The Big Picture
In systems science the Big Picture starts with the largest known boundary of the system of interest and the time scale over which the system has grown and developed if it is a complex adaptive system (CAS). I want to apply this analysis to one of the several subsystems of the Ecos, the financial system of the human economy, that is looking more like a flash point for collapse. It appears to me, from all of the news events of the last several years that this system is the one under the greatest immediate stress, but also the one that financial “wizards” can most easily manipulate to make it appear resilient, hence hide from the rest of us what the real problems are. I don't think it really is that resilient, and I suspect after the Barclay's Bank fiasco with the London Interbank Offered Rate (LIBOR) fixing scandal, a lot more people will agree with that.
That scandal is just the latest in a series of revelations about shenanigans in the banking and securities/futures markets that comprise the global financial system (also see: J.P. Morgan Chase trading loss). With each new revelation we find increasing evidence that the financial system is out of control, meaning that there are neither internal feedback loops nor external regulatory mechanisms able to keep the system performing the function that everybody believed it provided. So, in my estimation, this subsystem of the human-built subsystem of the Ecos may be one of the first catastrophic collapses we will witness as civilization comes undone, and the repercussions for all else will be tremendous.
The financial system has grown in importance within the economic subsystem over the last several decades, especially as globalization has preceded along. Financialization is the term used to describe the process by which the financial sector of the economy has grown to dominate the traditional production/service and agricultural sectors as a percentage of gross domestic product (GDP). Quoting from the Wikipedia article: “In 2000, trading in U.S. equity markets was $14.222 trillion, or 144.9 percent of GDP.” This represents the turnover in the financial markets but not the supposed income produced by the financial markets. The latter is a component of GDP and has become a significant one at that. Most of the growth of GDP over the last several decades has likely been in this sector, for example the incomes from trades and share prices of brokerage houses (not to mention the outrageous compensations given to their executives).
Financialization has been essential in keeping capitalism going. It is fundamentally pretty simple. Basically an aggregate in capital has to be raised from multiple sources in order to construct a new business venture. The money is effectively borrowed from “investors” with a promise to pay back both principal and interest from the profits of the enterprise. The expectation is that there will be future profits sufficient for both reinvestment and to pay down the debt (see below re: expectations of growth).
At the same time that the concept of borrowing against future profits to support growth is simple, the system itself has grown hopelessly complex. This is why we need to consider the Big Picture and the boundary conditions of the dynamics in order to hope for any understanding of what is going wrong. It will help to go back and look at the earliest versions of financing of enterprise. We need to understand where the ideas of borrowing came from in order to understand why the problem of financial bubbles and collapse are a concern today and in the near future.
The Past
The notion of an economy is also quite simple. We look at natural ecosystems and the exchanges that go on in living metabolism to see all of the same basic mechanisms at work. Figure 1 shows the concept in its simplest form. In Figure 1 A we see that an economy is simply the acquisition (capture) of materials and energy from the environment into work processes that convert them into useful assets. Assets, here, means not only artifacts, like clothing or shelter or spears, but also human biomass itself. Humans use and or consume assets so produce waste heat and waste material. Also, assets decay due to the Second Law of Thermodynamics (entropy). This simple model applies to all living systems at all scales of complexity.
Figure 1. The whole of the economy can be summed up as a system process whereby energy and raw materials are converted to useful assets (both artifacts and biomass) which are used/consumed. A) A hunter-gatherer economy uses short-term solar energy (food, animal hides, wood) and little in the way of material resources to produce assets (mostly biomass) that eventually degrades to waste heat and material. Such an economy does not accumulate a surplus of assets. B) An economy that has gained leverage by producing some assets (tools) that improve the capture of energy and raw materials can develop surpluses and set up a positive feedback loop (investment) into the work process which then generates even more surplus. The economic system is then growing.
The key concept to grasp in understanding the origins of finacialization is that of investment (Figure 1 B). Human beings have been investing time and energy into creating artifacts (tools) that would increase the efficiency of their access to resources — additional energy and materials. This single factor, born of the tremendous cleverness of humans compared with their predecessor species, is at the base of what made Homo sapiens so spectacularly successful evolutionarily. Cleverness increased our species fitness in essentially every kind of environment (except Antarctica) by extending the notion of adaptability beyond mere physiological or long-term evolutionary modification. We found ways to protect our bodies from inclemency and to supplement our direct metabolic energy requirements. With cleverness, once an insight threshold is passed, you take a little bit of time and energy to produce something that will return multiples of both time and energy in the future. You realize a profit which can then be reinvested in keeping the process going. The rate of change in technologies was originally very slow so that humans were still not a huge threat to the rest of the Ecos in terms of over appropriating material and energy that would have gone to other species until about ten thousand years ago. All of that changed with the insight threshold that gave rise to agriculture.
With agriculture a new phenomenon emerged — the surplus of energy, both operational and embodied began to grow. Settling in one location year round, and reorganizing social systems to accommodate the planting-harvesting cycles plus the need to protect a better defined territory changed so much that it is hard to encapsulate the effects in a few sentences. Nevertheless we must recognize this transition as extraordinarily fundamental in converting us from wild animals to domesticated workers, and all that follows psychologically from that. The advent of surpluses changed everything about human beings' relation to the Ecos. We were, of course, only following our biological mandates to protect ourselves from the vagaries of nature and to procreate as much as possible. That didn't really change. In fact it is the first mandate that drove our desires to continue building surpluses even when there might have actually been adequate stores to buffer against any reasonable contingency.
