With demand for capital rising as the supply of capital falls, C(p) tends to decrease faster than M(p) and perpetuate the crisis. The result is a catabolic cycle, a self-reinforcing process in which C(p) stays below M(p) while both decline. Catabolic cycles may occur in maintenance crises if the gap between C(p) and M(p) is large enough, but tend to be self-limiting in such cases. In depletion crises, by contrast, catabolic cycles can proceed to catabolic collapse, in which C(p) approaches zero and most of a society’s capital is converted to waste."
In other words, just as a society’s anabolic growth is a self-reinforcing, positive feedback loop, so, too, is catabolic collapse: the fact that a society is in collapse makes it collapse more quickly. Such a system accelerates, building up speed as it continues, “snowballing” until they finally reach their completion—the next lowest level of sustainable complexity.
Humans are highly adaptable, and, as Toby Hemenway put it, a “Just-in-Time Species.” It would be shocking to think that we would not conserve, adapt, react and change anything and everything in response to such events. This is the economists’ argument in broad outline; the market can adapt to all needs, because once a need becomes strong enough, it spurs innovation to solve that need. Unfortunately, innovation has its limits. Humans will adapt, but the unfortunate truth is that there is no sustainable level of complexity for things to stablize above the stone age. First, we’ll cut back on our energy use as it becomes more expensive; when it becomes expensive enough, we’ll invest in more long-term energy-saving measures. When even that becomes too expensive, you’ll start to see significant changes happening.
The agrarian, homesteading ideal relies on soil quality that simply does not exist anymore. While some small, isolated pockets may succeed, these will be increasingly exceptional. Permaculture has much more promise, but permaculture settles into a horticultural lifestyle, supplemented by hunting and gathering, and supporting village life.
In cities, community gardens employed in a permaculture could form the basis of neighborhood communities; in that case, the post-Roman notion of “life in towns, not town life” would actually exist, with neighborhood “villages” that happen to exist near one another mirroring the “villages” of the Ik in Uganda, where people live in proximity, probably from a history of past village life, but no longer existing as any kind of village community. Such neighborhoods would inevitably go to war with one another (today’s neighborhood and street gang conflicts could easily provide a historical basis for escalating conflict), and gradually drive these villages further away from one another, settling perhaps into a pattern of village politics not unlike that found in contemporary horticultural societies.
There is plenty of scrap metal for the next century or so, but scrap metal rusts into a very poor ore. Longer term, bog iron will become the primary source of iron in the future. Bog iron is produced from bacteria that leave behind iron when they die, eventually forming significant ores. However, this requires iron to be harvested at a sustainable rate; the result in past societies that relied on bog iron was the elimination of iron as a socially important mineral. Instead, iron tools and weapons were so rare that they were treated as magical items, and the people who knew how to work iron were honored as a powerful kind of sorcerer. The story of Wayland Smith retains some memory of the lengths noblemen of such societies woul go to in order to keep control of their smiths.
In short, John Michael Greer was essentially correct when he wrote:
"Civilizations fall in a stepwise fashion, with periods of crisis and contraction followed by periods of stability and partial recovery. The theory of catabolic collapse explains this as, basically, a matter of supply and demand; each crisis brings about a sharp decrease in the amount of capital (physical, human, social, and intellectual) that has to be maintained, and this frees up enough resources to allow effective crisis management, at least for a time. This same sequence is likely to repeat itself many times over the next few centuries, as industrial civilization slides down the slope of its own decline and fall."
In estimating this as “the next few centuries,” Greer simply overestimates (vastly) the resources available on the downwards slope—the scale of soil depletion, for example. While humans are highly adaptive creatures, we’re going to meet with the shocking surprise that our civilized past has left us with little to make the future out of. Each of those steps down are already eroded and diminished thanks to our civilized past. The agrarian future that so many Peak Oil theorists, from Greer to Kunstler, point towards will simply be impossible in the soils left in most of the world. The neo-feudal dark ages feared by others would similarly be betrayed, both by the lack of productive soils for serfs to work, as well as a quickly diminished supply of scrap metal for such a warrior aristocracy to base their power on. How long all this will take is impossible to say; 100 years seems likely, and 200 years seems too long. So, unless “the next few centuries” means one or two centuries, I believe Greer’s assessment is basically correct in general outline, but may significantly overestimate what our civilization leaves behind.
But if we focus again from the historian’s broad sweep of history down to a more personal level, we can also see that there is a significant difference between the disappearance of the last pockets of civilization, and the first areas opening up on the map again. Between 2012 and 2015, a whole constellation of problems will reach their inflection points at nearly the same time. Somewhere in that time frame, we will most likely experience our “apocalyptic shift,” the inflection point in the curve of the “long descent” that we will experience as the end of civilization. Civilization won’t disappear overnight, though it might feel like it had. By 2015, the trend of “the opening of the map” (basically “the closure of the map” run in reverse) should become increasingly relevant. The areas most difficult and marginal for civilization to exploit will become increasingly free of civilized influence, as the energy to exert power there will cease to exist. Long before civilization disappears, it will weaken.
The space in which to live beyond civilization will open up long before the last city becomes a ruin. There are already some areas in the western half of North America where it is difficult to exert control; even in the east, one man was able to live in the Adirondacks for 20 years before he was caught. These spaces will grow as civilization collapses, and that growing alternative will provide one of the strongest accelerating trends in collapse. Historically, civilizations have never been able to tolerate other ways of life. The living example of life beyond civilization made it extraordinarily difficult to keep people from “going native.” The first colonists in the New World had “gone to Croatan” before the next boat from England arrived. Without the expanding energy base to exterminate such examples as civilizations did in the past, the example of a more human way of life will only further accelerate the accelerating trend of collapse.
Much of these disagreements come down to a difference of perspective. If we take the academic perspective of the historian, we can see the “long descent,” from the first signs of collapse in the nineteenth century, to the end of the very last city centuries from now. If, however, we take our own perspective as people living through collapse, we can see the inflection point quickly approaching, an event that we will no doubt experience as something very close to the apocalypse. For us, the most pertinent question is less when the last city will fall, but when the first spaces beyond civilization will begin to open up again.
Island Breath: The Fed can't save us now 3/21/08
Island Breath: The Banking Meltdown 3/7/08
Island Breath: Is this the Big One? 1/23/08
Island Breath: Real Estate Outlook 9/24/07
Island Breath: The Economics of Fantasy 4/19/06