Nicole Foss
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We would be happy to do a presentation here in the Netherlands, and elsewhere in Europe if people want us to. I’ll be in Europe until mid-September.
Wonderful 🙂 I would definitely send more resources his way. This is the ultimate in grass roots self-help.
An imperium feeds on its periphery, hollowing it out until the shell that remains collapses in on itself. Greece is the first, or at least the most visible, casualty of that process, but it won’t be the last. As the periphery is sucked dry, the centre will starve. The centre and the periphery is are not determined geographically by lines on a map. The centre is the financial system, which has evolved from a highly effective parasite to an all-consuming monstrosity. That centre is laying claim to the underlying real wealth in a highly under collateralized world, where there is far too little underlying real wealth to satisfy more than a fraction of the outstanding promises it ostensibly backs.
Europe is currently in the forefront of financial crisis, but it is by no means the only part of the world facing catabolic collapse. The hollowing out performed by decades of ponzi dynamics has been very thorough, and the dominos are beginning to fall.
Here’s a street-level view of events in Thessaloniki in German by a German/Greek woman visiting from Germany:
Bericht aus Griechenland: Chaos pur, und es wird jede Minute schlimmer
Google Translate version:
10.13 Clock: After three days I am back in Germany Greece. After landing on the way home I could not believe my eyes: At around 15 kilometers expressway (weekdays at the time getting busier to heavy traffic) I have counted a total of three cars. Also in place is all eerily empty, few people in the street. Shops (even incl. Supermarkets) are empty. I have not been shopping yesterday, but today will go check times, what about the offer. Furthermore, long queues at the ATM.
It is clear that there is already the capital controls massive difficulties. Our beverage supplier for the restaurant (alcohol and soft drinks) has already informed us about the fact that so few goods are currently not available, as import goods – and that these can not be cleared.
If that’s been with us so, then I want to know how the hits in the big hotels so. Since there is then at the bar soon only Amstel, Heineken and Green Coke or something? And on the buffet are feta and olives …. Not that I have anything against that, but that is likely to be bad for the tourism destination Greece.
Flown by the way I am with AirBerlin, typically brimming with tourists. Quite confused, and with money in your pocket …
Speaking of money in your pocket: The number of robberies has increased by leaps and bounds. As a rule, it is evidently raids on people immediately after lift-off at the bank (was especially in the days when the banks had still or ATMs spit out more than the 60 euros that there is now even a day ). Supposedly yes get more with their non-Greek maps tourists / foreigners were allowed to spread. But since I am in possession of a CoBa card, I can announce: Bullshit.
In general, the mood is very depressed, fear reigns. With “Yes” those will vote who have nothing to lose anyway, who are desperate and have no perspective. All this chaos busy here so far way, virtually no one with whom I have spoken, the Tsipras troupe at. How long this will continue for however, I am unable to say.
So yesterday was the pensioners who are members of UCI (which is the pension fund for farmers) announced that it will apply until further notice no or very reduced pensions. There are about one million pensioners concerned, I read. Many retirees are currently doubly affected because they have no bank card and can not get their pensions, but need the money urgently. For them, the banks have now opened, it must be chaotic scenes have played.
Then something else. Yesterday here one of the worst storms has descended that I have experienced over the years here. Duration and amount of precipitation were incredible. I see cars floating away. According to the weather map the phenomenon was so violent all the way down to Athens. I have not seen any other reports, but if that was so, should have suffered the harvest. Poor in the current situation.
12:23 clock: On Monday just wanted all the 20 passengers on the Western Cyclades. The famous island hopping is first past.
16:12 clock: transactions that require online payment (via credit card) are no longer possible for customers of Greek banks since today. The AppStore is closed, Ryanair tickes there are only against cash at the counter.
16:54 Clock: A huge banner hanging on the Ministry of Finance. Advertising for a “No” on the referendum day. Varoufakis tweets: “Not in my name.” Goods allegedly activists of some unions.
17:07 Clock: A US tour operators should not pay the note, we do not know so, whether the money arrive or remain blocked supposedly Greek hoteliers. Now that’s really not the problem of the tour operator, and if he has paid, he has paid, perhaps ne excuse. But now the company dying really begins. Man, where is this going to end?