In our wild days the contingencies of survival were stark. Climate changes could change the availability of food in short order. As nomads this meant moving. As farmers this wasn't an obvious option. Surpluses, especially of grains, were a hedge against the contingencies of nature. Food in storage (which probably started early in agricultural history; see below) provided a reduction in risk of losing one's life and so fulfilled the first mandate perfectly. It also began the process of removing a natural negative feedback loop on human population sizes. Nature was constantly testing humans for survivability, and in that testing came two results. First the fittest (read most clever as well as wisest) survived and procreated. Second, the population numbers were reasonably kept in check in exactly the same way that all species are kept in check. Deaths tended to equal births on average, at least at first. Ever so slowly humans changed that equation through their use of technology (spears and fire, etc.) And they spread out into new environs. Thus the results of the second mandate began to be amplified by the success of the first mandate. Population growth and habitat invasion began.
The surpluses from the agricultural lifestyle accelerated this process even more. But it also produced increasing complexity in emerging societies. Specialization in trades emerged to increase efficiency yet more. People found that they were no longer self-sufficient and needed to trade goods and services. The first nascent complex economies emerged and developed, first with simple barter and later with marks on clay tablets representing value (e.g. bushels of grain in storage). As things continued to complexify money was invented to allow convenient trading of unlike goods and services where an agreed upon price provided equitable transactions. Money was a good thing in that environment. It made more complex trading possible which led to yet further increases in surpluses because it was a major time and energy saver in its own right.
Money could be used as an information feedback mechanism to control the flow of goods and services and also the rate of investment. Figure 2 shows two stages in the path toward financialization. First there was the creation of a money supply that was roughly correlated with the supply of real assets (Figure 2 A). As assets grew so did the money supply. This model, of course, does not address the distribution of either asset wealth or the money representing it. That distribution was probably subject to the same rules that apply today. Those who controlled the social structure siphoned off more assets and their representational form just because they were providing a coordination function that made them more “special” than the workers. The picture started to get distorted when coinage and the use of precious metals took on a value life of its own. Treasure in the form of gold and silver, jewels, etc. captured the imagination of many humans as being actual wealth. This was only possible because humans had developed so many surpluses of various kinds of real assets that the coupling between money stocks and asset stocks became weakened. The era of mercantilism further distorted the relation and money took on a new role as a kind of wealth on its own. Of course the underlying value was always based on its ability to purchase real assets but the strength of that connection was severely weakened such that the amount of money and the amount of embodied energy in assets (related to the work of producing those assets) became semi-independent of each other. In everyday life the prices of things ceased reflecting the true costs of making those things for many reasons. Many costs were hidden or ignored in order to support the notion of making profits. Sheer complexity of products and services reduced any possibility of cost transparency, even for the producers.
What was realized, at some point, was that over time the asset base was growing, both in absolute amounts and per capita. Bankers saw an opportunity here. Banking originally emerged from the practices of ancient granaries in which a portion of the overall stock of grain could be loaned out to new farmers to allow them to start their own cultivation. Surpluses of grain were such in many regions of the world that growth in farming could be easily supported by simply borrowing some seeds and repaying them when the new harvest came in. Of course this was a little risky if there was a bad crop season or the new farmer was not competent. But most of the risk was countered by the sheer amount of grains being stored for all of the other farmers for safe keeping. By the time the new farmer returned what he owed, everyone got their shares back and there was enough left over to feed the granary keeper to boot.
So a system of borrowing an asset, as a form of investment, to generate more assets had been established probably not long after mass agriculture started, say 5,000 to 8,000 years ago. Thus the notion of growth of the economy to keep up with the demands of a market (more mouths to feed) emerged.
Early bankers were not much more than granary managers except that they kept peoples' money rather than barley. Banks fulfilled a purpose in keeping money safe but at the same time accessible to the money owners. Bankers charged a small fee for their service. But as bankers noted that the money kept in their vaults, which actually represented surpluses, seemed to be growing and noting that most people would leave their money alone a bright idea occurred. Suppose a new tradesman wanted to start a business but needed a lump of cash to do so, to buy tools, materials, rent space, etc. Why not dip into the money stocks and take a small fraction out of each savers' account to package a loan for this worthy fellow[1]. He could pay it back out of his profits in the future, along with interest, and everybody would be happy. In fact, the banker might reward his savings customers by paying into their account a small fee just for leaving their money alone, thus ensuring the scheme would work.
Figure 2. Money was created as a means for representing the assets and especially the surplus. Money could be used as a medium of exchange (assets for work/work for assets). A) Money became a dominant medium of exchange as well as the means for controlling investment in new work (the valve objects represent a control based on information, green and purple arrows, from measuring quantities and changes in quantities). B) Once humans noticed that surpluses tended to grow with the abundant supplies of energy and materials, made possible by better technology, they created expectations for future growth in surpluses and so created money representing future assets rather than just current assets. That money could be used to control investments with an expectation of increasing surpluses. Unfortunately, the same money can be used to regulate consumption of non-investment goods and services. Thus emerged fractional reserve banking that had the basic effect of artificially, and for a time, increasing the money supply (Figure 2 B).
