Sunday, October 30, 2011

Stages of Collapse Revised: “Joined at the Wallet”

My neat and tidy taxonomy of collapse, “The Five Stages of Collapse,” has been read more than 70,000 times just on my blog alone since I first published it in February of 2008. It continues to be popular: there were over 10,000 hits to the page just this year. People must still be finding it helpful.

And yet collapse has not gone according to plan. What caused me to write the initial article was the financial collapse of 2008, which was shaping up to be a game-ender for Western finance. It still is, I believe. Back then, I wrote of the “credit event” of 2008:
The government response to this could be to offer some helpful homilies about "the wages of sin" and to open a few soup kitchens and flop houses in a variety of locations including Wall Street. The message would be: "You former debt addicts and gamblers, as you say, 'fucked up,' and so this will really hurt for a long time. We will never let you anywhere near big money again. Get yourselves over to the soup kitchen, and bring your own bowl, because we don't do dishes." This would result in a stable Stage 1 collapse - the Second Great Depression.

However, this is unlikely, because in the US the government happens to be debt addict and gambler number one. As individuals, we may have been as virtuous as we wished, but the government will have still run up exorbitant debts on our behalf. Every level of government, from local municipalities and authorities, which need the financial markets to finance their public works and public services, to the federal government, which relies on foreign investment to finance its endless wars, is addicted to public debt. They know they cannot stop borrowing, and so they will do anything they can to keep the game going for as long as possible.
I thought that government interventions in private finance would prolong the agony somewhat; what I didn't think was that they would prolong it even onto the death of the governments themselves! The effect of the interventions since then, in the US and in Europe, has been to knock down every firewall between public and private finance, to the point that now we are faced with two monstrous, and monstrously sick, conjoined twins, and the death any one of them is sure to spell the death of the other. Trying to separate them with a cleaver will be of no use: they will simply hemorrhage red ink and die sooner than they would otherwise.

Perhaps their early demise would be useful. Now that economic growth is pretty much over and done with, big finance and big government stand directly in the path of an orderly shriveling-up of the global economy. What I mean when I say “an orderly shriveling-up” is a process by which the economy shrinks at a healthy rate, corresponding to rates that were once considered to be a healthy growth rate, but in a way that allows most people to survive by providing a few essentials, such as food, shelter, security, access to medical care, ability to raise children and so on.

The endless fervent prayers we hear for nonexistent and physically impossible economic growth are telltale: without growth the temporary tricks used by government and finance to keep the game going have to be seen as permanent tricks, and as permanent tricks they do not work. There is the trick of “hiding the garbage” on the balance sheet of central banks. It would work if the garbage (loans gone bad) were to some day be worth something, which it might have if there were to be growth. Without it, they remain garbage. Another trick is to extend government guarantees to massively raise the amount of available bail-out funds; this trick would work if growth were to resume, in which case the guarantees would never need to be used. As it is, they are guaranteed to be used, and since the public funds behind these guarantees don't exist, the pretense of there being trillions of bail-out funds available is sure to wear thin quickly.

I wished for an orderly cascade of collapsing institutions, with enough of a gap between them for public psychology and behavior to adjust to the new reality. But almost four lost years of both government and finance betting on a future that cannot exist, doubling down every time they lose again, have dashed those hopes. The effect, I think, will be to compress financial and political collapse into a single chaotic episode. Commercial collapse will not be far behind, because global commerce is dependent on global finance, and once international credit locks up the tankers and the container ships won't sail. Shortly thereafter it will be lights out.

The Five Stages of Collapse was a nice theory. If only we had been so lucky! I am writing this to warn you: don't look for anything quite so tidy. Oh, and happy Halloween!

22 comments:

DeVaul said...

Making predictions is hard, especially when you do not have access to the private meetings of the feudal lords. Still, you did a pretty good job of laying out one possible scenario, but the goddess of history likes to fool us all. Ask anyone from Yugoslavia about that.

For me, I am still amazed that everything has been kept in a state of suspended animation seemingly indefinitely, but I know at some point it has to fall.

