The Long Crisis

Posts Tagged ‘Worldwide Catastrophes’

Americans have always been optimistic people who believed in the special qualities of America as a nation state. You know, liberty, freedom, the pursuit of happiness, and all the rest. That natural trait helped Americans to prosper and to overcome past great catastrophes, like the Civil War of the 1860′s and the Great Depression of the 1930′s. Now three converging worldwide catastrophes are about to put the American belief system to a real stress test.

Partially as a result of good fortune in the form of having access to cheap natural resources and partially by hard work and dedication to making a better future for themselves and their families Americans have come to believe in their exceptionism, that America is entitled to a special place in the world.

It is unreasonable to think that even America can conduct its affairs along the lines of a third world banana republic and after a period of time not take on the unpleasant characteristics of a banana republic. Yet, by being reckless and careless in managing the American economy, by becoming the largest debtor nation in the world, and by debasing its currency the United States is well on the road to third world nation status. In America’s once proud and successful former manufacturing cities, like Detroit and Cleveland, third world economic and living conditions have already arrived.

The convergence of three catastrophes early in the 21st century will change living conditions in the US and other industrialized nations for the worse. There will be no long term recovery. This time it will be different. Now is a dangerous time for America. Most Americans have no idea as to how drastically life will change over the next ten years and are totally unprepared to revert to a pre industrial age, one in which even electricity is rationed or non existent.

I doubt if Americans will accept such a change in living standards gracefully. Worldwide the early 21st century will be a time of social upheaval and the failure of governments, possibly even the US government. It will not be a pretty time in which to live in the United States. Just ask the people of Iceland how fast things can unwind. Their government has already collapsed.

The three converging catastrophes are as follows:

1.) Financial System Meltdown:

An almost total breakdown of the US financial system is underway. This process is already underway as the black hole of a compressive deflationary deleveraging of trillions of dollars of debt secured by depreciating toxic assets accelerates.

In spite of billions of dollars of cash injections of capital by the US government the big banks, like Citigroup and Bank of America, are still insolvent. It will likely take a tragic nationalization of at least a few major banks before the destruction of bank capital will be contained. The fractional Federal Reserve Bank banking system working in reverse is not a viable business model.

As the process is geometric the destruction of capital will far outpace the government’s efforts to re-inflate the economy. Bailout after bailout will cause the treasury to print money it really doesn’t have. Since the financial crisis is worldwide it will become increasingly difficult for the US to borrow the enormous sums required to stay afloat. If it can still borrow it will be at increasingly higher interest rates.

Every nation will have its own set of problems and the great danger is that every nation will be looking after only its own affairs. The fear to lend money internationally and the advancement of protectionism will add to the world’s financial woes. The US, being largely on its own, will have to print huge sums of currency. Initially the flood of “new money”, or what the treasury hopes will pass for money, will have little effect. The deflation will continue.

However, once the forced liquidation of debt and the value of assets, such as homes, commercial real estate, stocks, art works, collectibles, commodities of all sorts including oil, has run its course, the trillions of dollars in fiat money thrown at the deflationary problem will have unintended consequences. Probably the economy will rapidly move from deflation to hyper inflation as people realize the world over that the flood of trillions and trillions of new dollars has no real value.

The whipsaw effect of a deflationary economy moving to hyperinflation will be a catastrophe of the first order. Gold and Silver are probably the only asset classes that will be storehouses of value as people the world over lose confidence in paper fiat currencies.

2.) Global Warming and Climate Change:

Global warming and the resulting climate change will continue to accelerate and will likely not be properly addressed as the financial meltdown will consume most of every nation’s attention. The evidence of profound change underway, such as the rapid melting of polar icecaps, is already quite evident. However, many people, including important politicians world wide remain in denial. Probably, no matter what we do it is already too late to reverse climate change. Rather than discuss what is causing it and who should be blamed we badly need to be working out how we, the people of earth, will deal with and adjust to climate change.

Eventually, as clean drinking water and water for agriculture resources reach critical levels in prime agricultural regions and floods devastate other regions, governments will devote more attention to the matter. Then as sea levels rise enough to endanger major cities, including London, Washington, D.C. and New York City, some sort of action will have to be taken. But for billions of people around the world it will probably be too late. Billions will perish as rising temperatures, disease, starvation, and resource wars take their toll.

3.) Peak Oil:

The International Energy Agency released a report early in 2009 about the world’s oil fields that contains some shocking numbers about supply and demand factors for oil over the near term. Rather than repeat the conclusion of the report here review the article World Oil Fields in Death Spiral

The conclusion to the report is that one should not be mislead by the current severe decline in oil prices from the recent high of $147 a barrel to below $35 a barrel. The decline of oil prices is largely a result of the explosive deflationary forced liquidation of all asset classes as a result of the financial meltdown. Once that process is completed supply and demand forces will take over and oil prices will move to new highs, probably within two to three years, perhaps sooner.

The age of cheap oil and cheap energy is over and no matter what your “leaders” may tell you the prospect of life going on as before, in the golden age of the automobile, is non existent. Alternative energy resources will be of some assistance but will not be nearly sufficient to replace oil as an energy source. The result will be a downsizing and reorganization of life for Americans and most people of industrial nations in a way that we are not prepared for. To get a feel for what life may be like in the near future review The Daily Grunt at James Howard Kunstler’s website. Warning: It is highly interesting but disturbing reading. Like it or not your life is about to change.

You can think probably think of additional converging catastrophes of the 21st century. However, I will stop at the three listed above. Those three will likely be all that we can handle. In fact we will probably not be able to handle all three in a satisfactory way. Any one of them left unresolved could do most of us poor humans in. It seems like even with all of our advances in technology without sufficient energy supplies to power those technologies the converging catastrophes will ironically take the survivors back to living a rustic far more simple life, much like our ancestors of over a hundred years ago.

Perhaps that will not be all a bad thing as people will be forced to look after one another if they are to survive. A sense of community will develop that will put to shame the me first living habits of many people today. No doubt life in the 21st century will be far from what most people now expect. We must acknowledge and understand the coming changes and then successfully adapt to them if we are to avoid becoming a 21st century version of the dinosaur.

Tweet This Post