Tuesday, July 31, 2012

The Joy of National Default

Alexander Wells

At 78 pages of scholarly, somewhat jargon-laden prose, Trade-Off: Financial System Supply-Chain Cross-Contagion by David Korowicz is not quick reading, nor is it light reading, but it is important reading. It puts a lot of definition to the concept of cascaded failure, in which financial collapse inexorably leads to political and economic collapse with no possibilities for arresting this process or even altering its course. This may seem like a terribly pessimistic message, and, indeed, it is hard to imagine that it would provoke a cheerful reaction in any sane person. But for those who feel that it is important to understand what is unfolding, Korowicz offers a large dose of realism. Still, a fair warning is called for: “Abandon all optimism all ye who enter here!”

Most of us face a number of mental roadblocks when we think about such matters. First, our experience is one of gradualism: an action produces an equal and opposite reaction; after a disturbance, equilibrium is eventually restored; human institutions have permanence and evolve slowly. Second, our experience is compartmentalized. If the subject is sovereign defaults, then experts in finance are there for us to consult; if it is the failure of global trade, then we turn to experts in business. Sociologists will tell us about the negative effects all of this has on society, while psychologists will talk about individual patients but cannot address the societal causes of their problems. But systemic collapse is an interdisciplinary problem that defies all attempts at compartmentalization. It promises to sweep away such highly specialized domains of knowledge by driving down social complexity. Third, there is the question of motivation: what, beyond intellectual curiosity, would compel people to invest time and effort in a detailed study of a depressing subject which has no practical application? The topic tends to attract people who have plenty of free time and a morbid imagination. Still, I feel that there is great value in being able to foresee how events will unfold: a foreseen nasty development is still much better than a nasty surprise.

Our intuitive sense of gradualism is a product of our experience. Sudden transitions are often lethal, and this means that those who experience them are often not available for subsequent consultation. For example, we feel that cars are reasonably safe, and although great multitudes of people who died in auto accidents would disagree, they are in no position to make their opinions heard. Most of our remaining experts and pundits have led sheltered, boring lives with little experience of anything out of the ordinary. The few who survived one or two terrifying episodes of great discontinuity feel lucky to have survived and prefer not to recall them too often or in too much detail. The common understanding is that freak phenomena do occur, but an eventual return to some sort of equilibrium always occurs as well, eventually.

The opposite viewpoint can be, and is expounded by Korowicz and others, but has the drawback of being rather highly intellectual and abstract, offering little that is experiential or intuitive. This makes the exposition less than optimally effective for many people. Most people look out the window and see cars driving around and people going in and out of banks and shops and offices. But to really understand what underpins the stability of this scheme we have to be able to see, with our mind's eye, a dynamic system that can maintain homeostatic equilibrium and recover from shocks when all of its parameters remain within a certain range. Let's try a simple metaphor. Suppose you are sitting in the kitchen. On a saucer in the middle of the kitchen table is a pretty blue marble. You are in an earthquake zone. As tremors hit, the marble rolls around the saucer, but it never rolls out of the saucer. This is a dynamic system within its stability range. But then a bigger shock hits, a chunk falls out of the ceiling and smashes the saucer, the marble skitters off the table, rolls through the gap under the door, down the stairs, down the street, and falls into a storm drain. In other words, the system takes small shocks in stride, but big shocks destroy it completely. Where the dividing line between small and big shocks runs—nobody really knows, but that doesn't matter provided we know that the shocks are only going to get bigger. And we do know that.

Now let's tackle a bigger dynamic system: global finance. At this point in time, all of the highly developed economies are 1. very highly indebted and 2. are either shrinking or not growing. This is not a stable situation: “Because credit is charged at interest, credit expansion is required to service previously issued credit. In order for the issued credit-money to retain its value relative to goods and services in the economy, GDP must increase commensurate with credit-money expansion.” (p. 33) The end result of this process is national default. At this time, the fact that Greece is in some stage of national default is no longer controversial. Nor does it appear likely that the problems of Spain, Italy or Ireland can be sorted out.