17:00 clock: More than 50 percent of all private loans are now in default. And the banks fight back tooth and nail against the “collection” of real estate. These qualities are virtually worthless. Have a friend who works in the “recovery department” of Piräusbank. The thought: We accept virtually everything, but just not Immos.
17:37 clock: Lidl Greece does not accept Greek banks more.
18:01 clock: Level I wrote an acquaintance on Facebook, which is currently in Canada: Your husband should comply with Skygreece tomorrow (Greek line). Received Call: Since the plane is currently in Budapest and you can not send the money to fuel him, he remains on the ground. Maybe Friday then ….
18:18 clock: In the evening, the limit for withdrawals of 60 euros was reduced to 50 euros – because the 10s and 20s Euro bills are all.
20:19 clock: Why does one weeping, starving old only now in the news? I had the ARD can show those years ago. But there was the not, because there were only lazy, ouzosaufende, prassende Greeks.
Had shown many years ago, in which abject poverty and despair among others, the policy of the Troika much of the population has fallen, so you’d better understand today why so many people are on Sunday probably vote “No”.
Polistra, exactly. Things have scaled up to the point where people and other small scale factors are irrelevant to the large scale power game being played. Of course as things break down, they will become relevant again, probably in a ‘V For Vendetta’ sort of way, at least in some places.
It really is about fear and fight/flight. It always is about either that or irrational exuberance, depending on which direction things are going. We only tend to notice at the extremes where the degree of emotional contagion is both larger and more widespread. The tug of war between collective emotional states, at all degrees of trend simultaneously, is the engine of history.
Variable81, that is possible, and if so might occur as a short squeeze, but I am not convinced. The flight away from risk is far more likely to be into safe havens such as US cash and short term government bonds than into equities.
Ann, you really do not understand the model we are working with here and so make uninformed comments. Considering that you make them in the spirit of trying to discredit without trying to understand, they add no value to the discussion. I am sorry for your loss, but I really do suggest you move on. Your obsession is not healthy.
Markets cycle at all degrees of trend simultaneously, hence there are many different scales of both tops and bottoms. It is not always possible to identify what scale of top or bottom is occurring, although there are relative indicators. Market sentiment is a major one. It is most extreme at larger tops, and historically extreme at major ones. The period of low volatility I was commenting on was the longest for 21 years. The likelihood is that it signals a notable top.
Agriculture will be suffering from liquidity crunch in the same way as other sectors of the real economy. When money is scarce and the velocity of money is low, it is difficult to access credit, difficult to service loans, difficult to purchase inputs and sell to potential consumers even for the cost of production, let alone at a profit. Where few can afford what is produced, demand is low and there is no price support. Farmers struggle to make a living. If they have overpaid with borrowed money for their land, they stand to make a huge loss in financial terms as a property bubble bursts. Of course in Greece more farmland may have been in families for generations and long since have been paid off. In other countries farmers may not be so lucky.
Rare events (5 sigma if you like) aren’t often completely unannounced. If you are working with a meaningful model and know what leading indicators to look for, high risk junctures for particular kinds of events can be identified. It’s not an exact science, but a set of guidelines is still useful if one doesn’t want to be taken by surprise.
What we’re witnessing is the contraction of the trust horizon, leaving international institutions as stranded assets from a trust perspective. When the trust is gone, so is the political legitimacy, and with it effective governance. Effective organizational scale is going to get a whole lot smaller over the next few years pretty much everywhere. That is what we always said would happen.
A great deal of new information emerged at the village after I arrived there. I made my decision accordingly. I am now happily living in Wellington and looking for new opportunities in NZ. One day I will write a dos and don’ts for ecovillages, since there are many lessons that have emerged from the many ecovillages I’ve visited. I did a segment on this in the new DVD material I filmed in December. It’s now in post production.
It didn’t work out at the village, so I’m moving on. There’s no means for me to make a living at the top of the south island, and no support at the village in the absence of employment possibilities. Access to basic facilities got progressively curtailed until there was essentially nothing left. There should be greater opportunities in Wellington.
I don’t have Auckland area presentations scheduled so far, but if I do later then I’ll mention them here.
