I've been a fan of JHK for about a decade now as he issued jeremiad after admonition that the world as we knew it in the late 90's was surely coming to an end within some reasonable expectation of my lifetime. He's taken some flak for a couple of fine-grained predictions that ignored the Keynes Dictum that "Markets can remain irrational a lot longer than you and I can remain solvent." but I have never doubted that on the medium to large scale he was right.
His starting point was Peak Oil but as the financial insanity that it precipitated became first main stream then mania then desperate clinging to a sinking lifeboat while singing uplifting songs about a better day he has merged the two into an ongoing series of check marks against the steps on the way to a much smaller future. After the last week, as you might imagine, he is pretty much incandescent; which means he has missed today's action.
I'll try to help: this is a compressive financial and economic contraction (one is money, the other is activity). Late-summer storm that it is, it looks to be intensifying. Everything that's super-big is going down sooner or later. The exact sequence of failures is unpredictable. But you can be sure Nature is telling you to get local, get smaller, get finer, downscale, solidify your friendships, and drop your stupid grandiose fantasies about running WalMart on algae. This is change you don't have to believe in, because it is about to jump up and bite you on the lips.
If you fancy a little less fire and brimstone and a few more charts and details, you might try my favourite, pretty much my only economist worth reading, Steve Keen who talked last week to mark Colvin of the ABC in Australia, this is his summary.
... assets have got three letters at the front ASS. I think we should take them importantly. Assets can collapse in value overnight, as we’ve seen today, you’re liabilities remain there, and it’s liabilities that are driving this debt crisis.
They’ve got totally out of hand, and you, mate there may not be a magical level of debt, but when you have it going from 45 per cent of GDP to 300 per cent that is a runaway exponential growth process that can’t be sustained. And when it broke that’s what caused the financial crisis.
And we’re now in a permanent stage of deleveraging until we get back down to similar levels, about 100 per cent of GDP.[...] I think it’s permanent until the debt levels are paid down. We’re in a debt deflation where deleveraging by the private sector is going to reduce aggregate demand below aggregate supply and will slowly grind down.
MARK COLVIN: And the question of what we do about it?
STEVE KEEN: We have to abolish the debt. The debt should never have been issued in the first place and the financial institution that issued should go bankrupt.
We had our chance to sacrifice the banks in the attempt to save the economies of the world, but we chose instead to leave our economies for slaughter on the altar of Milton Friedman and now we are seeing where that leads. The reason we have no inflation despite a couple of Trillion being pumped into the world's economies in the last 4 years is that all that money is trivial on the scale of the debt. We LOST more value from the world's stock markets last Friday than all the pump priming by all the governments of the world in 4 years. And we lost about twice that much today.
And we will keep on losing that much day after day until all the unjustifiable debt is ground out of the system. It wont necessarily happen on consecutive days, there will be moments when things pause, flatten out, maybe even struggle upwards to pull in a last few idiot optimists who see a "buying opportunity". They'll be accopmanied by some fools being led to the slaughterhouse by ignoramuses like a so-called financial adviser my wife had some years back who was a "dollar cost averaging" believer. They'll be hanging in their a while yet. But then the process will resume.
Nicole Foss talks about debt being the creation of multiple, and mutually exclusive claims to underlying real wealth. Her point is that, necessarily, most of those claims wont be able to be met and the debt will be repudiated, defaulted or in some other way extinguished without repayment. And those whose personal financial and economic survival is locked into those superfluous claims will find themselves in serious poverty.
Actually, she's worth quoting in some detail. This from an interview in September last year but her shtick goes a lot further back than that.
People say "Oh, well they'll simply print." If you try and print your way out of deflation, what will happen is the bond market, which is in control of interest rates, will jack those interest rates up to the point where debt-junky governments will not be able to pay their debts at all. This will precipitate a wave of debt default, which is deflation by definition. So if you try and print your way out of deflation, you just get there even faster. There really is no way out, once you've had the creation of excess claims to underlying real wealth. And that's all that credit is.
It's quite different from a currency inflation where you actually have enormous amounts of physical currency created. This is not extra currency, it's not taking the underlying real wealth pie and dividing it into smaller pieces like a currency hyperinflation. This is the creation of credit, which is the creation of multiple and mutually exclusive claims to the same pieces of underlying real wealth pie. And when people realize that they've, these excess claims exist, there will be an almighty resource grab, underlying real wealth grab, and that is deflation. So that is vey much what we are looking at.
Her advice, and Kunstler's, for the last decade has been
- Pay off debt. All debt
- Save in cash not financial instruments, even term deposits are not safe in the late stages.
- Have a couple of month's worth of bills covered in cash - more than that is a waste because in the late stages even cash will not be worth anything.
- Grow your own
- Move into hard goods
Another guy who has had a long handle on this stuff is Rob Paterson who was giving me the lowdown on his take just on 2 years ago. To quote that piece,
Not only did he tell us about the deep sixing of his portfolio, but at one stage he pulled a handful of notes from his pocket and said, essentially, that he didn't even trust that. Another check off.
Like Rob I am turning any spare cash into real things, supplies like gravel, timber and screws (plus a nudge for my wife to stock up on needles for her sewing machine) and tools.
When people claim that they could not have seen this coming, that they really, really believed that they could make it work this time, there is one thing only to do and that is very quietly and unobtrusively to move away from them and get some serious distance between you and them. They are either seriously delusional or living in an ignorance so deep that when they realise how far below water they actually are, they will be pretty unsafe to be around.
OK, back to the garden.