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Collapse Step by Step, Part 8 — The Bumpy Road Down

General Ideas

The Bumpy Road Down, Part 1

The term “bumpy road down” refers to the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity and make for a slow step by step collapse, rather than a single hard and fast crash. Indeed, that is where the “step-by-step” in the title of this series of posts comes from. And yes, many of the individual steps down will happen quite quickly and seem quite harsh. But it will likely take many steps and many decades before we can say collapse is essentially complete, and between those steps down there will (in many areas) be long periods when things are stable or even actually improving somewhat.

The fast collapse is a favourite trope of collapse fiction and makes for some exciting stories, in which stalwart heroes defend their group from hungry hordes and evil strong men. And if the story happens in the U.S. the characters get to do their best to stop a whole lot of ammunition from going stale. But it seems to me that in most parts of the world things will progress quite differently when disaster strikes. Indeed there is a branch of sociology which studies how people and societies respond to disaster, and it has identified a set of incorrect beliefs, known as “the disaster mythology” that much of the general public holds on the subject. In particular, the expectation of looting, mass panic and violence is not borne out in really. Here are some further links on the subject: 1, 2, 3, 4.

Dysfunctional as today’s world may seem to many of us, it is working fairly well for those who are in power. They have a great deal invested in maintaining the “status quo”, and in making sure that whatever changes do happen don’t have any great effect on them. They also have a lot of resources to bring to bear on pursuing those ends, and a lot of avenues to go down before they run out of alternatives.

The other 80% of us, who are just along for the ride so to speak, still rely on industrial society for the necessities of life. We are hardly self sufficient at all, dependent on “the system” to a degree that is unprecedented in mankind’s history and prehistory. As unhappy as we may be with the way things are at present, it’s hard to imagine collapse without a certain amount of trepidation. Denial is a very common response to this situation.

Some of us, though, aren’t very good at denial. Even if we only follow the news on North American TV, which largely ignores the rest of the world, we’ve seen lots of disturbing events in the last year or two and it is hard not to wonder if they are leading up to something serious. Many people in the “collapse sphere” are predicting a major disturbance in the next few years, and some think that this will be the one that us takes down—all the way.

I definitely agree that something is about to happen, but I don’t think it is going be the last straw. Just one more step along the way.

As always, I am directing this mainly to those who are not highly “collapse aware”, so a closer look at what’s going on and what this next big bump might look like would seem to be a good idea. And of course I am making generalizations in what follows. As always, things will vary a good bit between different areas and at different times, and all of this will affect people of the various social classes differently. Also beware that I am not an economist, just a layman who has been watching the field with keen interest for some time. What follows is a summary of what I have learned, in a field where there is lots of disagreement and where the experts themselves have been wrong again and again.

Despite all the optimistic talk about renewable energy, we are still dependent on fossil fuels for around 87% of our energy needs, and those needs are largely ones that cannot be met by anything other than fossil duels, especially oil. While it is true that fossil fuels are far from running out, the amount of surplus energy they deliver (the EROEI—”energy returned on energy invested”) has declined to the point where it no longer supports robust economic growth. Indeed, since the 1990s, real economic growth has largely stopped. What limited growth we are seeing is based on debt, rather than an abundance of surplus energy. And various adjustments to the way GDP is calculated have made the situation seem less serious that it really is.

Because of the growth situation, investors looking for good returns on their money have been hard pressed to find any and so have turned to riskier investments, which has resulted in speculative bubbles and subsequent crashes. The thing about bubbles is they are based on trust. Trust in some sort of investment that in saner times would be recognized for the risky proposition it really is. But always there comes a day when the risk becomes obvious, people rush to get out, and the bubble crashes.

The dot com bubble was the first to burst in this century, and the real estate bubble in the US was the next, leading to the crash of 2008.

