JMW Turner Vignette Study of a Ship in a Storm c.1830
Nicole sent me this video, which I know next to nothing about. I don’t know where it was filmed, or when, or why, nada. But, apart from the fact that listening to Nicole is always interesting, and I haven’t heard her talk nearly enough recently, because we live on opposite ends of the world these days, this is interesting because it relates directly to energy issues that have lately been a recurring theme at the Automatic Earth.
That is, once the net energy we gain from our energy sources falls by enough, our complex systems become untenable. This is not an easy-to-grasp thing for many, but it’s nevertheless true. The energy return on energy invested (EROEI) on the vast majority of our present energy sources is already dangerously close to the point where we will have to make our lives, and our societies, simpler.
We can discuss whether that’s such a bad thing, but it doesn’t really matter. We can’t beat thermodynamics. The initial reactions to this will in all likelihood by very dramatic, and in cases violent, since many individuals will try to escape having to adapt, and since individuals, societies, nations will realize that energy provides political -and military- power. Trust is a delicate topic.
There can be no doubt that in the immediate future we will attempt to build even more complex systems and societies, just to solve the problems caused by complexity, only to find out later that these systems are all built around centers that cannot hold. And we can all imagine what this will mean for our economies.
The Automatic Earth today releases its newest video presentation by Nicole Foss. Entitled ‘Challenge and Choices’, it deals with the problems presented to us by the earth’s limits to growth, in finance, energy and the natural world, and with the options and answers that exist in face of these problems.
To purchase the 3-hour video download of Challenge and Choices, go to our store. Click this image to get there:
Nicole Foss: After more than 30 years of exponential growth, gargantuan resource demand and increasingly frenetic consumption, we have now reached, or are reaching, an array of limits to growth. During our long, debt-fuelled boom, we reached out spatially through globalisation to monetise as much global production as possible, in order to facilitate the efficient transfer of wealth from the global periphery to its economic heartland.
We also, through the profligate use of credit and debt, reached forward in time to borrow from the future in order to stage an orgy of consumption in the present. This spectacularly successful modern form of economic imperialism delivered unprecedented wealth concentration, the like of which previous imperial structures could not have dreamed of attaining.
We are facing limits in terms of finance, energy, water, soil fertility, food web integrity on both land and sea, biodiversity, carrying capacity and the environment’s ability to absorb waste streams, among others. All of these factors, and the interactions between them, constitute parts of the reality jigsaw which we have been developing here at the Automatic Earth for the past eight years. Although we focus primarily on finance, as this is the first limit many will face, all limiting factors, and their relative timeframes, are vital to an understanding of the way the next several decades can be expected to play out.
This understanding of the big picture is crucial, but even more important is the ability to apply the knowledge in practice. This involves working through a complex decision tree process, spanning the assessment of strengths, weaknesses, opportunities, vulnerabilities and potential courses of action at different scales, from the individual to the regional. Our latest Automatic Earth video offering – Challenge and Choices – is designed to offer guidance in working through this process.
The video is divided into chapters, beginning in Chapter 1 with a broad overview of the limits to growth scenario, expanded to include a wider range of factors than we generally focus on at the Automatic Earth. The elements to be considered in an assessment of dependencies, or vulnerabilities, naturally lend themselves to actions at different scales. A vulnerability assessment typically begins with personal or family circumstances, hence the initial segments of the presentation focus on these aspects, beginning in Chapter 2 with financial circumstances.
As we have discussed many times at the Automatic Earth, we are facing the bursting of a major financial bubble and this is leading us directly into a state of economic depression, where people can expect many of the assumptions upon which their lives have been built to be invalidated in a short space of time. Such a period is characterised by high unemployment, sharply rising interest rates, taxes and rates (property taxes), falling incomes, cuts to benefits and entitlements, falling asset prices, major government spending cuts and increasingly aggressive debt collection, among other factors.
Being aware of these risks in advance allows for people to minimise the impact. The factors under consideration in our new presentation include leverage (what you owe compared to what your own), consequent interest rate risk, the potential for bankruptcy protection, margin call potential, access to and control over liquidity reserves, personal stores of value, risk management strategies and extended family issues.
The security of both liquidity and of stores of value will be extremely important, and extremely challenging. During a liquidity crunch, there will be very little money in circulation, leading to very little economic activity, and under such circumstances, cash will be exceptionally important. Managing risks to liquidity (cash) makes the difference between being at the mercy of changing circumstances and having the freedom of action to respond to both opportunities and threats as they develop. It is therefore important to avoid the large risks beyond one’s own control that are associated with assets inside the financial system, while learning to manage the risks associated with being outside of it.
Income streams will vary greatly in terms of reliability in economically contractionary times, given that the quantity of money available will decline sharply, and money in circulation will diminish even more quickly as increasingly risk-averse people cease spending and hold on to cash reserves, if they are lucky enough to have some. Many current employment opportunities will dry up or cease to exist entirely, and holding on to such a position now may mean being economically stranded at a time when available employment niches are much reduced in scope and already filled to capacity.
In an ideal world, one would therefore seek to be positioned in advance in a trade or profession likely to continue to deliver an income stream even in times when disposable income will be very scarce. This involves looking at one’s own skill set and personal inclinations, and moving towards using these to provide essential goods or services locally. Either employment or self-employment can be viable options, with running one’s own business raising many additional considerations. Although the complications may be greater, so is the potential for adding usefully to the economic and social fabric of one’s local environment.
Major decisions for everyone surround the issue of shelter – the appropriate form, the means of obtaining it and where it is located. The question of ownership versus renting deserves much greater consideration than most people allow for, given the degree of leverage involved in most cases. Property is drastically over-valued in many locations.
Purchasing property will not necessarily be the right decision, especially under circumstances where the financial value of the asset is set to fall substantially, but the debt will remain the same, leading to a rash of negative equity. Since the burden the debt represents will grow as both interest rates and unemployment rise, and social safety nets are withdrawn, there is a considerable incentive to remain debt-free through renting rather than ownership. Renting also allows for valuable flexibility as to location.
Chapter 3 goes into considerable detail as to the advantages and disadvantages of different types of locations – urban, rural, suburban, small town and intentional community. It is important to realise that the status quo is an active choice, not just a default option, and it may well not be a good one for one’s circumstances. All alternative options, including the status quo, should be thought through in order to avoid becoming stuck in the wrong place, facing risks that might have been avoidable. Becoming stuck is a very real risk under depression conditions, when freedom of action is likely to be very sharply limited, hence positioning in advance in highly advantageous.
The best choice will vary for different people with different circumstances, so there is no one right answer as to the best place, or set of circumstances, to be located. Each option is presented with suggestions as to which might suit what kind of individuals and families, and case-studies are provided as to workable approaches in each different environment. There are many quite inspiring examples from around the world to choose from.
In choosing a good location, carrying capacity and natural factors such as local resource availability need to be taken into account. These factors are considered in Chapter 4. For instance, a reliable water supply of predictable quality will be of particular importance, and one might not be able to rely on current sources that may be vulnerable under depression conditions. Similarly the potential impact of natural threats – wildfires, flooding, drought, earthquakes, cyclones, blizzards, extreme cold – needs to be understood as these are highly variable and represent a wide range of risk scenarios. The risks one feels comfortable with, or can tolerate, manage or mitigate, will be individual choices.
The most obviously good places are probably already over-crowded and expensive, whereas more marginal places may well have been overlooked and may represent both much better financial value and a greater range of opportunities. A given area can only support a certain number of people, and those limits can only be circumvented if large-scale trade is feasible and affordable energy readily available.
As we have pointed out at the Automatic Earth many times before, trade is very vulnerable when the credit it relies on dries up, meaning that economically contractionary times typically lead to trade collapses. At that point, local circumstances such as carrying capacity for a given local resource base become paramount. However, living close to a rich resource base is not necessarily the answer. One only has to look at the resource-rich geopolitical hotspots in the world to know that living on top of coveted resources is not necessarily an advantage.
Energy supply will be a major issue in many, if not most, regions. As we have noted many times here at the Automatic Earth, gross energy production is flat to falling globally, and the average energy profit ratio (energy returned on energy invested) is falling sharply. A greater and greater percentage of energy produced is being reinvested in energy production, leaving less and less to serve all society’s other purposes.
Both unconventional oil and gas and most forms of ‘renewable’ energy have low energy profit ratios and are also critically dependent on conventional oil gas gas production to enable them to be developed at all. As such they represent nothing more than an extension of the high energy profit ratio conventional fossil fuel era that we are now moving beyond. Being capital intensive as well as trade-dependent, they also depend on the continued expansion of the financial bubble, but this is on the verge of implosion. The future will be one of far less energy available, and consequently much reduced socio-economic complexity.
Families would do well to take a hard look at their energy-dependent essential functions (such as cooking, climate control, transport, and equipment operation), and think about what energy sources are required to fulfil these functions, what vulnerabilities different sources of supply may be subject to, whether each function is truly essential, and whether there may be more than one way to perform truly essential functions. One may require specifically electricity, liquid fuel or solid fuel, but there may be some capacity for substitution, perhaps with some additional or modified equipment.
The energy required may come from overseas or may require a large-scale centralised distribution system. Both of these represent significant threats to continued supply under conditions of credit contraction, trade collapse and reduced socio-economic complexity. Conversely, local energy sources which can be relatively simply obtained are a far more secure source of supply. Local dependency creates considerably less vulnerability, hence moving over to local supply in advance of supply problems would be advisable. Redefining essentials and moving away from requiring external energy sources would reduce vulnerability even further.
The local climate will determine how many aspects of life play out in practice, notably energy demand for climate control. Climate not requiring external energy inputs would eliminate a substantial dependency, but only a minority would have the choice to live in such a place. For the rest, thinking through how truly essential climate control is, and how this might be achieved in a low energy environment, will be important.
The development of tolerance for a wider range of indoor temperatures is likely to be necessary. Climate and water availability will, of course, determine what food can be grown locally, and in the sharp reduction of trade will reduce the potential for bringing food in from elsewhere. Relative proximity to the poles determines growing season, and is therefore a strong influence on the balance between plant and animal foodstuffs under a locavore scenario.
Health, healthcare care, social circumstances and political culture are also important factors in determining a good location for a given individual or family group. They are highly variable now, and can be expected to become more so as regions become more isolated with reduced trade. Human connections will grow greatly in importance in difficult times, hence being in a location where one is socially and culturally embedded can be expected to make a substantial difference to family fortunes. Any contemplation of relocation must take these aspects into account as they may ultimately matter more than physical circumstances. These factors are covered in depth in the Challenge and Choices presentation.
The scale of the community in which a family is socially involved will determine the range of choices available beyond the scale of individuals and families themselves. Isolation limits the range of options considerably, meaning that attempting to ‘go it alone’ is not advisable. Communities, whether urban, suburban, small town, village or rural, all offer the advantages of being able to work with others for mutual benefit. Chapter 5 is devoted to exploring the options available at larger scale, beginning with emphasis on community scale potential for pooling resources and building valuable social capital.
Relationships of trust are the foundation of society, enabling collective human endeavours to function. Building them in advance of difficult times creates a critical advantage, allowing existing constructive initiatives to flourish and new ones to gain traction rapidly once the need for them becomes clear. A range of examples of communal possibilities is given in the presentation, including community hubs, maker spaces, community projects, local network building and peer to peer coordination and funding activities.
Several are then discussed in greater depth, notably those in the economic sphere which will be necessary to navigate a period of liquidity crunch. These include time banking, savings pools, alternative currencies, alternative trading arrangements and the slow money movement. These are initiatives reducing the dependence on the existing monetary system, thereby reducing exposure to the risk of that system being disrupted.
Periods of economic depression create a situation of artificial scarcity, where a society has all the resources it had before, but due to the lack of money in circulation, can no longer make use of them. As those who lived through the great depression of the 1930s said – “We had everything but money”. Finance represents the operating system for our societies, and when that system crashes, it it necessary to ride out the acute phase of the crunch, and then to reboot the system into a more workable form. The initial phase creates an urgent need to substitute for the missing liquidity in the larger system with alternative forms of liquidity at the local level, in other words to relocalise finance in order to ride out the period of hardship.
Such systems emerge spontaneously at times and in places where economic depressions have been or are now in force, for instance Austria during the 1930s, Argentina following 2001 or Greece today. However, they can be initiated in advance, functioning in parallel with the larger system, and then are well positioned to stand more or less alone when the need arises. Examples of alternative currencies functioning under normal circumstances and under depression conditions are discussed in Challenge and Choices.
