Showing posts with label crash. Show all posts
Showing posts with label crash. Show all posts

Tuesday, 3 March 2020

Responding to Collapse, Part 16: Shortages of Money, Part 1

A few posts back I said that shortages of electrical power, diesel fuel and money will be at the heart of the troubles that lie ahead for small remote communities as collapse progresses. I am interested in that sort of community because that is where I am recommending that you take refuge in order to ride out collapse (and where I have already taken refuge). I've covered electrical power in parts 10 to 14 of this series and diesel fuel in part 15, so that leaves money for this post and the next one.

We'll be looking at shortages of money from two angles here. First, in this post, shortages that occur when you have money on deposit at the bank, or credit prearranged with the bank, but can't access it due to problems with the banking system. Second, in the next post, shortages that occur when you have trouble earning enough money to live on because of problems with the economy.

The song says, "money makes the world go round". You could certainly be forgiven for believing that, especially given the increased commodification of everything that has been going on, and the growth of the financial sector of the economy in the last few decades. I don't agree, though. Drawing from the writings of Dr. Tim Morgan on "surplus energy economics", I would say that it is energy that makes the world, or at least the economy, go round.

We'll get back to the role of energy in the economy in my next post, but first let's look at money itself. Money is really just a system of tokens we use as a medium of exchange, a unit of account, and a store of value.

Conventional economists tell stories about how before money was invented, people had to barter for what they needed but couldn't produce for themselves, and this was very inconvenient. In fact, as an anthropologist would tell you, barter was used only on those rare occasions when they were trading with strangers, and often with the intent of gaining a (possibly unfair) advantage. They were strangers, after all.

Most people usually dealt only with people they knew and didn't want to cheat. In small groups (less that Dunbar's number) there was no need of money since people just did what was needed, didn't attempt to keep precise accounts it, and accumulated little of value to store. This was primitive communism which worked on the principle of "from each according to their ability and to each according to their needs."

As people began to live in larger groups, it proved useful to have some way of keeping track of transactions with people outside one's immediate group. I'm not going to go into the historical details here (read Graeber's book if you are interested), but eventually we arrived at the system we use now.

Today money is created when a bank loans it out as debt. The main thing about money created as debt is that it can increase flexibly as the economy grows, where money based on precious metals is limited by the scarcity of those metals. In order to make a profit, which is after all the reason for their existence, banks insist that those loans have to be paid back with interest. This means that the economy must continually grow in order to cover that interest. As long as the economy is growing, this system works quite well. Indeed that is why we adopted it, to accommodate the growth stimulated by fossil fuel energy.

Only a tiny fraction of money ever exists as coinage or bank notes—mostly it just consists of entries in the banks' accounting software. Coinage confuses the issue of what money really is, since coins at least appear to be made of precious metals. Many people believe that money based on precious metals (gold, silver) has some real value, because of their rarity and the difficult of mining them. They call our modern debt based money “fiat currency” because its value is based solely on your confidence in it. I disagree. Take gold as an example—it has some limited industrial use because of its low electrical resistance and high corrosion resistance, but its current high market value is based almost entirely on what people think it is worth. In fact all money is an abstraction and its value is based only on what value people agree to give it.

Indeed the financial sector of the economy is largely based on trading in money itself as well as stocks, bonds, and derivatives. Much of the so called wealth in the world is based on these things, and their value is almost entirely based on public confidence in them. If the confidence evaporates, so does the wealth.

I would define wealth as an enforceable claim of ownership on things with real value, or an enforceable claim on future productivity, yours or someone else's. The value of money in the bank or investments, is based on a claim on future productivity, and if that productivity decreases, so does the value of your claim on it. And, of course, if your claims become un-enforceable, as they might if the financial sector or society itself experience disruption, your "wealth" is worth nothing.

In the last few decades the switch over from primitive communism to modern neoliberal capitalism has been just about completed. The idea of an "immediate group" has largely disappeared, much to our loss, and money mediates almost all relationships, even to some extent within nuclear families. This means that we are very much dependent on the systems which provide us with money, and via that money, the necessities of life.

Today most of us access the cash we have on deposit at a bank via an automatic teller machine (ATM) or less commonly via a human teller at the local bricks and mortar office of our bank. And more and more we use debit cards to eliminate actual cash altogether, accessing our bank deposits directly at point of sale terminals. Many of us also have credit cards allowing us to access credit up to a prearranged limit at ATMs or point of sale terminals. Some of us, who are undertaking rennovation projects or operate small businesses for instance, have arranged lines of credit at the bank, at much lower interest rates than credit cards. This form of credit is usually accessed via cheques or online transfers.

But having cash on deposit or prearranged credit is no good if you can't access it. Ready access to money relies on infrastructure that can fail quite easily. A local grid failure or damage to communications cables can knock out ATMs, point of sale terminals and the banks themselves—you may have noticed that, when you are dealing directly with a human teller, they are making entries in a computer while dispensing or receiving cash. Cash itself has to be delivered regularly to both ATMs and banks and shortages of diesel fuel or storms closing the highways can stop those deliveries.

Financial crashes, recessions or depressions can cause banks to fail and take your money down a financial black hole with them. And during such crises the banks who don't fail get very cautious in their dealings with each other and the public. This is like throwing sand in the gears of the economy, and makes the situation worse. In such an event, you can except that your access to credit will dry up and that even your access to cash on deposit will be limited, since the banks will be concerned about nervous people deciding to withdraw all their money, in what is known as a "run on the bank". The banks, of course, don't have enough cash on hand to cover all the deposits that people have made, and would likely limit you to taking out only a few hundred dollar a week, at most.

The simplest preparation for these sort of problems is having a chunk of cash on hand, enough to see you through a few days or weeks at the worst. And having a stock of food and other essentials on hand so you don't need so much money to spend in times when the banking system isn't working.