There are no ‘good guys’ in this situation, there is only power, greed and propaganda. There are ‘bad guys’ and ‘worse guys’ (or girls). This is a clash of imperial ambitions, frighteningly reminiscent of the run up to WW1. Great powers face each other through client states and buffer zones, and with nasty proxy wars in the periphery. Ukraine has the misfortune to be strategically important for its rich soil and it’s status as an energy transit state, at a time when control over energy is increasingly critical. This is a highly dangerous situation with considerable potential to deteriorate into something much worse.
Recourse versus non-recourse varies by state. We have covered these issues extensively in previous years. Non-recourse is very rare internationally and is merely an aberration of parts of the American system. Loans will be called in at some point in my opinion. It may not be considered likely at the moment, but laws will be changed retroactively if necessary to permit it when push comes to shove. My own family has seen this happen in the UK previously. I have a background in law myself, although I do not regard it as immutable when the ‘needs’ of the 1% ‘need’ to be defended.
As I have said before, timelines are probabilistic. The overall model presented here is not. There is a great deal of information on the details of our analysis in our archives, going back many years. It is not possible to replicate that here. In any case, this is not a discussion about property law, but about finance. I don’t think there is anything to be gained for anyone by continuing it.
Ann,
You essentially suggest that holding a long term leveraged bet for over a decade, on a property market clearly in a bubble, would have been a good bet. The assumption is that the balance of risk would favour this choice, but that is absolutely not the case. It is an extremely high risk choice with no exit strategy, other than foreclosure and probably bankruptcy, if such as thing is even available down the line.
Property ownership is a long term commitment, and can only reasonably be assessed as an option through an understanding of the market and the longer term macro trends involved. Most people who own mortgaged property have no idea of the risk they are taking. Their choice seems so normal because almost everyone is making the same one. There is an assumption that if everyone is allowed to borrow large amounts of money to purchase a home, then nothing bad can happen because ‘someone’ would not let such a bad thing happen to so many people. Unfortunately, just because something will be bad for so many will not stop it from happening. The ‘someone’ being looked to as a rescuer, whether it be the Fed or the government, does not have the capacity to prevent this eventuality even if they wanted to.
Just look at what is happening in the parts of the world at the leading edge of the deflationary crash. Property markets crater under these circumstances. At least most Americans can walk away (jingle mail) because mortgages are non-recourse loans in most states of the US, unlike the rest of the world.
There is another assumption, that the smaller the mortgage gets, the safer one becomes over time, so holding leveraged property would become less risky. Unfortunately this is not the case. In a financial crisis, banks will likely call in the loans (ie make a margin call on your home). The smaller the mortgage as a percentage of the home’s value at that time, the more attractive a target it will be, since there will be money to be made by the bank on the sale. Loans can be called in even if you have never missed a payment.
Even paying off a mortgage completely does not equal ‘complete freedom’ as there are many other costs of ownership that may not be serviceable if one has not taken many steps to prepare for an economic depression. Property taxes are a major one. As I said, it is a complicated picture. Even a paid for home is a liability, not an asset, if it is the wrong place to be stuck in an illiquid market. Assessing whether or not it would be the right place to be stuck involves a assessing a long list of potential advantages and disadvantages (dependencies, vulnerabilities). One the good side of the ledger would be no debt, proximity to friends and family (ie social capital), proximity to depression-proof employment, proximity to essential goods and services, ability to provide for essential goods and services from the property itself etc. On the bad side would be debt, social isolation, no ability to provide for food/water/energy, dependence on ephemeral employment, dependency on travel etc. Everyone needs to perform the cost-benefit analysis for themselves in order to decide where the balance of advantage lies. It may be best to stay put and commit all resources to one location, accepting that one will be stuck, but in a good place, or it may be best to remain flexible. Renting allows for flexibility. It doesn’t mean one has to be highly mobile, but it allows for that possibility, whereas ownership does not.
Please understand that you are looking at this issue as if it were simple, but it is not. Treating complex issues as if they were simple leads to a blinkered, one-dimensional view, predisposing people to placing all their credibility eggs into one basket. This is what leads to tragedy, and what we are trying to save our readers from.