The need for financial relocalisation is but one aspect of the general need for much greater decentralisation. The contraction of the trust horizon during times of economic and financial contraction results in the need for all manner of activities, very much including finance, to operate at much smaller scale in order to function. Trust determines effective organizational scale, hence in contractionary times, working within the trust horizon implies working at substantially smaller scale. Governance mechanisms will be no exception.
Dependence on larger scale organizations to deliver essential goods and services, or to maintain a functioning socio-economic system, will represent a considerable vulnerability at a time when those entities are ceasing to be able to perform the functions for which they currently hold responsibility. Over time those responsibilities will come to vest in whichever organizations are positioned in practice to assume them, whether or not such organizations have the legal responsibility to do so.
Smaller scale governing institutions and regulatory mechanisms, which have been substantially disempowered in recent years, can therefore expect to inherit greater responsibility in the future. Being informed and well-positioned in advance to step into any power vacuum once it appears will be advantageous.
Centralised systems often struggle already to deliver what they are supposed to, hence decentralisation initiatives are already underway in many fields. These are commonly opposed by a top-down system critically dependent on continued growth, and the increasingly complete buy-in required to maintain it. It is therefore becoming increasingly difficult to opt out, even as doing so is coming to make more and more sense because the cost burden associated with the larger system is increasingly disproportionate to the benefits it is able to deliver.
In many ways the essentials can be provided independently at far lower cost, thanks to the absence of large and complex bureaucracies to support. This makes them a threat to a larger system reliant on holding hostage the provision of essentials by closing off independent options. Trying to achieve independence in any sphere therefore faces obstacles which make it more difficult than it should be, but it will be necessary to move in that direction in any case.
The existing level of socio-economic complexity allowing larger scale systems to function is itself dependent on trust, political legitimacy, cheap money and cheap energy, all of which are threatened in a limits to growth scenario. The future will be simpler and more local whether we like it or not, so we must position ourselves for that future. In doing so we generate resilience – the ability to cope under a wide range of circumstances, to bounce back from system shocks and to thrive in the meantime. This capacity is what working through the limits to growth decision tree process is capable of establishing.
Challenge and Choices provides the basis for being proactive at both the individual and collective levels, allowing us to face the approaching limits and navigate a near future fraught with risk and uncertainty. Challenging circumstances are much less daunting when equipped with information, analysis and the tools required to adapt to a changing big picture. We can replace a destructive mindset with a constructive one grounded in a solid sense of purpose, replacing fear of the unknown with empowerment.
To purchase the 3-hour video download of Challenge and Choices, go to our store. Click this image to get there:
Gustave Doré Dante looks upon the negligent rulers 1868
In case you missed it, we’re doing something a little different. Nicole wrote a very lenghty article and we decided to publish it in chapters. Over five days we are posting five different chapters of the article, one on each day, and then on day six the whole thing. Just so there’s no confusion: the article, all five chapters of it, was written by Nicole Foss.
To use the word ‘solution’ is perhaps misleading, since it could be said to imply that circumstances exist which could allow us to continue business as usual, and this is not, in fact, the case. A crunch period cannot be avoided. We face an intractable predicament, and the consequences of overshoot are going to manifest no matter what we do. However, while we may not be able to prevent this from occurring, we can mitigate the impact and lay the foundation for a fundamentally different and more workable way of being in the world.
Acknowledging the non-negotiable allows us to avoid beating our heads against a brick wall, freeing us to focus on that which we can either influence or change, and acknowledging the limits within which we must operate, even in these areas, allows us to act far more effectively without wasting scarce resources on fantasies. There are plenty of actions which can be taken, but those with potential for building a viable future will be inexpensive, small-scale, simple, low-energy, community-based initiatives. It will be important to work with natural systems in accordance with permaculture principles, rather than in opposition to them as currently do so comprehensively.
We require viable ways forward across different timeframes, first to navigate the rapid-onset acute crisis which the bursting of a financial bubble will pitch us into, and then to reboot our global operating system into a form less reminiscent of a planet-killing ponzi scheme. The various limits we face do not manifest all at the same time, and so to some extent can be navigated sequentially. The first phase of our constrained future, which will be primarily financial and social, will occur before the onset of energy supply difficulties for instance. Some initiatives are of particular value at specific times, and other have general value across timescales.
Moving into financial contraction is going to feel like having the rug pulled out from under our feet, and all the assumptions upon which we have based our lives invalidated all at once. Preparing in advance can make all the difference to the impact of such an event. At an individual level, it is important to avoid holding debt and to hold cash on hand. It is also very useful to have prepared in advance by developing practical skills, obtaining control over the essentials of one’s own existence where possible and being located in an auspicious place. Human skills such as mediation and organizational ability will be very useful for calming inevitable social tensions.
However, community initiatives will have far greater impact than individual actions. The most effective paths will be those we choose to walk with others, as even in times when effective organizational scale is falling, it does not fall far enough to make acting individually the most adaptive strategy. Even in contractionary times, cooperation is not only possible, but vital. In the absence of lost institutional trust, it must occur within networks of genuine interpersonal trust, and these are of necessity small. Building such networks in advance of crisis is exceptionally important, as they are very much more difficult to construct after the fact, when we will be facing an unforgiving social atmosphere.
Cohesive communities will act together in times of crisis, and will be able to offer significant support to each other. The path dependency aspect is important – the state we find ourselves in when crisis hits will be an major determinant of how it plays out in a given area. Anything people come together to do will build social capital and relationships of trust, which are the foundation of society. Community gardens, perma-blitzes (permaculture garden make-overs), maker-spaces, time-banks, savings pools, local currency initiatives, community hub developments, skills training programmes, asset mapping and contingency planning are but a few of the possibilities for bringing people together.
Essential functions can be reclaimed locally, providing for far greater local self-sufficiency potential. The existence of locally-focused businesses, with local supply chains and local distribution networks for supplying essential goods and services will be a major advantage, hence establishing these in advance will be highly adaptive. Choosing to form them as cooperatives is likely to increase their resilience to external shocks as risks are shared. Where they can function at least partially through alternative trading arrangements, or as part of a local currency network, they can be even more beneficial.
Alternative trading arrangements are a particularly important component of local self-sufficiency during times of financial crisis, as they are able to mitigate the acute state of liquidity crunch which will be creating artificial scarcity. Implementing alternative means of trading will allow a much larger proportion of economic activity to survive, and this will allow many more people to be able to provide for themselves and their families. This in turn creates much greater social stability. Alternative currencies in particular are already being relied on in the countries at the forefront of financial crisis, which already find themselves facing liquidity shortage.
It is by no means necessary to wait until crisis hits before establishing such systems. Indeed they can have considerable value locally even in stable times. Since they only constitute money in one area, and, being fiat currencies, must necessarily operate within the trust horizon, they help to retain purchasing power locally, rather than allowing it to drain away continually. Once well established, alternative currencies can go from being parallel systems to being the major form of liquidity available locally.
Beyond a close-knit community, it will be very helpful to have an informed layer of local government, as this confers the potential for a top-down/bottom-up partnership between local government and the grass roots. Local government is capable of removing barriers to people looking after themselves, assisting with the propagation of successful grass roots initiatives and acting facilitate adaptive responses with the resources at its disposal, even though these will be for more limited than currently.
Contingency planning in advance for the distribution of scarce local resources would be wise. With the trust horizons drawing inwards, local government may be the largest scale of governance still lying within it, and therefore still effective. It operates at a far more human scale than larger political structures, and is far more likely to have the potential for transparency, accountability and reflexive learning.
That is not to say local government is necessarily endowed with these qualities at present. The odds of it becoming so will increase if informed and public spirited individuals get involved in local government as soon as possible, rather than setting their sights on regional or national government. Presiding over contraction will, however, be a thankless task, as constituents will tend to blame those in power for the fact that the pie is shrinking. The job will be a delicate balancing act under very trying circumstances as the fabric os society becomes tattered and torn, but as difficult as it will be, it will remain essential, and getting it right can make a very substantial difference.
Higher levels of government may currently appear to be the relevant seats of power, but are far less likely to be as important in a period of crisis as their response time is far too slow. It is possible that higher levels of government may temporarily be involved in useful rationing programmes, but beyond a certain point, the most important initiatives in practice are likely to be those profoundly local. National governments are more likely to generate additional problems rather than solutions, as they crack down on angry populations during an on-going loss of political legitimacy.
Given the fragility of trade in the future we are facing, programmes of import substitution could be useful, if there would be time to implement them before financial crisis deepens too substantially for the necessary larger-scale organizational capacity to fucntion. Being able to provide for the essentials, without having to rely on vulnerable international supply chains, is extremely beneficial, and food sovereignty in particular is critical.
Once trade withers, we will once again see tremendous regional disparities of fortune, based on differing local circumstances. It would be wise to research in advance what one’s own local circumstances are likely to be, in order to work out in advance how one might live within local limits. Getting expectations aligned with what reality can hope to deliver is a major part of adaptation without unnecessary stress.
In the longer term, we can expect to move through economic depression into some form of relative recovery, although we may see large scale conflict first, and will not, in any case, see a return to present circumstances. We will instead be adapting to the age of limits, mostly in an ad hoc manner due to on-going instability and consequent inability to plan for the long term. The bursting of a bubble on the scale of the one we have experienced has far reaching consequences that are likely to be felt for decades at least. In addition, our current condition of extreme carrying capacity overshoot means that we will actively be tightening our own limits, even as the population declines, by further cannibalizing remaining natural capital.
The operating system reboot which could lead to relative recovery would involve the restoration of some level of trust in the financial system, following the elimination of the huge mass of excess claims to underlying real wealth, and very likely the subsequent destabliization of a currency hyperinflation some years later (timeframe location dependent). We are very likely to see financial innovation, which is nothing more than another name for ponzi scheme, banned for a very long time, and likely the creation of money as interest bearing debt as well.
Humanity is in the habit of locking the door after the horse has bolted, so to speak, only restoring financial regulatory controls once it is too late. Once restored, regulations requiring plain vanilla finance will probably persist until we have once again had time to forget the inevitable consequences of laissez faire. This will be measured in generations.
The small-scale initiatives which we need to navigate the crunch period could be scaled up as trust is slowly re-established. The speed at which this might happen, and the scale that might eventually be workable, are unclear, but it is not likely to be a rapid process, and scale is likely to remain small relative to today. Society will be lower-energy and therefore significantly simpler by then, with far smaller concentrations of population.
While some fossil fuels will no doubt be used for essential functions for quite some time to come, the majority of society will be excluded from what remains of the hydrocarbon age. We will likely have renewable energy systems, but not in the form of photovoltaic panels and high-tech electricity systems. Diffuse renewable energy can give us thermal energy, or motive power, or the ability to store energy as compressed air, all relatively simply, but at that point it will not be a technological civilization.
We are heading for a profoundly humbling experience, to put it mildly. Technological man is not the demigod he supposed himself to be, but merely the beneficiary of a fortuitous energy bonanza which temporarily allowed him to turn dreams into reality. We would do well, if we could summon up sufficient humility in advance, to learn from the simple and elegant technologies of the distant past, which we have largely discarded or forgotten.
We could also learn from present day places already constrained by limits – places which already operate simply and on a shoe-sting budget both in terms of money and energy. It takes practice to learn to function without the structural dependencies we have constructed for ourselves, and the sooner we begin the learning curve, the better off we will be. Focusing on solution space for our ways forward would save us from countless blind alleys in the meantime.
Unknown Dutch Gap, Virginia. Bomb-proof quarters of Major Strong 1864
A little over a week ago I published an article at The Automatic Earth by our friend Dr. Nelson Lebo III from Wanganui, New Zealand, named Resilience is the New Black. After being reposted at Zero Hedge, Naked Capitalism and at least a dozen other sites, it may well have had more hits than everything he ever wrote put together. While that is obviously great, Nelson also did come away feeling a bit misunderstood – in particular, about what resilience actually is, and how he made it part of his life -, and he said he wanted to try and set the record straight. By all means. Here’s the doctor:
Nelson Lebo III: The article I wrote for The Automatic Earth last week – Resilience is the New Black – appears to have caused a stir in certain sectors of the internet. It’s great that the piece struck a chord with so many but this came as a surprise to me. We have been publishing our blog for over four years but only get 50 to 100 views per day.
The other two things that surprised me were the misreading of the piece and a huge amount of confusion and uncertainty about what ‘resilience’ even means. I’ll address both in this article.