A lot of people seem to think that a long term failure of the financial sector would be the end of the world, or at least of the economy, and believe that it is the form that collapse will take. But remember an economy is just a system in which the things people need are made and exchanged. Among small numbers of people who know each other (or can quickly come to know each other), and certainly in emergencies, it is quite possible for such activity to continue without anyone keeping track of it. The thing, of course, is to have close to hand the resources from which to make what is needed. In large population centres, once shipments stop, this quickly becomes difficult. In small agricultural communities, it need not be so much of a problem.

In communities of more than a couple of hundred people, it would be useful to print and issue a local currency and set up accounting systems separate from the no longer functioning banks. The idea that we can't get by without banks irks me—they currently have a monopoly on the services they provide and on which we depend—and they make a generous profit in that business. If they can no longer do their job, then we should feel free to replace them as needed.

As my regular readers know, I believe that collapse is actually something that happens quite slowly, has been going on for the last 50 years or so, and will be continuing for years or probably decades to come. But, when it comes to money, I can see why many people seem to have their hearts set on a fast collapse. Such a collapse would be much harder, of course, but at least your creditors, landlords, etc. would be collapsing with you and wouldn't be able to come after you for what you owe them. Leaving you free to concentrate on the business of survival.

In a slow collapse there will be a period of time (already started, actually) when the banks and landlords still want their pound of flesh, but many people no longer have jobs, or good enough jobs, to pay them.

That will be the subject of my next post.

As I have been writing this post, the corona virus, COVID-19, has been spreading over the world. I've done a fair bit of reading on it recently, and I am getting disgusted with the amount of fear, uncertainty and doubt (FUD) that is being spread around by people who stand to gain by attracting more visitors to their websites. This is uncertainly not conducive to an intelligent response.

This a new disease and there is much we do not yet know about it, much that we will only know after the dust has settled. I think this sort of uncertainty is going to be characteristic of many of the challenges we will face as collapse deepens. My hope is that this blog will be conducive to a calm and constructive response to such challenges. Here are a few links that I hope will help when it comes to responding to COVID-19:

That last link is behind a paywall, so I'm including a link with advice to help you get past paywalls in general.. Just part of my anarcho-communist approach to life.


Links to the rest of this series of posts, Preparing for (Responding to) Collapse:

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Tuesday, 17 July 2018

Autobiographical Notes, Part 5: Becoming a Kollapsnik

Kincardine Community Garden

In the process of writing these autobiographical notes (1, 2, 3, 4), I realized how much living through the downsizing and breakup of Ontario Hydro prepared me to accept the ideas of Peak Oil and the Limits to Growth. I had learned a lot about the limitations of both human organizations and technology as solutions for our problems.

Then I watched my kids and their spouses spend their time as members of the "precariat", working underpaid, part time and totally insecure jobs. They never joined the ranks of the homeless, but on several occasions that was only because I was there to help. Many others are not so fortunate. This convinced me that our society is already failing miserably, not even capable of providing the basic needs of many of its members. This despite the fact that others, sheltered from reality by their wealth and privilege, see this as the best of times, with nothing but further progress in sight for the future.

In 2005 I retired from Hydro One at age 51. Typically people in that position start accumulating toys and having fun with them (hopefully—the fun seems to be the hard part). This is often financed by going back to work on contract for Hydro One, OPG or Bruce Power, collecting an excellent wage and a pension as well. But if I had wanted to go on working I would have stayed in the job I already had.

C&I Graphics, my design, printing and sign making company kept me busy about half of the available working hours, which was enough. For the first time in years I managed to get enough sleep. But I also knew about Peak Oil and the likelihood of it leading to some sort of crash/collapse. Such a crash would mean that neither my pension or my business could be relied on to support my family and I. My mind inevitably turned to preparing for what was coming.

You might ask, why not get involved in some sort of activism? Well, it seems to me that the efforts of most activists are focused on bandaid fixes to minor aspects of the problems facing us, and that they are unlikely to have any great amount of success because doing so would rock the "business as usual" (BAU) boat too much. Further, the activist themselves are highly invested in the continuation of BAU, even though it lies at the heart of the problems they claim to want fixed.

The only exception that comes to mind would by activism in the service of identity politics, where there has been some success in addressing racial and LGBTQ issues. Probably because the changes these people are seeking don't much threaten BAU. I congratulate these folks on their successes, but identity politics has little to do with the issues that concern me most.

In any case, it was clear to me that what we faced was a predicament, not a problem. In other words, something that couldn't be solved but to which we would just have to adapt. My main concern was, and is, to determine what those adaptations need to be and get started making them. BAU is doomed and there is no chance that we'll fix what's wrong with it before it is too late. But I do believe that being well prepared will greatly increase one's chances of making it through collapse relatively undamaged.

If you weren't there, I would guess that it is difficult to imagine the degree of panic in the peak oil community in the years leading up to 2008. It really seemed like we were facing a hard, fast crash and it was going to happen soon.

Almost everyone these days is dependent on the global infrastructure network for the very necessities of life. An economic crash, an energy crisis, the many consequences of climate change, either jointly or severally, all promised to damage that network and leave us in a very tough spot. As a former employee of an infrastructure company, the failure of infrastructure seems quite plausible to me. Indeed I was personally involved in the efforts to patch the power grid back together following the widespread outage in north eastern North America in August of 2003. This sort of thing was not some hypothetical possibility to me, but rather a very immediate reality.

And I had always had a keen interest in doing things for myself, making things and understanding how things work, which lead easily enough to a collapse preparation mindset. The only question was how exactly to start preparing. Even in 2006 I didn't think collapse would be sudden and permanent. I've written at length about this, but the upshot is that, initially at least, being prepared for relatively short infrastructure outages would be a big help.

I'm somewhat concerned that the following will be taken as virtue signaling or boasting. It has happened before—I prepare a list of things I've done to prepare for collapse, and somebody sees it as a challenge. Nothing could be further from my intention, which is more to show you how I have put a lot of effort into not actually accomplishing very much.

