Feb 042013
 February 4, 2013  Posted by at 4:42 pm Primers

Dorothea Lange River Food June 1936
Memphis, Tennessee. Original caption: "Coon dawgling."

The Automatic Earth (TAE) is now five years old (as of January 22). That's five years of wide-ranging discussion on a huge range of issues, in the process of developing the biggest possible big picture of our present predicament. We are reaching limits to growth in so many ways at the same time, but it isn't enough to understand which are the limiting factors, but also what time frame each particular subset of reality operates over, and therefore which is the key driver at what time.

Our job has been to explore those subsystems, how they fit together, and which will be the key driver in the short, medium and longer term, in order to prioritize action. We can think of the next century as a race of hurdles we need to clear. We need to know how to prepare for each as it approaches, as we need to clear each one in order to be able to stay in the race.

We are known primarily as a finance site because finance has the shortest time frame of all, hence we focus on it. So much of finance is virtual that changes can unfold very quickly. There are those who assume that changes in a virtual system can happen without major impact, but this assumption is dangerously wrong. Finance is the operating system – the interface between ourselves, our institutions and our resource base. When one crashes the operating system, nothing much will work until the system is rebooted.


Dorothea Lange Wayfarers May 1937
Mother and child of Arkansas flood refugee family near Memphis, Texas. These people, with all their earthly belongings, are bound for the lower Rio Grande Valley, where they hope to pick cotton

The next few years will see that crash and reboot. As financial contraction will occur first, before other limits are reached, finance will be the primary driver to the downside for the next several years. After that, we will be dealing with energy crisis, other resource limits, limitations of carrying capacity and geopolitical ramifications. Finance is the first hurdle in the race – the one we must clear if we want to be able to tackle the other challenges to come.

I am very much inclined to agree with Bill Gross' latest assessment that we stand on the brink of a Minsky moment, or as he describes it, a Credit Supernova. This is the inevitable result of decades of ponzi finance as our credit bubble expanded relentlessly, leaving us today with a giant pile of intertwined human promises which cannot be kept. Bubbles create, and rely on, building stacks of IOUs ever more removed from any basis in underlying real wealth.

When they implode, as they always do, the value of those promises disappears as it becomes obvious they will not be kept. Bust follows boom, as it has done throughout human history. The ensuing Great Collateral Grab reveals just how under-collateralized our boom has become, and just few claims to underlying real wealth can actually be met with the available resources. The rest of the outstanding claims will fail to be honoured, and will be rapidly and messily extinguished in a deflationary implosion.


Dorothea Lange Starting Over December 1935
Resettled farm child. From Taos Junction to Bosque Farms project, New Mexico

Despite the current extreme of market optimism, this will be the reality we will have to address. Things never look so good as they do at the top of a bubble, when there is nowhere to go but down. While we cannot tell you exactly when the bust will unfold in specific locations, we can see that it is already well underway in some parts of the world, notably the European periphery. The fear that is driving contraction in countries like Greece and Spain is highly contagious, and the contractionary dynamic is set to spread.

Given that preparation takes time, and that one cannot be late, now is the time to prepare, whether one thinks the Great Collateral Grab will manifest close to home next month or next year. Those who are not prepared risk losing everything, very much including their freedom of action to address subsequent challenges as they arise. It is a tragedy to fall at the first hurdle and then be at the mercy of whatever fate has to throw you. The Automatic Earth has been covering finance, market psychology and the consequences of excess credit and debt since our inception, providing readers with the tools to navigate a major crisis.

Ponzi Finance:



Dorothea Lange Migrant Mother February 1936
Destitute pea pickers living in tent in migrant camp. Mother of seven children. Age 32, Nipomo, California

Markets and Psychology:

Real Estate, Commodities, Metals, Currencies and Trade:


Dorothea Lange Family Travel June 1938
Family walking on highway, five children. Started from Idabel, bound for Krebs. In 1936 the father farmed on thirds and fourths at Eagleton, McCurtain County. Was taken sick with pneumonia and lost farm. Was refused relief in county of 15 years' residence because of temporary residence elsewhere. Pittsburg County, Oklahoma

Affluence, Poverty and Debt:

The second hurdle is likely to be energy. Changes in supply and demand for energy are very much grounded in the real world, albeit in a highly financialized way, hence they unfold over a longer time frame. Over-financializing a sector of the real economy leaves it subject to the swings of boom and bust, or bubbles and their aftermath, but the changes typically play out over months to years rather than days or months. Financial crisis can be expected to deprive people of purchasing power, quickly and comprehensively, thereby depressing demand substantially (given that demand is not what one wants, but what one can pay for).

