Monday, September 29, 2008

Peak Oil in the Outback

The following is from an email from Chris, who lives and works in Alice Springs, Australia. It offers an interesting perspective on hitting the peak oil wall in resource exploitation, the scant possibilities of continuing family life as we know it post-peak, and on what it means to be a native (in the truest sense).

“Peakers” are still rare out here. I met my 1st one here in 1972. Not in the fully developed intellectual sense; yet nonetheless prophetic.

An aboriginal school teacher at the time, a friend of my fathers. I was five years old, a migrant from the USA, I wanted to know how aboriginal people saw white people.

His response was unforgettable: “You guys say we’ve been here 40,000 years; we say since the dreamtime. You may as well call it forever. You guys got here yesterday and tomorrow, you’ll be gone. But we will still be here.”

I know some cattlemen here who 5 years ago were burning $40,000 in diesel to run split system air conditioners to keep a whole house cool through the long hot desert summer. Of course these costs are moving exponentially. This seems to be a crazy amount to be spending on micro climate control; yet the purpose is to make it livable for non native women. One farmer told me that when the generator breaks down his wife just jumps in the car and drives 400 miles to Darwin; she will stay in an air conditioned motel until the generator is fixed. Without these women, the outback white community will cease to exist.

This is just the tip of an iceberg emerging through the fog out here in the desert. A huge amount of the economy is based on speculative ventures in mining, for example, where all of the feasibility projections are assuming ridiculously low energy costs. Major negotiations are underway towards a huge boost in uranium mining, huge royalties will go to largely mal adjusted aboriginal people as cash. The Government is by far the biggest employer and spender out here, largely on programs designed to help the Aboriginal people here. Of course they are mostly designed to help make these people more like whites; generally they are a dismal failure.

In short, my father’s friend’s philosophical perspective nearly forty years ago, seems ripe fruit soon ready for harvest.

Sunday, September 28, 2008

The Canadian Solution to the Subprime Credit Crisis

I just happened across this gem, excerpted from here. Solving the subprime mortgage crisis is simple; unless, that is, your country is in the process of being hijacked by a bunch of 9/11 con artists, that is.

In August 2007, it was discovered that Canada, just as the U.S., had a subprime mortgage-backed securities problem. Since the Canadian economy is more than ten times smaller than the American economy, the magnitude of the problem was also smaller, but it was nevertheless acute.

Indeed, Canada's subprime mortgage market was a smaller proportion of the total mortgage market than in the U.S. and mortgage defaults have not been as prevalent in Canada as in the United States. For instance, there has not been a housing bubble burst in Canada. Overall, risky mortgage-backed paper constituted, about 5 per cent of the total mortgage market, while in the U.S., subprime mortgage paper constitutes about 20 per cent of the total mortgage market, and mortgage defaults have been rising dramatically.

Nevertheless, there was some $32 billion (CAN) of non-bank asset-backed commercial paper in Canada. When this market became illiquid after August 2007, as a consequence of the global credit crisis that originated in the U.S., a restructuring committee was assembled in Canada by large pension plans, Crown corporations, banks and other businesses holding the bulk of $32 billion in non-bank asset-backed commercial paper (ABCP) in order to find a solution to the liquidity problem. (Large Canadian banks covered the asset-backed commercial paper that were on their books or in their money market funds). This was the Pan-Canadian Investors Committee for Third-Party Structured ABCP, chaired by a Toronto lawyer, Mr. Purdy Crawford, and created after a proposal that originated from the large Quebec pension fund, the Caisse de dépôt. This was the Montreal proposal.

The committee ended up proposing to restructure the frozen and illiquid securities into longer-term securities. It proposed that ABCP notes, initially intended as low-risk and short-term debt, be exchanged for new replacement notes or debentures that would not mature for years (seven or nine years) while earning interest originating from the underlying primary mortgages.

The plan was approved by a Canadian court last June and is scheduled to close by September 30, after Canada's Supreme Court refused to hear an appeal against the plan. The plan was designed to prevent a forced a fire sale of the asset-backed paper and to restore confidence in the Canadian financial system, especially in the money market funds. And it did all that without the government risking a penny of taxpayers' money.

Of course, those entities that had invested in what they believed to be liquid and relatively high-yield 30- to 90-day debt instruments had to accept new notes maturing within nine years, but most of them thought that this was better than the alternative of outright liquidation. Those investors can hold the newly-issued notes to maturity or they can try to trade them in the secondary market. A market for asset-backed securities was thus indirectly created where none existed before.

