Why there will be a Fast Crash and not a Slow Decline

"Confidence in a secure tomorrow makes life brighter today."
Radio ad for a financial services company

The economy, whether the local community economy, the national economy, or the global economy, is based on one commodity, and that commodity is not oil. It is confidence.

Whether a person, a corporation, or a government, we borrow against tomorrow's income to buy unneeded baubles and trinkets today. We accept being a consumer society because we have confidence that our economy, as well as our standard of living, will continue to grow. How else can one explain the plethora of useless new products brought on the market each year and willingly snapped up by sheeple consumers with only a little needed encouragement from Madison Avenue via their wide-screen, high-definition television sets?

That confidence is based on an assumption of perpetual growth,which economists and government leaders persist in putting forward as a given. A sudden loss of confidence has been the reality check that has brought on every economic downturn in history, from a small, hardly-noticed and quickly-forgotten double-digit decline on the stock market to a catastrophic global market collapse such as happened in 1929. If the basis for that confidence is not as quickly restored, which it was not in 1929 even though the potential still existed then to do so, then a comparatively rapid economic implosion ensues.

For those to whom this is news, you haven't been paying attention. For those who are ensconced in their state of denial and reject this reality, I will paraphrase a song;

"If you don't know it by now, You will never, never, never know it....."

How can confidence so quickly disappear? Usually the answer is because the confidence ran way ahead of reality and the market got badly over-extended. There was no valid reason for the high degree of confidence that existed.

"Confidence is the feeling you have before you fully understand the situation."
Source unknown

Confidence, by its very nature, is essentially irrational. It is not based on knowledge but rather on faith that something you wish to be true actually is true. There is never a proper amount of confidence. Just as a sudden loss of confidence can spell doom for an economy, an excess of confidence, particularly a sudden irrational surge of confidence, can over-extend an economy, keep it running too hot for too long. When it does eventually falter it turns what should have been a softening into a recession, a recession into a depression. And people's confidence in our present economy and culture has been far too high for far too long. This has been achieved by a coordinated, intentional effort on the part of government, business and industry to keep people ignorant of the soon-to-be-encountered constraints to continuing the growth economy. When that confidence does finally weaken - when people finally understand the reality and the fallacy of the beloved perpetual-growth economy - it will drop suddenly and dramatically and we will have a hard and devastating crash.

Almost all corporate earnings estimates and targets are based on that assumption of growth. Most companies today are so highly debt-leveraged that it takes a minimum of 2% growth just to service that debt. That has nothing to do with confidence. That is just cold, hard reality. If a company does not achieve enough growth to service its debt then the debt grows, requiring even more corporate growth to service it. It is a vicious cycle-down to bankruptcy.

Those government, business and industry leaders (TPTB) who manipulate people's confidence are constantly playing a balancing game. In a perpetual-growth economy, they want to keep confidence growing slightly ahead of what is reasonable in anticipation and expectation that conditions will improve to meet those expectations. By that time, of course, they want expectations to be moving out ahead to the next level of expectation. In order to play this game they must always have information one step ahead of the pack, must know whether the higher expectations can reasonably be achieved. When information comes to them that suggests they cannot, they must manipulate events to lower people's expectations to fit the new attainable.

The danger arises when the information being used to manipulate people's confidence is not accurate. Then the manipulators do not reasonably know that the higher expectations can not be met. They fall into a trap of their own ignorance (business managers never like to pass negative information up the line). The degree of backlash they are exposed to is dependent upon the degree to which those expectations are wrong (confidence can be almost as easily lost when the reality is significantly better than promised - wrong is wrong) and the degree to which it affects those whose confidence has been manipulated. The greater the discrepancy, the greater the backlash. They are also dependent on their ability to make up that discrepancy in the future. If they can, and continue to grow, confidence quickly comes back and is maintained. If TPTB are still dealing with bad information and promise to make up the discrepancy and continue growth when, in reality, things continue to worsen, the severity of the backlash, when it occurs, increases. If TPTB lower their estimate there is, likewise, a reduction in confidence based on the perception that they are not in control and only reacting to changed circumstances after the fact. If estimates are reduced and the results still fall short then there is a major loss of confidence. Not only are TPTB not in control but cannot even react and keep up with the changes around them. A loss of confidence of this magnitude can cause a complete collapse. Enron, Worldcom, Northern Telecom, are all excellent examples of this type of collapse. The anger, incrimination, and rapid collapse are all the inevitable outcome of such extreme manipulation of confidence and the inability to control the environment upon which that confidence critically depended.