The idea that money could be created out of a debt obligation caught on in its own right. Before long all kinds of promissory instruments were created to handle different ways of aggregating capital for investments in future earnings. And that practice has not abated to the present. Somewhere along the line financial markets themselves became creators of investment opportunities as when people caught on to arbitrage practices. Since money had no necessary ties to real assets other than through negotiated prices for goods and services, people actually imagined that they were creating wealth by taking advantage of price differences in market valuations. On the surface it looks the same as buying up a good at one price and then finding someone else to buy it at a higher price, pocketing the difference as profit. That's what middle men do, after all. But the good in this case is not a physical product but a piece of paper carrying some nominal value marked in the coin of the realm but having little necessary connection with any underlying physical assets. Stock markets, originally developed to provide easy liquidity for investors who might have to sell their shares in emergencies, soon turned into betting parlors where money was made on betting on differences occurring, not just the differences themselves.
As things became even more complex, and once the pretense of tying monetary value to some kind of physical asset (gold, in this case) was removed, the stage was set for bankers and investment brokers to invent all kinds of markets buying and selling all kinds of instruments (paper) that had nothing to do with the real economy (hard assets, for example). Each sale was recorded as a real transaction in monetary value. So the seller booked revenues while the buyer booked a piece of paper, essentially a mere promise that somewhere in that complex world they could redeem the paper for a real asset, as if it were an asset. Then a funny thing happened on the way to ruin. Paper assets started appreciating much like real properties did. Real estate had always been recognized as becoming more valuable over time simply because the growth in population always meant the demand for space would continue upward in the long run. Appreciation of real estate made sense to everyone, but if it was the case for that kind of asset, why not for paper ones as well?
That is when the financial world departed from the real world for good (see the definiton of delusional!). The financial world expanded the money supply irrespective of the state of the physical economy. Bankers and brokers created money out of thin air, patted themselves on the back, and then paid themselves very healthy bonuses for doing so. Their rewards were not for creating real wealth but for creating the illusion of creating wealth. The expansion of the money supply may have helped some legitimate growth in the physical economy, but too much more went to growth of the financial sector. As this sector reported profits (income) the GDP rose. They made it look as if the economy was growing. Politicians loved it!
The Present
The financial subsystem is essentially a house of cards built on top of a bubble, or a composite bubble (see Figure 3). We got a taste of this when the defecant hit the fan in the housing bubble/sub-prime mortgage markets leading to a large number of bank failures and a substantial bailout for the surviving institutions by governments[2]. The situation is similar in many parts of the world, not just the US. Europe is in the grip of financial emergencies of several sorts and the EU is constantly trying to apply band aids to stanch the bleeding from really large wounds (Greece, Spain, etc.). There are reports that China is suffering a real estate bubble about to burst.
As in Figure 3, there is a pin (probably several) that are poised to burst the bubble and bring the whole house of cards down. It isn't always possible to see what the pin could be. By definition bubble bursts cannot be predicted so far as what will cause it and when it will happen. All we know for sure is that bubbles do eventually bust and often with devastating consequences.
Figure 3. The financial system is a house of cards built on top of the bubbles it created to give the illusion of growth of wealth. The only real wealth that will sustain society is the embodied energy in the ‘real’ assets. What pin prick will burst the bubbles? What happens to the house of cards when the foundation explodes beneath it?
The real economy is based on real physical assets plus the capacity for producing new assets. The latter comes down to the availability of physical resources, especially energy. It is necessary that a certain proportion of assets be held as surplus so that it is available to ‘loan’ to ventures seeking to acquire those resources and produce more assets (note that this does not necessarily imply a growth economy, however). But the borrowing is against existing surplus (savings) not speculative assets to be produced sometime in the future.
Where we stand today is that non-renewable resources have been dwindling with over extraction. Net energy per capita, available to the economy, has been declining. So whatever surplus we held, our collective savings, have been eroded such that it was necessary for the past several decades to create illusory assets on speculation that somehow the production economy would once again rev up and produce a sufficient surplus in the future to compensate for current deficits. We did this by reducing much further the reserve requirements on banks and large funds like pension funds that invest in equities. The apparent creation of money then made it possible to continue the illusion of investing in real asset production. But it just wasn't so.
Society made the mistake of treating superfluous trinkets and entertainments as if they were actually assets. They definitely cost money to produce but less in the way of resources. Moreover, they were not likely to contribute in any meaningful way to the future generation of assets. iTunes might make it more tolerable for copy clerks to make it through their mind-numbing days at the office, but that really isn't the same as producing tools that will increase our resource flows in the future. We are spending a lot of illusory wealth on illusory (and hence worthless) asset-like stuff while all the time getting poorer.
The pin poised to burst the bubble could be anything. The recent scandal of Barclay's is being considered as the tip of the iceberg of financial institution malfeasance, fraud, and other illicit behaviors (not to mention just downright unethical ones). Perhaps the house of cards will destroy itself and in doing so burst the bubble. Or the austerity measures the financial world wants to impose on populations may backfire and lead to such a loss of production that the asset base will crumble under the bubbles leading to their bursting. Or the populations may revolt against such measures, and I mean a violent revolt. The riots and demonstrations that have been taking place world-wide may just be the signal of a major bloody revolution in many countries.