Ilargi first alerted me that Yves Smith had posted the article on Naked Capitalism with some comments of her own. I had a look and was a bit shocked at what she had written. Her comments appear to misrepresent the article and perhaps served to bias readers before they got into the piece itself.
It appears that the two main points of her critique miss the mark: 1) that I have abandoned the notion of sustainability; and, 2) that I have turned my back on the world and focus only on “me, mine, my family”.
Here is what I submitted to the comments section, admittedly after reading a number of bizarre musings from courageously anonymous posters:
Thanks for posting this article. Raul tipped me off. It’s great to see it has sparked healthy debate. Two important points that I think you missed in your preamble.
First, it was not my intention to indicate an “abandonment of the notion of sustainability.” What I wrote is that I do not bang the drum for sustainability anymore. I practice it on a daily basis. I have meant to make a couple of points in the article: 1) My observations of the global debate on many issues has shifted to resilience over the last 7 years; and 2) Most people in my direct experience relate much stronger to the notion of resilience than sustainability.
I work with patterns and both of these are strong patterns I have observed since 2008. As a community educator, it is my duty to take the most effective approach to support my fellow citizens. The resilience approach has been hugely successful across the socio-economic spectrum.
Second, the word community is used three times in my article along with a reference to sharing our project locally. I’d say that scores 4 mentions of us supporting our neighbours and our city. Characterizing the piece as focusing on “me, mine, my family” is simply inaccurate. I know of few people in the sustainability movement worldwide who are more community-focused than us or who are more generous with their time. Ask anyone who has ever met us or worked with us, including Ilargi and Nicole at the Automatic Earth.
I see no problem challenging someone on their own “home turf.” I think it is important to do. But it is necessary to make sure you are accurate in your critique.
My thesis was that resilience has surpassed sustainability at the forefront of many people’s minds in recent years. But to embrace resilience does not mean to deny sustainability completely. If resilience is ‘the new black’ it doesn’t mean you don’t wear sustainability once in a while. Personally, I wear it everyday, but I bang the drum for resilience because more people listen.
On the second point above, Yves is totally off the mark. I am heavily involved with the permaculture movement and sustainability networks, and know of few people globally who can match our community projects here. How did she overlook the major emphasis on community in the piece? Reading further down the comments section gave me some possible clues.
One person suggested resilience was simply “prepping” and another thought it might be some new hipster term for…I don’t remember. My point is that there appears to be a huge amount of misunderstanding of resilience. I suspect that Miss Smith labeled me a “prepper” and then stereotyped all of the common attributes of preppers.
I am used to the term sustainability being interpreted in hundreds of different ways, including being co-opted by corporations. It seems the concept of sustainability is surrounded by grey area, but I was not expecting the same for the concept of resilience. It appears the Internet can make anything grey, so I’ll try to put things in black and white.
Resilience is not “prepping.” I repeat, resilience is not “prepping”.
A three second search of the Internet found these definitions:
1) the ability of a substance or object to spring back into shape; elasticity
2) the capacity to recover quickly from difficulties; toughness.
While both definitions focus on after-the-fact aspects of resilience, the most important aspects in the context of climate change, income inequality and volatile energy prices involve building resilient capacity. In other words, the ability of bounce back requires lots of up front groundwork. In these contexts, the groundwork that needs to be done is moderating extremes.
The human body is a great example of moderating extremes. When we are too hot we sweat and when we are too cold we shiver. Like the Buddha, our bodies seek a middle way. But unhealthy living conditions weaken the immune system and decrease the body’s resilience. I have been a crusader for warm, dry, healthy homes in my community (and world wide through the web) for over four years. I even developed a maths/science curriculum on passive solar design using our Eco-Thrifty Renovation as an example. The Little House That Could can be found on Facebook.
In the context of climate change, resilience means moderating climate extremes, especially those involving water and the lack thereof. In both cases eco-design is the best approach to take: imitating the way nature moderates for climatic variability. We are currently using eco-design to drought-proof our farm while also managing for periods of excessive rainfall. I have written an article for fix.com on how to drought-proof a suburban property but it is yet to be published. If you’re interested keep an eye out for it.
In the context of income inequality, we also need to buffer society from extremes. Researchers have told us that there is a correlation between wealth inequality and social problems. If we want a resilient society – and I sure do – we need to work to moderate those extremes. That’s why I have put so much volunteer work into raising awareness of the TPP in my community.
In the context of volatile energy prices, I believe it is important to design for resilience for ourselves and our communities. Our Eco-Thrifty Renovation project represents this approach, and would be considered one of the best such initiatives anywhere in the ‘developed world’. For a summary of the project, see this page I posted as part of my diploma work in permaculture:
We have lots of mottos and catch phrases, but one of the best is Act Locally – Share Globally. Our work represents thousands of volunteer hours that are both locally and globally focused. As an individual, I answer every email I get requesting information about our projects. Who else can say that?
The bottom line is that extremes and their consequences are almost always expensive. Avoiding and moderating them is both conservative and practical. I believe our world and my family will both be better off if I promote resilience to extremes on all levels. Nothing grey about that, is there?
Dr. Nelson Lebo believes in the permaculture principles of Earth Care, People Care, and Fair Share.
Unknown Charleston, SC, after bombardment. Ruins of Cathedral of St John and St Finbar 1865
After 6+ (BIG +) years of deepening poverty and rising stock markets, of creative accounting, of QE and ultralow interest rates, of extend and pretend and outright propaganda and of what have you, all of which have led us to where we are today, facing yet more rounds of stumbling from crisis into multiple crises, it would seem clear that the model, if not the mold, is broken. In order to fix it, let alone replace it altogether, we need to understand to what extent it is broken. And to do that, we first need to know what exactly the model is.
Now, it would be tempting, even seem logical, to consult with the people who designed and built the model. Who, after all, not only claim to be the only ones capable of fixing the broken mold, but who also have occupied all positions of power that have any say in the process. But that’s less obvious than it may seem. Because, mind you, the model is broken. They built a flawed model. Or rather, they built one that works for them, for some, but not for the rest of us.
There are gatherings and festivities ongoing in Davos. Only some are invited: the rich, the powerful and their court jesters. Those who profited most from the broken model. They’re least likely to fix it, they won’t even admit to it being broken. It works just fine for them. The people in Davos believe in one model only, the one of ever increasing centralization and globalization, because that’s the model that got them where they are.
That means that what’s in their interest is 180º removed from what’s in your interest. And it means that whatever these people propose you do, you should probably do the exact opposite.
The more our economic activities become part of the global economy, the more the rich can skim off. That ‘principle’ got them where they are. They all, to name one thing, keep talking about the need for more reforms, in order to make economies more competitive. Even sounds reasonable at first glance; but only because we haven’t thought it over. It’s mere propaganda.
When it comes to basic necessities, to food, water and shelter, we shouldn’t strive to compete with other economies. That is not good for us, or for our peers in those other economies; it’s good only for those who skim off the top. The larger and more globalized the top, the more there is to skim off. All the ‘reform’ is geared towards making our economies ever more dependent on the global economy. And that is not in our best interest.
It’s not all just even about money, it’s about our security, and independence. Everybody likes the idea of being independent, but at the same time few realize that globalization is the exact opposite of independence. Global trade is fine, as long as it’s limited to things we don’t need to survive, but it’s not fine if and when it takes away the ability of a community or a society to provide for itself.
Protectionism has acquired a really bad reputation, as if it’s inherently evil to try and protect your community from being gutted by economic ideas and systems it has no defense against, or to make sure it can generate and provide for its own basics at all times. But that’s just propaganda too.
If our societies are not designed and constructed to provide for themselves, they’ll end up with no choice but to go to war with each other. Along the same lines, if our societies don’t have strict laws in place that guarantee we can’t and won’t destroy the natural resources of the land we live on comes with, we’ll also end up going to war with each other.
We’re not going to solve the Gordian knot of the entire global economy and all the hubris and propaganda the present leading politicians, businessmen and ‘reporters’ bring to the table. And we probably shouldn’t want to. Our brains did not develop to do things on a global scale. The clowns will blow themselves up sooner or later. We should focus on what we can do, meanwhile, in our immediate surroundings.
And it’s pretty easy from there, really. The economic problems we have are mostly artificial. They have been induced by the broken economic model the Davos crowd, the central bankers and you know who else would have us believe is the one and only, and that they are busy fixing for our sake and greater glory. But they care only about their own glory.
The IMF lowered its global GDP forecast yet again. But who cares? Who has any faith in the IMF? Those numbers are released for consumption by the masses, and duly reported by the media six ways to Sunday. China says its economy grew 7.4% in 2014. But there is no more reason to believe China than there is the IMF. If China’s economy had really grown 7.4% in 2014, oil would not be below $50.
Trying, and desiring, to be part of this global economy idea the clowns propagate, or even a new world order, which can only lead to misery and mayhem for billions of people just because of the way it was set up, is the worst thing we can do now. We owe it to our people, and our children, to leave them with something better than that.
It’s fine to compete with others when it comes to technology and fashion and gadgets and whatever luxury items you can or cannot yet imagine. But it’s not fine to compete with them for the food and water your own children will need to survive. But still, that is the path we’re on. The path the Davos crowd has set us on. Because they get richer as we compete for food and water. Divide and rule stems from Roman times, if not before. And ‘we’ – or they, if you like that better – have perfected it. To the extent that we are now so divided amongst ourselves that a small minority can see its wealth grow at ever increasing speed at our cost.
The Davos crowd are not the important people, it’s just propaganda that makes you see them in that light. There’s no glory in wealth. The important people are your neighbors, your families, and most of all your children. And the answer to their insidious schemes is really simple; its that very simplicity which may well be the reason you never saw it.
You see, a dollar spent on locally made products goes much further than one spent on products that are shipped in. About 4 times further. Because if you buy local products, you support local jobs, which in turn support the community you live in through taxes that pay for strengthening the community, and so forth. Ergo: if something produced locally costs twice as much as what’s available from 1000 miles away, you’d still be better off. Even if it’s three times more expensive, you’ll still end up richer.
The only setback is, you’ll have to work to make it work. You’ll have to get people around you to understand why buying what their neighbors make at double or triple the price of what they pay for what comes from China will make them richer and better people. Sounds stupid and naive and easy to dismiss and unrealistic at first bite, I know. But I don’t mind, because I’m none of those things.
And, moreover, this is the only road out of Davos. All you need to do is wean yourself off the clowns. And I know you can’t do it alone, but then, why should you want to?
G. G. Bain Jewish Farmers Exhibit, East Broadway, NY 1909
Today looks like a good day to do a shout out and promo for our dear friends Kirsten and Serenity in Melbourne, Oz, who were responsible for the impeccable organization of the tour of Australia Nicole and I did in 2012. So we have living proof that they know how to organize something once they pour their hearts into it, which bodes well for the new project they’re busy setting up.
The Open Food Network focuses on building and facilitating an interactive platform to connect farmers and eaters that are dedicated to good, honest and local food, with full transparency. Of course there are many initiatives out there, from farmers markets to organic food stores, but many people still have problems getting access to good food.
Besides, most ‘fresh’ food is bought in giant supermarket chains, transported over large distances, and subject to centralized control, from Monsanto at seed level, ConAgra as super-producer, to WalMart as super-retailer. And we should not want centralized control, especially not of our basic necessities; that has never been a good idea and it never will be. If we can get the Monsanto’s and WalMarts of this world out of our lives, and at the same time improve the quality of our food, that can only be a good thing.
And if that still doesn’t swing it for you, just think of all the local jobs that will be created if we all buy local food as much as we can. Don’t forget that a dollar spent inside your community is worth 3-4 times more than one spent outside of it. And no, WalMart, and the entire supply chain it stands for, is not your community.
The Open Food Network aims to use the internet to provide a way of organizing all this, community by community. Check it out. Here’s their blurb:
The Open Food Network is an open, online marketplace that makes it easy to find, buy, sell and move sustainable local food. It gives farmers and food hubs easier and fairer ways to distribute food, while opening up the supply chain so eaters can see what’s going on. It’s good for farmers, good for eaters and good for the food hubs, local businesses and communities that want real food.
We are proudly open source and not for profit – creating software with and for the global fair food movement. Contribute now to get this platform launched for use by farmers and food hubs in Australia, with the software available for use all around the world! We know that OFN has the potential to really disrupt our food systems – in a good way. But we need you to get on board now and help make it happen.
How will OFN help fix the food system?