Commodity prices fall under such circumstances, and they can be expected to fall more quickly than the cost of production, leaving margins squeezed and both physical and financial risk rising sharply. This would deter investment for a substantial period of time. As a financial reboot begins to deliver economic recovery some years down the line, the economy can expect to hit a hard energy supply ceiling as a result. Financial crisis initially buys us time, but at the expense of worsening the energy crisis in the longer term.


Dorothea Lange On The Road September 1939
On the road with her family one month from South Dakota. Tulelake, Siskiyou County, California

Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now that we stand on the edge of the net energy cliff, that surplus (above that which has to be reinvested in energy production) is rapidly diminishing. We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling. Net energy available for all society's other purposes will fall even more quickly. The implication is that society will inevitably be simpler.

A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity – an attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.

We are poised to throw away what remains of our conventional energy inheritance chasing an impossible dream of perpetual energy riches, because doing so will be profitable for the few in the short term, and virtually no one is taking a genuine long term view. We will make the transition to a lower energy society much more difficult than it need have been. At The Automatic Earth we have covered these issues extensively, pointing particularly to the importance of net energy, or energy profit ratios, for alternative supplies. We have also addressed the intersections of energy and finance.

Energy and Finance:

Unconventional Oil and Gas:

Electricity and Renewables:


Dorothea Lange Better Than It Was February 1939
Farm Security Administration emergency migratory labor camp. Calipatria, Imperial Valley. Daughter of ex-tenant farmers on thirds and fourths in cotton. "Back in Oklahoma, we are sinking. You work your head off for a crop and then see it burn up. You live in debts that you can never get out of. This isn't a good life, but I say that it's a better life than it was."

In the aftermath of the Fukushima disaster, TAE provided coverage of the developing catastrophe, drawing on an earlier academic background in nuclear safety. It will be many years before the true impact of Fukushima is known, both because health impacts take time to be demonstrable and because the radiation releases are not over. The destroyed reactors continue to leak radiation into the environment, and are likely to do so for the foreseeable future. The vulnerability of the site to additional seismic activity is substantial, and the potential for further radiation releases as a result is similarly large. The disaster is therefore far worse than it first appeared to be. The number of people in harms way, for whom no evacuation is realistic despite the risk, is huge, and the health impacts will prove to be tragic, particularly for the young.

Fukushima and Nuclear Safety:

The Automatic Earth takes a broad view of the context in which finance, energy and resources operate, looking at issues of how society functions at a macro level. Context is vital to understanding the bigger picture, particularly human context as it relates to the critical factor of scale and the emergent properties that flow from it. We have continually emphasized the importance of the 'trust horizon' in determining what functions at what time, and what kind of social milieu we can expect as matters evolve.

Expansions are built upon the optimistic side of human nature and tend to lead to greater inclusiveness and recognition of common humanity over time. Higher levels of political aggregation, and more complex webs of trading relationships, come into being and achieve popular support thanks to the benefits they confer. In contrast, contractions tend to reveal, and be driven by, the darker and more pessimistic side of human collective psychology. They are social and are political as well as economic. In both directions, collective attitudes can create their own self-fulfilling prophecies at the societal level.


Dorothea Lange The past looking at the future July 1937
Thirteen-year old sharecropper boy near Americus, Georgia

Trust determines effective organizational scale, extending political legitimacy to higher levels of political organization during expansions and withdrawing it during periods of contraction, leaving political entities beyond the trust horizon. Where popular legitimacy is withdrawn, organizational effectiveness is substantially undermined, and much additional effort may go into maintaining control at that scale through surveillance and coercion.

The effort is destined to fail over the longer term, and smaller scale forms of organization, still within the trust horizon, may come to hold much greater significance. The key to effective action is to know at what scale to operate at any given time. As we have said before, while one cannot control the large scale waves of expansion and contraction that unfold over decades or centuries, understanding where a given society finds itself within that wave structure can allow people and their communities to surf those waves.

Scale, Society and Trust:


Dorothea Lange No money, ten children March 1937
Stalled in the Southern California desert. 'No money, ten children'. From Chickasaw, Oklahoma

Finally, TAE has provided some initial guidance as to how to position one's self, family, friends and community so as to reduce vulnerability to system shocks and increase resilience. The idea is to reduce the range of dependencies on the large scale, centralized life-support systems that characterize modernity, and also to reduce dependency on the solvency of middle men. The centralized systems we take so much for granted are very likely to be much less reliable in the future. For a long time we have uploaded responsibility to larger scale organizational entities, but this has led to a dangerous level of complacency.