One way or another this whole financial system is on the verge of collapse. What happens when it does?
The Future
The collapse of the financial system may be the trigger event that leads to the collapse of civilization. This comes about because our current consumer economy based on capitalist markets can only function with a financial system such as we have evolved. That system has to continue to create money out of thin air in order to keep capitalist enterprises in business, let alone start new ones. And, perversely, the financial system needs capitalist markets to keep itself afloat. They both need the consumer-based economy that simply consumes junk and diminishes resources without any real asset creation taking place.
One thing is absolutely certain. With net energy in decline, and energy being the single most important key ingredient in useful asset production, the machine for producing real wealth is grinding to a halt. And all of the financialization in the world is not going to compensate for the decline in real wealth that is starting to take place. As an example of this decline consider the problems with infrastructure maintenance. The citizens aren't willing to pay more taxes because their real earnings rates have been in decline (in correlation with the decline in net energy per capita) and they feel it. At the same time the infrastructure needs ever more expensive maintenance so governments have to go further into debt just to pay for some minimal amount — and that maintenance isn't proving to be enough! We are in a downward spiral from which there is no recovery. Everyone and all institutions are actually substantially poorer today than just thirty years ago but we've inflated the dollar values of everything (expanded the money supply) such that it hides their real situation.
There is no escape from this spiral. Financialization as a strategy to make us feel like things are still going as they always have (when energy supplies were in the ascendancy) is starting to fall apart. Our politicians (especially the current president of the US) still believe that we somehow have to keep the financial world healthy and all will be well eventually. They are right that if the financial world collapses it will take the rest with it. But they are dead wrong believing that it can be held together until better times come along. Debt and speculation-base financing is betting on a future that will not arrive. There will be no future of such substantial production of assets that it will more than compensate for the decades of reliance on drawing down our surpluses and then pretending there were more surpluses that could keep us going until this economic climate catastrophe came to an end.
One of the things I find interesting in all of this, and something that shows up from a systems perspective, is that the bankers and brokers and traders were never trying to maintain an illusion in any conscious sense. They were and still are just plain greedy. What they are doing is trying to get everything they can get out of the system as quickly as they can. Perhaps subconsciously they realize that this is all too good to be true, from their perspective. So they hustle, lie, and cheat to book huge rewards. But what they are doing is really just a consequence of the nature of the financial system. They are not the causes of our woes. Their behaviors are just more symptoms of what is really wrong. Ironically, for them, their monetary wealth, accumulated at the expense of everyone outside of Wall Street (and London, etc.) will evaporate into the thin air out of which it came in the first place. Ashes to ashes, dust to dust, and air to air. They will end up sitting in their mansions in their exclusive communities staring at bare cupboards just like everybody else. Perhaps the pain they will then feel will be a bit more acute than that felt by the rest of us who are now acclimatizing to the reality that is imposing itself on civilization. I suppose that will make some of us feel better.
Collapse Trigger?
This post has focused on the financial system because it has been in the news so much of late. It really looks like a system in danger of imploding. But it is only one of the many subsystems that are experiencing severe stresses right now. In Figure 4 I give a simplified view of the several subsystems that are showing signs of collapse. Will there be a first one? Hard to say. But something has to give.
Figure 4. All of these subsystems are interconnected. They are all under stresses that could cause them to fail. Which will be the first is hard to predict. In fact they could all implode at once!
If J.P. Morgan or Barclay's Bank fold anytime soon watch out. Let us not forget the whole area of sovereign debt or private debt. Of course they are all tied to the same basic process. Everybody was borrowing in an attempt to keep the gravy train rolling. But that train is coming off of its tracks as we focus our attention on the Kardashians (I can't believe I even know who they are!) Next time you go to an NFL game or a NASCAR event, do enjoy it. Next time you line up to buy the latest iPxxx product savor the fact that you will be spending inflated dollars on worthless junk. Those things that keep you from thinking about what is really happening are all you have left of the world of our memories. Party on dudes and dudettes.
Footnotes
1. The practice of lending probably started before there were granaries or banks. Soon after the advent of cooperatively managed agriculture there emerged rich people who may have made loans to wannabe farmers. The concept of a tenant farmer is probably as old as agriculture itself.
2. It is now becoming clear that one of the real triggers for the bursting of the sub-prime mortgage bubble was the sudden spike in oil prices in 2008 resulting in rapid increases in gasoline prices. People living on the edge found it impossible to both pay their mortgages and pay for gasoline just to get to whatever jobs they were holding down. The oil price-mortgage maintenance domino effect resulted in the collapse of mortgage-backed security instruments and the rest, as they say, is history.
Brilliant as usual, George.
The ancients understood something that today's banksters and eCONomists never learned or are paid to forget. Debt-money and the attendant cumulative compounding interest claims to effectively infinite term cease to grow when the debt reaches an exponential differential order of magnitude beyond the underlying growth of wages and production, which are derivative of population/labor force growth and labor's capital deepening. Once the "Jubilee threshold" is reached, the debt must contract, i.e., be written down, charged off, or consumed by asset liquidation.