After 2008 many governments borrowed money to bailout financial institutions (banks) which were in danger of failing, since that failure would have had a very negative effect on the rest of the economy. To control the cost of that borrowing and stimulate the economy, they lowered interest rates. These low interest rates have made it possible to use debt as a temporary replacement for surplus energy as the driver of the economy. Unfortunately this is pretty inefficient—it takes several dollars of debt to create a dollar’s worth of growth, and the result has been debt increasing to totally unprecedented levels.

Meanwhile, much of the ill advised risk taking in the financial industry that led to the crash in 2008 has continued on unabated. You may wonder why responsible governments didn’t enact regulations to stop that sort of thing. And indeed they did, to a limited extent. I suspect, though, that really effective regulations would have stopped growth cold, and no one was willing to accept the negative results of that. Better to let things to go on as they are, leaving future governments to worry about the consequences.

So, in 2017 we are deep into what might be called a “debt bubble.” It relies on trust that interest rates will remain low and that any day now there will be a return to robust growth so that we can all make some money and pay off our debts. Those are risky propositions, to say the least.

On top of that, low interest rates have made it much more of a challenge for pension funds to raise enough money to meet their obligations, a vital concern for retired baby boomers like myself.

Those same low interest rates have made it possible for many non-viable or barely viable businesses to continuing operating on borrowed money, where under more normal circumstances they would have been forced out of business. This makes for a weaker economy, not a stronger one.

Here in Canada we still have a real estate bubble going on, especially in cities like Toronto, Calgary and Vancouver, and that despite recent government efforts to cool the real estate market by making it more difficult to get a mortgage, and by applying a tax on foreign real estate investors.

And over the last year that have been a long list of natural disasters which have increased the financial stress on governments, insurance companies and even re-insurance companies (who insure the insurance companies themselves).

The more conventional economists have come to think that all this is a normal situation and that it can just keep on keeping on. But there are others who think that this will lead to a crash of even greater magnitude that 2008. And many kollapsniks think this crash will mean the end of industrial civilization.

Some commentators expect this crash to take the form of a rash of debt defaults by governments who can no longer carry the debt loads they have built up. And a similar wave of bankruptcies of those shaky businesses I was just talking about, when they finally get to the point where they can no longer hold on. Tim Morgan, one of my favourite economists (who is certainly aware of the possibility of collapse), speculates that this bubble may burst in a different way than those of the past, with the collapse of one or more currencies. He points to the British pound as a prime candidate for the first to go and thinks that the U.S. dollar may follow it.

Other experts I’ve asked say that while the U.S government does have huge debts, they are not so large in comparison to the size of its economy—an economy that is strong enough that trust in it is unlikely to fail. I am not so sure. Much of the strength of the U.S. dollar comes from the fact that all trading of oil is done in it. If you want to buy oil then you need U.S. dollars, so the demand for them is always high. But a number of countries who are not allies of the US have proposed abandoning this system, suggesting that they are willing to accept other currencies for their oil. If this were to happen on a large scale it would significantly weaken the US dollar.

But it takes some sort of unusual event to start a crash like this, to initiate the loss of trust. And that brings us back to the fossil fuel industry.

While the falling EROEIs of fossil fuels have hurt economic growth, it is a mistake to think that those fuels are not still the life blood of our civilization. The success of modern industry is based on the productivity boost provided by cheap energy. The price of oil, for many years, was a fraction of its worth in terms of what could be made with the energy embodied in that oil. But when the price of energy goes up, it reduces the profitability of industry, often leading to a recession.

The oil prices I quote here are for Brent crude, just to keep things simple. In fact, oil trades at a dizzying variety of different prices, depending on where it comes from and its quality, among other things. If you look back over the history of recessions since the 1950s it is interesting to note almost all of them were preceded by a spike in the price of oil. In the summer of 2008 the price of oil, which had been going up for several years, topped out just before the crash at almost $140 per barrel.

After the crash, the economy slowed down significantly, and the price of oil dropped to around $30 per barrel due to falling demand. Starting in mid-2009 the economy began to recover and the price of oil increased to over $100. This appeared to be a straight forward case of supply and demand—an indication that the supply of oil was barely keeping up and suppliers were being forced to turn to more expensive sources of oil to meet the demand.