All we can do is prepare as best we can. For the Serbs, the Croats, and the Bosnians, the sky fell pretty quick. I suppose it can happen here as well. After all, we once had a civil war that killed one and half million men and destroyed half the union.

It'll happen again. When? That is the only question.

Journal Actif said...

We have a feeling of powerlessness.

This week-end we felt powerless in the face of "blissfull" ignorance of 30K income neighbours, with him working in "just in time delivery" business (a truck gas-refil center) getting in more debt to conform to their "american dream": they borrowed at god-knows what interest rate to buy an energy and money pit of a big, second-hand SUV. "It was such a good deal, we just couldn't let it pass".

Too late for us to move. We'll have to figure out how to weather this mess, in the midst of a community in a state of total denial.

We're among those people who followed work opportunities and our extended family members are scattered around the globe. A family diaspora that began in the late 50's. Our social interactions are with people deeply in debt, with revolving equity mortages as a mean to pay for the yearly cruise or vacation on sunny shores of southern countries. As a result, instead of successfully solidifying community ties, we saw them weaken. Our friends are destroyed, slowly but surely, by the shame of now-difficult to conceal debt and depression brought with it and their anxiety to service those debts while keeping a roof over their kid's head and food on the table. More and more people we know seem to choose isolation, the "can't allow anybody home to see our misery" kind of syndrome.

Worse, any attempt at preparedness that we don't conceal has us stigmatised. As an exemple of this bizare phenomenum, my other neighbour had a hard time hidding how angry he was at us, seeing us work yesterday, covering a 4'x12' cold-frame we built that morning. "Really? Come on guys, you can't set-up this box. With the raised beds, now your yard looks like a cemetary, and so is our street."

So our raised beds and our cold-frame, in their eyes, are a metaphore for graves, and our backyard a cemetary. We tried to explain our choices, that made him and his wife only more angry at us.

Fences won't protect us, we know that. Yet it seems that we will have to isolate ourselves after all. We'll have to put up a fence so they don't see the offending "cemetary-aka-vegetable-garden". Our vegie garden is, apparently, the cemetary of their now defunct idea of affluent subburbia lifestyle they worked so hard for and truly thought they achieved. Our vegie garden is the grave of living the "american dream" hapily-ever-after. Our vegie garden scares the heck out of them, as they see it as a set-back to their childhood living in economically hard-hit fishing communities in Newfoundland. That couple had a taste of hardship long ago and our vegie garden is a glaring sign they could re-live those years, now, of all times, when they are about to enter the comfortable retirement they saved all their working life for and they were looking forward.

We'll be hard hit. Infortunately that's the only certainty we have. An orderly collapse would certainly be more bearable. But we already knew that would be "best case scenario".

David Veale said...

And once the lights go out, there's nothing between us and 400 odd nuclear reactors that no longer have the grid for their cooling systems. How long do you think their diesel supply will keep the backup generators running?

Patrick said...

I've been accused of wanting things to fail and taking pleasure in the prospect. The first is true, the latter isn't because sooner is better and later will be worse, exponentially so, as time passes. Eventually you dig a hole so deep that you can't climb out.

Thanks Dmitri, keep speaking out, please.

Jerry McManus said...

For a great view of the "big picture" I highly recommend the site A Cartography of the Anthropocene:

http://globaia.org/en/anthropocene/

I think it is safe to say that a handful of very wealthy and very powerful people will do everything in their power to keep all those city lights, roads and highways, shipping lanes, and flight paths as brightly lit as possible, and for as long as possible.

Unfortunately, for every percentage point of decline in available energy and resources I would hazard to guess that we can realistically expect a corresponding decline in all that global industrial bling-bling.

How long until all those bright lights and iridescent trade routes start to wink out?

russell1200 said...

I remember when housing starts peaked in the August of 2005. Of course it took a few months to be sure that it was a real peak, but after that I thought to myself - it should be any day now.

But it wasn't. Some stocks took some hits, but the banks just kept the treadmill going. That the collapse is usually said to have started in late 2008 with Lehman brothers is a testimony to how long a big economy can run off a cliff and still keep itself suspended in air by the cartoon-like windmilling of its arms.

Wiley Coyote would be proud.

