What I am offering is a comprehensive view of how all of our problems are actually interrelated and need to be viewed as such or solutions will continue to elude us.
So let’s review the key trends, which appear to be converging on a very narrow window of the future.
We began with an understanding of money and the fact that our money is loaned into existence, with interest, and that this results in powerful pressures to keep the amount of credit, or money, constantly growing by some percentage every year. This is the very definition of exponential growth, which we can easily see in our money, and, of course, inflation charts.
Keeping this dynamic in mind, we encountered the data on debt, which is really a claim on the future, vastly exceeding all historical benchmarks. The flip side to this, but a significant sociological trend in its own right, is the steady erosion of savings observed over the exact same period of time. Combined, we have the highest levels of debt ever recorded, coincident with some of the lowest levels of savings ever recorded.
And we saw that our failure to save extends through all levels of our society and even includes a desperate failure to invest in our infrastructure.
Next, we saw how assets, primarily housing, have been in a sustained bubble and that is now bursting and will take many years to play out. When credit bubbles burst, they result in financial panics that end up destroying a lot of capital. Actually, that’s not quite right; this quote says it better:
“Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.”
- John Stuart Mill, Political Economist (1806 – 1873)
So we learned that a bursting bubble is not something that is easily fixed by authorities, because their attempts to limit further damage are misplaced. The damage has already been done. It is contained within too many houses, and too many strip malls sold for too high prices, and too many goods imported and bought on credit. All of that is done. All that’s left is figuring out who ends up holding the bag, and right now these guys are working hard to assure that that’s you, the taxpayer.
Then we learned that the most profound US government financial shortfall rests with a demographic problem that itself cannot be fixed by any act of law, or any level of optimism. It is simply a fact. An inconvenient fact of circumstance, much like gravity sometimes, but a fact nonetheless.
Even more than this, we learned that the assets boomers use to describe their wealth (stocks, and bonds, and real estate) all have to be sold to somebody at some point in order to extract their value. And we raised the uncomfortable observation that there simply are fewer people behind the boomers to whom these assets can be sold. When sellers exceed buyers, values fall.
Through all of this, the economic numbers that we reported to ourselves were systematically debased until they no longer reflected reality. If false data leads to bad decisions, then it’s no wonder that we find ourselves in our current predicament. Only by returning to an honest self-appraisal can we plot a strategic and meaningful course to the future.
Then we learned that energy is the source of all economic activity, and that oil is, by far, the most important source of energy. Our entire economic configuration is built around the assumption of unlimited growth in energy supplies, but this is an easily refuted proposition.
Individual oil fields peak and so do collections of them. And so Peak Oil is not so much a theory as it is an observation about how oil fields age. We then explored the tension that obviously exists between a monetary system that enforces exponential growth and the fact that our primary energy source has either already peaked or will soon. Somehow, the US has not even begun to invest in a future without cheap oil. We have no “Plan B.”
Lastly, we noted that the environment, meaning the world’s resources and natural systems upon which we depend, is exhibiting clear signs that our exponential population is driving exponential exploitation of resources, hastening their final depletion and altering ecosystems at an alarming rate. Also, we learned that even minor changes to the systems we depend on, such as shifting rainfall patterns, can create massive, usually unplanned, costs that will take priority over other needs.
And, yes, we’ve faced problems before, and we’ll face these as well. The concern comes when we view them all at once.
Placed on a timeline, we see that a bursting housing bubble is already happening just as the first wave of boomers enters retirement. At the same time, peak oil demand will outstrip supply, forcing an enormously expensive adjustment even as unknowable costs associated with resource depletion and a shifting climate lurk in the not-too-distant future. And sitting over all of this, limiting our options, will be our national failure to save and invest, and historically unprecedented levels of debt.
This timeline, stretching from now to 2020, reveals a truly massive set of challenges, converging on an exceptionally short window of time.
The question becomes, “Where will the money come from to apply to each of these challenges, if our savings are depleted and our debt levels already in uncharted territory?”
Any one of these events will prove to be a difficult strain on our national economy, while any two could be disruptive. If three or more happen simultaneously? It’s not hard to foresee the economic destruction of our country as a result, or perhaps the dollar utterly ruined as a store of wealth.
How many trillions will be required to fund boomer retirement? How many trillions to reshape our transportation infrastructure to accommodate Peak Oil? Where will the tens of trillions come from to make up the shortfalls in pensions and entitlement programs? How do we make good on these pension and entitlement promises while burdened with the highest debt loads ever seen? Where does the money come from to clean up the aftermath of a bursting housing bubble? How much more expensive will food and minerals be in the future, when oil has peaked but many more people are placing higher demands on increasingly marginal resources?
Each of these key trends or threats will take years, if not decades, to address, and yet we find them all parked almost directly in front of us, without any serious national discussions or planning. With every passing day we squander precious time, while the problems grow larger and more costly, if not thoroughly intractable. Buying time is not a strategy and will prove to be a disastrous tactic.
The mark of a mature adult is someone who can manage complexity and plans ahead. My opinion is that, with few exceptions, the current political and corporate leadership of this country are doing neither. We need to change this.
It is long past time to give up the adolescent notion that we can have our cake, eat it too, and borrow more when it’s gone.
It is time, quite simply, to return to living within our natural and economic budgets. We need to set priorities, set a budget, and stick to both.
And you? If you haven’t already, you need to begin to embrace the possibility that the path to the future might not be straight - it may take a few twists and turns and end up somewhere entirely unexpected - and that you happen to be alive at one of the most interesting points in human history, a time when a great shift may occur. This can be frightening or it can be exhilarating, and that choice is yours.
So what do we do about all this? What can you do, and what steps should you be considering right now?