Nor is it likely that growth will resume. First, there is the problem with natural resources, oil foremost among them. It is too expensive to allow growth, and it can't get any cheaper because the remaining marginal resources are, well, marginal—deep water, tar sands, shale oil and other dregs—and are expensive to produce. Second, there is a problem with levels of debt: too high a level of debt chokes off economic growth. Third, we are at a point now where it is not possible to stimulate growth: the latest figures are that it takes a 2.3-fold increase in debt to produce one unit of GDP growth. We have achieved diminishing returns with regard to growth: we need to dig a bigger hole in which to put all this debt, and are willing to go deeper into debt to do it, but no matter how fast we dig, the debt just keeps piling up next to the hole. The politicians still talk about growth, but it's a race to nowhere.

It may seem strange, but a national default can be seen as a positive development: bad debt is wiped out, new, sound money is printed and put into circulation, and the economy recovers. This has been observed in Argentina, Russia and Iceland. Could similarly positive things happen for larger pieces of the global economy? Perhaps it's a messaging issue; let's call it a “jubilee” instead. “We can imagine the spread of financial contagion expands, and is then arrested by some action of governments and central banks. Suddenly, all banks are solvent,... and trade and other credit is again available.” (p. 70) One key observation is that this would have to happen rather quickly, almost instantly, and require a level of international coordination that would be completely unprecedented. Korowicz is not confident that this is possible: “...we are locked into a vast and unimaginably complex fabric of conditions that we barely understand... we live in a culture that often assumes that being able to conceptualize major change, means such change is possible...” (p. 75)

Still, national defaults have happened before, and global finance recovered, so why wouldn't it now? Well, there is the little question of size. The significance of a national default varies in accordance with the size of the nation's economy relative to the size of the global economy. Argentina's default was a non-event at the global scale. Russia's default almost took the entire financial system with it when Long-Term Capital Management suddenly failed as a result. The Federal Reserve had to step in and bail it out. The subprime mortgage crisis in the US and the failure of Lehman Brothers brought global finance even closer to the brink, and required much bigger bailouts. And now, with Greece, Spain and Italy on the rocks, bailouts are coming fast and furious, but each one seems to restore confidence for a shorter and shorter period of time. All of these shocks add together, and at some point one of them will cause the global financial system “to cross a tipping point, causing cascading failure that would devastate the global financial system” (Korowicz, p. 11) The effect of each shock is to make the system as a whole less resilient. After each localized national default (Russia, Argentina, Iceland) recovery was critically dependent on access to a relatively healthy world economy and financial system. As we move from one financial crisis to the next, we continue to assume that each one will produce a proportional reaction. But any one of them can move the global system out of its linear range, and cause a flash crash from which there is no recovery because the process turns out to be irreversible: the complex global financial system cannot be recreated once the global economy that gave rise to it no longer exists.

There is an obvious reason why there have been so many bank failures and bailouts occurring in the countries affected by the crisis: these institutions are acting as canaries in a coal mine. Banks are designed to finance economic growth; they are not designed to finance economic contraction. In a deflationary slide caused by their loan portfolios going bad, they quickly go bankrupt. Their retained earnings and shareholder capital only amount to 2-9% of their loan portfolio, and so it doesn't take much of a loss to put them under. In a contracting economy all banks fail, but this process has been contained so far by governments and central banks that have been willing to bail them out. This process cannot go on forever: “In the end the only backstop a central bank has is the ability to print infinite money, and if it has to go that far, it has failed because it will have destroyed confidence in the money.” (p. 61)

One major complication is that the financial system does not exist in isolation from the rest of the economy: “The fabric underpinning the exchange of real goods and services is enabled by money, credit, and financial intermediation.” Korowicz carefully goes through the process by which financial failure causes an instant breakdown in commerce. Cargos have to be financed. This is done by banks on opposite sides of the planet that are willing to grant and to honor letters of credit, which are paid once the cargo is landed. If letters of credit cannot be obtained, cargo does not move. In a crisis, banks mistrust each other, and denying letters of credit is one of the easiest ways for them to decrease their exposure to counterparty risk (the chance that the buyer's bank, which drew up the letter of credit, won't be able to make the payment). In turn, missing shipments mean empty supermarket shelves within days, idled production at factories due to missing components, standstills at construction sites and maintenance operations, hospitals running out of drugs and supplies and so on. Within a week, local fuel inventories are depleted and transportation is disrupted. Modern manufacturing and distribution networks rely on a global supply chain and very thin, just-in-time inventories. High-tech manufacturing is most easily disrupted, because key components have just one or two suppliers, and little or no possibility for substitution. Experience of various disruptions (Japanese tsunami in 2011, Eyjafjallajökull volcano eruption in 2010) shows that the impact of a disruption does not scale linearly with its length but accelerates—and recovery takes disproportionately longer. Within a month or so the electric grid collapses due to lack of supplies and maintenance; it is probably at this point that recovery becomes impossible.