Friday, September 26, 2008

Reinventing the Sandwich

A new C-Realm podcast featuring me, Daniel Pinchbeck of Reality Sandwich, and, of course, our host KMO. We talk about optimism, saving the future through better design, and reinventing ourselves. Also, KMO and Daniel briefly discuss the Singularity while the electrics on my boat go on the blink and I briefly lose contact. Enjoy!

Thursday, September 25, 2008

A note on timing

A lot of people commented on to the following sentences in my last post:
And that will bring on Phase 2: Commercial Collapse. That is probably what we are getting for Christmas this year, or shortly thereafter.
Some take it to mean that I have committed the cardinal sin of prognosticators in making a Specific Prediction. Actually, I was just being a bit glib, thinking that commercial collapse would make a perfectly suitable Christmas present, that being the most commercial of holidays.

Timing collapse phases is just like timing peak oil: it becomes possible to do only after each phase has largely run its course. I believe financial collapse has a while to go, and may partially overlap with commercial collapse.

When it comes to social and cultural collapse (phases 4 and 5) I am not even certain that I got the relative timing right. To wit: there is a little city park around here that is always full of people who are drunk and stoned out of their minds 24/7. There are a few police on hand who try to keep them from getting into fights, and to herd them right after sundown into a maximum security flophouse they have for them right on the square. A truck stops by periodically to hand out food to them. Clearly, cultural collapse is quite far along for these folks, but political and social collapse have not caught up with them yet.

So have a Merry Christmas, but don't be surprised or despair if you are touched by commercial collapse in some form, mild or not so mild. You might be short on gas to drive to the mall to buy presents, or the road might be impassable because there is no money in the budget for snow removal (a touch of political collapse there). Even if you do get to the mall, some of your favorite stores (Sharper Image?) might be gone, or your credit cards maxed out. I hope that that's specific enough of a prediction, but that is as specific as one should be, I believe.

Tuesday, September 23, 2008

Adieu, Stage 1 Collapse!

In February of this year, I wrote The Five Stages of Collapse, connecting each stage of collapse – financial, commercial, political, social and cultural – with a specific mental milestone, where faith in some aspect of our status quo is shattered in the face of dramatically altered circumstances. Here is what I had to say at the time about Stage 1: Financial Collapse:

Financial collapse, as we are currently observing it, consists of two parts. One is that a part of the general population is forced to move, no longer able to afford the house they bought based on inflated assessments, forged income numbers, and foolish expectations of endless asset inflation. Since, technically, they should never have been allowed to buy these houses, and were only able to do so because of financial and political malfeasance, this is actually a healthy development. The second part consists of men in expensive suits tossing bundles of suddenly worthless paper up in the air, ripping out their remaining hair, and (some of us might uncharitably hope) setting themselves on fire on the steps of the Federal Reserve. They, to express it in their own vernacular, "fucked up," and so this is also just as it should be.

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.

About the only thing the government currently seems it fit to do is extend further credit to those in trouble, by setting interest rates at far below inflation, by accepting worthless bits of paper as collateral and by pumping money into insolvent financial institutions. This has the effect of diluting the dollar, further undermining its value, and will, in due course, lead to hyperinflation, which is bad enough in any economy, but is especially serious for one dominated by imports. As imports dry up and the associated parts of the economy shut down, we pass Stage 2: Commercial Collapse.

So far so good. In terms of mental milestones, we can tease apart financial collapse into a number of psychological levees that are being breached one by one. The first one to go was people's faith in home equity: that the value of their homes will serve as a nest egg to sustain them in retirement. What we have been witnessing for the past week or so is the demise of people's faith that their investment portfolio will sustain them. It is still easy to find investment advisers who will tell you to "go long on equities" because, you see, "eventually the economy will recover," but their reassuring words are starting to sound like a death rattle to all those whose retirement savings suddenly look laughably inadequate.

Eventually, faith in the magical, mystical properties of the US Dollar will be lost, but it seems very important to all concerned to make the process gradual. It seems safe to assume that in the limit, as time goes to infinity, the value of the US Dollar goes to zero:

limt→∞US$ = 0

It also seems safe to assume that it is negligible even for finite, foreseeable values of t. The problem is making it look like a continuous function. If the value of any given type of dollar-denominated garbage jumps to zero suddenly (because it cannot be sold at any price) then that produces a discontinuity: a rift in the fake financial space-time continuum.