Then in mid 2014 something surprising happened— the price of oil and many other bulk commodities began to go down. By early 2016 the price of oil was under $40/barrel, and it stayed in the range between $40 and $60 until quite recently when it edged up over $60.

All kinds of ideas have been put forth as to why this drop in the price of oil happened, many of them contradictory. It is my thought that two things have been happening. First, demand destruction—a slowing down of the world economy caused by high energy prices. Second, a temporary increase in the supply of oil, mainly from fracking in the continental US and tapping of unconventional oil—tar sands in Canada, heavy oil in Venezuela, and deep offshore oil in various place around the world, that were suddenly profitable when the price was around $100 per barrel.

Whatever is the cause, it is clear that we have had a surplus of oil for the last few years, and this has kept the price down. OPEC discussed limiting supply to force the price back up, but very little came of it, even though the lower price was severely hurting the economies of the OPEC nations.

In the short run, lower oil prices have had a beneficial effect on economic growth. But unfortunately, the big oil companies were making so little profit that they couldn’t afford to invest much in oil discovery.

Regardless of what you may think of the idea of “peak oil” on a global basis, it is a simple fact that the output of any individual oil field declines as it ages. Exploration for new oil aims to match that natural decline with new discoveries. For conventional oil, that has not happened since 1963 and by the start of this century this was becoming a problem. A problem that likely had something to do with the run up of oil prices prior to 2008.

Following 2008, higher prices and improved technology (like fracking and the syncrude process for getting oil out of the tar sands) made more oil accessible. But with the current lower prices, that is no longer the case. Furthermore the wells opened up by fracking are proving to have very high decline rates.

So it seems that sometime in the next year or two, the decline rate of the world’s oil fields will have eaten up the surplus of oil. Discovery of new oil fields doesn’t happen overnight, so there will be a crunch in oil supply. Not that there will be no oil available, but oil suppliers will be hard pressed to keep up with the demand and the price will spike upward. There may even be shortages of some petroleum products until those higher prices pull demand back to match the available supply.

It seems very likely that such a spike in the price of oil will touch off a loss of trust leading to a recession of such severity as to make 2008 look minor.

In my next post in this series I’ll look at how that recession—might as well call it a crash—might proceed and what will likely be done to mitigate its effects.

The Easiest Person to Fool

12 Comments on "Collapse Step by Step, Part 8 — The Bumpy Road Down"

  1. Shortend on Fri, 15th Dec 2017 7:04 pm 

    Next year or two? Seems on track with ETP!

  2. Makati1 on Fri, 15th Dec 2017 7:11 pm 

    The Great Leveling has been in progress for decades, but is gaining speed. Those ‘bumps’ will sometimes be deep plunges, not jolts. Sudden changes in everything. The 3rd world is coming to you. Are YOU prepared?

  3. Shortend on Fri, 15th Dec 2017 8:11 pm 

    I just got a colonoscopy…I’m prepared for another ten years Making..LOL

  4. Makati1 on Fri, 15th Dec 2017 10:37 pm 

    Corporate vs peasant farming: “The road to food sovereignty”

    ‘Industrial agriculture isn’t the efficient beast it’s made out to be. Peasant farming, not industrial food production, is the way to feed the world,…

    The industrial food chain is using at least 75 per cent of the world’s agricultural land and most of agriculture’s fossil fuel and freshwater resources to feed barely 30 per cent of the world’s population. Conversely, more than 500 million peasant farms around the world are using less than 25 per cent of the land – and almost no fossil fuels or chemicals – to feed 70 per cent of humanity….

    The statistics are staggering. Consumers pay $7.5 trillion each year for industrially produced food. But between a third and half of this production is wasted along the way to the consumer or at the table: spoiled in the field or in transport, rejected from grocers because of blemishes, or left on the plate because of over-serving….