These three companies and their principles did nothing different than other companies or even governments. They manipulate the confidence of their investors through, when necessary, manipulating the data and information that the outside is allowed to see. They use that excess confidence to fuel their growth rather than using the growth to build confidence. It is a shell game. you build yourself up to appear to be something you are not but expect to become. In all three cases, and most other cases like them, they lost control of the environment they were trying to manipulate, because they were relying on false data and assumptions, and could not deliver close enough to expectations to maintain that level of confidence.

That is the shell game being played to prop up the global, perpetual-growth economy, the shell game that requires the confidence of and buy-in by the people. There are several potential global disasters on the horizon, not the least of which is the beginning of the decline in global energy resources, most notably oil. Cheap energy has been the catalyst that has allowed TPTB to continue to build and maintain confidence in the global, perpetual-growth economy. There have been bumps in the road but no major roadblocks, and the illusion of growth has been able to be maintained globally where it may have failed locally. A great proportion of international trade, in fact, is not trade at all. It is the movement of goods and materials within the same company from one country to another. This accounts, in many instances, for as much as half the imports and exports of certain small economies, and represents over 40% of total US international trade. And much of this moving commodities (most importantly, including money) between different parts of a global corporation is done for the express purpose of tax evasion, to reduce the appearance of profit in money-making branches by saddling them with the debt of higher inventories acquired from less profitable branches. Much of the rest of that trade flowing from rich to poor nations is goods purchased with money from the WorldBank, IMF, OECD and other organizations established to foster globalization.

The illusion of wealth, the illusion of a robust global economy, can only be maintained by the continued availability of cheap energy. As long as that illusion can be maintained the general confidence of the sheeple in the economy can be maintained and that confidence can be used to fuel the pursuit of the mythical global economy that is presold and bought into by the people.

There are growing numbers of people prepared to see through the illusion and look at the ugly reality behind it. As global energy reserves begin their downhill slide more and more people each day will wake up to the reality. When a critical mass of people reach this point, and not until then, the economic house of cards will be suddenly and dramatically brought down by a massive loss of confidence that will feed on itself as the economy implodes. The crash, when it comes, will be very dramatic. The fallout will take years but the crash may only take weeks.

The above article was initially written in 2006. I thought it an appropriate time to put it in the blog.

The current run on the Northern Rock bank in Britain results from exactly the sort of loss of confidence that I speak of above. Fear of the bank's potential exposure to the US subprime mortgage fiasco and the move by the Bank of England to inject liquidity in the bank, have badly shaken investor/depositor confidence in the bank. That loss of confidence continues to deepen despite government and bank official reassurances that the bank remains solid. This could domino through the British banking industry and could even spill over into the global crisis that we have been anticipating. Only time will tell and this will have to be watched for some time.

Negative on Alternative Energy?

An explanation and a Rebuttal

I want to preface this article with a lament. Being a regular writer on the issue of peak oil and the associated implications, the one constant I must deal with is the lack of feedback, of not knowing how my words, opinions, and assumptions are being received. This article deals with a reader who was sufficiently motivated to e-mail me, an act that led to a brief exchange of e-mails. Many people do not wish to have their comments appear in a public forum as they would in posting a comment to the blog. There are two solutions to that. 1) All comments to the blog are reviewed by me before posting. Anyone who wishes to express a comment to the blog but does not want that comment to be shown on the blog need only request that it not be shown and I would be happy to oblige. 2) Those who wish to make comments off-line are most welcome to do so. I can be reached at any one of three e-mail addresses; richard.embleton@sympatico.ca or poilscribe@yahoo.com or poilscribe@hotmail.com . Any comments or feedback are most sincerely welcome and appreciated. Thank you.

A gentleman (who shall remain nameless) who runs a bio-fuel company (which shall also remain nameless) e-mailed me recently to chastise me for being so negative toward alternative energy options like hydrogen, methanol, ethanol, bio-diesel and so on. On the one hand I am flattered that he thinks my opinion on the matter will have enough impact that he feels the need to try to convince me of the error of my ways. On the other hand I am curious why, out of all the voices criticizing these options, he felt a need to e-mail me. Or perhaps he e-mails everyone who expresses a negative opinion on the subject. That I do not know but a quick google seems to suggest he makes a regular practice of doing so.

Essentially, I believe, this gentleman's point was (and I am sure he will correct me if I am wrong) that if one energy option doesn't pan out (while at the same time not accepting that my criticism of them is valid) there is always another one waiting in the wings. I can only assume that in that he means to suggest that we shouldn't worry, that he sees that as a plus. I see it as the core of the problem.