This is what the current bailout plan is generally about. It is not about making anyone here happy: the fascists think that smells of socialism, the socialists think that it smells of fascism, and everyone (except for Bush, Paulson and Bernanke) agrees that it smells. Some people would like to see some heads roll, but as Robespierre discovered in the course of the French revolution, that just puts you knee-deep in headless aristocratic corpses, still with neither bread nor cake to feed to the peasants.

Speaking of peasants, everyone continues to repeat that the bailout is being financed by "the taxpayer," although it is unclear why our soon-to-be jobless and destitute taxpayer should be expected to cough up an extra trillion or more. The taxpayer may soon need a bailout too. If this mythical taxpayer actually tried to borrow her share of a trillion dollars against her future earnings, what sane person would want to give her that loan? Clearly, the gratuitous mention of the taxpayer is just a ruse designed to hide the rather obvious truth.

The bailout is actually going to be financed by foreign interests that hold US Dollar assets. Yes, the value of their holdings will go to zero, but they do not want this to happen suddenly. They wish to continue redeeming their US Dollar holdings for all manner of things of value, from capital equipment and intellectual property, which can be expatriated, to farmland and other means of production, which can be used in situ to grow food, mine ore, and so forth, which are then expatriated. There is some optimal function for this great unwinding, which will allow foreigners to expropriate the maximum amount of value in the minimum amount of time before their efforts to redeem their remaining US Dollar holdings stop paying for themselves in terms of the value of the available stuff.

As this process runs its course, the US will lose access to imports. Most significantly, it will find it more and more difficult to obtain the 2/3 of the transportation fuels that come from abroad, which are needed to keep the economy functioning. And that will bring on Phase 2: Commercial Collapse. That is probably what we are getting for Christmas this year, or shortly thereafter.

In the meantime, enjoy Stage 1. You will miss it once it's over.

Tuesday, September 16, 2008

Superpower Similarities has published Chapter 2 of Reinventing Collapse. You can read it here.

Monday, September 15, 2008

Survival of the Nicest?

Periodically I find myself bombarded with a certain type of query: What is the timing of the collapse? How far along are we? Is it 5 years away, 50, or 500? And no matter how many disclaimers I issue, the queries keep coming.

If you listen to extremist yahoos like Alan Greenspan, we appear to be in the midst of a financial collapse. As it runs its course, the strange idea that endless economic growth on a finite planet is possible, or even desirable, will mercifully fall by the wayside, to be replaced by the much nastier mindset that economics is a zero-sum game: if you are to win, somebody else has to lose. No amount of greenwash or pining after sustainability is likely to stem the tide of nasty people who are determined to make it at your expense.

And so collapse, for you, is likely to turn out to be a deeply personal experience. Furthermore, if you manage to survive it, chances are, you will be none to eager to divulge the details of how you made it, for they will not be edifying. The process of survival is only enjoyable if it is experienced vicariously -- at someone else's expense.

I recently picked up a book about castaways, and was amazed to discover that the introduction to the book spells out this very idea succinctly and in good prose, perhaps better than I could, so I will reproduce a piece of it here:

After a century of enjoying the roller coaster ride of the Industrial Revolution, we face the bleak prospect of it all ending so suddenly that there's no time to don a life jacket, grab a parachute, or find a pack of matches. The fact that most humans are hopelessly unprepared for the ultimate crisis was driven home for me several years ago when a survey of boating accidents on Chesapeake Bay produced a curious detail: most of the male corpses fished out of the bay over the years had their flies open. The inescapable conclusion reached by the authorities was that all these people met their end while blithely peeing over the side. Their last thought, I'm sure, was astonishment. The next most common emotion (for those who do not die immediately) is a deep, sometimes suicidal melancholy, eventually pushed aside by hunger, panic, and -- in many cases -- temporary insanity...

One fascinating aspect... is the dawning awareness that when survivors get back to civilization, they carefully hide much more than they reveal. For the brutal truth, we have to look for clues between the lines. Some of these stories right more true than others, and it is entertaining to see the lengths to which the scoundrels go to paint themselves in noble hues. One comes away with the nagging suspicion that nice people usually do not survive being stranded, and when they do, it is often through freak accident or divine intervention. The real survivors in this world are few and far between. And if they are the fittest to survive, God help us, indeed...

How many of us, unexpectedly tumbled onto an alien shore, would silently give up the ghost rather than face the reality of drinking iguana urine, chewing up grubs, or gagging down raw turtle liver? Lord Byron's grandfather, shipwrecked in the Straits of Magellan, saw his dog killed and eaten by his shipmates... then became so starved himself that he dug up and devoured the dog's paws. We are all far too removed -- even from the rural farms oof our immediate ancestors and the prosaic hardships they faced -- to know what is really put in sausage meat or scrapple, or how to wring a bird's neck. Our soldiers have to be given months of training in jungle survival to prepare them for only a few days of commando operations in rain forests where barefoot people happily raise babies. It is all in your point of view.