Ann, Cory was asking us to repudiate our entire analysis in previous exchanges. It is not wrong. A probabilistic assessment of timing is the issue, and that is a minute fraction of the body of work presented here. Credibility does not hang on one dimension of a complex picture. I spent considerable time explaining to Cory in detail the complexity of the picture. All of us are going to have to get to grips with both complexity and probabilistic risk, since we’re going to be facing far more of both that we’re at all used to. No one can give exact predictions of all the specifics, but it is possible to provide the big picture, which is what we do here. That big picture is quite stark, and will come as a major shock to most people who are going to feel that the rug has been pulled out from under their feet. For anyone who understands the scope of that picture, exact timing is very much secondary. The point is to remove oneself from the leveraged position and sit on the sidelines in cash. This was then and is still our position today. Leverage is incredibly dangerous. Cory would have been vindicated if he had stuck it out. I am sorry he did not. Any death is a tragedy, particularly a premature one where children are left behind. We are all going to have to learn to be very adaptable in the face of considerable uncertainty if we want to survive. The future belongs to the adaptable who can roll with the punches. Many people will struggle enormously with this, but we will have no choice but to get on with it.
Ann,
Unfortunately useful contrarian forecasts never seem credible at the time they are most valuable, which is the time when one can act on them before the various financial traps close. To be a contrarian is to be lonely, in the sense of always being disbelieved when it matters most. It takes a thick skin to hold to a position one knows to be right even in the face of ridicule from the mainstream. People are typically far more comfortable being wrong along with everyone else than being right alone. To be wrong along with everyone else means one can avoid taking any kind of personal responsibility for one’s decisions. One need not make the effort to understand a situation and act in accordance with that understanding. The social pressure to conform is very strong, which is why we have such large swings of herding behaviour in the first place.
I think it is critically important to be proactive in understanding a situation, and that one should always take personal responsibility for decisions rather than leaving those decisions to a consensus of the uninformed, or blaming those who provide the critical information and analysis. It isn’t easy, but ultimately it is the only way to avoid the traps set for the masses. The trap that is looming on the horizon is probably the largest one in recorded history. Falling into it will be the road to ruin for the middle class globally. Cory was trying to extract himself and his family from this trap, which was the right thing to do. Unfortunately he was seeking for certainty of timing, which is impossible to provide. All timing forecasts are probabilistic. The timing is far less important than the overall picture however.
Again, I am sorry for your loss, although accepting the blame for it would be inappropriate.
Nicole
Hello Ann,
I am very sorry for your loss. The best record of what was said the last time (as far as I remember) that Cory posted here is to be found at the link provided by the poster above (https://www.theautomaticearth.com/2014/05/nicole-foss-at-atamai-ecovillage-new-zealand/?paged=2). I am sure there were many previous postings, but those would be unsearchable since we changed software platforms for our site (blogger to joomla to wordpress) over the years.
Cory seemed very disturbed when I interacted with him. I remember him insisting at one point that we repudiate our entire analysis because he had lost money in the short term. I think he acted on one part of the message we share here, while not considering the rest of the picture. What we explain here is very complicated, but we are always happy to talk people through that picture if they ask. We don’t tell anyone what to do, we simply provide information and analysis that gives people the tools they need to make their own decisions.
I am not surprised that rent would be higher than monthly mortgage payments, but mortgage payments are but one aspect of the cost of property ownership, so that is not an accurate comparison by itself. The property market has not bottomed, it has just been temporarily propped up by backing all mortgages with taxpayer guarantees. This will not continue for much longer. It is not a promise that can be kept if it is called on, it is merely a bluff to restore market confidence, but that can, and will, dry up very quickly once the credit crunch resumes.
Property prices will fall much further than they have so far, leaving very many people trapped in negative equity at a time of sky-high unemployment and rising interest rates, when servicing debt will be very difficult. This dynamic is already underway in many countries, notably in the European periphery, and many more are set to follow, including the US. Sitting on the sidelines in cash, with no debt, is the safest place to be in the economic depression that is coming. Rent is paying someone else a fee to take the property price risk for you, and that risk is currently very substantial. Renting also allows people to be flexible as to location at a time when moving to find a job in a shrinking job market may well be essential.
