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« The Goal Episode III: Fulfilling the Higher Needs | Main | What is the Really Big Picture? »

September 23, 2011

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Bruce

George, here are some facts you and your readers might find interesting, albeit depressingly so:

US private payrolls per capita are at the levels of the late 1980s to early 1990s and falling.

Full-time employment per capita is at the levels of the late 1970s to early 1980s . . . and falling.

Male employment per capita is at the levels of the early to mid-1960s . . . and falling.

Employment per capita for those age 16-24 is at the levels of the Great Depression to before WW II.

Industrial production per capita adjusted for CPI is down 70% since US peak crude oil production in 1970.

In the meantime, debt-money in terms of total credit owed has grown to $5.5 to $1 of private GDP (having reached $6 in 2007-08). China is at $7 of debt to $1 of GDP. IOW, to get 2% private GDP growth, an additional $1 trillion of credit is required. Insanity.

The historical self-similar debt-deflationary secular bear market pattern (1830s-40s, 1890s, 1930s-40s, and Japan in the 1990s-2000s) implies the S&P 500 falling back to the Mar. '09 lows to as low as the 400s (levels before the tech bubble) by 2013, with the 800s-900s being a possible target area this fall.

Were the S&P 500 to fall to the 400s, and unreal estate prices fall another 10-20%, total lost net wealth from stocks and unreal estate will reach more than $20 trillion; that's right, with a "t".

Another 15-20% loss of unreal estate value would put the typical US household at no net unreal estate equity vs. mortgages and outstanding consumer credit (auto loans, credit cards, etc.). That the bottom 90% of US households have the bulk of their net wealth in their primary residence (really the lender's asset, increasingly the US gov't today), this implies that the vast majority of Americans face having effectively no or negative net financial wealth in the years ahead.

And note that $22 trillion (133% of today's GDP) is the amount of total US credit market debt owed added since 2000-01 (!!!).

But it's worse than that. Were total credit owed to decline to allow wage and salary disbursements to catch up at the long-term rate of wage growth and since the credit bubble peaked in '08, it will take 19-20 years and a 50% decline in total credit (deflation), or a loss of over $25 trillion ($83,000 per capita or nearly twice the median household income).

But this does not include the potential loss of business equity, corporate junk bonds going bust, non-residential unreal estate, etc.; therefore, the debt deflation is quite likely to be larger than $25 trillion, implying a loss approaching 200% of GDP.

I'm not sure what your definition of collapse is, or that of your readers, but the scenario described above certainly fits with what I would perceive as a collapse.

And consider what happens if the Fed and US gov't attempt to bail out $25+ trillion in digital fiat debt-money losses by printing still more reserves and borrowing and spending at deficits approaching 100% of federal receipts.

While we might see the risk of imminent collapse of the US economy, the fact is that the US economy has been undergoing a slow-motion decline and hollowing out via deindustrialization, financialization, and militarization for 30-40 years. We monetized and borrowed a couple of generations' worth of income in the meantime, and now we risk quite literally a 50% decline of real GDP per capita back to the period preceding the US crude oil production peak; and for the bottom 50-80% of households, the decline will be worse.

Few Americans, Brits, Canadians, Aussies, Kiwis, and Europeans are prepared for what we face as the post-Oil Age epoch emerges and evolves, and our debts to Nature must be paid.

George Mobus

Bruce,

Your next-to-last paragraph is something I have been arguing for several years now based on the correlation with the decline of EROI, primarily wrt: oil extraction and refining/distribution, and the peaking of oil production.

The rest just make me cringe even more than I had been!

But, of course, the president should be able to fix all this, right?

George

Phil Henshaw

George, You say "Physics deals with the nature of net energy flow through the economy." as it certainly does, but contains a flaw. Physics represents causation as our predictions, for lack of a way to represent the instrumental processes that bring predictable events about.

I think that's where we differ. I study the instrumental causations that produce the great variety of cases where nature *fails to* produce expected results. The wealth of useful findings isn't evident till you look. That study is what exposes the individuality of responsive systems, that physics has failed to study but are crucial to our modern day survival, it really seems.

Larryshultz

George and Bruce both make valid points.