Certainly it helps to be marooned with somebody else, for you can commiserate, quarrel, an feud like newlyweds, and when things really get difficult, you can always eat him, or vice versa... When the going gets tough, the tough get eaten. Cannibalism like so many other customs, is merely a state of mind. Over the centuries famine repeatedly drove Europeans and Asians alike to eat everything, including each other. The culinary genius of the French and the Chinese, working with nothing more than a few spices and a bit of garic, turned famine food into such delicacies as snails, sea slugs, and stewed bats, garnished with larvae, pupae, and spawn -- all, like escargot, under more elegant names. And while doughboys in the trenches of World War I were driven insane by body lice and other vermin, political prisoners, POWs, and castaways savor them in their gruel as if they were herbs from Provence. One culture's famine food is another's caviar.

In the case of survival cannibalism, society seasons its judgments with something akin to garlic by conveniently applying certain criteria: Was the main course already dead of natural causes? If not, was a lottery properly conducted before the murder, and are the culprits suitably pious, making analogies to Holy Communion? In this way, the survivors of a plane crash in the Andes could make a group decision to eat some of their number, and walk away heroes. It is only a short distance from the Andes to Soylent Green.

But what is customary is comforting. Cannibalism is a social affair. Solitary survival is not. Solo survivors are a breed apart. Confronted by extreme solitude, by starvation, an by no prospect of rescue, they do not sit around long pining in self-pity but set about urgent practical matters. In some cases this reveals strength of character, tenacity, and the will to live. In others it reveals only animal cunning and stubbornness. Sensitivity and imagination are terrible disadvantages in the crunch. Unusual among these tales because of its painful and pathetic revelations is the diary of a nameless castaway on Ascension Island. Unlike other classical accounts, in which the survivor returns to civilization to enlarge endlessly on his own ingenuity, this victim was much too sensitive for his own good. He kept a diary frankly revealing his misery, his mistakes, his melancholy, his weakness of character, and his hallucinations. The diary is singularly lacking in excuses. Perhaps because he was overly absorbed in his own failings and inadequacies, his struggle failed, and he diary was found beside his bones.

Excerpted from Sterling Seagrave's Foreword to Desperate Journeys, Abandoned Souls: True Stories of Castaways and Other Survivors by Edward E. Leslie

Sunday, September 14, 2008

Alternative Transportation

When in the early 1990's gasoline in Russia got too expensive and scarce, Russian drivers started picking up hitchhikers and charging them. Here's an excerpt from Reinventing Collapse:
When I was in St. Petersburg in the summer of 1990, the lives of drivers were complicated by gasoline shortages, which resulted in long lines at the few gas stations that happened to be open, often made worse by a ten-liter limit on gasoline purchases. For many drivers, this meant that many hours had to be spent looking for gas. Some knew how to buy gasoline on the black market, through the various government depots that received their allotments separately from the retail distribution system, but there they had to pay black market prices. What was a headache for drivers turned out to be a bonanza for the non-drivers: almost every private car was for hire, in a manner of speaking. To get a lift, all I had to do was stand by the side of the road and stretch out my hand. Within minutes, a car would pull over. The driver would ask me where I wanted to go, and give a yes or no answer. There was rarely room for negotiation: either it was along his way, or it was not. The driver would also name the price — usually two or three rubles — which was most reasonable.
Now, you might agree that this is an idea whose time has come to our hurricane-ravaged shores, but then Americans don't seem able to conceive of a solution to a problem that does not involve some newfangled gadget; to wit, plastic composting bins in place of traditional heaps and pits. But then I happened across just such a thing. It's called Avego. It's a newfangled, gadget-based, paid-for hitchhiking system that's just being launched in Ireland and the UK. Not as simple as sticking your thumb out, but perhaps almost as effective.

Wednesday, September 10, 2008

My interview on KWMR

POST CARBON - community radio bringing focus to how we, in West Marin, are transitioning to an era that is no longer dependent on fossil fuels; relocalizing and increasing our community resilience, in the face of climate change, the end of cheap oil, the depletion of our natural resources and the unprecedented extinction of species.

The interview was aired on September 9 at 1 pm on 90.5 FM in Pt. Reyes and 89.7 FM in Bolinas, California. You can listen to the interview here or download the mp3 from here.