It is now time to reclaim responsibility for our own future by seeking to understand our predicament and take local control of efforts to mitigate its effects. While we cannot prevent a bubble from bursting once it has been blown, we can make a substantial difference to how widely and deeply the impact the impact is felt. The goal is to provide a sufficient cushion of basic essentials to allow as many people as possible to preserve the luxury of the longer term view, rather than be pitched into a state of short term crisis management. In doing so we can hope to minimize the scale of the human over-reaction to events beyond our control.


Over the years of crisis, we intend to continue bringing our readers the biggest possible big picture in order to help us all to navigate a world of change. We very much appreciate your support in this endeavour.


Dorothea Lange Try The Train California, March 1937
"Toward Los Angeles"


Home Forums The World According to The Automatic Earth – A 2013 Primer Guide

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    Nicole Foss

    Dorothea Lange River Food June 1936 Memphis, Tennessee. Original caption: "Coon dawgling." The Automatic Earth (TAE) is now five years old (
    [See the full post at: The World According to The Automatic Earth – A 2013 Primer Guide]


    thank you Stoneleigh for this and all the other posts at The Automatic Earth.

    We need your help to understand what is happening and ways to make our paths to follow in the future of energy shortages, capital shortage and food shortages.

    Things are going to become local and much more meaningful lives
    will be lead.


    Thanks for a great resume and some new thoughts.

    I can’t underestimate the extent to which your analysis has influenced my directions here in Costa Rica.

    You’re always welcome here at Pueblo Verde.


    HI Stoneleigh and Ilargi,

    Happy 5th Birthday!

    Stoneleigh, this is a great distillation of the pertinent points. For those (like me) who wondered what ‘thirds and fourths’ were, check out this site:

    Instead of working in gangs as they had on antebellum plantations, the freedmen became tenants. The planter or landowner assigned each family a small tract of land to farm and provided food, shelter, clothing, and the necessary seeds and farm equipment. When the crop was harvested, the planter or landowner took the cotton to market and after deducting for the “furnish” (the cost of the items the tenant had been furnished during the year), gave half of the proceeds to the tenant. This arrangement became known as sharecropping.
    In the decades after Reconstruction tenancy and sharecropping became the way of life in the Cotton Belt. By 1930 there were 1,831,470 tenant farmers in the South. What began as a device to get former slaves back to work became a pernicious system that entrapped white as well as black farmers. After 1900 the number of white tenant farmers grew alarmingly. By 1935 nearly half of white farmers and 77 percent of black farmers in the country were landless.
    As farm tenancy grew, a tenancy ladder evolved. From the bottom rung, the hapless sharecropper could climb to share tenant if he could accumulate enough of his own equipment and money. Share tenants kept two-thirds or three-fourths of the crop, depending on how much they could furnish. If a share tenant progressed to a point of needing nothing but the land, he could become a cash tenant by paying a fixed rental. Cash tenants kept all of the proceeds from the crop.

    It also goes on to say how people got into the dire circumstances they found themselves in. For me this is a typical example of the industrial mindset applied in this case to agriculture, with the myth of ‘infinite competition’ versus a monopoly, in this case the old monopoly of slavery (note: for the actors there was little difference in terms of welfare and wellbeing) (this is one of Steve Keens arguments for debunking neo-classical economics in his book “Debunking Economics” ), and the ‘mono-culture’ approach to everything – there is only one way that typifies industrialism. This is Vandana Shiva’s ‘mono-cultures of the mind’:

    One area of hope comes from the fact that the trajectories that have been laid out by these monopolizing monoculture minds are so nonsustainable that something will have to happen. The system will crack. When you industrialize food and farming too much, there will be outbreaks of disease. People will want local, organic food as a secure supply. Alternatives are built into the very logic of the system because it’s designed to fail and will lead to environmental catastrophe.
    The second reason I’m hopeful is the work we are doing. We begin with tiny steps. We say, OK, there are suicides of farmers. Let’s take ten quintals (1,000 kg.) of wheat to the farmers of Punjab. They’re not satisfied with ten. They want a hundred. We rush back and multiply seeds again. Wherever there are initiatives to build sustainable, just, democratic systems, they are spreading like wildfire.
    People want another world, and they’re building it. People’s love for freedom is more powerful than any coercive authority. That love for freedom is more powerful than the love of the dominators who are trying to control the planet.

    Stoneleigh, on your foray into Permaculture, may I humbly suggest you check out Masanobu Fukuoka’s (died 2008 aged 95) “One Straw Revolution” and if you can find it his “Natural Farming”; also Sepp Hoplzer’s (very much alive) “Rebel Farmer” to see just how hard one man has had to fight the ‘authorities’ to build a true polyculture farm. Sepp Holzer’s multi decade farming experience has changed many times over the years, but the key was always diversity. And not forgetting the Uk’s own Robert Hart, whose Forest Garden is often the basis of many Permaculture projects in the UK.