But even before that point the contagion will start to feed on itself. The region of negative feedback where homeostasis is maintained is surrounded by regions of positive feedback where the system is driven further and further from equilibrium. For example, “The financial system... would not just be collapsing because of unsustainable levels of debt-to-income, but because that income would be collapsing as production halted and its future prospects turned dire.” (p. 69) Nor would the economy of goods and services be spared similar degenerative processes: “One would expect a massive reorientation away from discretionary consumption towards primary needs—food, essential energy, medicine and communication.” (p. 62) As a result, many businesses would fail, further depressing demand, while maintenance would be deferred to the point where much of the infrastructure becomes non-functional. Much of that infrastructure is designed for a growing economy as well, and will become a millstone around our necks: in a shrinking economy, the fixed costs of existing critical infrastructure give rise to negative economies of scale, making extensive infrastructure unaffordable at any level. The global aspect of the global economy would be perhaps the fastest to disappear: citing the evolutionary economist Paul Seabright, Korowicz writes: “Trust between unrelated strangers outside their own tribal grouping cannot be taken for granted.” (p. 23) Trust between strangers builds up slowly but is lost rapidly. In a shrinking economy, “taking care of one's own” becomes more important than maintaining a trust relationship with strangers across the world.

There is a cautionary tale to be extracted from all this, and it is the obvious one: that usury results in collapse. Usury—lending at interest—is only viable in an expanding economy; once economic growth stops, the burden of usurious debt causes it to implode. “The whole of the financial and economic system is dependent upon credit dynamics and leverage.” (p. 8) “Debt is now not just a feature of countries and banks—it is a system stress in the globalized economy as a whole.” (p. 9) It is no accident that Dante's Inferno consigned usurers to the lowest pit of the seventh circle of Hell. But beyond waiting for the usurers to die and get assigned to the appropriate pit for all eternity, what is there for us to do? Not lend or borrow at interest? Well, that's the one problem we certainly won't have to worry about!

Other than that, first and foremost, no matter who you are or where you are or how many wooden shekels you've squirreled away under your floorboards, don't expect a soft landing. After reading this treatise, I am now more than ever convinced that sovereign debt default is not some sort of spring shower that passes and then the sun comes out again. If Korowicz is right—and he appears to have done his homework—then at some point what is now still a gradual process will lead to a sudden, irreversible, catastrophic disruption of daily life. (And looking at the reports coming out of Greece and Spain, imagining such a scenario no longer requires much of an imagination.) Korowicz does not have a lot to offer when it comes to practical adaptations to survive such a systemic breakdown, beyond stating the obvious, which I will repeat: “Initially the most exposed would be those with little cash at hand, low home inventories, mobility restrictions and weak family and community ties.” In other words, be prepared, and do your best to give yourself a chance.


Stanislav Datskovskiy said...

The part about the imminent loss of trust between strangers (necessary for trade) suggests that the future of organized industrial society, should it have any, is a command economy where a traditional military "stick" plays a much larger role incentive-wise than the financial "carrot" we've grown used to. Most people will pick Egyptian-style slavery over starvation.

John D. Wheeler said...

Quite frankly, this just reinforces the message I got from your Five Stages of Collapse. Financial, economic, and political collapse are inevitable and should just be planned for. The real fight is preventing social collapse, and at the local level, this is where we have a chance of success.

Stanislav Datskovskiy said...

Quite a few people are fond of the notion that central governments will vanish in the course of a global collapse, leaving small communities of well-prepared people to happily fend for themselves. Where did this idea come from?

The moribund bureaucracies we associate with mega-government today might vanish, but they will be replaced by effective warlords commanding armies of footsoldiers and corvée laborers. This outcome doesn't require any tech level above the Bronze age, and seems overwhelmingly likely to me.

sidd said...

as a ex profesional soldier and unemployed security contractor i find mr. datskovskiy to be essentially correct. "warlords commanding armies of foot soldiers" will be the order of the day. a new lead age will be glorious to behold. i've even chosen a new name...General Jerico. i find religious fanaticism and xenophobia racism to be particularly effective.

stevelaudig@gmail.com said...