Debts are self-sustaining when they are made against collateral that permits rolling over or self-liquidation of the outstanding debt. A loan of $10,000 against secured collateral of $10,000 is self-liquidating. However, by way of the fraud of fractional reserve banking, banks take in $1 of deposits, set aside $0.03 of reserves against the deposits, and then lend $1. A charge-off rate of just 3% of outstanding loans (not to mention additional delinquencies) risks disaster for the bank and its depositors.
A bank that lends at 33:1 reserves at an average rate of 7% at an effective infinite term must realize a minimum spread of 2.9% between what the bank pays the depositor and lends to the borrow while at least doubling loans/deposits every decade. Competition for deposits and spreads, however, inevitably leads to banksters growing loans/deposits faster in order to capture the income before the other guy. The historical result is that banksters get swept up in the self-perpetuating debt-money bubble and go broke about once and decade, requiring gov'ts to issue debt to bail the banksters so they can do it all over again for another decade.
As long as growth of debt-money deposits/loans can be supported by a larger share of future claims on wages and production, the process continues until the exponential order of magnitude of differential growth of debt-money to wages and production is reached and the system collapses atop all that non-self-liquidating collateral. This is what happened in '08-'09, prompting the federal gov't to borrow, spend and bail an equivalent of 60% of private GDP and heading for 100% in the next 2-3 years.
Gov't borrowing and deficit spending has grown at 8-10% to post-'00 GDP of 3.6% and 2% since '07 (vs. 6.4% historically). Had the US gov't not borrowed and spent at 6-13% of GDP since '08, the US nominal GDP would have collapsed back to the level of '00-'02. However, at the differential growth of gov't debt to private GDP, we face a Greece-like day of reckoning by no later than '18-'21 and as soon as '15-'16 were another recession to occur, implying the risk of fiscal deficits approaching 100% of total receipts.
Real GDP has decelerated from the long-term pre-'00 trend rate of 3.3% to 1.6% today and near 0% per capita. The cumulative loss of real GDP growth since '00 has been 18-19% and 27% per capita, which is where Japan was in '98-'99 when outright deflation commenced. Since '90, Japan has lost 40% in real GDP growth from the country's long-term trend rate, which is where the US is headed by decade's end. A loss of 40% from trend real GDP and 50% per capita that otherwise would have occurred is a depression by any objective measure, albeit a slow-motion variety.
I suspect that few have considered what the US will look like with a loss of 50% in real GDP growth per capita growth that otherwise would have occurred had the trend continued from '00.
As I mentioned in an earlier post, the annual change of real wages after household debt service has fallen into recession territory since late Q1 and early Q2 to date and manufacturing appears now to be contracting, implying that the US is probably already in recession. Historically, the unemployment rate increases 50-60% to 100% during recessions, suggesting the risk of a US U rate of 13-14% to 16% by '14 or '15.
And now we have fewer than two private sector workers for each Social Security and Disability benefit recipient and their dependents.
Whoever is not concerned or increasingly pessimistic is not aware of what we face, is delusional, is positioned to be protected from the fallout, or is incapable of understanding the scope of the impending disaster.
Posted by: Bruce | July 12, 2012 at 06:19 PM
Fantastic piece George - and just as a side note, the site The Big Picture, is one of my favorite financial reads each day
(http://www.ritholtz.com/blog/).
Just as Bruce points out the impending financial problems (self-created by the powers that be) above, i'd like to point out the following environmental picture to complement your and his analysis. This is only the tip of a very large and disturbing "iceberg" to keep it succinct.
http://www.dailymail.co.uk/news/article-2172931/Drought-devastating-26-states-largest-natural-disaster-U-S-history.html
America burning: Drought devastating 26 states is the largest natural disaster in U.S. history
“Severe drought conditions plaguing more than half of the United States has developed into the largest natural disaster in the country’s history.
The United States Department of Agriculture declared natural disasters for 26 states and more than 1,000 counties because of the extreme drought that has destroyed crops in farms throughout the nation.
The declaration come as the worst drought in a quarter century tightened its grip on Midwestern states over the past week.
Sweltering temperatures and scant rainfall punished corn and soybean crops across the region, a report from climate experts said on Thursday.
Nearly two-thirds of the nine-state Midwest region was in some stage of drought in the week ended July 10, up from just over 50 per cent a week earlier, according to the Drought Monitor, a weekly report on drought throughout the country compiled by U.S. climate experts.
A third of the region was in severe to exceptional drought, up from about a quarter of the region a week earlier, it said.”
(further down)
“On Wednesday, the U.S. Department of Agriculture slashed production forecasts for both crops due to the drought, joining scores of private forecasts that have sent grain prices to near-record highs.”
(and)
“Harder-hit Illinois, the No. 2 corn and soy state, was 66.28 per cent under severe drought or worse, up from 40 per cent the previous week.
Severe to exceptional drought covered 80.15 per cent of Indiana, versus 68.84 per cent the prior week.
Conditions in Missouri also deteriorated, with 82.54 per cent of the state in severe drought or worse, compared with 78.83 percent the week before.”
i think it's safe to say that we're into some serious do-do.
Posted by: Tom | July 13, 2012 at 03:30 AM
The financial system is a big blown up balloon. Sometimes a simple not foreseen announcement by an economic of politic personnality is enough to bring the whole balloon to decadence.