Lots of people are working to break the stranglehold that supermarkets and large agribusiness have over our food system. We’ve spent 3 years talking with many farmers, producers, eaters and local enterprises (like food hubs, independent retailers and co-ops) about how we can work together to take back control of our food. The Open Food Network is our response. By turning the existing food system on its head, the Open Food Network provides efficient ways for buyers (hubs) to connect with many smaller sellers (producers) and distribute food into their communities.
GOOD for Farmers and Producers: There is currently a big gap for farmers between selling through “the big guys” or doing everything themselves to distribute directly to eaters e.g. setting up and running their own online store, farm gate sales and farmers’ markets. For many farmers, these are not enough and take time away from the important work of growing our food. Farmers need scalable, sustainable systems for distributing their food.
OFN makes it easier for farmers to sell directly and possible for them to work together and with others (like food hubs) to streamline marketing and distribution, while maintaining full transparency and control. With the OFN, farmers have the freedom to set prices, choose who they trade with, when, how often and under what terms.
GOOD for Eaters: It’s time to reconnect with our food! We’re ready to abandon the supermarkets and get good, honest produce from people we know. But sometimes it’s hard work to shop and eat locally. OFN makes it easy to access locally grown food direct from the grower or transparently through hubs. Just go online, find what’s near you and shop . . It’s like an online shopping centre, full of local food!
GOOD for Communities and Food Hubs: “Middle men” matter . . the problem is when there are only two! We want every community to have many different ways to get sustainable, local food. Local food enterprises – like buying groups, co-ops or larger scale wholesalers, retailers (and everything in between) can make this possible. OFN provides simple online ordering and shopping tools that make it easy to set up a hub and start moving food – while keeping the farmers and prices transparent all the way through. It removes admin barriers to small and medium sized food hubs working with local farmers
The OFN provides an ultra-flexible system for food hubs, enabling communities to set up what they need. Food hubs using OFN have complete freedom over:
• Your customers – whether they are households, buying groups, institutions, food service etc
• Your mark-ups and fees – OFN has a flexible fee structure so you can set it up how you want it, easy, transparent, independent
• Who you work with – OFN supports diverse networks, partnerships and social enterprises, with relationships and flexible fee structures
The Open Food Network:
• is an online marketplace that farmers and local hubs can use to distribute food
• makes it easier to find, buy, sell and move sustainable local food
• is software that helps organise the trade and distribution of locally grown food
• lets you manage your ordering, scheduling, payment and delivery cycles
• lets eaters order locally grown food from their chosen hub
• puts eaters in touch with the people who grow their food
• lets farmers list their own produce, set their prices and tell their own stories
• basic trading is free for farmers and eaters to use
• is proudly open source and not for profit
Tipping Point Goal: $25,000
Total Funding Goal: $100,000
Tipping Point Goal: We’ve done the numbers and – together with grant funds and some blood, sweat and tears – an additional $25,000 will get the software to the point where we can launch an ‘open beta’ OFN service in Australia (open to anyone in Australia to use for profiles and basic trading). The money will go towards designers, engineers, developers and testers. This is our tipping point goal. If we raise this amount, the campaign will be a success and we’ll get your pledged donation. If not, we won’t get anything. Please help us at least make our tipping point which will get the basic OFN into the hands of all the farmers and communities that need it!
Total Funding Goal: Additional funds raised up to $100K will build the features we need for a full beta public launch in March 2015. Amazing volunteers, our own money, and seed grants from VicHealth and Sustainable Table have enabled us to get this far. And we’ve been able to provide enough features to do working trials with our fabulous hub partners in Australia and abroad. But there’s so much more that could be done.
We understand what is needed. If we raise more money, we can build more of it. Word is spreading and there are food hubs, networks and developers around the world who are keen to get on board. We want to help that happen . . so … Funds raised over $5,000 in any individual country will support a mini-pilot with partners in that country. It would be amazing to raise enough funds to build features AND set-up local chapters internationally.
The European Central Bank’s interest rates are too low for Germany, Bundesbank chief Jens Weidmann said on Saturday, adding that ECB monetary policy should remain expansive for no longer than absolutely necessary. Speaking at a Bundesbank open day for the public, Weidmann noted that many savers in Germany were irritated by low interest rates but said these were aimed at supporting investment and consumption. The ECB cut interest rates to record lows last month as part of a package of measures to breathe life into a sluggish euro zone economy, where inflation is running far below the central bank’s target and there is a dearth of credit to smaller firms. The German economy, Europe’s largest, has been outperforming other countries in the bloc, however.
“It is clear that monetary policy, when seen from a German viewpoint, is too expansive for Germany, too loose,” Weidmann told a crowd at the start of the open day. “If we pursued our own monetary policy, which we don’t, it would look different.” “But we are in a currency union,” he said. “That means that in our monetary policy decisions, we must orientate ourselves to the whole currency union.” Repeating a warning he has made previously about the risks of leaving policy loose for too long, Weidmann added: “This phase of low interest rates, this phase of expansive monetary policy, should not last longer than is absolutely necessary.” Bundesbank Vice President Claudia Buch said property prices were overvalued in some big city areas in Germany by up to 20-25%, but that there was no acute risk of a price bubble forming.
The ex-CEO of CalPERS, Fred Buenrostro, has just pleaded guilty to accepting doucers, cash bribes and fees for placing investment business with a specific firm. The economic point that this helps us elucidate is why bankers and fund managers make such vast incomes normally. It’s a concept called “efficiency wages”. Essentially, when stripped right down, if people are handling or responsible for a large amount of money then pay them very well. So that it’s not actually worth their trying to do anything naughty, the risk of losing that high income is greater than what they can gain by being naughty. Here’s the actual announcement of Buenrostro’s plea:
Buenrostro is the former Chief Executive Officer (CEO) of the California Public Employee Retirement System (CalPERS). In pleading guilty, Buenrostro admitted to conspiring with Alfred J. Villalobos, founder and operator of ARVCO Capital Research LLC (ARVCO). Buenrostro acknowledged in court today that he understood that Villalobos operated ARVCO as a placement agent that solicited investments by public pension funds into private equity funds. Buenrostro also admitted that he understood that ARVCO was typically paid an agreed-upon fee based on the percentage of the total dollar amount invested by the public pension fund.
To put it simply (and do note that Villalobos has not been found guilty of anything at all as yet and is thus innocent of all charges) there’s a layer of agents, or introducers, in the fund management industry. A pension fund, say, is looking around for where to invest, various fund management firms are looking for people to invest and those who introduce one to the other will get a (small) slice of the amount invested. The accusation is that Buenrostro favoured Villalobos in such allocations and then received various parcels of cash, had his wedding paid for etc. as a result. Again, note that Buenrostro has pleaded guilty, Villalobos is innocent. So far so grubby: but this gives us an insight into why pay is so darn high right across the fund management and financial industry. Simply because these people are handling such vast amounts of money. There’s therefore obviously a temptation to make off with some of that vast river of cash that flows through such offices.
Scientists now believe that a tremendous amount of light that would otherwise be illuminating our universe is mysteriously absent. How much light exactly? According to new research conducted by a team of international scientists and funded in part by NASA, the National Science Foundation and the Ahmanson Foundation, around 80 percent of the universe’s light is nowhere to be found. “It’s as if you’re in a big, brightly lit room, but you look around and see only a few 40-watt lightbulbs,” astronomer Juna Kollmeier – a Carnegie Institution for Science professor and the lead author of the new study on missing light said in a statement this week. “Where is all that light coming from? It’s missing from our census.”
Kollmeier and company have published their research in the latest edition of The Astrophysical Journal Letters, and there they explain further why they have reason to believe that the universe is missing around 400 percent of its light. Along with Benjamin Oppenheimer and Charles Danforth of CU-Boulder’s Center for Astrophysics and Space Astronomy, Kollmeier reported that the amount of light that should be emitted from ionized tendrils of hydrogen in the universe is only a fraction of what it should be. “Something is amiss in the universe,” they write. “There appears to be an enormous deficit of ultraviolet light in the cosmic budget.”
The worst outbreak of Ebola moved to Sierra Leone’s capital of Freetown where an Egyptian was found with the city’s first confirmed case of the disease. The unidentified Egyptian national had traveled from Kenema, the largest city in the nation’s Eastern Province, and checked into a clinic east of Freetown, Sidie Yahya Tunis, director of Information, Communication and Technology at the Ministry of Health and Sanitation, said by phone today. The person was moved back to the Ebola center in Kenema, he said. “The Ebola disease usually spreads to other places when suspected or confirmed cases in one community move to another, they abandon treatment centers to stay with relatives or they seek treatment outside the Ebola centers,” Tunis said.
There have been 99 Ebola deaths in Sierra Leone out of 315 laboratory-confirmed cases, the ministry said in an e-mailed statement today. The ministry said yesterday that 92 people had died out of 305 cases. Cases of the hemorrhagic fever have killed more than 540 people in Guinea, Sierra Leone and Liberia in an outbreak that according to the World Health Organization may last another three to four months. The toll is greater than the 280 people killed in 1976, when the virus was first identified near the Ebola River in what is now the Democratic Republic of Congo. The rapid spread of the virus is largely due to people moving across borders as well as cultural practices that are contrary to public health guidelines, such as people touching the body of a deceased relative before the funeral.
There is nothing more predictable than the bevy of Wall Street economists who come charging out of the blocks early each year proclaiming that money printing by the Fed will finally work its magic, and that real GDP growth will hit “escape velocity”. But this year the markdowns have come fast and furious. After the disaster of Q1 and the limp data reported for Q2 to-date, the revised consensus outlook for 2014 at 1.7% is already below the tepid actual results of the last three years. So much for the year when “screaming” growth was certain to happen. The graph below is all the proof that is needed to demonstrate that Wall Street has become a pure Fed enabled casino. If honest “price discovery” was actually functioning, the stock market would not be at nosebleed heights, capitalizing hockey sticks that never materialize. Instead, it would be discounting a badly impaired economy that is stuck in a sub-2% rebound—and one that is dangerously at risk owing to the third and greatest financial bubble the Fed has created during this century.
The wholesale inventory estimates seem to have raised more than a bit of optimism. I think that is highly misplaced for both GDP and the economy. On the GDP calculation side, there needs to be another huge gain in inventory to be “highly supportive” due to the second derivative nature of the estimate. As for the economy, even on a seasonally-adjusted basis, wholesalers are taking a dimmer view of holding inventory. The mainstream narrative, which has been copied almost word for word across the media, is here:
U.S. wholesale inventories rose in May, reinforcing the view that economic growth should surge in the second quarter following a weak first three months of the year.
This flips around what is actually taking place, as sales are lagging not surging. Whether you take it in the form of seasonally-adjusted or raw nominal data, there is nothing to suggest the pace of sales is appreciably better than the first quarter. If anything, the sales pattern continues to lag what would actually be consistent with sustainable growth. In fact, wholesale sales in May were only slightly better on a year-over-year basis than January and February.
American retailers may have more than a weather problem. Family Dollar said fewer shoppers came into its stores in the three months through May 31, pushing sales down 1.8%, excluding newly opened or closed stores. In a move to win back traffic, the dollar chain said it would begin carrying beer and wine nationally next year, adding to the tobacco, frozen food and other consumables that now make up 73% of sales. “Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment,” Chief Executive Howard Levine said. The discounter’s message echoed that of Container Store whose shares fell sharply midweek after its chief executive told investors that the company and its fellow store chains are in a “retail funk.” “We’ve come to realize it’s more than just weather,” Container Store CEO Kip Tindell said. Falling traffic led to the first drop in quarterly sales at the company in more than three years.
Investors flocked to the seller of bins, boxes and shelves when it went public last November, and shares more than doubled on opening day to close at $36.20. But so far this year, shares have dropped nearly 44%, as Container Store has succumbed to some of the pressures weighing on retail broadly. Results at retailers haven’t been uniformly bad this spring. But there are enough negatives to shake earlier hopes that shoppers would whip out their wallets and resume shopping after the long, tough winter. The mixed showing continues to cloud the optimism arising from stronger job growth and rising consumer confidence. The unemployment rate dropped to 6.1% in June, marking the best stretch of job growth in almost a decade. But five years into the economic expansion, big chains like Wal-Mart and Kroger remain divided over whether consumers are indeed bouncing back.
Over a three-week span starting next Monday, 72% of the S&P 500’s members will report earnings, but some of the early indications about this earnings season, especially from companies highly exposed to the U.S. consumer, have not been encouraging. On Tuesday afternoon, two companies that are all about consumer spending, Bob Evans and The Container Store, reported earnings that were disappointing. But even more discouraging were the comments from company executives. Bob Evans, which wrapped up its fiscal year 2014 in its most recent quarter, said its results were impacted by severe weather (an oft heard refrain during the first quarter), as well as high food costs. In the upcoming year, the company’s CFO, Mark Hood, said, “consumer confidence continues to be adversely impacted by ongoing macroeconomic headwinds, including health care costs and unemployment which disproportionately affects lower- and middle- income consumers.”