And the same today. Iceland, Lithuania, etc. are ignored. Greece will eventually be ignored as well. At some point it will come tumbling down. But the timing is impossible to predict. Throwing out a guess, it will collapse when it visibly effects some previously obscure German institution that refuses to fudge its numbers.

Robert 1 said...

Journal Actif said... "As an exemple of this bizare phenomenum, my other neighbour had a hard time hidding how angry he was at us, seeing us work yesterday, covering a 4'x12' cold-frame we built that morning."

Funny you should mention it. The same thing happened to me 50 yrs ago in Detroit cracker box suberb. Planted flowers along walkway going from house to sidewalk. Neighbour came over said nothing for while. Finally asked what I was doing. I said "planting flowers (obviously)". He said OH, shook his head and walked away. One of the last times he talked to me. They were the kind of people who bought each of their 3 children bicycles at the same time because they did not want to put up with jealously.

Cheers,

Robert 1

Pangolin said...

Let us not forget that Ma Nature is showing a remarkable tendency to throw wrenches in human works as of late.

Bangkok is flooding. If Texas and Oklahoma had to rely on their own food production they'd be starving right now. New England just got hit by another massively destructive storm. (*not to be confused with Climate Change. Still just random 500 year events, weekly) And god knows where else is getting hammered; I can't keep track anymore.

Interesting times.

Unrepentantcowboy said...

Here's a worse scenario.

We become Juarez.

The elite move into protected enclosures, protected by police, fed by remnants of industrial agriculture and industry which is powered by expendable slave laborers. The elite drive in armored cars protected by armed guards as they pass through war zones and fly in jets from one country to the next, enjoying the finest of everything.

Meanwhile, outside the enclosures, cops become predators surrounded by other predators; there's no security; law of the jungle prevails. Robberies, muders, rapes and the like go uninvestigated and unpunished.

p01 said...

Journal Actif said...
We have a feeling of powerlessness.

Hey, a fellow in feelings, and a fellow Montrealer! To make you feel better, we're still going to have some lights on for a while here. And if we don't, at least the weather will prevent that "b-movie type future" (as Dmitry puts it) from happening. Cold is very unforgiving, and I can certainly think of worse ways to draw the curtain.

Roccman said...

URC - sounds like Oryx and Crake

Have you read that book - it is precisely how the population is segmented -

until the virus hits

then it is all over

Patrick said...

Who'll fall first? My vote is for the following fellow: he was interviewed on TV about the freak ice and snow storm that had wreaked havoc in his area, including a widespread power outage. He said, "Yeah, it's been off so long my food went bad in the refrigerator. I had to throw it out."

Ah, duh, why didn't you just put it outside in the freezing cold?

melanie England said...

I have found the concept of the 5 stages of Collapse invaluable, and like the 5 stages of grief it is probably possible to flit between them. As an ex archaeology student I take the long view and I am convinced we will see all five stages in our life time, but they won't happen on our timetable we have to be patient.
Thankyou Dmitri for all your writings and talks - your subtle analysis and humanity has meant a lot to me. Please keep up the good work!

Patrick said...

@ Patrick:

I guess that guy couldn't "think outside the (ice) box." Jeez, some people are so stupid - and helpless.

Noodles said...

Been waiting for a collapse since late 2005 with nothing but incremental steps...Stocked up, got all my medical/dental done and began prepping...Still nothing.

Then it hit me...The collapse is being strung along to not rock the entire world...ANNND the truth is even if it takes 20 years for it to collapse that's still nothing compared to say the collapse of any of the major empires Rome, Greece, Egypt, Ottoman Empire etc etc.

I say be thankful for the extra time to stock up, prep travel and eat a nice steak with a good Cabernet...There maybe a day when all that will be just a memory.

Keep the faith, stay healthy and strong.

There's nothing we can do, the run away train is speeding too fast now to slow down...We live in "Interesting Times."

manray said...

Journal Actif, it sounds like it might be time to move to a place where the culture is a bit more enlightened. I understand though, I lived in a similar culture over 30 years ago. I wasn't a genius, I simply realized that a life centered around consumption and appearances was empty. So I left. If you live in a place where your neighbors berate you for a kitchen garden then it is time to find other kitchen gardeners. Live in a tent somewhere if you have to.