One stumbling block is the notion of finding one thing that explains all things about large situations with many moving parts. CSI's [yes, the TV series, Grissom, in an episode said:
"A, B, C, D or all of the above.
Standoff with the police –
a. Police shoot guy in the chest
b. He runs back into his burning house inhaling smoke as he goes.
c. The roof collapses
d. An air conditioning unit falls on his head.
He dies.
What killed him?"
Iceland and Samoa [where everyone is someone's something] perhaps are small enough social canvasses. Any small, insular, society with high levels of commonality between individuals across many measures. But the US which isn't really a 'nation' China which is the 'oldest' nation? Europe, not a nation?

don bates said...

I hadn't yet summoned the emotional energy to read Korowicz, so thanks for your excellent summary. As much as I would like to believe the "gradualism" theory espoused by JM Greer and others, all my experience with complex engineered systems says that when they collapse, it is rarely slowly and gracefully.

flipjack said...

Stanislav Datskovskiy said...

"Bronze Age"

Yeah, but have you read the Illiad? Pretty cool right?

Dmitry says in a lecture something along the lines that there is a population baseline and we'll snap back to it more or less. It seems to me that there was some period in history around the Eighteenth Century when humanity exceeded this baseline. The industrial revolution is surely the cause. Perhaps instead of the bronze age, post-collapse society would resemble Enlightenment days, at least after a sorting out period. The sad thing is it would have been better to have not developed all the tech to begin with, driving species extinct and polluting the planet.

Great post as always Dmitry. Love it that you are posting every week now.

I'd love to hear more Sailing the Farm style collapse-sailing logistics!

Dmitry Orlov said...

Stanislav -

Somewhat along the lines of what you are talking about, here's a "new Russian anthem". The words are along the lines of "Russland über alles". But never mind the words, watch the symbolism.

Gary said...

As much as I agree with the basic premise that collapse contagion is possible and even likely, I have to take issue with the notion that charging interest on loans inherently requires an expanding economy to pay them back. If this is one of the pillars that this whole collapse theory rests upon, better look closely at this issue. Steve Keen does the nicest job of debunking this notion that I have seen. See his "Crash Course" videos - particularaly the start of part 2. http://www.youtube.com/playlist?list=PL4D8087FA634EFC0B&feature=plcp
The basic argument is that as long as the bankers either spend into the real economy or are taxed of their accumulations, you can have a steady economic state with bankers charging interest and the money supply and economic growth at zero.
Today, that is not the way it is! Instead we have a growing Ponzi financial sector that does indeed need a constant source of new players to fund accumulation for those at the top. This is a distributional problem -- not necessarily one of usury.

M said...

“Initially the most exposed would be those with little cash at hand, low home inventories, mobility restrictions and weak family and community ties.”

If the financial system collapses in a week, and the "real" economy follows soon after, what good will cash at hand do? Another question--how does one have a "low home inventory?" What does that mean?
And does mobility restrictions mean someone who is not healthy enough to flee somewhere? That would seem to go against the next tenet, having strong family and community ties.
Obviously I'm concerned about a more rapid collapse than some have supposed. But whatever preparations one might make, if a scenario like this does indeed come down the pike, it's hard to imagine just about all of us avoiding the worst of it, sooner or later. Can someone say something positive? ;^)

Jerry McManus said...

Just this morning I was wondering out loud if the "Transition Town" folks are watching what is happening in India. Grid goes down, chaos ensues. And this in a country where they are used to decrepit infrastructure and riots over power blackouts are relatively commonplace.

As others have pointed out, any talk of small communities of well-prepared people happily fending for themselves in a situation that chaotic is probably pure fantasy.

Consider how quickly the myriad unspoken social contracts can break down in a potential crash scenario. For example, any hint of potential shortages in previously abundant vital goods and you can expect people to immediately start hoarding said goods, no matter what the cost.

And that is well before things really start to get ugly.

Sure, people will eventually get used to the "new normal" of vital goods no longer being abundant, but probably not before they unload their helpless rage on anything and everything that can be looted or burned.

Dmitry Orlov said...

Jerry -

I keep telling the Transition Towns people: "You can't get there from here." Don't think walking across a bridge; think skydiving without a parachute.