Also on Tuesday afternoon, Container Store CEO Kip Tindell said in the company’s earnings release that, “Consistent with so many of our fellow retailer, we are experiencing a retail ‘funk.'” Wednesday evening, Lumber Liquidators, a specialty hardwood flooring retailer, said that the consumer demand it experienced following the tough winter didn’t carry into May and June. CEO Robert Lynch said, “The improvement in customer demand we experienced beginning in mid-March did not carry into May, and June weakened further. Our reduced customer traffic has coincided with certain weak macroeconomic trends related to residential remodeling, including existing home sales, which have generally been lower in 2014 than the corresponding periods in 2013.”
Thursday morning saw more downbeat commentary from a retailer, this time Family Dollar. Following the company’s report, which saw that same store sales fell 1.8% during the quarter, CEO Howard Levine said, “Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment.” And then yesterday afternoon, Gap topped off the week of discouraging retail commentary by reporting June same-store sales that fell 2% year-over-year. According to data from Bloomberg, sales were expected increase 0.8%. Gap’s management, however, was light on additional color. This rash of discouraging retail data, however, makes the broader U.S. economic picture seem murky.
U.S. stocks are overvalued – and have been for months. That is what six well-known measures of valuation show. While that doesn’t mean a bear market is imminent, there is a high probability that investment returns over the next decade will be below average, according to Yale University economics professor and Nobel laureate Robert Shiller. Investors shouldn’t expect that what has worked for them over the past five years will continue to work in the future. One way to gauge the market’s valuation is to compare it to past bull-market peaks. There have been 35 since 1900, according to Ned Davis Research, a quantitative-research firm. Five of these six valuation ratios show the market is more overvalued today than it was at between 82% and 89% of those peaks. They are:
• The cyclically adjusted price/earnings ratio championed by Shiller, calculated by dividing the S&P 500 by its average inflation-adjusted earnings per share over the past decade.
• The dividend yield, which is the%age of a company’s stock price represented by its total annual dividends.
• The price/sales ratio, calculated by dividing a company’s stock price by its per-share sales.
• The price/book ratio, calculated by dividing a company’s stock price by its per-share book value, an accounting measure of net worth.
• The Q ratio, calculated by dividing a company’s market capitalization by the replacement cost of its assets.
It is noteworthy that there is such agreement among these ratios even though each calculates the market’s valuation in a profoundly different way. The sixth data point — the traditional price/earnings ratio, which focuses on trailing or projected 12-month earnings — is the one that paints the least-bearish picture. Still, it shows the market to be more overvalued than it was at 69% of those past market peaks. Shiller argues that the P/E doesn’t have as good a forecasting record as his cyclically adjusted variant. Some investors are ignoring the warning signs from these valuation ratios, since the bull market has continued higher even though the measures have told much the same story for some time.
Although economists have trimmed their estimates for second-quarter U.S. gross domestic product (GDP) growth, they don’t believe the economy will hit a recession this year or next. The National Association for Business Economics’ Outlook survey of 50 economist, taken just days after the release of the June jobs report, also found economists believe the Federal Reserve will hike rates earlier than previously expected. The panelists’ median forecast for annual second-quarter 2014 real GDP growth is 3%, down from the 3.5% median forecast when the full Outlook survey was last released in June. But in a positive sign, economists said the probability of the U.S. economy entering a recession in 2014 or 2015 is extremely low, with 60% of panelist saying the odds were less than 10%. “Notwithstanding the difficult start to the year, opinion is widespread that the economy is on solid footing,” said Timothy Gill, Outlook survey chair.
The minutes from the Fed’s latest policy meeting did not indicate did not indicate that the central bank intends raise interest rates ahead of schedule. But with unemployment and inflation getting closer to the Fed’s target levels, analyst are predicting that rate hikes could come sooner rather than later. More than half of those surveyed forecast the Fed will next increase its federal funds rate target in the first half of 2015, with a plurality of almost 37% expecting a hike during the second quarter of next year. Another 36% said they expect an initial rate hike in the second half of next year. The results are nearly reversed from the June survey, when 33% expected a rate increase in the first half of 2015 and 53% expected a hike in the second half.
Federal Reserve presidents disagreed today on whether a decline in the U.S. unemployment rate to the lowest level in almost six years warrants advancing the timing for an interest-rate increase. Philadelphia Fed President Charles Plosser said the Fed risks losing credibility by waiting too long to raise rates, and economic data are already suggesting a need to tighten policy. Chicago’s Charles Evans and Atlanta’s Dennis Lockhart countered that low inflation and labor-market slack will allow the central bank to wait until the second half of 2015 or 2016.
Plosser, speaking in a Bloomberg Television interview with Michael McKee in Jackson Hole, Wyoming, said “we are closer than a lot of people might think” to the first interest-rate increase since 2006. If the Fed waits too long, he said, “we’ll lose credibility. We may lose control of inflation.” Fed officials are approaching their goals for full employment and price stability faster than they had forecast, sharpening the debate over the timing of a rate increase. St. Louis Fed President James Bullard warned this week that inflation will rise above the Fed’s target late next year. “Monetary policy ought to be reacting to the data,” Plosser, 65, said. “We are on a path that says low for long and we have no plans to raise interest rates anytime soon, yet as the data keeps telling us, we ought to be raising rates.”
Federal Reserve officials are cautiously nearing completion of a new plan for managing interest rates, concerned that some of the new tools they are likely to rely on could pose unintended risks in a crisis. The central bank has devoted extensive debate to the matter over the past two months and officials “have made a lot of progress” on a strategy to return monetary policy to a more normal footing after years of coping with crisis, Chicago Federal Reserve Bank President Charles Evans said on the sidelines of an economic conference here. However, the sheer magnitude of the amounts of money used to combat the crisis – $2.6 trillion sitting at the Fed as bank reserves and $4.2 trillion held by the Fed in various securities – may complicate the U.S. central bank’s ability to control its target interest rate once the decision is made that it should be raised. A decision to begin increasing interest rates is expected in the middle of next year.
In recent weeks, the Fed has neared consensus that its workhorse tool will be the interest it pays banks on excess reserves on deposit at the Fed – giving the central bank a direct way to encourage banks to either take money out of circulation and leave it at the Fed, or lend it elsewhere. Another tool would have a similar impact but apply more broadly, using overnight repurchase agreements that would let money market funds and other institutions as well as banks essentially make short-term deposits at the Fed. The worry is that if financial conditions tighten, those large funds of money would flee to the repo facility as a safe haven, depriving the economy of credit and making a potential crisis even worse. “The broad concern is whether we want to facilitate what could be a period of financial stress by providing in a large or unlimited way that refuge, and whether that would tend to exacerbate a financially stressful situation,” said Atlanta Fed President Dennis Lockhart.
The market is setting up for a big decline that could be as bad as the crash of 1987, according to Marc Faber, known as “Dr. Doom.” He just isn’t sure exactly what will set it off. “The problem with crashes, you never know beforehand precisely what is the catalyst,” the publisher of the Gloom, Boom & Doom report told CNBC’s “Closing Bell.” It could come from the credit market, equities being perceived as too expensive or a geopolitical event, he added. His comments came a day after he told “Futures Now” that the asset bubble has begun to burst. “I think it’s a colossal bubble in all asset prices, and eventually it will burst, and maybe it has begun to burst already,” Faber said Tuesday.
He’s calling for a 30 percent decline in the S&P 500. “I think that the global economy does not support the current valuations,” he said Wednesday. Corporations “have had record profits, largely because they are buying back their own shares and so the number of shares is diminishing where revenue growth is basically flat.” In fact, he said the bond market, which is more sophisticated than the stock market, does not believe in a strong economic recovery and neither does he. Faber has been calling for a major correction for years. So far, the market hasn’t followed his theory, but he said that could be setting it up for an even bigger fall. “Since 2012, I said it would be healthy for the markets to have a meaningful correction, but it could be that we are in a year like ’87 when we go straight up and then we don’t have a correction but a more significant crash,” he said.
A 6.8 magnitude earthquake hit off the coast of Japan, with its epicenter located some 129 kilometers from the city of Namie in Fukishima prefecture, US Geological Survey reported. The quake was centered at a depth of about 10km, according to the Japan Meteorological Agency (JMA). Tsunami advisories have been issued for the Fukushima prefecture, as well as for nearby Iwate and Miyagi prefectures. There were no reports of abnormalities at Fukushima-1 nuclear plant following the quake, TEPCO reported.
The Portuguese crisis over Banco Espirito Santo should be a reality check for European markets. Espirito Santo is just the excuse – real problems lie far deeper. The European Central Bank has been playing with fire, with junk bonds ultimately funded by German taxpayers. Investors are waking up and smelling smoke, and at some point they will get singed. Three companies are involved in the Espirito Santo mess. Banco Espirito Santo is the largest publicly traded commercial bank in Portugal. Its controlling shareholder, Espirito Santo Financial Group, owns 25% of its shares. The privately held parent company, Espirito Santo International, owns 49% of Espirito Santo Financial Group (and therefore part of Banco Espirito Santo). It is this parent company that is likely to default on its payments. Even if Espirito Santo International defaulted, Banco Espirito Santo does not necessarily have to go under, but it might.
The problem is that Banco Espirito Santo is a weak institution irrespective of its parent holding companies, dabbling in risky assets in emerging markets that saner banks would not touch. Its risk management department needs a major shakeup. For instance, the bank has invested in Angola, setting up a subsidiary known as Banco Espirito Santo Angola (BESA). BESA has relied on Banco Espirito Santo for its funding, with loans in Angola amounting to 220% of deposits. Bad loans have exploded in Angola in recent years, rising by 84% from 2010 to 2013. BESA’s assets include €6 billion worth of loans payable, and Banco Espirito Santo has a 55% stake in the bank.
The government of Angola, a former Portuguese colony, has given the bank a “personal guarantee” amounting to 70% of the bank’s loans. There is doubt about whether the bank can retain solvency in the event of a crisis, even with the guarantee. An anti-corruption organization in the country, Maka Angola, has claimed that the reason for the guarantee was several hundred million dollars’ worth of loans given to powerful figures in the Angolan regime. However, the authenticity of these claims is unclear. There is also trouble closer to home for Banco Espirito Santo: It has lent over €1 billion to its various parent companies. Should Espirito Santo International default, Banco Espirito Santo will fall below the capital ratio mandates set by Basel III at the same time that the European Central Bank prepares to do stress tests.
Shares in Banco Espirito Santo were suspended from trading yesterday by the Portuguese government after they fell 17%. Prior to that, Espirito Santo Financial Group pulled its own shares from trading due to “ongoing material difficulties” at Espirito Santo International. The catalyst for the sell-off appears to have occurred July 9 when Espirito Santo International delayed repayment on short-term debt owed to customers of its Swiss bank. That was not the first time Espirito Santo International has been in trouble. In December, it sold €6 billion of debt to Espirito Santo Financial Group, exposing investors to even more losses should the company fail, in what the Wall Street Journal called “financial gymnastics.” In May, Espirito Santo Financial Group released an audit of Espirito Santo International, revealing that there were several irregularities on its balance sheet, making its outlook more negative that previously thought.
The debt of Banco Espirito Santo is government-guaranteed, leading to good ratings but also potential moral hazards. Given the size of the conglomerate, it is possible that one or more of the companies will require a bailout if things deteriorate. The Bank of Portugal has said it believes Banco Espirito Santo is not at risk, despite the problems at its parent companies. It also said explicitly that it had €6 billion on hand to rescue the banking sector if necessary.
Increasing numbers of Swedes are turning to family and friends for help in buying a home, side stepping government efforts to cool soaring housing prices and growth in private debt. Swedes who received non-bank assistance to fund mortgages rose to 52% in the period from 2012 to 2014, the highest level since at least the 1970s and up from 25% in the early 2000s, according to data last month from state-owned mortgage lender SBAB. The rising numbers seeking help to buy a home are a sign that Sweden is struggling to find answers to rising personal debt even after the government capped mortgages at 85% of a property’s value in 2010 to slow house-price growth. Prior to that, first-time buyers could often get a loan covering 100% of the purchase price.