We built our house in 1982 with energy efficiency in mind. We have R40 in the walls, R60 in the attic, double pane windows (lots of them facing south), well insulated and sealed doors and an air exchanger to maintain air quality.

We have electric heat, with a long range plan to add a wood stove, which we never seem to get around to. The expense of having a chimney built is probably the biggest obstacle, even though the foundation for the chimney was part of the initial build. But hopefully later this year we'll get started on that project.

As it turned out, overheating in the summer was a bigger problem than being cold in the winter. In mid 1980s we put in an attic fan, which was a big help since it almost always cools off in the evening here and we can cool the house by drawing in cooler air from outside.

In 2007 we built a set of awnings to go over the south and west windows on the main floor. This stops the house from heating up during the day in the summer. We take the awnings down in the fall to let the sun in for the winter and put them up again in the spring. A bit of extra work, but worth the trouble. And the awnings have worked well enough that we didn't have to replace our window air conditioning unit when it failed.

Kincardine is often very cloudy in the winter, so solar heating is less effective here than you might think. Our large south facing windows are sometimes more of a liability than a asset in the winter. Over the last few years I built insulating panels to slip into the windows to reduce heat loss. But there are a couple of problems with this.

You have to get a good air seal on the warm side of the panels, or warm moisture laden air gets to the cold side and condenses, which isn't good for the wooden window frames. I haven't found a solution that allows the panels to be taken in and out easily, on a daily basis, but "tuck tape", normally used for sealing joints in vapour barrier, works well for those panels that can be left in all winter.

The other thing is that when the sun does shine on a window with an insulating panel in it, it really heats up the sunny side of the panels, enough to crack the window glass. We've only had this happen once so far. But this past winter I pulled back to just putting the panels in windows that are shaded most of the winter. I'm looking for a seal that would allow the panels to be inserted and removed easily.

At any rate, our house is well enough insulated and sealed that it takes a fairly long power outage before the temperature inside drops much. So far, most power outages hereabouts are less than 8 hours long, during which time the temperature in the house only drops a few degrees.

It was pretty clear to me by 2006 that food would be a major problem during a collapse and I had always had an interest in gardening and cooking. That spring, I set up a garden in raised beds in our front yard. We have continued with this since then, gradually expanding and improving the garden.

But our front yard is not large and limits the amount of food we can grow. In 2010 a community garden started up in Kincardine and I became involved, taking one plot in 2010 and 2 plots ever since then. Since 2015 I have been the co-ordinator for the garden, keeping things running fairly smoothly and interfacing with the municipality, which is actually quite supportive.

Even so, we still don't have a lot of garden space, certainly not enough to be anywhere near self-sufficient, even in the vegetables that grow well around here. For a couple of years, 2012 and 2013, we had some space in the large garden of friends who have a farm north of Kincardine. The gardens worked out well, as did sharing the space, but it was too far from home, too much time spent driving and I was still running C&I Graphics, so time was at a premium.

I have more time now that C&I is gone, but I'm co-ordinating the Community Garden, writing this blog and spending time with our grand kids, so we haven't tried to expand the gardens any further.

The space we have is enough to let us learn what works around here and how to cope with the problems that inevitably come up. That first year we used the techniques in the book Square Foot Gardening by Mel Bartholemew, but we learned the limits of that method pretty quickly. The plants are quite close together and in raised beds. You have to use really rich soil to support that sort of density, and even with good soil, there is a limit to how close together plants can be and prosper, since they are competing for sunlight. The raised beds are good in that they warm up and dry out earlier in the spring so you can get a head start on the season. But they dry out quicker in the summer and must be watered religiously.

The good news is that we live in the middle of a productive farming area and no one hereabouts need fear starvation in the event of a collapse, provided someone can organize a switchover to production for local consumption and the use of farming techniques that don't require a global scale network of suppliers.

In the short run, I am more concerned about occasional interruptions in deliveries. So we started, as far back as 2006, to stock more food in the house, using the "store what you eat, eat what you store" method. Turns out that it's convenient to mostly have everything we need in the house and it saves money to stock up during sales and to buy in bulk.

Beyond the food storage, we've also worked on being well prepared for emergencies. I've written more about that in a couple of posts in the early days of this blog, here and here.

Carolynn and I have always enjoyed cooking from scratch, having learned a lot from our mothers and grandmothers. I've been baking bread for more than 40 years now. We have a couple of hand cranked flour mills, some grain in stock and more is available locally. During the last few years I've taken up cheese making.

We've made an effort to reduce the waste we produce, composting everything that is compostable, switching to cloth shopping bags, and cloth rags instead of paper towels, using less, repairing what can be fixed, reusing where possible, and recycling.

In addition to the gardening, bread and cheese making, I've been developing a number of useful skills, including wood working and blade sharpening, and weaving willow baskets from willow I've harvested locally.

But no man is an island and it soon became clear to me that all my efforts would be easier as part of a like minded community. So I set out to find a group of people to prepare with and rely on. This turned out to be even harder than I had expected.

I started mentioning what I was finding out about collapse to friends and family. Most rejected the idea as absurd, only a very few even really listened to what I had to say and fewer still ended up agreeing with me.

Around 2010 I started hearing about the Transition Town Movement, got myself a copy of the Transition Handbook and began wondering how to get a Transition Town started here in Kincardine. I am not any sort of extrovert and had no idea of how to get a group of people together.

One day in the spring of 2011 some people from the local anti wind turbine group dropped by my print shop to pick up some posters I had printed for them at the same time as one of the members of the Meaford Transition Town group came to pick up some Farmers Market flyers. We got talking about Transition and decided to try to set up a group in Kincardine. Something that would be more positive than the negative activism the anti wind people were involved in (as they themselves said).