M -

Cash = you are the one to empty the supermarket shelves

Home inventory = lots of bags of rice and beans and cans of pemmican, etc. A bathtub full of water and a hose from the roof gutter going to set tub. A water filter. Tanks of propane. Med kit.

Mobility = being in a place where your own two feet or a bicycle get you where you need to go. No mobility = car

Gary -

"Collapse theory" rests on the pillar of reality: the global financial system as it is now, since there will never be any other.

Tom O'Brien said...

Hi Gary,

on your Steve Keen comment - the scenario Steve talks about does not take into account the laws of thermodynamics. He only uses that example to show that the way people describe how debt-based money works is flawed. They mix up a stock of money, with a flow of money. I will be interviewing Steve in a couple of weeks time on the show.... I might bring this up just to make sure I am not all confused and mixed up....


The Bexter Review

Luciddreams said...

I think if you have a good home inventory you won't have to worry about having cash. Cash is only good for getting the things that you need. If you have the things that you need then having things to trade for what you need would be more useful than cash. I only bring this up because my family, as a general rule, believes that turning cash into useful things to have when electricity is no longer available is a better m.o. than keeping the cash. After all, it's not exactly settled whether we're going to have an inflationary or deflationary clustercuss.

All of this aside, it seems to me that learning the skills that will be necessary without electricity should take priority for anyone wanting a fighting chance at survival once the zombie apocalypse kicks off in earnest. Skills can't be stolen and can be taken anywhere. I think Dimitri said as much in Reinventing Collapse.

Unknown said...

The analogy that seems to fit for me is the differences between stars and the way that they die. Small ones like the sun supposedly gradually transition from a yellow star to a red giant to white dwarf while larger ones die a quick death in a supernova and fall into a black hole. It seems to me that some are reading too much into the Roman example which probably does not apply to our current super-sized global civilization.

M said...

kollapsnik, thanks for the clarifications. I still see issues, though. So you buy out the supermarket. How do you get it home without someone taking it from you? Supposing you have enough cash for a security detail, what do you do after you've eaten all the groceries and the shelves are now empty?

As far as bikeable/walkable cities--what are we biking or walking to? A job? The grocery store? Neither will exist for very long in this scenario.

Skills. Okay. Growing food? That is no easy task to grow all of your own calories, and again, what's to stop your neighbor from coveting your crop?

Blacksmithing? Candle making? Tool sharpening? Bicycle repair? Sail rigging? Tanner? Town crier? Maybe some years after a catastrophic collapse, but I can't see these skillsets being useful under the circumstances described.

As Mr. Orlov said, don't expect even a glimmer of much good with collapse contagion.

Gary wrote: "you can have a steady economic state with bankers charging interest and the money supply and economic growth at zero."

From what I gather, you don't go from overshoot into steady state. With population growth, infrastructure upkeep, etc., there is no such thing anyway. Time to pay the piper.

Gary said...

My point was only that having a banking sector that charges interest during a period of declining growth is not a sufficient condition to guarantee collapse. A global Ponzi system of finance that relies on forever accumulating wealth from the rest of us using slight of hand and empty promises IS sufficient to guaranteed collapse.

Odin's Raven said...

Surely in the fairly short term, a fair amount of commerce could be revived by switching expectations from a credit to a debit basis. If businesses are basically profitable and used to dealing with certain suppliers and customers, they only need a little trust and are strongly motivated to continue doing business. Having instant communications, the intermediary role of banks could be greatly reduced, as it should be possible to check that customers really have the money with which to pay. A trusted stakeholder/auditor, even a bank, could guarantee that the funds have been deposited.
Reverting to saving up before buying would be a shock, but not something that would be fatal.

Hanging all the speculators, banksters,and assorted financial scum would increase public confidence in the currency. Inability of governments to borrow would force them to be more prudent.

Remoran said...

One thing not discussed in the article is the aspect of war with Iran as an accelerant to collapse, something the US and Israel politicos just don't seem to understand even though Mossad and the military of both countries do. If this fubar happens, collapse will come quicker then anyone could have imagined.

GHung said...

What is generally overlooked regarding the behavior of complex human systems is their unnaturalness. Complex systems in nature are constantly being tested by underlying conditions, and corrected; a gradual process. The balancing mechanisms are ongoing, constant, and organic. This is why complex natural systems rarely fail catastrophically of their own accord. It usually takes an external process to suddenly bring these systems down, such as a cataclysmic event (fire, flood, etc.)