    Peasants can scale up if the industrial chain gets off their backs. Governments must recognize peasants’ rights to their land and seeds and support fair, peasant-led rural development and trade policies. We need to cut waste and shift our financial resources to strengthening the peasant food web and both tackling climate change and ensuring food sovereignty.”

    Maybe, when the big collapse comes, the corporate farms will go. We can only hope.

  5. Apneaman on Fri, 15th Dec 2017 11:53 pm 

    This one – Banned words – is right out of the tyrants playbook.

    CDC banned from using ‘evidence-based’ and ‘science-based’ on official documents: report

    Funny how one of the biggest beefs of conservatards and the alt-reality-right is PC as censorship. The new guy is not even pretending.

    They hates us fer R freedumb – tell yourself.

  6. JH Wyoming on Sat, 16th Dec 2017 1:51 am 

    I would say that article about sums up the events leading to today’s predicament fairly accurately, but what the timing is on the next downturn is hard to say.

    But what can be said is this latest tax code change by the R’s is a Hail Mary pass, attempting to somehow accelerate the economy fast enough via tax cuts to move faster than the speed of reduced revenue resulting from those tax cuts. That’s desperate. I mean really an absurd attempt to get around declining EROEI.

    He’s right about one thing though; high oil price leads to recession, and with price rising it will put increasing pressure on the economy. Should be interesting to see at what price point that occurs.

  7. deadlykillerbeaz on Sat, 16th Dec 2017 2:25 am 

    I dunno, but I see letters from buyers wanting to purchase mineral rights. If the shale play is so fraught with weakness, failure, financial armegeddon, what have you, why are there buyers out there making offers?

    It doesn’t add up.

  8. Makati1 on Sat, 16th Dec 2017 5:26 am 

    The sooner it ends, the better.

    “The new law of human evolution is that we are required to compete for more money and commodities for themselves as “necessary to survive”, with the borderless system de-regulated and structured to increasingly impoverish the great majority while multiplying the wealth of the rich. The facts are now long in. Corporate globalization is not only out of control. It is eating the world alive at all levels towards cumulative collapse of organic, social and ecological life organization. Global competition means, in fact, the majority’s life means and security keep falling as the environment is looted and polluted on ever larger scales of depredation. Yet only “more growth” of this system is imagined as a solution. The system is clinically insane.”

    Just waiting for the collapse.

  9. Davy on Sat, 16th Dec 2017 6:19 am 

    “The industrial food chain is using at least 75 per cent of the world’s agricultural land and most of agriculture’s fossil fuel and freshwater resources to feed barely 30 per cent of the world’s population.”

    “between a third and half of this production is wasted along the way”

    BS, show me the data. More agenda peddling. While I despise industrial agriculture these statements are unsupported and do not reflect reality. As just a quick primer look into the numbers on total grains and oil seeds then check out the meats and seafoods.
    Food waste figures are deceptive. There is going to be food waste in all systems. No system is 100%.

  10. Makati1 on Sat, 16th Dec 2017 7:12 am 

    Logic, not data, Davy. You just don’t like the fact that it backs up what I have been saying for a long time. The peasants will survive. You won’t.

    You live in a system of waste from beginning to end. The US wastes enough food to feed 100 million people. That is just part of the waste in the 1st world method of food production. Deny if you want. Research would prove it true. Corporate farming is a losing process from beginning to end. And, it WILL end when the SHTF and the chemicals stop flowing. Be patient.

  11. Davy on Sat, 16th Dec 2017 7:23 am 

    Ideas on collapse are deceptive today. I do believe we are heading in that direction. We can just do the math and review the science with all the problems humans have today. When we take these problems together they are predicaments without fixes. Yet, there are solutions through mitigation and adaptation that will buy us time maybe making this inevitable collapse drawn out. We are a linear growth system in a circular natural system. Our linear subsystem will eventually go circular with collapse and succession. This is natural law and not amount of wishful thinking will change that.

    We need to clarify collapse also. We can say “as we know it”. When has society change enough to say civilization has ended “as we know it”? We should clarify it as when, how, and at what speed. Systematically we might be able to carry on for years with a repressed managed world economy engaged in wealth transfer. This wealth transfer is basically triage of the poor by the rich. We are exploiting and destroying the planetary system in the process but there is still plenty more planet to consume and destroy.