In 2011 and 2012 Transition was a big thing in Southern Ontario, but since then it has petered out and you hardly hear about it at all. I've since talked to a number of people and heard that there is a tendency for the transition groups to be co-opted by activists (various sorts of "antis") and used as platform to further their goals, with transition (preparation for collapse) soon fading into the background.

Anyway, we had several meetings and set up the Penetagore Transition Town in the summer/fall of 2011. I met some new people, some of whom became good friends. But there was a lot of "woo" (beliefs not supported by evidence) that rubbed me the wrong way. Still, I had read that Transition Towns were often made up of a mix of such folks and rationalists, and if you didn't make a big deal of it, it was possible for them to work together effectively. So I hung in there.

It wasn't long, though, before it became clear that many of the people in the group were activists and looking for something to fight against rather than something positive to do, despite what they had originally said. The issue of bringing natural gas to Kincardine came up and they were eager to oppose it. When it became clear that this was the direction the Transition Town really wanted to go, I dropped out of the group and then it pretty much fell apart. Nothing more has been done since then, but I am happy to say that I am back on speaking terms with everyone who was involved. That's an important thing in a town this small and who knows what may develop in the future.

In the fall of 2011 I was diagnosed with prostate cancer and in the winter of 2012, while recovering from the surgery, I started this blog. I was writing to take out some of the frustration I felt.

Since the enlightenment, the scientific method has enabled us to build up a good bit of reliable knowledge about the world we live in, always subject to revision as that same method refines and expands what we know. This "scientific consensus" is really the best understanding we have and you'd be a fool to ignore it, even though it is far from a final and absolute truth. But many ideologies today would have us believe whatever suits them, regardless of what the scientific consensus says. Two of those ideologies are of primary interest here.

On one side we have what I've been calling BAU (Business as Usual), made up people who believe that business can just continue along as usual, that we live in the best of times and that progress will continue and keep making things even better. Unfortunately this implies that humanity and the economy will keep growing. Most people don't see any woo in that, but such exponential growth has inevitable consequences, especially on a finite planet like ours. I talked about this at greater length in a post entitled the Biggest Lie.

Industrial civilization has turned out to be a wonderful device for turning natural resources into pollution, while producing a small amount of comfort and convenience for a few of the more fortunate of its members. Unfortunately there are finite quantities of both natural resources and sinks for pollution on this planet and BAU refuses to recognize this. We are currently running into some of these limits: depletion of fossil fuels, climate change, ocean acidification, shrinking habitat space and so on. Even if we find a way around one limit, we'll soon run into another. This was explained very clearly in The Limits to Growth, a book which I reviewed in great detail in a series of posts back in 2016.

One of the greatest "achievements" of BAU is the way it has convinced almost everyone that it is "scientific"—science and progress are firmly linked together in our minds, even though the scientific consensus clearly points out what's wrong with BAU.

To make the situation even worse, it seems that there is very little chance that BAU will change. The short term interests of a great many powerful people and institutions count on BAU continuing on its present course.

On the other side we have the counter culture, what I call the "Crunchies", who see what's wrong with BAU and would like to fix it. But they are fooled by BAU's claims about science and thus refuse to accept much of the scientific consensus. In the process they end up believing in a lot of things that aren't supported by the evidence—woo, in other words.

Sadly this means that many of the efforts made by Crunchies to change the world for the better are misdirected and a lot of effort is spent fighting things that aren't doing any harm while ignoring things that are.

My position is that of being a Crunchy (opposed to BAU), but without the woo. Indeed if I had it to do again, I'd probably call this blog "Crunchy Without the Woo". Starting in May of 2016 I discussed this idea in a series of post entitled "BAU, Crunchies and Woo".

Surprisingly, I've found there are a few other people in the world who think like this, and a number of them are regular readers of this blog. We don't agree 100% on everything, but then no one does. And that is something we all need to keep in mind while we are searching for people we can work with. We also need to keep in mind that people (including me) aren't all of a piece—we hold a variety of beliefs, some of which reflect reality and some which do not. And of course this is not a black and white thing, but a range of grays. It is quite possible to work together with people who are just reasonably close to being "of the same mind", and to reach decisions by consensus where everyone is just fairly happy with the results. Especially in the life and death situations we will face as collapse progresses, when it will be more important to survive that be proven absolutely right on every issue.

I find myself especially drawn to "working together in groups for mutual support". This idea has immense potential to insulate the members of such groups from the chaos in the world around them and to meet their human needs in ways that BAU does not do well even now and will do even less so as time passes. Indeed I would say that the formation and operation of such groups is at the heart of the response we need to make to the collapse of BAU.

I think many different variations on this theme need to be tried in order to see what works and what doesn't. And we need to be open to adopting what works for other people and discarding that parts of our own approach that aren't working. I am a big fan of "dissensus", which is the opposite of consensus, and consists of agreeing to disagree and wishing the other guy well while he goes his own way. In the coming decades, as energy become less available and the economy contracts and can no longer support the current level of centralization and complexity, we will be forced to decentralize, relocalize and simplify our society. Under these conditions, dissensus will become somewhat easier—we simply won't have the wherewithal to force our ideas on other groups, nor they on us.

Within these groups, we will find ourselves not worrying so much about a rigid ideology, and more about friendship and helping each other when the going gets tough. So the thing to do now is find some friends and practice getting along with them. This is by no means easy, but it is the direction we need to be heading. It is encouraging to find, that even though I am an introvert and quite shy, I have a fairly large network of acquaintances to draw upon—the people I knew while working at Ontario Hydro/Hydro One, the customers and suppliers I got to know while running C&I Graphics, the people at the Community Garden, my wife's large family (including our own kids and grandkids) and her far ranging networks, the group of guys organized by my friend Dave Leigh, who get together with regularly for coffee, and the people his wife Sylvia gets together to play trivia once a month at the Royal Canadian Legion.

Well, I think that just about finishes up my series of autobiographical notes. Next time I'm planning to start a new series of posts, looking in more detail at strategies for living through collapse.