Humans have subverted this process by constantly shoring up imbalances, plugging holes, attempting to substitute one subsystem with a non-evolutionary other. Numerous examples exist, all interdependent on some level.

This, of course, creates tensions, potential, and stored energy in the form of these imbalances. More fingers in the dikes doesn't prevent the water from continuing to rise, so to speak. Pressures only increase, to the point where any attempts to control things are futile. The energy released will be sudden and immense.

We humans have been building ever more massive complex structures upon complex structures, all the while ignoring that the foundations are being undermined, and the weight of our detritus is increasing exponentially. We no longer have the capacity for a controlled release.

Prepare thyselves for the deluge and pray...

Jon said...

I just finished reading the paper. If the author's conclusions are plausible (I think they are) and given society's inertia and our leaders' hubris, the crisis cannot be avoided and will not end well when it occurs, i.e. everything that's wrong will be done before the right things are tried. Does anyone have a thought how long it will take before the crisis burns itself out and it's safe to crawl out of your hole, 2 weeks, 2 months, 2 years?

John D. Wheeler said...

Jon, you're question reminds me of a joke. A skydiving student asked his instructor, "How long do I have to open my parachute?" The instructor replied, "The rest of your life."

I expect things to get better eventually, but not in my lifetime, and I expect that will be significantly shorter than my parents or grandparents.

DeVaul said...

I agree with Stanislav. When the government collapses here, I have no doubt that the druglords will fill the vacuum. They already have the foot soldiers who can be quickly organized into a militia of sorts and take control by force.

Gangsters and warlords always rise when governments collapse. They already exist underground and with the disappearance of the police, they will seemlessly slide into this new role, just like they did in the former Soviet Union, its satellite states, and countless other countries with no formal government. Somalia anyone?

Former secret police and politicians will also slide right over and become gangsters if they can, and hardly anyone will notice the difference. Most will be too busy looking for food and water to care about "who is in charge".

Since community is something Americans must relearn, it is unlikely to be a fallback form of living after a major collapse. I am certainly not counting on it.

I just hope I can hold off the looters long enough for the local warlord to restore order.

Lucas Durand said...

Nathan D,
That's an interesting analogy.

Like you I find that people try to extrapolate too much from historical example.
The context of underlying conditions in today's world seems so dramatically different from any time in the past it's hard to imagine grounding (for example) a model of the decline of the Roman empire in the context of today's world and then getting any useful results from the projection...

I guess that's why I come to "Club Orlov" - Dimitri's insights are tied to occurances within an appropriately recent timeframe.

I also like models grounded in physics and thermodynamics - like Ugo Bardi's model of the Seneca effect.
The only time I ever wished I had an Iphone was when I learned that Ugo made a "Seneca's cliff" app for it...

Lennon C. Tucker said...

A little off topic but... the new Russian Anthem link you put up, is that real- as in the actual Russian Anthem? It has to be a sarcastic, satiric sort of thing...I hope.

Unknown said...

In the event of economic collapse, I suspect that proximity to a military base might became a major determinant in your ability to survive - especially as chains of command at the upper levels become increasingly fragile and military paychecks stop. The local military units will likely remain cohesive for a while longer than the higher structure, even though command will likely go only so high as the CO. I suspect that these COs may very well end up becoming the rulers of feifdoms.

DeVaul said...

I forgot about the local military bases. In Kentucky, we have been stripped of local military units, but they left their bases behind. I doubt they will return, so it is best not to live near one since they contain some of the most toxic chemicals known to mankind.

I just remembered that there is a chemical weapons depot 30 minutes from my home. One of the largest in the country, and it is leaking like a sieve. The local town has been fighting the military for over 50 years trying to get them to dispose of the nerve gas, mustard gas, and chlorine gas stored there. Only people in hazmat suits can even enter the bunkers. They will lynch anyone from the military they see there after the grid goes down.

In fact, fatigue and starvation may be the only things that save many officers from being hung from lampposts after the grid goes down, as the anger towards them from those who have been fighting the military all their lives will be almost uncontrollable.

I would think twice about wandering onto an American military base after the grid goes down. That new movie about the future should show the young warriors covered with burns and sores, and wretching from drinking toxic water as they wander around in places they know nothing about.