3 years ago I wrote a 550 page economic log of the US economy from 2002 to 2008. I discovered many things in the process, including that total system wide (on the books) debt had been increasing at a faster rate than GDP since the 1970s. I thought it was a big deal when we reached less than a buck of new gdp per dollar of marginal debt. Now I realize that the way our fractional reserve monetary systems operate it allows for debt increase as long as it pays the interest cost of the new debt (not payback of principle).

A decrease in the net delivered energy per capita does slow the real economy. However GDP also includes bads as well as goods so that in theory the GDP can grow (at least for a while) even as the goods side of the ledger shrinks and median wages shrink.

Eventually (absent recapitalization of banks off record by the Fed) credit issuing institutions will issue credit at a rate faster than the economy can pay back the interest and by then savings (deferred consumption) and equity will cease to exist for almost all.

Steve, could you rephrase or explain your 6th to the last paragraph? thanks

Larryshultz

Steve in the last paragraph should read Bruce, sorry

Bruce

http://www.hussmanfunds.com/wmc/wmc110926.htm

The Economic Cycle Research Institute is "forecasting" a recession (after one has begun, as is their tendency).

Note that historically the unemployment (U) rate (9.1%) and total unemployed to private payrolls (15-16% today) have risen 50-100%+ during recessions, implying that within 18-24+ months the U rate and total unemployed to private payrolls could reach 13-18%+ to 25-30%.

Moreover, the next 7-10 to 12-15 years will coincide with the peak rate of change of increase of Baby Boomers turning age 62-65 leaving the labor force en masse (voluntarily or otherwise) and drawing down on Social Security, Medicare, private and public pensions, and private retirement savings.

Peak Oil, falling net energy and oil exports, population overshoot, and the global Boomer demographic drag effects will combine to make it "different this time" but in ways we don't expect and won't like.

The "Disneyfication" of the US and increasingly the world of the peak-Oil Age epoch is over; but most of us don't know it yet. Now Peter Pan is old but cannot admit it, resulting in his having gained no wisdom in the process.

Robindatta.blogspot.com

The production of usable goods and services is necessarily predicated upon available energy to effect such production or service. When available energy (≅ net energy) declines, the production will decline pari passu. The promise (in the form of fiat currency) of future offsets to the decline will ultimately come due, at which time the piper can only be offered wheelbarrows heaping full of inflated cash.

Bruce

Hi, Larry. Thanks for the question.

I assume you are referring to the seemingly implausible statement that industrial production per capita and adjusted for reported consumer price inflation has declined by an order of exponential magnitude since US peak crude production, yes?

Well, that has occurred, and it is not so incredible when one realizes, to which you allude, that debt-money growth and associated growth of compounding interest income to lenders and the top 1-10% of households, along with importing oil and offshoring energy-intensive production, has allowed growth of "services" investment and spending ("education", "health care", a.k.a. "disease care", FIRE sector, marketing, adverstising, merchandizing, "Googlization" (passive ad pushing on Web surfers' eyeballs [when they don't use adblocking]), gov't, IT, porn, war, etc.), which occurred at an unprecedented multiplier to net energy per capita since the 1920s-30s to 1970, and thus crude oil consumption to GDP and per capita.

Moreover, microelectronics, IT, internetworking, telecommunications, wireless, etc., were self-reinforcing "leading-sector" technologies associated with the Schumpeterian S-curve techno-economic trajectory. IOW, IT and associated infrastructure build out coincided with, and enabled, the growth of debt-money and related sectors in a kind of once-in-history, perfect storm-like cumulative growth effects of cheap oil, technological innovation, peak Boomer demographics, cultural "devolution" (our descendents will be counting the costs of the Boomer legacy for decades, if not a lifetime or two), and "globalization", i.e., Anglo-American imperial (neo-colonial) trade regime.

The result is a costly, mind-numbingly complex, obscenely wasteful, woefully unsustainable global oil-based, digital empire requiring 3-5 planets' worth of natural resources at the long-term rate of growth of the western standard of material consumption per capita to sustain.

We simply can no longer afford to produce what we have come to believe is a normal, permanent standard of material consumption per capita in perpetuity.