    Collapse is a process and it is circular within a planetary system. Processes take time and undergo changes. Degree and duration of the changes is profoundly important to all participants. Sometimes these are phase changes with quick changes of state. Other times we have a process of slow movement of large cumulative change. The warming of the oceans has taken many years and it appears we are now just seeing the very visible signs of abrupt change. The construction of our modern economy around fossil fuels and complexity has taken years. Do we have phase changes ready to abruptly alter out status quo?

    The thing about collapse is it can happen quickly. When vital weak links are broken a system can quickly cascade into failure. Systems degrade through entropic decay and if not maintained they can bifurcate. Random economic failures, dysfunctional networks, and irrational policy are more and more apparent but they are not civilization killers yet. Civilization suicide in wars and excessive militarism is another avenue for our destruction. This is particularly disturbing these days.

    Planetary destruction and climate destabilization can proceed some years before a civilizational shattering conclusion. We don’t fully know about the dynamics of these natural forces we can’t know for sure how quickly and how forcefully these dangerous changes could be. The effects of these forces systematically are also not fully known. How many climate disasters can our global economy handle before the systematic effects of climate disasters becomes overwhelming to the global economy?

    The economy itself is not fully understood. How much control do we have over our Ponzi global economy of bubbles? How long can we play the games we are playing today before confidence and liquidity is lost?

    How about food and water. How long until we have some major agricultural problems globally instead of regionally. What if globally we had significant destructive disturbances lasting more than a year? What would mass hunger do? I imagine we could have a civilization killer with mass hunger. Likewise pandemics could disrupt civilization. We discount pandemics but they could erupt at any time especially with all the untested geoengineering games we play today. Water is a big issue and one that could come into play if we have widespread droughts.

    Peak oil dynamics is an ever threatening force. We are still primarily a fossil fuel driven world. Any major disruption to fossil fuels could end modern civilization. We think peak oil is dead but anytime a civilization is so reliant on a foundational resource it is at risk.

    In the meantime there is no reason to consider a quick collapse inevitable. We just don’t know because there are too many “variable” variables. The current global economy and planetary system are too big to model and determine a quick collapse of a collapse date. Our civilization is robust on some levels and on others dangerously exposed to multiple converging risks. We just don’t know so I take any of these collapse agendas with a grain of salt. I also do this with the techno optimist and their proselytizing of “all is well”. All is not well but is the sky falling?

  12. Davy on Sat, 16th Dec 2017 7:35 am 

    “Logic, not data, Davy. You just don’t like the fact that it backs up what I have been saying for a long time.
    “Logic”. Mad kat what is logic. Your logic of an anti-Western pro Asian agenda? You are peddling unsupported numbers and referencing an article that is unsupported and much too broad in its assumptions. FRAUD!!!!!

    “The peasants will survive. You won’t.”
    What peasants will survive, mad kat? How many mad kat and where? Are you saying all peasants will survive? You are a fraud with every post you make. You are a fraud because you are peddling an unbalanced binary agenda of hate and unsupported data.

    “You live in a system of waste from beginning to end. The US wastes enough food to feed 100 million people.”
    Clarify your statement with numbers and numbers that are not agenda driven. The US is one of the biggest examples of food waste but please 100MIL??? The dollar value of that number is huge and it is speculative like most everything you put down. The entire world wastes food. Peasants waste food for a variety of reasons. Many of these reasons are because they can’t process and store food properly. FRAUD!!!!

    “Research would prove it true.”
    Put down your research mad kat or are you too lazy?

    “Corporate farming is a losing process from beginning to end. And, it WILL end when the SHTF and the chemicals stop flowning.”
    No shit Sherlock but the reality is every person on the planet is dependent on industrial agriculture either directly or indirectly. If it fails so will your exaggerated peasant super men. FRAUD!!!!!

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