[Moderator note: removed commercial URL]
Posted by: how to do online trading | July 13, 2012 at 06:52 AM
What a fantastic post George, systems science applied to our current situation really helps gain a better understanding of the overall mess that industrial civilization finds itself in. I would print this post and preach it like a gospel if I thought truth could shatter the normalcy bias that coaxes the industrial citizens to sleep.
I strongly agree that the financial system is not to blame for our woes; more than any other system in this unsustainable civilization. The financial system has become a convenient scapegoat for segments of the population looking to assign blame for the decay of our civilization; so as to not face the truth of resource depletion and the general unsustainable nature of our civilization. I find it fitting that if you take away the smoke and mirror producing financial system; the whole house of cards falls down.
Now back to work on getting off the grid and tinkering with my ideas for a post-industrial neo-hunter gatherer lifestyle I hope to transition to someday. I remain an optimistic doomer.
Posted by: Mark N | July 13, 2012 at 07:10 AM
Tom, there is historical geological evidence that the US SW and Mountain West is early into a recurring mega-drought similar to the one that contributed to the end of the Anasazi and Maya civilizations.
Note that the Army Corps and BLM were aware of the population carrying capacity of water resources in "Lost Wages" (a.k.a. Las Vegas), Phoenix, Tucson, and the Palm Desert as long ago as the 1950s when they established a maximum population that was exceeded by the 1970s-90s.
One should not be surprised to see a mass out-migration of population from the SW and Palm Desert regions in the coming decades and the effective collapse of the local and regional economies.
That these areas are highly dependent upon discretionary recreational spending, the once-in-a-lifetime (-history?) Boomer demographic drag now underway implies that these areas were going to experience long-term economic decline in any case.
Further, there is also evidence to suggest that we are entering a period of low sunspot activity coincident with the convergence of the Gleissberg and Suess cycles occurring every 210-220 years and corresponding with periods of mid-latitude cooling and increasing weather extremes for continental climates.
Combine these climate/weather factors with Peak Oil, Peak Debt ("Jubilee"), falling net energy per capita, and population overshoot, and gov'ts and societies are about to be overwhelmed by cumulative forces for which the only solutions proposed by the "experts" are those that put us where we are today.
It's probably too late to build an ark . . .
Posted by: Bruce | July 13, 2012 at 07:12 AM
George,
Brilliant post as others pointed out.
But the question remains for those of us who are aware of the real situation and are not depressed by the magnitude of upcoming rebalancing?
What do we do?
I still maintain that all this analysis is only input.
Now I know George's concept of sapience, its evolutionary role and the edea of seed population wondering the globe waiting out for the dust to settle.
But I think that we should get over the negative emotional charge of scary future and simply deal with it.
And the question then is:
What do we do if the rebalancing becomes protracted and extends over one lifetime? how are we going to learn from it? What are we going to teach the kids that will be born when it starts and mature into the world of contraction?
How do we take into account that people who understand the real situation are dispersed throughout the world and only constitute a virtual community over the Internet?
What is the plan for eventual shut down of Internet?
I know these questions become irrelevant once a person enters survival mode but I do think that given the structure of 1-9-90 there always be some people that will both have the brains and time to ask and answer.
I therefore think that even if each of us will die at the first ripple of the buble burst if we answer these questions, at least in theory, and document them, making as many copies as possible in books and minds then we may consider our efforts useful for posterity.
If we do not even attempt to answer these questions now we are not using the time borrowed from future generations wisely.
Posted by: Aboc Zed | July 13, 2012 at 11:11 AM
Alex writes, "What do we do if the rebalancing becomes protracted and extends over one lifetime? how are we going to learn from it? What are we going to teach the kids that will be born when it starts and mature into the world of contraction?
How do we take into account that people who understand the real situation are dispersed throughout the world and only constitute a virtual community over the Internet?
What is the plan for eventual shut down of Internet?
I know these questions become irrelevant once a person enters survival mode but I do think that given the structure of 1-9-90 there always be some people that will both have the brains and time to ask and answer.
I therefore think that even if each of us will die at the first ripple of the bubble burst if we answer these questions, at least in theory, and document them, making as many copies as possible in books and minds then we may consider our efforts useful for posterity.
If we do not even attempt to answer these questions now we are not using the time borrowed from future generations wisely."
Alex, I assert that this is as profound a question as the human mind can conceive of at this particular juncture in our (r)evolution. Nature or The Universe requires nothing of us as a species. We, however, owe it to whoever is worthy of the question to ask it and conceive of answers similarly worthy of the self-selected, highly adaptive members of the super-species who succeed us.
But I reiterate that those among the top 0.1-1% who have built the global Anglo-American, militarist-imperialist trade regime's financialized superstructure, like Nature, do not need the overwhelming majority of us or our vision of how each of us individually, or "we" collectively, should prepare to adapt into and after the post-bottleneck trial period. To appeal to the top 0.1-1% is like asking the sky to spare one's property and survival from the effects of torrential rain and imminent flood.
The top 0.1-1% don't need us and our ideas, nor do they want the responsibility of supporting a social and economic system in which they must give up any of their wealth, status, privilege, and power in the process. Why should they?