And there is no Plan B for the sub-species Homo Colossus (at least not one the masses would allow the Power Elite to impose on them, i.e., Soylent Green or voluntary mass die-off).

Bruce

Paul Kingsnorth's collapse as the "crisis of Bigness": http://www.paulkingsnorth.net/journalism/this-collapse-is-a-crisis-of-bigness/

Walking away from green activism as just another faction of ecocidal mass-consumerism: http://www.theecologist.org/green_green_living/Q_and_A/1062124/q_a_paul_kingsnorth_green_activism_is_simply_a_faction_of_consumer_society.html

Kohr's "Breakdown of Nations": http://www.ditext.com/kohr/kohr.html

Kropotkin's "Mutual Aid: A Factor of Evolution": http://dwardmac.pitzer.edu/Anarchist_Archives/kropotkin/mutaidcontents.html

Bruce

There is a non-trivial probability that the next big stock market decline is imminent within hours to days, not unlike fall '08.

To those to whom it matters, good luck.

Mark Twain

Good post, George. A well worn path (for some of us), but useful to reiterate again and again.

I keep thinking about root causes, and one thing that I keep going back to is perspective. We, as a species, have lost perspective - or, rather, our perspective has tightened, narrowed, over time.

I end up getting to the same place that you discuss quite often - the need for systems thinking. We have narrowed our once broad view of the world and how everything we do has an impact on everything else. We no longer see the Tragedy of the Commons. We no longer plan further than the next election cycle, or the next business cycle, or the next quarterly profits report.

I'd argue that very few are ever rewarded for this kind of thinking. Are you rewarded in your job for thinking about or planning for something that will not happen for several years? Several decades? Several centuries?

And, so, all of us are caught in the Catch-22 of our own making. In order to continue to survive - RIGHT NOW - pay our bills, procure food, shelter, and warmth, we must ignore the future, however much we speak of these things with other like-minded individuals on the intertubes.

We may have more perspective - a broader vision of cause and effect - but the true Tragedy of the Commons is that there is almost nothing that can be done to change our individual predicaments. Knowledge may be power, but it is also a curse. Ignorance, as they say, is bliss.

This is the struggle I find myself in almost daily. The need to provide for myself and my family from a system that is completely at odds with any kind of thinking about the future. I'm contributing to our downfall as much as anyone, because I am part of the closed system called Earth.

I feel that I am in the petri dish with all the other yeast, and see what is coming for all of us. Yet, I cannot escape the petri dish. And, neither can you.

Sorry that this is a bit of a downer comment. I guess this is the cost of admission for awareness and perspective.

George Mobus

Apologies to all for my slowness to respond. The last two weeks were devoted to the school year and quarter start up and I have been uncommonly busy with that while still trying to maintain a writing schedule.

These responses may be a bit short!

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Phil,

I'm just no good at figuring out what you might be referring to. Can you clarify?

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Larry,

Have you seen my model graphs? I believe what you are referring to is evident in that dynamic. The difference is that I modeled wealth as emergy (embodied energy) rather than futz around with GDP. Any and all payback of both principal and interest ultimately depends on growth of net energy available.

--------------------------------
Bruce,
(1) Well put.

(2) Wow. You've included things I haven't thought about directly in a categorization that makes a lot of sense. Thanks.

(3) As if I didn't have enough to read already! ;^)

(4) Would love to know the basis of your prediction. Are we in it as of last week?

--------------------------------
Robin,

We're on the same page.

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Mark,

Have 'we' lost perspective or is it the case that the environment in which we live (and did much to create) has changed so much that what an average person's perspective might have been is simply no longer fit?

The great irony for me is that we humans, because of an inadequate form of perspective (i.e. insufficient sapience) barged ahead and created this world of complexity and high power (energy and politics) without the perspective of good judgment. It is as you describe. But now we find that the evolution of the cultures has brought us, as animals embedded in the environment, to a point where we are simply not fit to survive. It is classic evolution - rapid change in environment and a species inability to adapt rapidly enough. There is selection here. And I have a strong hunch that variation in our genome has produced a few individuals who might yet prove fit (the point of my current series of posts on future living).

I hear your lament, as I'm sure others here do as well. No solutions for mankind, only adaptation by individuals.


George

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