Links to the rest of this series of posts:

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Friday, 26 January 2018

The Bumpy Road Down, Part 4: Trends in Collapse

Bamboo in Winter

This time I'm going to look at some of the changes that will happen along the bumpy road down and the forces and trends that will lead to them. If you followed what I was saying in my last post, you'll have realized that the bumpy road will be a matter of repeatedly getting slapped down as a result of going into overshoot—exceeding our limits, crashing, then recovering, only to get slapped again as we go into overshoot yet again.

Along the way, where people have a choice, they will choose to do a range of different things (some beneficial, others not so much), according to their circumstances and inclinations. Inertia is also an important factor—people resist change. And politicians are adept at "kicking the can down the road"—patching together the current system to keep it working for little while longer and letting the guy who gets elected next worry about the consequences.

Because the world will become a smaller place for most of us, we'll feel less influence from other areas and in turn have less influence over them. There will be a lot more "dissensus"—people doing their own thing and letting other people do theirs. I expect this will lead to quite a variety of approaches, some that fail and some that do work to some extent. In the short run, of course, "working" means recovering from whatever disaster we are currently trying to cope with. But in the long run, the real challenge is learning to live within our limits and accept "just enough" rather than always striving for more. Trying a lot of different approaches to this will make it more likely that we find some that are successful.

Anyways—changes, forces and trends...and how they will work on the bumpy road down.

I've included the stepped or "oscillating" decline diagram from my last post here to make it easier to visualize what I'm talking about.

Energy Decline

Because I'm a "Peak Oil guy" and because energy is at the heart of the financial problems we're facing, I'll talk about energy first. As I said in a recent post:

"Despite all the optimistic talk about renewable energy, we are still dependent on fossil fuels for the great majority of our energy needs, and those needs are largely ones that cannot be met by anything other than fossil fuels, especially oil. While it is true that fossil fuels are far from running out, the amount of surplus energy they deliver (the EROEI—energy returned on energy invested) has declined to the point where it no longer supports robust economic growth. Indeed, since the 1990s, real economic growth has largely stopped. What limited growth we are seeing is based on debt, rather than an abundance of surplus energy."

It is my analysis that there is zero chance of implementing any alternative to fossil fuels remotely capable of sustaining "business as usual" in the remaining few years before a major economic crash happens and changes everything. So the first trend I'll point to is a continued reliance on fossil fuels. Fuels of ever decreasing EROEI, which will increase the stress on the global economy and continue contributing to climate change and ocean acidification.

Those who are mainly concerned about the environmental effects of continuing to burn fossil fuels would have us stop using those fuels, whatever the cost. But it is clear to me that the cost of such a move would be a global economic depression different only in the details from the one I've been predicting. Lack of energy, excess of debt, environmental disaster—take your pick....

It has been interesting to watch the governments of Canada and the US take two different approaches to this over the last couple of years.

The American approach has been based on denial. Denial of climate change on the one hand, and denial of the fossil fuel depletion situation on the other. "Drill baby, drill!" is expected to solve the energy problem without causing an environmental problem. I don't believe that either expectation will be borne out over the next few years.

Our Canadian government under Prime Minister Justin Trudeau has made quite a bit of political hay by acknowledging the reality of climate change and championing the Paris Climate Agreement in the international arena. Here at home, though, it is clear that Trudeau understands the role of oil in our economy and he has been quick to quietly reassure the oil companies that they have nothing to fear, approving two major pipeline projects to keep oil flowing from Alberta to the Pacific coast and, eventually, to Chinese markets.

Yes, Ottawa has set a starting price of $10 a tonne on carbon dioxide emissions in 2018, increasing to $50 a tonne by 2022. This is to be implemented by provincial governments who have until the end of the year to submit their own carbon pricing plans before a national price is imposed on those that don't meet the federal standard. It will be interesting to see how this goes and if the federal government sticks to its plan. Canada is one of the most highly indebted nations in the world and I wouldn't be surprised if our economy was one of the first to falter.

At any rate, sometime in the next few years the economy is going to fall apart (point "c" in the diagram). As I've said, this may well be initiated by volatility in oil prices as the current oil surplus situation comes to an end. This will lead to financial chaos that soon spreads to the rest of the economy.

On the face of it this isn't too different from the traditional Peak Oil scenario—the collapse of industrial civilization caused by oil shortages and sharply rising oil prices. But as you might guess by now, this isn't exactly what I think will happen.

In fact, I think that we'll see an economic depression where the demand for oil drops more quickly than the natural decline rate of our oil supplies and the price falls even further than it did in 2014-15. We won't be using nearly so much oil as at present, so we will once again accumulate a surplus, and we'll even leave some reserves of oil in the ground, at least initially. This will help drive a recovery after the depression bottoms out (point "e" in the diagram). Please note that I am talking about the remaining relatively high EROEI conventional oil here. Unconventional sources just don't produce enough surplus energy to fuel a recovery.

But the demand for oil will still be a lot less than it is today and this will have a very negative effect on oil companies. Some governments will subsidize the oil industry even more than they have traditionally, just to keep to it going in the face of low prices. Other governments will outright nationalize their oil industries to ensure oil keeps getting pumped out of the ground, even if it isn't very profitable to do so. Bankruptcy of critical industries in general is going to be a problem during and after the crash. More on that in my next post.

During the upcoming crash and depression fossil fuel use may well decline enough to significantly reduce our releases of CO2 into the atmosphere—not enough perhaps to stop climate change, but enough to slow it down. As we continue down the bumpy road, though, our use of fossil fuels and the release of CO2 from burning them will taper off to essentially nothing, allowing the ecosphere to finally begin a slow recovery from the abuses of the industrial age.