    One thing on the three ‘Es’ of Economy, Energy and Environment, is that I suspect we will not get one after the other, but rather one feeding into the others, thus while we currently have an economic crisis, energy is now feeding into that crisis and causing greater disruption. So too as we go further down the road the environmental crisis (here I am referring to things like ocean depletion and pollution, soil erosion, groundwater and aquifer depletion amongst many others never talked about) will feed into the other two and together will form a maelstrom of consequences.

    The other thing is population, which when combined with the above three Es produces a giant EEEP!

    Good luck for the next five years!



    Nicole, thank you thank you thank you for this synopsis.

    Nothing has shaken my economic views as much as your simple statement “given that demand is not what one wants, but what one can pay for” (which I have written down to share with everyone I know that seem to have drunk the koolaid of a guaranteed ever expanding, ever improving lifestyle.)

    I quit reading TAE for months as I had high hopes the Mayan Calender was gonna create a major reboot and because most of TAE is WAY over my head. However, this 2013 primer really helps define the scope and intent of your and Ilargi’s warnings.

    Demand having been indelibly re-defined, I would like to also share another epiphany I had when listening to Amy Chua (of Tiger-Mom fame) give a lecture regarding the success of the Roman Empire because of its program of ‘tolerance’ (as well as ‘romanizing’ conquered people). I realized for the first time that tolerance is NOT a positive attribute, but is actually a means of gaining some advantage while still detesting the other party!

    So armed with these 2 rather strong eye-opening examples of improper, working definitions, I have to wonder what other mis-assumptions I have that are limiting my worldview and choices.

    In the meantime, NPR is running a series of broadcasts that compares Puerto Rico to Greece. Seems to be getting awfully close.

    Dig Dirt

    It was David Holmgren’s book Permaculture , Principles and Pathways beyond Sustainability that really got me started on the road of self-reliance and meeting the needs to sustain my (and my family’s) existence and it was Nicole and Raul’s work that kicked me in the arse by hitting the panic button. After nearly 4 years of reading TAE my debts are now below $50k, I live in an strawbale house (built by yours truly-with no prior experience mind you) with all water in dams or tanks and lots of other self-reliant measures in place.
    Nicole has said that by paying rent you are paying the landowner a fee for taking on the risk of debt – and I believe that to be true but I am now in the process of trying to mitigate against our debt by building a seperate dwelling to rent out should servicing our debt become difficult. In any case I am feeling a little nervous (like most) but so much more prepared and motivated because of the great work by TAE. I hope you both enjoyed the Chocolate Euro coin I gave you while in Daylesford Australia. Thank you Thank you. You guys have to be my favourite Brain-Nerds in the world!


    Well thanks for five years of scaring the pants off of me…I feel like I am trying to get my ship out to sea before the tsunami hits but just can’t…I have remained relatively debt free but I work as an electrician and I have been trying to get a government job but so far no luck…I need income coming in. I see this storm hitting pretty soon….


    In response to the previous post “I need income coming in” Since our family lives on a very small income, I feel perhaps I can offer some practical advice. Rule #1 – you need very little income once you own your own accomodation – this of course need not be a house in suburbia – a well found trailer on a good site would do for many of us. #2 – once you need very little income a small part time job – EVEN for minimum wages will provide plenty of cash to live on. #3 If at all possible build safe income earning capital, perhaps you own an asset that is in fact a costly expense ie: nice truck, sell truck, buy good bike and shoes, invest money in high interest savings account – earn 2% on capital (not great with inflation around 1%, but with deflation this money may be worth much more in the future #4 grow food, not by using the Lee Valley catalogue to spend thousands on pretty stuff, but by opening up some ground and putting seeds/transplants in – you will get healthy farming, healthy eating and all for a few dollars in seeds. #5 If you are this far and have capital to invest, think about investing in your OWN utility – PV electricity has become CHEAP, it is easy to install and almost maintenance free and you will NEVER get another hydro bill – while reducing your carbon emissions – in fact all of the above are part of a low carbon lifestyle #6 Now with a very low cost of living you can declare yourself mostly retired and stop worrying about your financial future – a small life is a much safer position to be in. The above is a structured simplification of one path to safety/freedom – one we followed and I am happy to report it has been successful. Everyone’s path is different both whence they came, where they are and where they are going – and must be adapted to a rapidly changing world. For one example of a mini life go to http://www.the-mini-house.blogspot.com GOOOOOOO Nicole!