This country is facing a spiritual crisis on top of the economic and climate crises. We have become completely detached from Gaia. We are entering a new Dark Age where Science and empirical data data are things to be shunned and ridiculed. That detachment is about to end. We are going to become more intimate with our world and in ways that most "modern" people will not be able to handle. It is time.

Thank you, Dmitri, for sounding the alarm. Please keep posting and more regularly!

Journal Actif said...

@ Robert1, isn't it a typical behaviour? It seems one is bound to have at least once (or more) in a life to interact with people having that mentality.

@p01: hollering from the other side of the Mercier bridge, which gave us last summer a taste of what it's like to live surrounded by crumbling major infrastructures to the point of being trapped in the subburbs. :-)
We're trying not to be too cynical here but you have to admit, what guaranties do we have our national Hydro will be up to the challenge of serving us before our US neighbours? What kind of pression our government will be experiencing when it'll be broke and feel like "a mouse at the feet of a moving elephant". And not to forget that it seems like when the USA sneezes from a common cold, we end up with a pneumonia (I don't remember who coined these sayings about our interdependance with our neighbours south of the border).

But I often tend to think like you, that lights will be on longer here. My husband often tells me it's the cold that makes every thing tranquile in our society, even our revolutions are tranquile.

@manray: Our awareness of peak oil and collapse is, infortunately for us, rather recent (less than 18 months). We're implementing changes and a move to a smaller, more progressive community is in our plans. We'd love to do things faster though.

Meanwhile, we think it's not a bad to try and live with as less dependance to money and carbon energy as possible, right here where we are at the moment, in case we don't make it to our goals before everything "goes south".

We're in an older subburb, the kind with a mix of recent houses and older 100 years++ old ones, with large lots and small, quiet streets. We're on a good size lot and have a 150 years old home in a dead-end little street, where everbody knows everybody. Our house has a very sturdy construction in the older part of it, which we are in the process of adapting to passive solar energy (wider part is facing south). We're insulating the heck of the newest 1954 and 1970 additions before doing the necessary to go off-grid. There's a number of things we can do to not depend on the municipal water delivery and sewage system so much. We never succombed to the fashion of swimming pools and boy are we glad we didn't. We have a 2000 sq.feet vegie garden and a chicken coop. No chicken yet, we'll have to bring them in when we won't be worried about city ordinances or nosy neighbours. It's enough for us to know we have all the equipment and structure to bring them when it's the right time.

We decided that if we can't make it to a better community by the time it's too late, at least we are not too dependant on too much of our basic needs right here and we can feed and keep our 3 sons (17, 14 and 11 years old) and ourselves reasonably warm and fed.

It's sad to say but we're also counting on a natural selection to happen when we'll be at the stage of a credit squeeze and commercial collapse here. Most of the houses in our neighbourhood are owned clear of debts. We suppose the more stubbornly consumer-minded won't last too long in their over-mortaged homes with SUVs parked in the drivway.

There's lots of potential for this place to become a sustainable community in the face of collapse. We can't be sure we're doing the right choices and the right things though... We do what we can with what we have.

And thank you M. Orlov for sharing your thoughts and analysis. It's precious gift.

Jeff Snyder said...

I have always viewed your "5-stage" breakdown of collapse as component analysis, rather than as a description of an actual time-line. A picking part of the different strands, which may be woven together in more than one pattern, and not necessarily a sequential step function flow from one stage to another. Your breakdown is very useful for understanding what is happening and understanding the relative degree of collapse that we are in at any moment, as compared to the final comprehensive breakdown. Your overall analysis remains spot on IMO, and it is crazy to expect anyone to "call" the dates it will all happen.

At this point it really seems that the capacity for kicking the can down the road really depends on the ability of the system to continue generating the illusion that this is all somehow temporary and fix-able. However, reality is seeping in more and more. Yesterday, Zerohedge ran a guest post that is really one of the best financial articles I have seen this year, titled "MF Global Shines A Light On Monetarism's Incapacity To Enhance The Real Economy." After describing the contradictory accounting gimmicks (pemitted by accounting rules and regulatory agencies) that hide real risk, he has this stunner:

" So the financial economy has broken away from the real economy, using the ironic cover story of enhancing price discovery to the process of intermediation – complexity is good!