“The big problem for policy makers is the high household indebtedness,” said Bengt Hansson, an analyst at Sweden’s National Board of Housing, Building and Planning, in an interview last month. “It’s obvious by now that the loan-to-value cap hasn’t been sufficient to solve the debt problem and a stronger amortization culture is long overdue.” The lack of rental housing and the difficulty of being able to afford a first home have left many young adults struggling to start their own lives. Almost a quarter of Swedes 18 to 34 were living with their parents in 2012, compared with 19% a decade ago, according to Eurostat. “The combination of the mortgage cap and price gains have resulted in more people needing help with the down payment,” Tor Borg, chief economist at SBAB, said in an interview last month. “This is a big problem for the young in particular.”
That development looks unlikely to change, as policy makers contemplate further measures to stem debt growth. The financial regulator, which has twice raised the risk weights banks must apply to their mortgage assets, has said it would consider lowering the mortgage cap further if problems persist and the government is now preparing to force amortization. Low rates over the past years and a limited housing supply have fueled a surge in home prices and pushed debt levels to records in the $550 billion economy.
Bulgaria is to allow its fourth-biggest lender to collapse and will hive off its healthy activities into a separate bank as it moves to clear up the mess from the country’s worst financial scandal since the 1990s. The central bank said it was removing Corporate Commercial Bank’s (Corpbank) license and alerting prosecutors to the possibility that its main shareholder stole money from the bank just before the central bank took over its operations. The scandal broke last month when Corpbank clients unnerved by media reports accusing top shareholder Tsvetan Vassilev of shady business deals dashed to withdraw their savings. The bank run spread quickly to another lender and saw Sofia announce a protective $2.3 billion credit line, a reminder that parts of Europe’s financial system are still far from secure despite progress from the worst days of the financial crisis.
“The results of the review of Corporate Commercial Bank speak, to put it mildly, about actions incompatible with the law and good banking practices,” the central bank said in a statement as it published the results of an audit. It said much of the documentation to back up 3.5 billion levs ($2.43 billion) out of Corpbank’s total 5.4-billion-lev loan portfolio was missing. The documents were, it believed, “most likely destroyed in the days before the central bank sent administrators there.” A significant part of the loan portfolio was linked to parties related to Corpbank’s main shareholder, the central bank said. Central bank administrators found Vassilev had withdrawn 205 million levs from the bank via a third party just before the state took control. Prosecutors would need to determine whether that withdrawal amounted to theft, the central bank said.
When asking Allianz SE’s chief investment officer about the euro area’s sovereign debt woes, be prepared for an emphatic response. “The fundamental problems are not solved and everybody knows it,” Maximilian Zimmerer said at Bloomberg LP’s London office. The “euro crisis is not over,” he said. While extraordinary stimulus from the European Central Bank has encouraged investors to pile into the region’s government bonds this year, that’s not a sufficient remedy for Zimmerer, who oversees 556 billion euros ($757 billion) at Europe’s largest insurer. Countries are still building up their debt piles, and that’s storing up trouble for the future, he said. As Zimmerer was speaking, investors were getting a reminder of the volatility that was rife through the sovereign debt crisis that started in 2009, as sliding stocks and bonds of Portuguese financial institutions rippled across the region’s markets.
“There is only one country where the debt level last year was lower than 2012 and this is a signal the debt crisis can’t be over, only a recognition of the debt crisis has changed,” Zimmerer said on July 9. “If the debt levels are not going down in the end we will have a problem, that is for sure.” Euro-area governments are still grappling to get their debt under control in the wake of the region’s financial-market turmoil, which left five countries needing international aid and triggered the biggest restructuring in history in Greece. Only Germany reduced its debt-to-gross-domestic-product ratio last year, according to data published by the European Union’s statistics office in Luxembourg in April. Allianz is reducing holdings of euro-area government debt to avoid low interest rates after the bond-market rally incited by the ECB, Zimmerer said. The Munich-based insurer is planning to move cash from fixed income into “real assets” such as infrastructure and real estate, he said.
Lake Mead, the man-made reservoir that supplies 90% of the water for 2 million people in the Las Vegas area, has been reduced by drought to the lowest level since it was filled in 1937, according to the federal government. The lake, now at 39% of capacity, has been dropping since 2012, according to U.S. Bureau of Reclamation data, as much of the western U.S. has suffered the most serious drought in decades. The shortfall is endangering water supplies to the residents and 43 million annual visitors to the driest metropolitan area in the country. Lake Mead, created by Hoover Dam in 1936 and 1937, holds mountain snowmelt from the Colorado River for farms, homes and businesses predominately in southern Nevada, southern California and most of Arizona. No metropolitan area depends on the lake more than Las Vegas, which lacks groundwater or other local sources.
“This is significant because it’s a resource used by three states,” said Rose Davis, a spokeswoman for the bureau, which manages the supply. “We all have to keep an eye on it because it’s the major water source for three areas. It concerns us all very much.” The lake’s surface, which reached a record high of 1,225 feet above sea level in July 1983, is now at about 1,083 feet, according to the bureau. If the level drops below 1,050 feet, one of the two intakes that feed water to Las Vegas will become inoperable. At 50 feet lower, the other would fail. Since 2008, contractors have been boring through rock to create a third conduit to draw water from as low as 860 feet. About 55% of Nevada, already the nation’s driest state, is under “extreme” or “exceptional” drought conditions, the worst grades on the U.S. Drought Monitor, a federal website. Portions of California, New Mexico and Colorado also are in the “exceptional” category, according to the monitor.
If it feels hot to you now in the dog days of this summer, imagine a time when summertime Boston starts feeling like Miami and even Montana sizzles. Thanks to climate change, that day is coming by the end of the century, making it harder to avoid simmering temperatures. Summers in most of the U.S. are already warmer than they were in the 1970s. And climate models tell us that summers are going to keep getting hotter as greenhouse gas emissions continue. What will this warming feel like? Our new analysis of future summers illustrates just how dramatic warming is going to be by the end of this century if current emissions trends continue unabated.
For our Blistering Future Summers interactive we have projected summer high temperatures for the end of this century for 1,001 cities, and then showed which city in the U.S. — or elsewhere in the world, if we couldn’t find one here — is experiencing those temperatures today. We’ve highlighted several striking examples on the interactive, but make sure to explore and find how much hotter summers will likely be in your city. By the end of the century, assuming the current emissions trends, Boston’s average summer high temperatures will be more than 10°F hotter than they are now, making it feel as balmy as North Miami Beach is today. Summers in Helena, Mont., will warm by nearly 12°F, making it feel like Riverside, Calif.
William Gedney Cornett family, Kentucky. Boy covered in dirt smoking cigarette 1964
Here’s part 2 (actually it’s part 1, I inadvertently mixed them up, sorry!, see first part here.) of Nicole’s interview at Vancouver’s PeakmomentTV, along with Laurence Boomert, about the practical aspects of decentralization and alternative currencies, issues that everyone, in our opinion, should at least give some very serious thought.
Because whatever happens, and whether you think that the economy will crash or you don’t, communities can make themselves much wealthier from an -increased – localization of their economies.
Money spent locally is simply worth a lot more than that spent in big box stores, where profits disappear to some unspecified location like the Caymans, a process that forces the locals to bring in ever more money from outside their communities, just to play even. That’s truly and simply a vicious circle process.
Somebody recently estimated that the value to a local economy of US foodstamps is about $1.70 for every dollar’s worth. And foodstamps are far from an ideal example, because they are to a large extent still spent in box stores and fast food chains. I’ve seen estimates of $4 as the actual worth per dollar spent, and spent again, and kept, inside a local economy.
That means we could spend twice what we do today on for instance a pair of shoes, and, provided they are produced locally and the shoemaker spends what we pay, in the local economy, still come out twice as rich. Which would allow us to “subsidize” opening a local shoe “factory”, create jobs, and create wealth for everyone in the process. And so on and so forth.
I realize very well that this is largely theoretical (unfortunately), and that there are many intricacies and questions, but that doesn’t make the principle any less true. Yes, it’s true that we can’t produce everything in our community, but it’s just as true that we can produce a whole lot more locally than we do today, and certainly in basic necessities.
It’s in essence just a matter of preventing the fruits of local labor from being relentlessly drained out of a community.
Which is such an insidious cycle that the more you think about it, the harder it gets to see why we insist on engaging in this behavior. From a purely rational – let alone emotional – point of view, it makes no sense at all. Buying items on the cheap at box stores makes us poorer, it creates unemployment, and we increasingly lose control over our own communities, and hence our own lives.
You don’t need a crisis to see why that this is not the way to go, and that, moreover, if you do go that way, – more – crises are inevitable. You can’t constantly suck wealth from a community and expect it to still continue to do well all the time, year after year. Localization provides a cushion against crises in the larger economy, while centralization and globalization inevitably induce crises.
Once again, I’d like to point out that much more of this material, and much more in depth, is available in our 4-hour video download series Facing the Future, which you can order from the TAE Store (click here). The Automatic Earth truly and badly needs your support at this point in time, so please keep your orders and donations coming in order to allow us to continue bringing you the biggest possible picture. Thank you.
We give you bang for your buck, even as we understand the irony, given the above, in not being in your community. You’ll have to get the ideas and the knowledge somewhere. Facing the Future, or its 2013 “sister”, A World of Change, may well be the best money you have ever spent, dollar for dollar. You can even burn the files onto DVDs and share them with your neighbors. Though we would prefer, of course, that everyone order their own copies, if only as a token of appreciation for our work.
“How do we cooperate and build a collaborative culture now?” asks Laurence Boomert, founder of The Bank of Real Solutions in New Zealand. Local currencies, barter cards, and Time Banks not only create alternatives when money systems collapse, they allow people to get entrepreneurial and innovative. He gives examples of people sharing physical spaces equipped with tools and project materials, as well as people sharing their time.
One example is a story of idle young people doing weekly projects, even taking wheelchair-bound folks for a day of surfing! Everyone was a winner, feeling good about themselves and more connected to their community. “It’s vital to get young people involved,” concurs Nicole Foss, senior editor of The Automatic Earth, “No more throw-away people.”
Nicole: One of our consistent themes at TAE has been not expecting solutions to come from the top down. Existing centralized systems depend on dwindling tax revenues, which will dry up to a tremendous extent over the next few years as economic activity falls off a cliff and property prices plummet.
We have already seen cuts to services and increases in taxes and user fees, and we can expect a great deal more of that dynamic as central authorities emulate hypothermic bodies. In other words, they will cut off the circulation to the fingers and toes in order to preserve the body temperature of the core. This is, of course, a survival strategy, from the point of view of the core. But it does nothing good for the prospects of ordinary people, who represent the fingers and toes.
Centralized systems also depend on the political legitimacy that has been conferred upon them as a result of public trust in them to serve the common interest. This trust is rapidly breaking down in an ever-expanding list of places, as ordinary people realize that their interests have been betrayed in favour of the well connected.
Those who played fraudulent ponzi games with other people’s money, and were in the best position to know what could result, have been bailed out time and time again, while the little guy has been told to expect more austerity measures. Protest is inevitable as political legitimacy fades. We are already seeing it spread like wildfire, which is exactly what one would expect given that human beings internalize, reflect and act on the emotions of others. Collective social mood that turns on a dime is very much part of what it means to be human.
The job of national and international politicians in contractionary times is typically to make a bad situation worse as expensively as possible, as they attempt to rescue the dying paradigm that has conveyed so much personal advantage in their direction. That paradigm is one of centralization – the accumulation of surpluses from a broad periphery at the centre of power.
However, the wealth conveyors of the past are breaking down, meaning that the periphery that can be drawn upon is shrinking. As the periphery shrinks, the remaining region within the grip of power can expect to be squeezed harder and harder. ‘Twas ever thus. Rome did the same thing, squeezing the peasants for tithes until they abandoned their land and threw in their lot with the surrounding barbarians.
Even if politicians were informed of what is unfolding on their watch, understood it, and were minded to act in favour of the common man as a result (which is itself unlikely), there would be nothing they could do. They are too deeply embedded in a system which is thoroughly hostage to vested interests and characterized by an extreme inertia that would drastically limit their freedom of action.
Such systems cannot be responsive within the timeframe that would actually matter in a financial crisis, where the risk is cascading system failure, potentially in a short period of time. Everything they might do would be too complex, too expensive and too slow to do much good. If we expect top-down solutions we will be disappointed, and more to the point, we will be unprepared to face a period of rapid change. By the time we realize that the cavalry is not coming, it may well be too late to do anything useful.