The other trend involving fossil fuels, as we go further down the bumpy road, will be their declining availability as we gradually use them up. Eventual our energy consumption will be determined by the local availability of renewable energy that can be accessed using a relatively low level of technology. Things like biomass (mainly firewood), falling water, wind, passive solar, maybe even tidal and wave energy. Since these sources vary in quantity from one locality to another, the level of energy use will vary as well. Where these sources are intermittent, the users will simply have adapt to that intermittency.

No doubt some of my readers will be wondering why I don't think high tech renewables like solar cells and large wind turbines will save the day. The list of reasons is a long one—difficulty raising capital in a contracting economy, low EROEI, intermittency of supply and the difficulty (once fossil fuels are gone) of building, operating, maintaining and replacing such equipment when is wears out—to mention just a few.

Large scale storage of power to deal with intermittency will in the long run prove infeasible. Certainly batteries aren't going to do it. There are a few locations where pumped storage of water can be set up at a relatively low cost, but not enough to make a big difference. And on top of all that, I very much doubt that large electrical grids are feasible in the long run (and I spent half my life maintaining on one such grid).

The FIRE Industries

The next trend I can see is in the FIRE (financial, insurance and real estate) sector of the economy. During the growth phase of our economy over that last couple of centuries the FIRE industries embodied a wide range of organizational technologies that facilitated business, trade and growth. Unfortunately, because they were set up to support growth, they were unable to cope with the end of real growth late in the twentieth century. They have supported debt based growth for the last couple of decades as the only alternative that they could deal with. This led to the unprecedented amount of debt that we see in the world today. Much of this debt is quite risky and will likely lead to a wave of bankruptcies and defaults—the very crash I've been talking about.

The FIRE industries will be at the heart of that crash and will suffer horribly. Many, perhaps the majority, of the companies in that sector won't survive. In today's world they wield a great deal of political power. During the global financial crisis (GFC) in 2007-8 that power was enough to see them through largely unscathed. This is unlikely to be the case in the upcoming crash, creating a desperate need for their services and an opportunity to fill that need which will be another factor in the recovery after the crash bottoms out. But of course there is more than one way it can be done.

In the 3rd, 4th, 5th, 6th and 7th posts in my " Collapse Step by Step" series, I dealt with the political realities of our modern world, which limit what can be done by democratic governments. I identified a political spectrum defined by those limits. At the left end of this spectrum we have Social Democratic societies, which still practice capitalism, but where those in power are concerned with the welfare of everyone within the society. At the right end we have Right Wing Capitalist societies where the ruling elite is concerned only with accumulating more wealth and power for itself.

Since the FIRE industries are crucial to the accumulation and distribution of wealth in our societies, the way they are rebuilt following the crash will be largely determined by the political goals of those doing the rebuilding.

At the left end of the spectrum there is much can be done to regulate the FIRE industries and stop their excesses from leading immediately to further crises.

At the right end of the political spectrum the elite is so closely tied to the FIRE industries and so little concerned with the welfare of the general populace, that those industries will likely be rebuilt on a plan very similar to their current organization. A policy of "exterminism" is likely to be followed, where prosperity for the elite and an ever shrinking middle class is seen as the only goal and the poor are a burden to be abandoned or outright exterminated.(Thanks for Peter Frase, author of Four Futures—Life After Captialism for the term "exterminism".)

In the case of either of these extremes, or anywhere along the spectrum between them, there are some common things I can see happening.

The whole FIRE sector depends on trust. In the last few decades (since the 1970s) we have switched from currencies based on precious metals to "fiat money" which is based on nothing but trust in the governments issuing it. This was done to accommodate growth fueled by abundant surplus energy and then to facilitate issuing ever more debt as the surplus energy supply declined. I don't advocate going back to precious metals—what we need is a monetary system that can accommodate degrowth, of which a great deal lies in our future. Unfortunately we don't yet know what such a system might look like.

It is clear, though, that the coming crash is going to shake our trust in the FIRE industries to its very roots. Since central banks will have been central to the monetary problems leading to the crash, they may well be set up as scapegoats for that crash and their relative lack of success in coping with it. People will be very suspicious after watching the FIRE industries fall apart during the crash and their lack of trust will force those industries to take some different approaches.

I think governments will take over the functions of central banks and stop charging themselves interest on the money they print. Yes, I know that printing money has often led to runaway inflation, but the conditions during the crash and its aftermath will be so profoundly deflationary that inflation will not likely be a problem.

The creation of debt will be viewed much less favourably and credit will be much harder to get. And of course this will make the crash and following depression that much worse. In response to this many areas will create local banks and currencies to provide the services and credit that local businesses need to get moving again.

During the last couple of decades there has been a move to loosen regulations in the FIRE industries, to let single large entities become involved in investment banking, business and personal banking, insurance and real estate. Most such entities began as experts in one of those areas, but one has to question their expertise in the new areas they moved into. In any case they became "too big to fail" and their failure threatened the stability the whole FIRE sector. Following the GFC there was only minor tightening of regulations to discourage this sort of thing. After the upcoming crash I suspect many governments, especially toward the left end of the political spectrum, will institute a major re-regulation of the FIRE industries and a splitting up of the few "too big to fail" companies which didn't actually fail.

It is all very well to talk about business and even governments failing when their debt load becomes too great. But there is also a lot of personal debt that is, at this point, unlikely ever to get paid back. What does it mean, in this context, for a person to fail? What I carry as debt is an asset for someone else—probably the share holders of a bank. They are understandably reluctant to watch their assets evaporate, and I have to admit that there is a moral hazard involved in just letting people walk away from their debts. That feeling was so strong in the past that those who couldn't pay their debts ended up in debtors' prisons. Such punishment was eventually seen as futile and the practice was abandoned and personal bankruptcies were allowed.

One suspects that in the depression following the coming crash it will be necessary to declare a jubilee, forgiving large classes of personal debt. What might become of all the suddenly destitute people depends on where their country lies on the political spectrum. I wouldn't rule out debtors prisons or work camps, the sort of modern slavery that is already gaining a foothold in the prison system of the United States.