I politely e-mailed the gentleman back and suggested that our different perspectives on the issue legitimately gave us different and irreconcilable opinions and that if he was looking for support the mainstream media was full of much more visible people than myself lauding all of the energy options I am being negative about. I clarified my position that the only viable, long-term objective is powering down and learning to live within the sustainable energy budget of the planet. I reject the continuous, mindless pursuit of one new energy option after another to keep our unsustainable lifestyle running as long as possible. I also suggested that if he had read enough of what I had written to become sufficiently motivated to send me an e-mail he should also have gleaned from those writings what my basic and consistent point of view was.

My suspicion, rightly or wrongly, is that the gentleman and his company are having difficulty finding a market for their particular energy panacea. Again a quick google seems to also suggest that is the case. Under current conditions setting up as a competitor to corn and cane ethanol, I am sure, doesn't get you many financial backers nor the support of many highly-visible politicians. That lack of support, however, is not, in my opinion, the result of the few voices of opposition like myself. It is, more specifically, the result of the powerful, insidious ethanol lobby that haunts the halls of government. The gentleman should save his energies for the real fight he has to win. Convincing me of the legitimacy of his claims (were that remotely possible) would not help in that battle in any way.

To be brutally honest, I don't give a damn if there are a thousand alternative energy options out there and if they are all economically viable. as we approach and pass peak oil economic viability becomes increasingly irrelevant. Economics is increasingly manipulated in support of that increasingly unsustainable global system. "It's the economy, stupid," is increasingly becoming the way cry of those remaining economists who believe we still live in a world of reality. They have yet to recognize that they are programmed EconoTRONS in a man-made, virtual world that is increasingly divorced from and a poor substitute for reality.

In the end the massive energy resources which support our globalized society are truly unsustainable and in the end we shall have no choice but to learn to live without them. In the interim they subsidize the worsening of the REAL problems such as overpopulation, climate change and global warming, infrastructure collapse and more that we are eventually going to have to deal with. They don't eliminate the problems. They just stave off the day when we have run out of options, but continue to make all of these problems worse in the delay.

I we know that our current global lifestyle is unsustainable and the vast quantities of energy needed to support it are soon going into irreversible decline, where is the logic in carrying on "wasting" those precious resources while ignoring that eventuality? Knowing that the problems will be increasingly serious the longer we wait? Especially when we know that our global lifestyle itself, and our profligate energy use, are prime causes of those problems? Especially knowing that a major, but as yet unknown, amount of those remaining energy reserves are going to be NEEDED to prepare for the real world in which we will be obliged to live sustainably?

Our current global lifestyle is unsustainable. Our current global population is already in overshoot. Our global carrying capacity diminishes each year while the population continues to climb. The life-supporting topsoil of this planet is disappearing before our eyes. What freshwater remains is becoming increasingly and severely contaminated. Human-mitigated species extinction proceeds at a faster clip than any natural extinction in earth's history. Countless finite resources are being pushed rapidly toward depletion through our overabuse. We are a species of consumers. Consumers consume! Consumption is unsustainable. We are, as a species, unsustainable.

It does not have to be that way, of course. the negativism that permeates my writing is not meant to convince people that it is hopeless, that all is lost, that we should simply give up, sit down and wait to die. I am not, by nature, a negative person. But I refuse to view the world through elitist-supplied, rose-colored glasses. Throughout my life I have been a roll-up-my-sleeves-and-do-it kind of person. But I can not personally save the world, even if I would like to.

When I paint things in the negative it is my expression of hope. I have always believed that to solve any problem you must first be prepared to admit there is a problem that needs solving. If the mere mention of the problem of unsustainability of the current global lifestyle is perceived as negative, as doom-n-gloom, how are we ever to solve that problem? If not that, then what is the problem that we are trying to solve? If it is how to keep the current, unsustainable lifestyle humming (derivative of the verb "to hummer") along for as many more decades as possible, that is not a "problem" I am willing to address. Let me put it more assertively. It is a problem I refuse to address. the solution to THAT problem simply perpetuates and exacerbates the real problem. It cures the symptom while strengthening the disease.

The problem before the house is this: How do we move the human species toward a long-term, sustainable footing? No qualifiers! No ifs, ands, buts, what-ifs. How do we do it? Period!

How do we best assure that there is a human species, a human society on this planet at the beginning of the next millennium? And the next after that? Because everything we are currently doing as a society, as a species, strongly suggests we believe that to be irrelevant, that the only real goal worth pursuing is a healthy, corporate, financial balance sheet.

Am I negative? Until we start individually and collectively acting like the survival of the human race has some meaning to us and until we start to demonstrate that we are prepared to commit whatever necessary effort it takes to assure that, whatever the personal and collective economic cost, then perhaps I am. There is a very serious problem. When I see that we are collectively and individually prepared to admit that in order that we begin the effort to solve it then I will be the first to climb on to the roof and wave the banner. Until then I will continue in my negative ways of pointing out that the problem is still there.