Selling is not a mistake, but it needs to be an informed choice made by weighing up all the options and understanding the risks and benefits of each way forward. What we try to provide here is the capacity for people to make such choices. There is a mountain of detailed analysis here. If you would like to understand our views in detail, then the primers section is the place to start. I am sure you will have other priorities at the moment however, and I wish you and your family peace at this difficult time.
Nicole
We aren’t going to deal effectively with them at all, which means that various parts of the world will become uninhabitable for a long time. Not that people will actually stop inhabiting them, but those that stay would suffer some really unpleasant consequences. It won’t wipe life off the face of the earth or anything like that IMO, but it will be very bad, and very variable with location. I wouldn’t want to live anywhere near a nuclear plant in a future where we won’t have the money or the energy to prevent horribles problems.
TonyPrep,
Collapsing economies will deprive a huge percentage of humanity of the essentials far more quickly than anything else will. Once money ceases to circulate in the economy, many thing cease to be possible almost from one day to the next. This is a huge existential threat, since organizing relief programmes is likely to take longer than people have before suffering dire consequences. Of course climate is important, but if we don’t look after the short term, we won’t have a long term to worry about.
Sydjf,
I focus on financial systems only because finance has the shortest timeframe and is therefore likely to be the first system to fail for most people. Of course all other aspects of reality are important. Systems thinkers acknowledge all aspects of limits to growth and how they all inter-relate. This is why I teach permaculture, of which I have far more than a superficial understanding. I was originally a biologist and environmental scientist, so I am going back to my roots in many ways.
I have huge respect for David Holmgren. He is a true systems thinker, and an exceptionally good one. Ilargi means that he is relatively new to an understanding of the dynamics of finance. He is not at all new to energy analysis or ecological systems thinking, in fact he was doing that substantially before I was, given that he is almost 10 years older than I am. His seminal work was produced when I was less than 10 years old. We work very well together. I love his propensity to interpret the landscape everywhere, in ways I could not hope to do myself.
Where in Japan? Not in the areas that are irretrievably contaminated I hope? Okinawa would be alright, and probably the western regions, where power production is not so compromised (Japan has an east-west divide in terms of power system frequency that makes east-west transfers problematic).
Japanese property is much less overvalued than it used to be, thanks to the 25 year economic contraction that has already taken place there. They are at a different position in the cycle than everyone else – closer to the endgame where hyperinflation is a bigger risk than the deflation that has already happened there.
Adrian, we have written a lot about property over the years. The main point is not to buy property with debt, because property prices will plummet, you will find yourself in negative equity, unemployment will go through the roof so servicing debt will become far more difficult, and you would likely be foreclosed upon at some point. Or the banks might call in your loan, even if you’ve never missed a payment.
If you can afford to buy a really useful property (that gives you control over the essentials of your own existence) with no debt, in the understanding that the price will fall drastically, and you are able to absorb that kind of financial loss, then go ahead buy it. In financial terms it would be a terrible investment, but there is more than finance to consider. Learning curve time for getting established is very important too. Those with more resources have fewer hard choices to make (fewer trade offs between time and money).
If you already own a property it makes sense to sell if it is not a useful property, or if you have debt on it that you can neither repay nor manage through the foreseeable future. Managing debt would mean finding additional income streams to give you a substantial buffer on ability to pay, or pooling resources with others so as to cover the debt. If it is a very useful property and you can manage the remaining debt with substantial safety margins, then it makes sense to keep it.
Pieces will indeed be very difficult to pick up. Depressions are long and drawn out affairs precisely because picking up the pieces of a broken complex whole is so hard. The world will look very different in a few years.
Cory,
I have given you several answers fleshing out the scenario with regard to real estate prices. I am sorry if you consider these to be robotic. You ask me to repudiate my position on where we are headed, as if everything we have presented here is entirely wrong. It is not. The big picture worsens every day at the fundamental level. The desperate optimism is merely illusory window dressing attempting to lure people back into the market. It’s a giant pump and dump. Falling for that would be tragic. So many people are though. They’re becoming complacent again, just in time to lose whatever they didn’t already lose in 2008/09. So many people have learned nothing about their over-exposure to risk and desire for a free-lunch by participating in a ponzi scheme in which they will be the empty bag holders again.