If we were willing to give up growth as the sole purpose of our economic system, there are many changes that could be made to the FIRE industries that would allow them to provide the services needed by businesses and individuals without stimulating the unchecked growth that leads to collapse. I think we are unlikely to see this happen after the upcoming crash—we will be desperate for recovery and that will still mean growth at destructive levels.

I think the crash following that recovery will involve the food supply and still unchecked population growth and sadly a lot of people won't make it through (more on this in my next post). Following that, it's even possible that in some areas people may reach the conclusion that growth is the problem and quit sticking their heads up to get slapped down again. They'll have to find a more sustainable way to live, but with it will come a less bumpy road forward.

Authoritarianism

In the aftermath of the next crash, I think we'll see an increase in authoritarianism in an attempt to optimize the systems that failed during the crash—to make them work again and work more effectively. Free market laissez faire economics will be seen to have failed by many people. Others will hang tight, claiming that if they just keep doing yet again the same thing that failed before, it will finally work.

As is always the case with this sort of optimization, it will create a less resilient system, much more susceptible to subsequent crashes. And after those crashes government will be reduced to such a small scale affair that authoritarianism won't be so much of an issue.

Fortunately, beyond authoritarianism, there are some other trends that will lead to increased resilience and sustainability. We'll take a look at those in my next post.


Links to the rest of this series of posts:
Political Realities / Collapse Step by Step / The Bumpy Road Down

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Sunday, 26 November 2017

Collapse Step by Step, Part 8

Lake Huron Waves Breaking Along South Pier, Kincardine

The Bumpy Road Down, Part 1

The term “bumpy road down” refers to the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity and make for a slow step by step collapse, rather than a single hard and fast crash. Indeed, that is where the "step-by-step" in the title of this series of posts comes from. And yes, many of the individual steps down will happen quite quickly and seem quite harsh. But it will likely take many steps and many decades before we can say collapse is essentially complete, and between those steps down there will (in many areas) be long periods when things are stable or even actually improving somewhat.

The fast collapse is a favourite trope of collapse fiction and makes for some exciting stories, in which stalwart heroes defend their group from hungry hordes and evil strong men. And if the story happens in the U.S. the characters get to do their best to stop a whole lot of ammunition from going stale. But it seems to me that in most parts of the world things will progress quite differently when disaster strikes. Indeed there is a branch of sociology which studies how people and societies respond to disaster, and it has identified a set of incorrect beliefs, known as "the disaster mythology" that much of the general public holds on the subject. In particular, the expectation of looting, mass panic and violence is not borne out in really. Here are some further links on the subject: 1, 2, 3, 4.

Dysfunctional as today's world may seem to many of us, it is working fairly well for those who are in power. They have a great deal invested in maintaining the "status quo", and in making sure that whatever changes do happen don't have any great effect on them. They also have a lot of resources to bring to bear on pursuing those ends, and a lot of avenues to go down before they run out of alternatives.

The other 80% of us, who are just along for the ride so to speak, still rely on industrial society for the necessities of life. We are hardly self sufficient at all, dependent on "the system" to a degree that is unprecedented in mankind's history and prehistory. As unhappy as we may be with the way things are at present, it's hard to imagine collapse without a certain amount of trepidation. Denial is a very common response to this situation.

Some of us, though, aren't very good at denial. Even if we only follow the news on North American TV, which largely ignores the rest of the world, we've seen lots of disturbing events in the last year or two and it is hard not to wonder if they are leading up to something serious. Many people in the "collapse sphere" are predicting a major disturbance in the next few years, and some think that this will be the one that us takes down—all the way.

I definitely agree that something is about to happen, but I don't think it is going be the last straw. Just one more step along the way.

As always, I am directing this mainly to those who are not highly "collapse aware", so a closer look at what's going on and what this next big bump might look like would seem to be a good idea. And of course I am making generalizations in what follows. As always, things will vary a good bit between different areas and at different times, and all of this will affect people of the various social classes differently. Also beware that I am not an economist, just a layman who has been watching the field with keen interest for some time. What follows is a summary of what I have learned, in a field where there is lots of disagreement and where the experts themselves have been wrong again and again.

Despite all the optimistic talk about renewable energy, we are still dependent on fossil fuels for around 82% of our energy needs, and those needs are largely ones that cannot be met by anything other than fossil duels, especially oil. While it is true that fossil fuels are far from running out, the amount of surplus energy they deliver (the EROEI—"energy returned on energy invested") has declined to the point where it no longer supports robust economic growth. Indeed, since the 1990s, real economic growth has largely stopped. What limited growth we are seeing is based on debt, rather than an abundance of surplus energy. And various adjustments to the way GDP is calculated have made the situation seem less serious that it really is.

Because of the growth situation, investors looking for good returns on their money have been hard pressed to find any and so have turned to riskier investments, which has resulted in speculative bubbles and subsequent crashes. The thing about bubbles is they are based on trust. Trust in some sort of investment that in saner times would be recognized for the risky proposition it really is. But always there comes a day when the risk becomes obvious, people rush to get out, and the bubble crashes.

The dot com bubble was the first to burst in this century, and the real estate bubble in the US was the next, leading to the crash of 2008.

After 2008 many governments borrowed money to bailout financial institutions (banks) which were in danger of failing, since that failure would have had a very negative effect on the rest of the economy. To control the cost of that borrowing and stimulate the economy, they lowered interest rates. These low interest rates have made it possible to use debt as a temporary replacement for surplus energy as the driver of the economy. Unfortunately this is pretty inefficient—it takes several dollars of debt to create a dollar's worth of growth, and the result has been debt increasing to totally unprecedented levels.

Meanwhile, much of the ill advised risk taking in the financial industry that led to the crash in 2008 has continued on unabated. You may wonder why responsible governments didn't enact regulations to stop that sort of thing. And indeed they did, to a limited extent. I suspect, though, that really effective regulations would have stopped growth cold, and no one was willing to accept the negative results of that. Better to let things to go on as they are, leaving future governments to worry about the consequences.