Please join me for the final chapter of the Crash Course.
Thank you for listening.
So let’s review the key trends, which appear to be converging on a very narrow window of the future.
We began with an understanding of money and the fact that our money is loaned into existence, with interest, and that this results in powerful pressures to keep the amount of credit, or money, constantly growing by some percentage every year. This is the very definition of exponential growth, which we can easily see in our money, and, of course, inflation charts.
Keeping this dynamic in mind, we encountered the data on debt, which is really a claim on the future, vastly exceeding all historical benchmarks. The flip side to this, but a significant sociological trend in its own right, is the steady erosion of savings observed over the exact same period of time. Combined, we have the highest levels of debt ever recorded, coincident with some of the lowest levels of savings ever recorded.
And we saw that our failure to save extends through all levels of our society and even includes a desperate failure to invest in our infrastructure.
Next, we saw how assets, primarily housing, have been in a sustained bubble and that is now bursting and will take many years to play out. When credit bubbles burst, they result in financial panics that end up destroying a lot of capital. Actually, that’s not quite right; this quote says it better:
“Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.”
- John Stuart Mill, Political Economist (1806 – 1873)
So we learned that a bursting bubble is not something that is easily fixed by authorities, because their attempts to limit further damage are misplaced. The damage has already been done. It is contained within too many houses, and too many strip malls sold for too high prices, and too many goods imported and bought on credit. All of that is done. All that’s left is figuring out who ends up holding the bag, and right now these guys are working hard to assure that that’s you, the taxpayer.
Then we learned that the most profound US government financial shortfall rests with a demographic problem that itself cannot be fixed by any act of law, or any level of optimism. It is simply a fact. An inconvenient fact of circumstance, much like gravity sometimes, but a fact nonetheless.
Even more than this, we learned that the assets boomers use to describe their wealth (stocks, and bonds, and real estate) all have to be sold to somebody at some point in order to extract their value. And we raised the uncomfortable observation that there simply are fewer people behind the boomers to whom these assets can be sold. When sellers exceed buyers, values fall.
Through all of this, the economic numbers that we reported to ourselves were systematically debased until they no longer reflected reality. If false data leads to bad decisions, then it’s no wonder that we find ourselves in our current predicament. Only by returning to an honest self-appraisal can we plot a strategic and meaningful course to the future.
Then we learned that energy is the source of all economic activity, and that oil is, by far, the most important source of energy. Our entire economic configuration is built around the assumption of unlimited growth in energy supplies, but this is an easily refuted proposition.
Individual oil fields peak and so do collections of them. And so Peak Oil is not so much a theory as it is an observation about how oil fields age. We then explored the tension that obviously exists between a monetary system that enforces exponential growth and the fact that our primary energy source has either already peaked or will soon. Somehow, the US has not even begun to invest in a future without cheap oil. We have no “Plan B.”
Lastly, we noted that the environment, meaning the world’s resources and natural systems upon which we depend, is exhibiting clear signs that our exponential population is driving exponential exploitation of resources, hastening their final depletion and altering ecosystems at an alarming rate. Also, we learned that even minor changes to the systems we depend on, such as shifting rainfall patterns, can create massive, usually unplanned, costs that will take priority over other needs.
And, yes, we’ve faced problems before, and we’ll face these as well. The concern comes when we view them all at once.
Placed on a timeline, we see that a bursting housing bubble is already happening just as the first wave of boomers enters retirement. At the same time, peak oil demand will outstrip supply, forcing an enormously expensive adjustment even as unknowable costs associated with resource depletion and a shifting climate lurk in the not-too-distant future. And sitting over all of this, limiting our options, will be our national failure to save and invest, and historically unprecedented levels of debt.
This timeline, stretching from now to 2020, reveals a truly massive set of challenges, converging on an exceptionally short window of time.
The question becomes, “Where will the money come from to apply to each of these challenges, if our savings are depleted and our debt levels already in uncharted territory?”
Any one of these events will prove to be a difficult strain on our national economy, while any two could be disruptive. If three or more happen simultaneously? It’s not hard to foresee the economic destruction of our country as a result, or perhaps the dollar utterly ruined as a store of wealth.
How many trillions will be required to fund boomer retirement? How many trillions to reshape our transportation infrastructure to accommodate Peak Oil? Where will the tens of trillions come from to make up the shortfalls in pensions and entitlement programs? How do we make good on these pension and entitlement promises while burdened with the highest debt loads ever seen? Where does the money come from to clean up the aftermath of a bursting housing bubble? How much more expensive will food and minerals be in the future, when oil has peaked but many more people are placing higher demands on increasingly marginal resources?
Each of these key trends or threats will take years, if not decades, to address, and yet we find them all parked almost directly in front of us, without any serious national discussions or planning. With every passing day we squander precious time, while the problems grow larger and more costly, if not thoroughly intractable. Buying time is not a strategy and will prove to be a disastrous tactic.
The mark of a mature adult is someone who can manage complexity and plans ahead. My opinion is that, with few exceptions, the current political and corporate leadership of this country are doing neither. We need to change this.
It is long past time to give up the adolescent notion that we can have our cake, eat it too, and borrow more when it’s gone.
It is time, quite simply, to return to living within our natural and economic budgets. We need to set priorities, set a budget, and stick to both.
And you? If you haven’t already, you need to begin to embrace the possibility that the path to the future might not be straight - it may take a few twists and turns and end up somewhere entirely unexpected - and that you happen to be alive at one of the most interesting points in human history, a time when a great shift may occur. This can be frightening or it can be exhilarating, and that choice is yours.
So what do we do about all this? What can you do, and what steps should you be considering right now?
Please join me for the final chapter of the Crash Course.
Thank you for listening.
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