This is disheartening only to the extent that we see no other way to address our predicament. Fortunately, other strategies exist beyond attempting to preserve the unpreservable. What we must do is to decentralize – to build parallel systems to deliver the most basic goods and services in ways that are simple, cheap and responsive to rapidly changing circumstance.
We will not, of course, be able to provide for the level of wants our societies were previously able to cater to, but we can provide the most basic necessities if we prepare in advance. The key aspect is to align our expectations with reality, because the essence of our psychological conundrum is our sense that business as usual is a non-negotiable state of affairs that must continue.
It will not continue because it cannot. Business as usual is only non-negotiable in the sense that reality will not negotiate, it will dictate, and we will have to live within its parameters.
These topics and many others are discussed in Nicole Foss’ new video presentation, Facing the Future, co-presented with Laurence Boomert and available from the AutomaticEarth Store. Get your copy now, be much better prepared for 2014, and support The AutomaticEarth in the process!
There are many forms of decentralization – of opting out of the herd before it goes over the cliff. What they have in common is local resilience, a focus on local self-reliance and a thorough grounding in relationships of trust. As economies contract, so does the trust horizon.
Where there is no trust, systems cease to function effectively. Local initiatives work because they operate within the social space where trust still exists, and as they function, they reinforce those foundational relationships.
We need to be thinking in terms of local currencies, time banking (ie bartering skills), small transport networks, basic local healthcare, neighbourhood watch programs, adapting properties to multiple dwellings and permaculture initiatives that can rebuild soil fertility over time.
Also: rediscovery of local knowledge as to life conditions in the absence of current creature comforts, removing obstructive bylaws, small-scale food production free from structural dependencies on expensive and energy-intensive inputs, community power initiatives, communal water access, basic water treatment (like aid agencies employ in the third world), and perhaps intentional communities.
This is not meant to be an exhaustive list. There are many possibilities, and their relative importance will vary according to location and circumstances. So will their chance of success in a world that is path-dependent (ie where a society has collectively come from will shape how that society will respond to external stressors). The more we know about our region and our neighbours, the better our chances.
It is important to realize, however, that we are not going to be left in peace to do that which needs to be done. Solutions do not come from the top down, but interference does, because decentralization represents a threat to wealth concentration at the centre, and that is the goal of all human political systems.
Wealth is extracted from the periphery in favour of the centre, and the centre has an inexhaustible appetite. We are expected to pay our dues to that system, however onerous, not to try to reduce our own burden or that of our community.
As the centre seeks continually to solve the problems raised by excess complexity with more complexity, it also raises the cost (in terms of money and resources) of doing everything it touches. The periphery is then expected to cover the cost of the regulation that makes its own existence more precarious.
That regulation may even make life so expensive and difficult that parts of the periphery are driven towards a very marginal existence or out of an area altogether. Cumbersome, impenetrable and poorly communicated regulations are a recipe for raising revenues through fines for non-compliance, therefore we can expect worse governance to be implemented in the interests of the centre.
Fines may be completely disproportionate to the scale of the ‘offence’. Where such regulations are devised with no transparency or accountability, but plenty of discretion on behalf of enforcement personnel, they may also become an engine of corruption. This is a very common circumstance in many parts of the world.
I wanted to explore some examples of central authorities attempting to preserve wealth conveyance at the expense of attempts to adapt to a new reality, so that we might better understand what we are up against. See, for instance, the case of the desert dwellers of Los Angeles County, many of whom have been living self-reliant lives for decades.
They are being pursued by distant authorities for supposed nuisance violations, yet they are disturbing no one. Their ‘crime’ is the very self-sufficiency that allows them to exist independent of centralized systems, and therefore affordably. They are being told to connect to services such as mains power, at a cost of tens of thousands of dollars, or to destroy their own property and leave with nothing.
Local organic food initiatives are often more contentious. Industrial agriculture and food processing corporations are very powerful, to the point of having subverted regulatory mechanisms ostensibly geared towards the public good, but which now serve to safe-guard corporate profits and market share.
If groups of people are allowed to assert their independence by opting out of the corporate food machine, then they are less subject to external control, as well as ceasing to be profit providers. Organic agriculture therefore faces substantial regulatory barriers, and, increasingly, extreme over-reactions by central authorities.
See, by way of example, the case of Rawesome Foods in California. The cooperative had become a private club in order to be allowed to provide raw milk to those who choose to avoid the over-processed commercial variety. Nevertheless, they were subjected to a raid by armed police officers with guns drawn. Opting out of the system in order to share resources constitutes a threat, and that threat is being targeted.
Heavy-handed food regulation has descended on many small farmers in recent years. They face an uphill battle against the centralizing impulse. A regulatory regime that imposes huge costs on small operations makes it very difficult for them to compete. Some of the enforcement incidents are outrageous.
See for instance the film Farmageddon. Jim Puplava at Financial Sense Newshour did a Must Listen interview recently with its creator, which makes eye-opening listening to put it mildly.
Simply put, it is getting more and more difficult to operate outside of the corporate structure, particularly in relation to food. As Joel Salatin observed in a classic article on the subject of organic farming – Everything I Want to Do Is Illegal.
That means it is also getting more and more difficult in some places to purchase healthy food, as opposed to industrial food-like substances genetically-modified, tainted with all manner of chemicals, stuffed with addictive fillers such as high-fructose corn syrup, and vastly over-processed. The option to eat simple, wholesome, unprocessed, unadulterated, nutritious food is being whittled away, ironically on health grounds, just as demand for real food is skyrocketing.
It is also falling foul of spurious ordinances to protect the uniformity of neighbourhoods by defending them from vegetables growing where anyone can see them. Jail terms can be threatened for the crime of seeking seeking to be more independent. Occasionally the corporate world will explicitly complain that eating unprocessed food kills jobs, but it is more common to approach the issue tangentially rather than head on.
Although not yet a reality, direct taxation of home-produced food has been floated. Unfortunately this idea is all too plausible. States are indeed desperate for revenue, and the connections politicians have with large corporations gives them a direct incentive to protect the profit margins of those who feather their nests:
I heard a state legislator today on the radio talking about taxing home gardens that grow vegetables and other produce. This state is in serious economic trouble and they are looking at every possible source of revenue. The legislator stated that many home gardeners sell their produce at flea markets and do not pay any sales tax, that the produce grown even if not sold amounts to income and should be taxed.
In 2006, Britain was already contemplating taxing gardens, not yet for the vegetables they produce, but simply for the property tax revenue stream government could extract for any distinguishable positive feature of a property.
Two thirds of the 1.2 billion poorest people in the world live in rural areas and are dependent on traditional agriculture. They do not have the financial means to buy commercially available seed or the input factors needed to cultivate them.
However, they often have long experience with, and a profound understanding of, local plant diversity within crops such as grains, potatoes, vegetables and fruit. By cultivating and developing these crops they are contributing to the preservation and development of global plant genetic diversity, which constitutes the basis for the world’s food production.
Legislation ostensibly aimed at food safety is being written vaguely and broadly enough to confer unaccountable discretion on enforcement agencies already in a state of regulatory capture. The very necessary processes of seed saving from year to year, and seed banking, are well on the way to being criminalized, for the sake of protecting profit margins:
But now the effort is to take over the whole game, going after even these small sources of biodiversity – by simply defining seeds as food and then all farmers’ affordable mechanisms for harvesting (collecting), sorting (seed cleaning) and storing (seed banking or saving) as too dirty to be safe for food.
Set the standard for “food safety” and certification high enough that no one can afford it and punish anyone who tries to save seed in ways that have worked fine for thousands of years, with a million dollar a day fine and/or ten years in prison, and presto, you have just criminalized seed banking.
The penalties are tremendous, the better to protect us from nothing dangerous whatsoever, but to make monopoly over seed absolutely absolute.
One is left with control over farmers, an end to seed exchanges, an end to organic seed companies, an end to university programs developing nice normal hybrids, and an end to democracy – reducing us to abject dependence on corporations for food and gratitude even for genetically engineered food and at any price.
These topics and many others are discussed in Nicole Foss’ new video presentation, Facing the Future, co-presented with Laurence Boomert and available from the AutomaticEarth Store. Get your copy now, be much better prepared for 2014, and support The AutomaticEarth in the process!
On the other side of the Atlantic, EU seed control regulations are also making it difficult, and potentially expensive, to protect biodiversity:
[In February 2008], in France, the independent seed-saving and selling Association Kokopelli were fined €35,000 after being taken to court by corporate seed merchant Baumaux. Their crime was selling traditional and rare seed varieties which weren’t on the official EU-approved list – and, therefore, illegal to sell – thus giving them an ‘unfair trading advantage’.
As the European Commission met this week to prepare new legislation for seed control, due in 2009, which will further restrict the geographic movement and range of crop varieties, this ruling will set a dangerous precedent.
Kokopelli, the non-profit French group set up in 1999 to safeguard endangered seed strains, may be driven out of existence by the fine. Their focus is biodiversity, food security, and the development of sustainable organic agriculture and seed networks in the ‘global south’.
They have created one of the largest independent collections in Europe – with over 2500 sorts of vegetable, flower and cereals. Other non-government seedbanks are held by large agro-industrial companies like Limagrain, Syngenta and Pioneer – and guess what their main interest is money rather than starving subsistence farmers.
You may think that in an era of mass extinction it would be a no-brainer that we need to protect biodiversity and the heritage of the crop varieties which have been build up over centuries… but no.
Since the 1970s, laws in the UK and Europe mean that to sell seeds, the strain needs to be registered and everything else becomes ‘outlaw’ seeds, illegal to sell. In the UK it costs 300 per year to maintain the registration and 2000 to register a ‘new’ one which all disadvantages smaller organisations.
Garden Organic in the UK run a Heritage Seed Library, and they get around the law by not selling ‘outlaw’ seeds, but getting individual gardeners to become ‘seed guardians’ who pass around seeds for free to other members of the Library. Unlike other seedbanks, seeds are not kept in cold storage, but are living species which are continually grown and allowed to adapt to new environmental factors.
Another law-busting approach is seed swaps – which in recent years have sprouted up and down the country. People freely share seeds for another year’s growing – a co-operative way of maintaining genetic diversity.
Controlling the supply of necessities in order to generate monopoly profits is not new and is not limited to food. See for instance the erstwhile Bolivian water privatization that resulted in a requirement to obtain a permit even to capture rainwater. If access to affordable options is limited, people are forced to pay the rentiers their monopoly profits.
Like many Western states, Colorado employs a complicated system of water use known as prior allocation, which severs water rights from other property rights.
The system preserves an 80-year-old compact Colorado signed with other Western states (as well as a separate federal pact with Mexico) divvying up runoff from the Colorado River. It means you can buy a parcel of land in Colorado, but the right to any precipitation that falls on that land likely belongs to someone two houses over, two counties over, or even in another state.
It might also belong to a state or local government, but it probably doesn’t belong to you. Under Colorado law, then, collecting rainwater or reusing “gray water” from bathtubs or washing machines violates the rights of someone who may not see that water for months.
“I was so willing to go to jail for catching water on my roof and watering my garden,” said Tom Bartels, a video producer here in southwestern Colorado, who has been illegally watering his vegetables and fruit trees from tanks attached to his gutters. “But now I’m not a criminal.”
Ben Elton’s brilliant (Must See) 1990 play Gasping explored the trend towards corporate control of necessities, and illustrated the point, taken to its logical conclusion:
Lockheart Industries are looking for a new product to make them huge sums of money. Their whizz-kid Philip comes up with the superb idea of designer air – Perrier for the lungs, in the form of their patent-pending Suck And Blow machine. For a while, all is well, and the machines are a huge success, as sales massively exceed all projections.
But greed forces up the price of air until the oxygen industry becomes privatised. And if you can’t afford to pay, you have no right to live. Philip’s conscience ultimately wins through at the end of the day, and he takes extreme measures to rectify everything he feels he has destroyed.
The need to move towards a decentralized future, and the hazards that may await the first movers who run into a brick wall of regulation, remind me of a British nature documentary called The Tides of Kirawira.
The scenario is that every year the great migratory herds of the Serengeti must cross seasonal rivers, but these rivers are populated with giant crocodiles. Every year the herd must cross, but it doesn’t pay to be the first or only gazelle, zebra or wildebeest in the river. There is safety in numbers. Once the whole herd is on the move, the vast majority reaches the other side.
One line from this that strikes a chord in relation to the collusion between government and corporations to fleece the little guy is: “The crocs work as a team. It’s easier to tear chunks of flesh from the bone when someone is holding the other end.” Regulations against decentralization immobilize people for corporate interests to extract their pound of flesh.