So, in 2017 we are deep into what might be called a "debt bubble." It relies on trust that interest rates will remain low and that any day now there will be a return to robust growth so that we can all make some money and pay off our debts. Those are risky propositions, to say the least.

On top of that, low interest rates have made it much more of a challenge for pension funds to raise enough money to meet their obligations, a vital concern for retired baby boomers like myself.

Those same low interest rates have made it possible for many non-viable or barely viable businesses to continuing operating on borrowed money, where under more normal circumstances they would have been forced out of business. This makes for a weaker economy, not a stronger one.

Here in Canada we still have a real estate bubble going on, especially in cities like Toronto, Calgary and Vancouver, and that despite recent government efforts to cool the real estate market by making it more difficult to get a mortgage, and by applying a tax on foreign real estate investors.

And over the last year that have been a long list of natural disasters which have increased the financial stress on governments, insurance companies and even re-insurance companies (who insure the insurance companies themselves).

The more conventional economists have come to think that all this is a normal situation and that it can just keep on keeping on. But there are others who think that this will lead to a crash of even greater magnitude that 2008. And many kollapsniks think this crash will mean the end of industrial civilization.

Some commentators expect this crash to take the form of a rash of debt defaults by governments who can no longer carry the debt loads they have built up. And a similar wave of bankruptcies of those shaky businesses I was just talking about, when they finally get to the point where they can no longer hold on. Tim Morgan, one of my favourite economists (who is certainly aware of the possibility of collapse), speculates that this bubble may burst in a different way than those of the past, with the collapse of one or more currencies. He points to the British pound as a prime candidate for the first to go and thinks that the U.S. dollar may follow it.

Other experts I've asked say that while the U.S government does have huge debts, they are not so large in comparison to the size of its economy—an economy that is strong enough that trust in it is unlikely to fail. I am not so sure. Much of the strength of the U.S. dollar comes from the fact that all trading of oil is done in it. If you want to buy oil then you need U.S. dollars, so the demand for them is always high. But a number of countries who are not allies of the US have proposed abandoning this system, suggesting that they are willing to accept other currencies for their oil. If this were to happen on a large scale it would significantly weaken the US dollar.

But it takes some sort of unusual event to start a crash like this, to initiate the loss of trust. And that brings us back to the fossil fuel industry.

While the falling EROEIs of fossil fuels have hurt economic growth, it is a mistake to think that those fuels are not still the life blood of our civilization. The success of modern industry is based on the productivity boost provided by cheap energy. The price of oil, for many years, was a fraction of its worth in terms of what could be made with the energy embodied in that oil. But when the price of energy goes up, it reduces the profitability of industry, often leading to a recession.

The oil prices I quote here are for Brent crude, just to keep things simple. In fact, oil trades at a dizzying variety of different prices, depending on where it comes from and its quality, among other things. If you look back over the history of recessions since the 1950s it is interesting to note almost all of them were preceded by a spike in the price of oil. In the summer of 2008 the price of oil, which had been going up for several years, topped out just before the crash at almost $140 per barrel.

After the crash, the economy slowed down significantly, and the price of oil dropped to around $30 per barrel due to falling demand. Starting in mid-2009 the economy began to recover and the price of oil increased to over $100. This appeared to be a straight forward case of supply and demand—an indication that the supply of oil was barely keeping up and suppliers were being forced to turn to more expensive sources of oil to meet the demand.

Then in mid 2014 something surprising happened— the price of oil and many other bulk commodities began to go down. By early 2016 the price of oil was under $40/barrel, and it stayed in the range between $40 and $60 until quite recently when it edged up over $60.

All kinds of ideas have been put forth as to why this drop in the price of oil happened, many of them contradictory. It is my thought that two things have been happening. First, demand destruction—a slowing down of the world economy caused by high energy prices. Second, a temporary increase in the supply of oil, mainly from fracking in the continental US and tapping of unconventional oil—tar sands in Canada, heavy oil in Venezuela, and deep offshore oil in various place around the world, that were suddenly profitable when the price was around $100 per barrel.

Whatever is the cause, it is clear that we have had a surplus of oil for the last few years, and this has kept the price down. OPEC discussed limiting supply to force the price back up, but very little came of it, even though the lower price was severely hurting the economies of the OPEC nations.

In the short run, lower oil prices have had a beneficial effect on economic growth. But unfortunately, the big oil companies were making so little profit that they couldn't afford to invest much in oil discovery.

Regardless of what you may think of the idea of "peak oil" on a global basis, it is a simple fact that the output of any individual oil field declines as it ages. Exploration for new oil aims to match that natural decline with new discoveries. For conventional oil, that has not happened since 1963 and by the start of this century this was becoming a problem. A problem that likely had something to do with the run up of oil prices prior to 2008.

Following 2008, higher prices and improved technology (like fracking and the syncrude process for getting oil out of the tar sands) made more oil accessible. But with the current lower prices, that is no longer the case. Furthermore the wells opened up by fracking are proving to have very high decline rates.

So it seems that sometime in the next year or two, the decline rate of the world's oil fields will have eaten up the surplus of oil. Discovery of new oil fields doesn't happen overnight, so there will be a crunch in oil supply. Not that there will be no oil available, but oil suppliers will be hard pressed to keep up with the demand and the price will spike upward. There may even be shortages of some petroleum products until those higher prices pull demand back to match the available supply.

It seems very likely that such a spike in the price of oil will touch off a loss of trust leading to a recession of such severity as to make 2008 look minor.

In my next post in this series I'll look at how that recession—might as well call it a crash—might proceed and what will likely be done to mitigate its effects.


Links to the rest of this series of posts:
Political Realities / Collapse Step by Step / The Bumpy Road Down

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