Real estate prices are going to collapse again. Just look at what’s happening already in the places on the leading edge of the curve, like Spain for instance. You are far better off on the sidelines in cash, provided you look after that cash. The cost of ownership has been skyrocketing, and when the market goes illiquid, people will be stuck with those costs, unable to extract themselves. Watch the property tax rates rise as local governments hit a wall over the next few years.
Look at the unemployment rates in the places on the leading edge, where whole extended families are forced into tiny apartments because it’s all they can collectively afford. Where they walk today, many others will follow. This is not theoretical. It is already happening, just not at the same pace everywhere. The interventions by central bankers have done nothing but make the situation worse, so that the collapse will be worse when it occurs.
I can understand the pressure you are under, but you did make the right decision to sell. You were at the very beginning of a mortgage, with many years to go. The freedom you speak of would have been unattainable, and you would have drastically overpaid for a depreciating asset in the meantime. Even if your home had been paid for, the cost of ownership could still have become an unsupportable burden under a situation of high unemployment, sharply rising taxes and rising interest rates on any other debts. What we try to do here is to help people extract themselves from unsustainable predicaments, so they are much less exposed to very large risks looming on the horizon. We stand by our record and continue to warn people, since the risks have only got worse in the intervening years.
Dr Diablo,
I am very well aware of the hydrological cycle and the range of permaculture solutions. This essay was addressing the failings of the existing framework. It’s not that we can’t do things differently, but mostly we won’t, especially in the timeframe that matters, so we are going to hit these non-negotiable limits. Denying that is not useful. Much as I love permaculture, it’s not going to get over 7 billion people through a bottleneck. I’ll write more about solutions in a subsequent post.
SteveB, you know I don’t consider it possible to do away with money and exchange globally. One can realistically come up with alternative means of exchange in order to address the artificial scarcity of a liquidity crunch, but getting rid of exchange altogether I regard as fundamentally unworkable. Like it or not, finance is currently our human operating system.
Stacy, yes I know about the seismic risk. I cycled round the Christchurch CBD two years ago and the devastation was heartbreaking. The village designs for that risk. I suppose we’ll see one day if it was enough.
TonyPrep,
I’ve been talking to Bob Corker about working with the Koanga Institute. I don’t fancy their chances of raising the finance they need in the timeframe available, although I wish them luck. If luck does not materialize, I invited them to set up here where we could work together and make joint funding applications. Bob and Kay will be speaking in Motueka later this month and I’ll be attending their lecture with various Atamai Villagers. They’ll be staying at Atamai in their motorhomes while in the area.
Family arrangements are complicated and personal, so I won’t be discussing them here.
Cory, you use two quotes you say are from me. The first is Ilargi, not me. The second is me, but says nothing about a timeframe. I stand by the second. On average I expect to see at least 90% price falls, but that average could conceal considerable variation. I wouldn’t necessarily expect suburban Maryland to be one of the places with relative price support, although it’s possible. Even in such places, one would expect a huge fall in prices once the pool of buyers in confined to the handful of people who can buy in cash and who choose to use scarce cash for that purpose. While I don’t expect a bottom in home prices as soon as a bottom in stock or financial assets in general, I do very much expect home prices to collapse.
Renting often only appears to cost more than owning. A renter is not on the hook for the many additional costs of ownership, nor for taxes, which are going to skyrocket once the local government squeeze gets into high gear. For more on that see the essays Promises, Promises (on Detroit) and Where the Rubber Meets the Road in America. Renting also gives you mobility, which could be very useful. The Washington DC area could easily be in for a world of hurt at some point and you might decide at some point that a different location makes more sense.
The area where the homes are is poor soil at people are working hard to build up. Some are producing all their own veggies already and building significant amounts of topsoil. My housemates are compulsive composters for instance, and have a garden to die for. The village has a farm attached, which produces beef, lamb, chicken, eggs and veggies etc. The ecovillage down the road sells raw milk from a vending machine. There’s plenty of food here, and great weather. The people are really lovely. I am very happy here.