Some readers will respond to this notion with charges of nihilism, fatalism, or pessimism, but this would presume that Nature's process of (r)evolution requires that one/we be "optimistic", "hopeful", or altruistic toward most or all of our fellow humans and non-human lifeforms; rather, it rewards with survival and reproduction successful adaptation. Everything else we would hope to achieve is a cognitive construction conditioned over centuries by geography, climate, availability of freshwater, forests, wild game, fish stocks, arable land, river valleys, and humus deposition, fossil fuels in the past century and a half, and so on.
Thus, one question that arises is what one is to do if the highest probability is that one's children and grandchildren are very likely to face not only few or no viable employment prospects and ability to successfully bear children and raise them to adulthood with similar prospects of their own?
What would one teach one's children or others' children within one's larger social network?
How to prepare them?
On what basis should they form a healthy self-identity given what likely faces them?
What is a constructive worldview?
What values will best serve them?
By which means shall the values be inculcated and reinforced?
How does one overcome the competing mass-media messaging? Or should one try?
Posted by: Bruce | July 13, 2012 at 01:15 PM
bruce,
note i did not talk about 1 % of the top to continue to ask these questions but merely posited that _some_ people _somewhere_ in the 1-9-90 structure will have both brains and time to ask and answer these questions
granted with contracting real economy in biophysical terms (less energy per capita and less human biomass in total) the number of pockets tackling these questions may be expected to decrease and there may be a period when they will not have the luxury of connected environment of the Internet we enjoy now
this is why i feel it is of utmost importance to do our homework as much as we can now while we still have Internet and each of us talking here somehow has time and personal circumstances allowing it
i consider such situation a windfall that can end for each of us any moment and therefore i aske everyone to ponder what can we do in _practical_ terms now given our clear understanding of the immediate future
and i do not say that there is any kind of 'concrete solution' aka 'grass root direct democracy' or any other such irrelevant dreamer's thinking
i am asking for people who feel they understand to get past negative emotions and the fact that others do not listen to them and focus on finding out what do we do given the understanding
i feel that we do not do anything of that kind at all
i feel we merely talk about others not listening or how the whole in its current structure is doomed and how it is so complex that it cannot be changed before it crushes
my point is we have to get past that and keep on thinking about what _can_ be done, even if it ultimately just agreeing on the language, definitions and the meaning we use - an outcome i would concider huge progress and something that is missing
Posted by: Aboc Zed | July 13, 2012 at 02:01 PM
Bruce,
Thanks for the details!
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Tom,
This climate impact is just one of many examples of how we are going to need so much more energy to adapt right at the time we will so much less! More coming.
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Mark N.,
Wish you well on the self-extraction project. If I were younger...
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Aboc,
You ask some good questions about the practicality of living in contraction for all of those who don't choose the hunter-gatherer lifestyle. Honestly I don't have any answers because I just can't predict what is going to happen. Or to put it somewhat differently, I am certain every conceivable scenario is going to play out somewhere in the world. An not being able to predict what set of forces will be most dominant in any one place I simply can't recommend any formula for what people should be doing.
All I can say is what my floating screen saver message says - Adapt or Die.
George
Posted by: George Mobus | July 14, 2012 at 03:00 PM
Adapt or die... that sums it up. I just wanted to share this report with everyone here; A Study in Global Systemic Collapse.
http://peakoil.com/generalideas/trade-off-a-study-in-global-systemic-collapse/
Posted by: Mark N | July 15, 2012 at 11:38 AM
Damn Mark N. Beat me to the punch!!
Next in this series will be the general economic system and that will include things like the linkages between the supply chain and the financial system. Also, the food, energy, materials, and manufacturing relations.
George
Posted by: George Mobus | July 15, 2012 at 02:51 PM
What should can can be done? The short answer seems obvious to me:
Networked carbon negative food sovereignty.
I'm in a hurry and exhausted, so I won't explain much:
1) The carbon negativity requirement is optional. It's just for those who still harbor a little self respect or can't evade stringent geo-bio-pragmatic ethics.
2) An illustration of the networking thing: I'm thinking about producing t-shirts to wear at a German Buddhist convention, reading:
* Not carbon negative, no bodhisattva
* Not carbon negative, no sangha.
That is, without help from an apt sangha network, practically no 21st century Buddhist member of civilization has a chance to achieve bodhisattvahood. Sorry, but that's our century. (When I'm beyond 70 I'll perhaps try it alone in some cave in the Himalayas, just for fun. But that's not a solution.)
3) Alas, from all the few real Buddhists I met and those I read (except perhaps Joanna Macy) I have to conclude that it is all quite hopeless.
Posted by: Florifulgurator | July 16, 2012 at 11:59 AM
George and Aboc - you two should get your heads together and design the 'knowledge preservation contraption' that George has proposed previously. Maybe the 'understanding' that Aboc fears we will lose in the chaos of collapse can be included in the device/system, for the benefit of successors with sufficient brainpower.
And George, I hope you don't mind me waxing lyrically to people in my acquaintance about the brilliance of this blog. If your ears are burning, you now know why.
Best wishes to all, Oliver
Posted by: Anywhere But Here Is Better | July 16, 2012 at 04:13 PM
Books are a good way to save ideas. Maybe Christianity will break out and we will be forgiven our debts as we forgive our debtors. Was Christ giving a lesson in banking?