Jeff Snyder said...

Thanks for this, Dimitry, I am working my way through the report. To me the most distressing thing about it is its discussion of the relative ease with which the power grid and fuel delivery systems could go down. Much as I'd like to forget it, as readers of this blog know, if the electric grid goes down, the nuclear plants need to run diesel generators to circulate the water to keep the stored spent fuel rods from going Fukushima on us, and the plants have very limited quantities of the fuel stored on site. John Kappenman, author of the Metatech Study for Oak Ridge National Laboratory on the effects of geomagnetic storm EMP on nuclear plants and the power grid (http://www.fas.org/irp/eprint/geomag.pdf) estimates that it would cost about $1 billion to store enough diesel fuel and generator replacement parts on site to reasonably assure that the generators could keep functioning for a year. (http://www.whentechfails.com/node/1545) The fact that there is no sense of a worldwide emergency among our politicians, scientists and engineers to deal with the vulnerability of the nuke plants following the wake up call from Fukushima just boggles the mind. All you need to do is look at the google map of the locations of nuclear power plants (http://www.google.com/fusiontables/embedviz?viz=MAP&q=select+col0%2C+col1%2C+col2%2C+col3%2C+col4%2C+col5%2C+col6%2C+col7%2C+col8+from+587899+&h=false&lat=37.43997405227057&lng=24.609375&z=2&t=3&l=col1) and it is apparent that it wouldn't take more than a few of these events and it is good night, humanity, as well as many of the world's other species. I wonder if our mass suicide isn't already baked in the yellow cake.

DarkHorse said...

Wonderfully crafted and informative post - It is a situation that is easily resolved at one level but incredibly complex at another

the usury problem is an effect of a deeper problem with our whole belief system.


Ventriloquist said...

Excellent post Dimitry. I've been reading Korowicz's piece, and it ties together many disparate threads that other writers have only touched on.

Of course, most writers have come from a background of economics based in either Ivory Towers or banks/financial institutions. The fact that Korowicz come from a risk management background speaks volumes right up front.

I've been conflicted with the dichotomy presented by those espousing sudden versus gradual collapse. After reading this paper, I'm leaning more to the side that looks at the massive inter-connectivity of our global economy and how it will be more like falling out of an airplane, than sliding down a hillside.

joebhed said...

Thanks for a great post on the coming global collapse.
The question is always about - WHO is working on the exit strategy?

Exit strategy from WHAT?
Apologies to Gary but Steve Keen has NOT debunked anything about the end of the debt-based money system, which is, at the heart, THAT which is collapsing.
It's all just a bunch of paper.

Fortunately monetary visionists are working on the Exit strategy.
The 'there" is a new, permanent non-debt-based money system.

How to get there requires the work of all of us.
The European Monetative movement, the GB's Positive Money efforts and the US' reform proposal by Dennis Kucinich HR 2990 lay out exactly what is NEEDED to make the money system permanent and function without a debt-basis.

What is NEEDED is recognition that the present banking-money system will fail unless it is transitioned to a non-reserve and non-debt basis.

So, who is working on THAT?
For the Money System Common.

Anonymous said...

Thanks! I think you did a really nice job of writing up David Korowicz's analysis. It is a difficult subject to justice to.

My simple example when I first started writing about the possibility of financial collapse was the example of making a computer. The sources of materials are very diverse and the supply chains are long. Tolerance for substitution is very low. But if we lose our ability to make computers, how long can we do any computer-guided manufacturing?


neroden@gmail said...

"As far as bikeable/walkable cities--what are we biking or walking to? "

Farms. Local warlords. Gang leaders. Friends.

"But if we lose our ability to make computers, how long can we do any computer-guided manufacturing?"
10+ years. There's a huge supply of computers already out there.

For the crucial elements of computers, the supply chain is also actually pretty short and the sources of materials are quite small. Silicon, dopants (in small quantities). Gold, copper, any generic plastic for substrate. LCDs are a bit more complicated of course. But the real limiting factor is not supply chains or materials, but the difficulty of building the chip fabs. We may get to the point where we're missing some equipment necessary to rebuild those if they break, but that will take even longer.

Technology regression is fairly uncommon and usually only happens when a crucial raw material becomes unavailable. The most likely candidate for such a raw material, right now, is copper -- none of the others even figure as a possibility.