In this instance, we need to emulate the herd animals and cross the river all at once. This is our best hope of achieving a simpler, decentralized future that might be workable, unlike our current industrial paradigm. We are going to have to live without cheap energy and cheap credit because they are going away. Decentralization is the only real option we have, but if we are to achieve what we need to achieve, we need to mobilize on a large scale rather than take only a few tentative steps into the crocodile infested waters.
These topics and many others are discussed in Nicole Foss’ new video presentation, Facing the Future, co-presented with Laurence Boomert and available from the AutomaticEarth Store. Get your copy now, be much better prepared for 2014, and support The AutomaticEarth in the process!
William Gedney Cornett family, Kentucky. Family in car, baby looking back 1972
Peakmoment TV in Vancouver, Canada just published a two part interview with The Automatic Earth’s Nicole Foss, and her co-speaker on her recent US and Canada tour, Laurence Boomert. Just prior to that tour, Nicole and Laurence recorded our new download video series Facing the Future, which you are cordially invited to order from the TAE Store. It contains over 4 hours of what you see in the video. Here’s Peakmoment’s first post and video, plus an article they refer to that Nicole published at The Automatic Earth on January 24, 2012 (see below).
Most people are woefully unprepared for the depression that is now unfolding, says economic analyst Nicole M. Foss, senior editor of The Automatic Earth. In a depression, there’s not enough money in circulation. “But by using alternative currencies, we can provide our own liquidity and support economic activity in local areas.” Laurence Boomert, the founder of The Bank of Real Solutions, shares several success stories. When government spending dried up, his town of Golden Bay, New Zealand used their alternate currency to keep educational programs going.
One guide to cope with the difficult years ahead is Nicole’s “How to Build a Lifeboat”:
Nicole: Yesterday we talked about why we are facing deflation and today I wanted to review and explain the suggestions we have made previously for dealing with a deflationary scenario. In short, this is the list we have run periodically since we started TAE (with one addition at the end):
1) Hold no debt (for most people this means renting)
2) Hold cash and cash equivalents (short term treasuries) under your own control
3) Don’t trust the banking system, deposit insurance or no deposit insurance
4) Sell equities, real estate, most bonds, commodities, collectibles (or short if you can afford to gamble)
5) Gain some control over the necessities of your own existence if you can afford it
6) Be prepared to work with others as that will give you far greater scope for resilience and security
7) If you have done all that and still have spare resources, consider precious metals as an insurance policy
8) Be worth more to your employer than he is paying you
9) Look after your health!
1) The reason that getting rid of debt is priority #1 is that during deflation, real interest rates will be punishingly high even if nominal rates are low. That is because the real rate (adjusted for changes in the money supply) is the nominal rate minus inflation, which can be positive or negative. During inflationary times, this means that the real rate of interest is lower than the nominal rate, and can even be negative as it was during parts of then 1970s and again in the middle of our own decade. People have taken on huge amounts of debt because they were effectively being paid to borrow, but periods of negative real interest rates are a trap. They lure people into too much debt that they may not be able to service if real rates rise even a little. Most people are thoroughly enmeshed in that trap now as real rates are set to rise substantially.
When inflation is negative (i.e. deflation), the real rate of interest is the nominal rate minus negative inflation. In other words, the real rate is higher than the nominal rate, possibly significantly higher. Even if the nominal rate is zero, the real rate can be high enough to stifle economic activity, as Japan discover during their long sojourn in the liquidity trap. Standard money supply measures don’t necessarily capture the scope of the problem as they don’t adequately account for on-going credit destruction, when credit has come to represent such a large percentage of the effective money supply.
The difficulty from the point of view of debtors can be compounded by the risk that nominal interest rates will not stay low for years, as they did in Japan, but may shoot up as the international debt financing model comes under stress. For instance, on-going bailouts may cause international lenders to balk at purchasing long term treasuries for fear of their effect on the value of the dollar, even though those bailouts are not increasing liquidity thanks to hoarding behaviour by banks. We are not there yet, but the probability of this scenario rises as we move forward with current policies. The effect would be to send nominal interest rates into the double digits, and real interest rates would be even higher. The chances of being able to service existing debts under those circumstances are not good, especially as unemployment will be rising very quickly.
There is no safe level of debt to hold, including mortgages. For those who are not able to own a home outright, most would be much better off selling and renting, as real estate becomes illiquid faster than almost anything else in a depression. By the time you realize that you need to sell because you can no longer pay the mortgage, it may be too late. Renting is essentially paying someone else a fee to take the property price risk for you, which is a very good bet during a real estate crash. It would also allow you address point #2 – having access to liquidity.
2) Holding cash and cash equivalents (i.e. short term treasuries) is vital as purchasing power will be in short supply. Cash is king in a deflation. Access to credit is already decreasing and will eventually disappear for ordinary people. Mass access to credit has been a product of an historic credit expansion that expanded the supply of pockets to pick to an unprecedented extent, feeding off widespread debt slavery in the process. As you can’t count on the availability of credit for much longer, you will need savings in liquid form that you can always access.
When interest rates spike, not only will debt become a millstone round your neck, but a debt-junkie government forced to pay very high rates will be in the same position. As a result government spending will have to be cut drastically, withdrawing the social safety net just as it is most needed. In practical terms, this means being on your own in a pay-as-you-go world. You do NOT want to face this eventuality with no money.
3) Keeping the savings you need in the banking system is problematic. The banking system is deeply mired in the crisis in the derivatives market. Huge percentages of their assets are not marked-to-market, but marked-to-make-believe using their own unverifiable models. The market price would be pennies on the dollar for many of these ‘assets’ at this point, and poised to get worse rapidly as the forced assets sales that are coming will lower prices further. The losses will eventually dwarf anything we have seen so far, pushing more institutions into mergers or bankruptcy, and mergers are becoming more difficult as the pool of potential partners shrinks.
If we do see a rash of bank failures, each of which weakens the position of others as the sale of their assets and unwinding of their derivative positions can re-price similar ‘assets’ held by other parties, then deposit insurance will not be worth the paper it’s written on. When everything is guaranteed, nothing is, as the government cannot guarantee value. Savings held in these institutions are at much higher risk than commonly thought due to the systemic threats posed by a derivatives meltdown and spreading crisis of confidence. Fractional reserve banking depends on depositors not wanting their money back all at once, in fact with reserve requirements so whittled away in recent years, it depends on no more than a fraction of 1% of depositors wanting their money back at once. This is a huge vulnerability and the government deposit guarantee is a bluff waiting to be called.
4) The general rule of thumb in a deflation is to sell everything that isn’t nailed down and then sell whatever everything else is nailed to, for the reasons that assets prices will fall further than most people imagine to be possible, and the liquidity gained by selling (hopefully) solves the debt and accessible savings problems (provided you don’t lose the proceeds in a bank run). Assets prices will fall because everywhere people will be trying to cash out, by selling not what they’d like to, but what they can. This means that all manner of assets will be offered for sale at once, and at a time when there are few buyers, this will push prices down to pennies on the dollar for many assets.
For those few who still have liquidity, it will be a time when there are many choices available very cheaply. In other words, if you manage to look after the proceeds from the sale of your former assets, you should be able to buy them back later from much less money. Of course flashing your wealth around at that point could be highly inadvisable from a personal safety perspective, and you may find that you’d rather hang on to your money anyway, since it will be getting harder and harder to earn any more of it. During the Great Depression, some of the best farms in the country were foreclosed up on and received no bids at auction, not because they had no value, but because those few with money were hanging on to it for dear life.
Being entirely liquid has its own risks, which is why I wouldn’t sell assets that insulate you from economic disruption if you didn’t buy them on margin (ie with borrowed money that you may not be able to pay back) and if you have enough liquidity already that you can afford to keep them. For instance, a well equipped homestead owned free and clear is a valuable thing indeed, whatever its nominal price. It is totally different from investment real estate owned on margin, where the point of the exercise is property price speculation at a time when doing so is disastrous.
One important point to note with regard to commodities is that commodities have already fallen along way since I first published the above list of suggestions. At that time, selling commodities was a very good idea, but now, since commodities are already down a very long way, it may depend on the commodity in question. If you only own commodities in paper form then selling is still a good idea in my opinion, as there are generally more paper claims than there are commodities, and excess claims will be extinguished. At some point soon I will write an intro on my view of energy specifically, since energy is the master resource. In short, we are seeing a demand collapse now, but eventually we will see a supply collapse, and it is difficult to predict which will be falling fastest at which times.
5) If you already have no debt and have liquidity on hand, I would strongly suggest that you try to gain some control over the essentials of your own existence. We live in a just-in-time economy with little inventory on hand. Economic disruption, as we are already seeing thanks to the problems with letters of credit for shipments, could therefore result in empty shelves more quickly than you might imagine. Unfortunately, rumours of shortages can cause shortages whether or not the rumour is entirely true, as people tend to panic buy all at once. If you want to stock up, then I suggest you beat the rush and do it while it’s still relatively easy. You need to try to ensure supplies of food and water and the means to keep yourselves warm (or cool as the case may be). Storage of all kinds of basic supplies is a good idea if you can manage it – medicines, first aid supplies, batteries, hand tools, wind-up radios, solar cookers, a Coleman stove and liquid fuel for it, soap etc.
At the moment, there are many things you can obtain with the internet and a credit card, but that will not be the case in the future. Water filters are a good example, as the quality of water available to you is likely to deteriorate. You can buy the kind of filters that aid agencies use oversees for all of about $250, with extra filter elements for a few tens of dollars at sites such as Lehmans Non-Electric Catalogue or the Country Living Grain Mill site.
6) Most people will not be able to get very far down this list on their own, which is why we suggest working with others as much as possible and pooling resources if you can bring yourself to do so. Together you can achieve far greater preparedness than you could hope to do alone, plus you will be building social capital that will stand you in good stead later on.
7) If you have already taken care of the basics, then you may want to put at least some of whatever excess you still have into precious metals (in physical form). Although the price of metals should still have further to fall, since distressed sales have not yet had an effect on price, obtaining them could get more difficult. Buying them now would amount to paying a premium price for an insurance policy, which may make sense for some and not for others. Metals will hold their value over the long term as they have for thousands of years, but you may have to sit on them for a very long time, so don’t by them with money you might need access to over the next few years.
Metal ownership may well be made illegal, as it was during the Great Depression, when gold was confiscated from safety deposit boxes without compensation. That doesn’t stop you owning it, but it does make ownership far more complicated, and makes trading it for anything you might need even more so. You could easily attract the wrong kind of attention and that could have unpleasant consequences. In short, gold is no panacea. Other options may be far more practical and useful, although there is an argument for having a certain amount of portable wealth in concentrated form if you should have to move suddenly.
8) Being worth more to your employer than he is paying you is a good idea at a time when unemployment is set to rise dramatically. This is not the time to push for a raise that would make you an expensive option for a cash-strapped boss, and in fact you may have to accept pay cuts in order to keep your job. During inflationary times, people can suffer cuts to their purchasing power year after year, but they don’t complain because they don’t notice that their wage increases are not keeping up with inflation. However, deflation brings the whole issue into the harsh light of day.
People would have to take pay and benefit cuts for their purchasing power to stay the same, thanks to the increasing value of cash, but keeping people’s purchasing power the same will not be an option for most employers, who will be struggling themselves. In other words, expect large cuts to pay and benefits. As unions will never accept this, for obvious reasons, since their membership has its own fixed costs, there will be war in the labour markets, at great cost to all. You need to reduce your structural dependence on earning anything like the amount of money you earn now, and don’t expect benefits such as pensions to be paid as promised.
9) Your health is the most important thing you can have, and most citizens of developed societies are nowhere near fit and healthy enough. Already medical bills are the most common reason for bankruptcy in the US, and while you can’t protect yourself against every form of medical eventuality, you can at least improve your fitness. You will be be living in a world where hard physical work will be much more prevalent than it is now, and most people are ill-equipped to cope. The solution Ilargi and I have chosen, as we have mentioned before, is the P90X home fitness programme. While it wouldn’t be the right choice for everyone, if I can do it, as I have for 11 months already, then most people can. For others, there are gentler options available, but everyone should consider doing something to make themselves as healthy and robust as possible.
We here at TAE wish you the best of luck at this difficult time. We will all need it.
These topics and many others are discussed in Nicole Foss’ new video presentation, Facing the Future, co-presented with Laurence Boomert and available from the AutomaticEarth Store. Get your copy now, be much better prepared for 2014, and support The AutomaticEarth in the process!