Posted by: Curtis | July 17, 2012 at 07:56 AM
Bruce. Your list of questions seems to set the agenda. I have always thought that our generation is what faced Moses. He got to see the promised land, but didn't get to go there. Our society is trapped and a new cooperative way of existence will have to evolve for there to be survivors. E. O. Wilson deals with this to some extent in "The Social Conqust of Earth". However, no one seems to have proposed what sort of mechanism might be able to do something useful other than the usual blind process of evolution.
Posted by: Curtis | July 17, 2012 at 08:18 AM
A new Sun god required.
@Curtis: See the above link. Christianity was as good as any Sun god religion until, well, I don't have to recount the history of the Roman and Orthodox churches, Islam, the Crusades, the Mongols, Turks, Monty Python's "The Holy Grail" and "Life of Brian", etc. Okay, the last one doesn't count. ;-)
Note, however, that Christianity has co-existed with, enabled, so far survived, and evolved with, and in spite of, "barbarian" invasions, Judaism, Islam, Leonardo, Galileo, The Schism, the Templars, The Inquisition, The Reformation and Martin Luther, capitalism, imperialism, socialism, communism, fascism, world wars, Father Coughlin, economic depressions, Monty Python, hippies, abortion, disco, Studio 54, Ronald Reagan, Jim and Tammy Bakker, Jimmy Swaggart, Madonna, Bill Clinton, pornography, pedophilia, and Polish and German pontiffs.
Thus, if we are to have a viable Sun god religion that addresses the limits of Spaceship Earth, Peak Oil, resource constraints, population overshoot, sovereign insolvency and default, and the post-capitalist, post-bottleneck world, Christianity is as good as any that exists today to be open to a transformation and adapting to a more eco-centric worldview, apart from perhaps Zen Buddhism or Ecosophy or Ecophilosophy.
However, I personally think that a synthesis based upon the worldviews of Zen/Tao, St. Francis of Assisi, Diogenes of Sinope, and Arne Naess ("deep ecology") informed by the exponential growth function and thermodynamics and the necessary compassion to apply the principles would be worth a try.
P.S. As for debt forgiveness, recall that the Roman church forbade charging interest on loans, as did Islam and Judaism when lending to another Jew. The ancients knew well of the negative effects of debt. It was not until the Renaissance Italian city-state banksters, attempting to get around the Pope's prohibitions, created bills of sale against which they charged interest-like fees modeled after the Khazarian Jews who similarly provided such credits for the purpose of facilitating Silk Road trade between Europe and China-Asia.
Posted by: Bruce | July 17, 2012 at 04:40 PM
Preservation is already happening and has been for a long time.
I e-mailed the Library of Congress.
Here is the exchange:
To whom it may concern,
I am inquiring about the preservation of the libraries collection of knowledge in a hard copy form that is stored at another more secure location.
The reason I ask this is that since the Cold War a very real threat of complete destruction via nuclear attack is possible and as history shows us knowledge is not immune to destruction (Alexandria).
I know from the website that there is a digital preservation program but is there a physical one as well?
As a related question: Is there a Nationwide effort with all libraries to preserve there collections in hard copy?
Thanks in advance
The reply:
Thank you for contacting the Library of Congress Preservation Directorate.
The bread and butter of library preservation is preservation of the physical collections. Digitization is not preservation, but an access solution.
At the Library of Congress, we have two separate offices for preservation of the physical collections (http://www.loc.gov/preservation/) and preservation of digital assets (http://www.digitalpreservation.gov/), including born-digital and digital objects we've made by photographing our collections.
To answer your last question, I would hazard to say that all major research libraries in the U.S. retain physical collections, the preservation of which is either explicitly or implicitly part of the institutional mission. Those libraries you may hear of that are going "all digital" are largely doing so by subscribing to e-journals and buying e-books going forward, as publishers move in that direction. They are simply replacing their traditional reading rooms with serial bookcases with computer terminals for reading those same serials online.
I hope this information is helpful. Please don't hesitate to use our Ask-a-Librarian service again if you have any further questions.
Best,
Mary Oey
Preservation Directorate
Conservation Division
Library of Congress
101 Independence Ave SE
Washington, DC 20540
Posted by: porge | July 18, 2012 at 10:38 AM
All,
I am falling seriously behind it seems. All great comments.
Bruce, thanks for the link.
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Curtis, "Our society is trapped and a new cooperative way of existence will have to evolve for there to be survivors." Which is what I think sapience is - a path to higher levels of cooperation through natural behavior.
I think that what I have suggested is somewhat like giving evolution eyes so it is no longer blind.
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Flor, may I suggest release from hope is also release from hopelessness?
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Anywhere (Oliver), I am talking casually with some plant geneticists about the idea. Basically it involves coding leaf development genes to produce patterns (symbols) on leaves that would be identifiable as signs. From there, who knows? DNA is a versatile molecule!
Thanks for the endorsements, though.
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Porge,
I don't think the Library of Congress is considering preservation that would last, say, 100,000 years and be interpretable by people using a completely different language.
George
Posted by: George Mobus | July 21, 2012 at 03:24 PM
Design in Nature: Constructal Law.
Posted by: Bruce | July 29, 2012 at 11:51 AM
Thanks for taking the time to post this.
[Moderator edit: removed commercial URL]
Posted by: print | August 14, 2012 at 02:07 PM