    Formerly T-Bear

    So it’s been five years of The Automatic Earth, tempus fugit.

    What would that be in Yankee Years?

    Thank you for all your efforts, they are truly appreciated.

    All the best……….

    Nicole Foss


    I would be happy to come to Costa Rica. One of our readers had mentioned perhaps organizing an event there. I’ll be close by in Belize for the second half of this month. I’m hoping to get a feel for central America while I’m there.

    Nicole Foss

    Thank you all for the kind words 🙂


    Though the financial system appears to have low stability and you stated that you agree with Bill Gross, your conclusions are opposite of his.
    He predicts inflation, not deflation
    He says to buy commodities, you say to sell them.

    All the advice one could want. I’ll just watch Doomsday Preppers on TV, it is entertaining.


    Thanks Nicole, that’s a very useful summary and link guide. I’ll pass it on to my network. I’ve become increasingly convinced of your view over the last few years. In the Austin, TX area there are a vast number of folks going local in hundreds of ways. My end of it is networking with food growers and helping get folks started who haven’t done much of that. I’m retired from electronics manufacturing and have a good deal of time to participate. Here’s one of my hobbies, distributing Garden Towers, essentially at cost. gardentowerproject.com


    The AUTOMATIC EARTH is doing a great job.

    Here is a similar site.

    With enough good data, it is possible to increase the reliability of of projected trends.



    The NASA Near Earth Object Observation (NEOO) Program detects and tracks asteroids and comets passing close to Earth using ground- and space-based telescopes. The network of projects supported by this program, commonly called “Spaceguard,” discovers these objects, characterizes a subset of them and plots their orbits to determine if any could be potentially hazardous to our planet.

    Asteroid 2012 DA14 is about 150 feet (45 meters) in diameter. It is expected to fly about 17,200 miles (27,000 kilometers) above Earth’s surface at the time of closest approach, which is about 11:25 a.m. PST (2:25 p.m. EST) on Feb. 15. This distance is well away from Earth and the swarm of low Earth-orbiting satellites, including the International Space Station, but it is inside the belt of satellites in geostationary orbit (about 22,200 miles, or 35,800 kilometers, above Earth’s surface.) The flyby of 2012 DA14 is the closest-ever predicted approach to Earth for an object this large.

    NASA Moderator: Asteroid 2012 DA14 is small, so even though it will make a close flyby of Earth, the asteroid’s apparent magnitude is expected to peak at about only 7.4 – too dim to be viewed by the naked eye. To view the asteroid, you will need a good pair of binoculars, or even better, a moderately powered telescope. During the closest approach, and depending on local weather, the asteroid will be visible from parts of Europe, Africa and Asia. The asteroid will appear to be moving relatively quickly as it crosses the sky from the south to the north.

    NASA statement on Russian meteor:

    “According to NASA scientists, the trajectory of the Russian meteorite was significantly different than the trajectory of the asteroid 2012 DA14, making it a completely unrelated object. Information is still being collected about the Russian meteorite and analysis is preliminary at this point. In videos of the meteor, it is seen to pass from left to right in front of the rising sun, which means it was traveling from north to south. Asteroid DA14’s trajectory is in the opposite direction, from south to north.”


    I’ve been reading financial blogs for a couple years now and can honestly say that I feel have learned far far more in the last couple hours than all my previous years reading. It has all suddenly just clicked (even if it’s really scary). Thank you!

    I do have one question I hope you might find the time to answer. You were both clearly worried about another even bigger crash after the 2008 crisis, but somehow governments seem to have kept the economy going on what seems to amount to little more than an expert PR campaign and keeping people in the dark about the true nature of the calamity we face.

    While it’s impossible to make predictions regarding the unfolding of economic events, would you say you are more/less worried about the coming crisis than you were in say 2009/2010 and do you think governments have a chance of keeping the status quo for another few years as they have done since 2008?

    Nicole Foss


    The crisis of 2008 isn’t over. What we were concerned about then is still very much on the cards. We’ve had a longer reprieve than we had expected in between phase I and phase II of the credit crunch, but that reprieve appears to be over. There are strong signals of an impending market reversal, indicating a coming shift from euphoria to concern and then to fear. The optimism we see at the moment is simply characteristic of a top. Things always look really good from the peak of a bubble, but at that point there’s nowhere to go but down.

    Governments are not in control. It only looks that way when people are collectively optimistic, generating a temporary self-fulfilling prophecy to the upside. Once optimism becomes pessimism, their powerlessness in the face of a self-fulfilling prophecy to the downside will be obvious.

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