Intermediation is supposed to be about matching the wider (real) pool of savings to worthwhile economic projects that have a real, productive impact on the real economy. MF Global’s repo-to-maturity transaction cannot be fairly classified as real intermediation since the firm knowingly advanced credit to an economically unfeasible obligor with the expectation that the price would never reflect that reality (how’s that for enhancing price discovery). This crystallizes, I believe, just how far the financial system has moved away from real intermediation and reflects the biggest part of the real problems in the real economy – money is no longer productive in economic terms and has not been for decades."

http://www.zerohedge.com/news/guest-post-mf-global-shines-light-monetarisms-incapacity-enhance-real-economy

Look at that last sentence! All that is missing is to tie the realization that money is no longer productive to the reason that this is so, which is also the reason why the financial industry has veered into self-referential financial instument games: peak resources.

Keep up the great work, Dmitry!

Shadowfax said...

Everyday I walk through the local "neighbourhood"on the way to the store.
I mutter to myself..look at that stupid moron mowing all that useless grass...It's not facing south anyway so no good for planting,,,,why are all the houses facing the street...oh yeah the car and garage..where is everybody.must be working 40 hour weeks(both of them)to rent half a million dollars.
I escape back to my boat ,eying the shore,ready to cast off lines.

Deck said...

I share Unrepentantcowboy's fear of a worse scenario.

I know we are also supposed to "keep positive through these trying times" and I am trying -- but dammit I want payback. I want those evil people to receive some of the pain and misery they have inflicted on so many of their fellow humans.

But not just for my own gratification.

The worst part of that scenario is that in a couple of years the remaining towns start electing representatives, in 50 years we've figured out national communications and limited transport and a national government is reformed. In a hundred years the citizen will begin to complain about how those wealthy people seem to always get their way - and so it begins again.

I don't want to kill anybody, but there has to be a way of getting some payback AND preventing this cycle from repeating.

Maybe we could make their names swear words -- "Oh go Bush yourself" for example. or "Ick! This stuff tastes like Bernanke!"

I hope we are smart enough to figure it out.

Ojibway Native said...

No need to apologize Dmitry. I read the 5 stages of collapse on the energy bulletin in late 2008 simply by accident. Someone posted the link in a webcommmunity in late 2008. I will just say it changed my life. I had studied and read up on politics, environmental issues, human psychology, etc

I knew the system sucked, that we are killing the planet, and that people were/are being kept in a state of fear so they will act on a primitive level. Shut up, consume, obey, pay your taxes, and wave the flag/send your kids off to fight for Uncle Sam.

Depressions were events that happened to other people, third world misery was/is a condition that we impose on much of the world through greed and exploitation, which made me tend to stick up for the former USSR, because they denounced it and seemed to be fighting against it.

I suspect the commercial collapse is not far off as the dollar gets diluted by Bernake's printing press and downgraded to a single "A" rating. When the 2 party circus whores cannot prevent hyperinflation and high costs of transportation fuels and keep trying to steal money from people to try in vain to keep the joyride going, then the political collapse will gain momentum.

Everyday I happen to be near a television set there is yet another mass shooting, some mother in Texas shot her 2 children then committed suicide at the welfare office when she was denied food stamps. The social and cultural collapse have occurred and are gaining momentum.

Here is one video I stumbled across on youtube that is long, but sums up what the future holds. Enjoy this holiday season for those of you who celebrate it, as I think it will be the last time the season will be jolly for many of you http://www.youtube.com/watch?v=h2em1x2j9-o&feature=related

Sean Anthony said...

Well hold on now!

Your five stages of collapse still appears to be in play. It just looks like they (central banks) were able to get one last good thrust into the chasm of growth, before we hit a major worldwide depression.

It doesn't matter how hard you thrust after that, though, because there will be no response. The economy, she is dead.

Yuck! Right, get out of it now!