Beyond the False Dawn: Global Crisis 2020-2022   (February 18, 2011)

Four long-wave cycles will likely intersect around 2020-2022.

Longtime correspondent Ken R. asked me to elaborate on my recent reference to the "real crisis being pushed forward to 2020" ( A 5-Year Scenario: 2011-2016 February 15, 2011). The long answer would fill entire volumes, so I'll attempt a shorthand version.

Let's start with the chart I prepared for the cover of my 2008 book Weblogs & New Media: Marketing in Crisis. (You can read the first chapter on the Marketing in Crisis webpage.)

It seems clear to me that four Grand Cycles will intersect around 2020-2022:

1. Peak oil, or the depletion cycle/end-game of the global economy's complete dependence on inexpensive, readily available petroleum/fossil fuels.

2. The cycle of credit expansion and contraction (approximately 60-70 years), which is now beginning the transition from unsustainable credit expansion (bubble) to renunciation of debt (credit collapse) and global depression.

3. The generational cycle (4 generations or approximately 80 years) of American history which leads to nation-changing social, political and economic upheaval. (The American Revolution: 1781 +80 years = Civil War, 1861 +80 years = 1941, World War II + 80 years = 2021)

4. The 100+ year cycle of price inflation and stagnation of wages' purchasing-power which began around 1901 is now reaching the final stage of widespread turmoil, shortages, famine, war, conflict and crisis.

While industrial society, the Central State and global neoliberal capitalism could probably suppress or adjust to any one of these cyclical climaxes, it seems unlikely the Status Quo will be successful in suppressing/adjusting to all four at once.

There is nothing magical about 2020 or about each crisis.

The book The Fourth Turning describes the 4-generation. 80-year cycle of political and social crisis in the U.S., and it makes sense even if you don't believe in cycles: after 80 years have passed, few humans are left who can recall the previous crisis. That loss of experiential capital, if you will, sets up the next crisis, which isn't a repeat performance of the last one but a variation on the general theme that unfolds in a unique historical setting.

That historical setting is defined by massive ecological overshoot as laid out in Overshoot: The Ecological Basis of Revolutionary Change.

This overshoot--humanity as a species expanding to fill every ecological niche when food and energy supplies are rising--leads to roughly 100-year cycles of rising prices for what I call the FEW essentials (food, energy, water) and resulting political instability--not to mention plagues, war, etc. as the over-abundant humans scramble to secure what's left of dwindling resources. This is ably described in The Great Wave: Price Revolutions and the Rhythm of History.

The credit/debt/speculative bubble that is slowly reaching its endgame has been addressed by The (Mis)behavior of Markets and Financial Armageddon: Protecting Your Future from Four Impending Catastrophes.

The end of cheap, abundant oil is covered in The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century, Beyond Oil: The View from Hubbert's Peak and The Long Descent: A User's Guide to the End of the Industrial Age, to name but three of many books on the subject.

I could have added a fifth crisis, that of demographics, as the financial promises made to the planet's ageing populace will be broken by the sheer number of the elderly: The Coming Generational Storm: What You Need to Know about America's Economic Future.

My own attempted synthesis of the coming intersection is of course Survival+: Structuring Prosperity for Yourself and the Nation.

If you have any doubts remaining about the credit/debt bubble, I invite you to study 10 Economic Charts That Will Blow Your Mind (The Economic Collapse).

I've marked up one chart to show how far we've progressed in the speculative debt cycle:

Here's where we are in a nutshell. Borrowing money creates a virtuous cycle when money is cheap and easy to borrow, as the money flows into consumption and investments which feed that consumption.

Eventually, however, organic demand (that is, people actually needing things and services) is met. But as Marx noted, everyone and his brother/sister ramped up production to meet the seemingly limitless demand, so now there is massive excess capacity/overproduction.

Oops! It turns out the market isn't very good at assessing "steady state" levels of debt, consumption, production or speculation. So everyone overborrowed and over-speculated in both productive capacity and unproductive financial gambling.

Two bad things happen in this financial overshoot. One is that all that debt must be serviced, i.e. the interest and some modest attempt to pay down principal must be paid. In the virtuous upcycle, rising profits and asset prices make borrowing more to pay the seemingly trivial interest easy--no burden at all.

But once the overcapacity, over-leveraged, over-indebted cycle breaks, then assets and profits both plummet, leaving the borrowers unable to leverage more debt to pay the interest on their current debt.

As income streams and assets both decline, the interest suddenly gains the force of gravity: what was once lighter than air is leaden and increasingly burdensome.

The Grand Partnership of the Central State and the Financial Plutocracy (parasitic global cartel Capitalism writ large) have suppressed this natural implosion of speculative debt by printing and distributing trillions of dollars in "free" money. The only way to make servicing a trillion dollars bearable is to lower the interest rate to zero. At zero, even you and I can borrow a trillion dollars, and once again we can easily borrow enough to service our mountain of existing debt.

As a special bonus to the Plutocracy, the "free money" enables them to ramp up their favorite pastime, carefree financial speculations based on fraud, collusion and misrepresentation of risk. As any profits will be theirs to keep (private) while any losses (and all the risk) willbe backstopped by their partner, the Central State and its tax-donkeys, the taxpayers, it's a return to fun days at the races for the Financial Elites.

But a funny fork in the road appears after a massive dose of free money: the free money flows into speculative bets on actual tangible resources, creating massive inflation and newly reflated asset bubbles.

As a result, the system is now facing the same old problem--asset bubbles held aloft by "free money" and rampant financial fraud--and a new problem: inflation in resources that sustain the real economy.

The Central State/Financial Elites are thus faced with an impossible choice: if they let the speculative free money flow, then their populations starve as prices of tangible goods such as food and energy skyrocket. Recall that the masses aren't provided with a trillion dollars at zero interest; that privilege is reserved for the Financial Elites who fund the Central State politicos.

The capitalist answer to this vast financial overshoot is simple: interest rates will rise once the unlimited free money stops flowing. Once interest rates rise, then the debt--which has now doubled or tripled in the frenzied flow of free money-- quickly becomes burdensome in the extreme.

In other words, the status quo is now addicted to unlimited flows of free money. If the flow continues, then inflation will destabilize it; if it's cut off, then rising interest payments will destabilize it.

That's why it's easy to predict a financial collapse in the next few years. But there are still enough resources around to restabilize things after the impending financial liquidation; societies and economies have a way of finding a new equilibrium, a process described in The Onset of Catabolic Collapse (The Archdruid Report)

It’s not quite as straightforward as it sounds, because each burst of catabolism on the way down does lower maintenance costs significantly, and can also free up resources for other uses. The usual result is the stairstep sequence of decline that’s traced by the history of so many declining civilizations—half a century of crisis and disintegration, say, followed by several decades of relative stability and partial recovery, and then a return to crisis; rinse and repeat, and you’ve got the process that turned the Forum of imperial Rome into an early medieval sheep pasture.

But a financial re-set won't address any of the other looming crises. As I have often proposed, energy will remain too cheap for alternatives to make financial sense until it doesn't, and then it will be too late.

Such thoughts do leak out of the status quo every now and again, but they are generally viewed as some sort of parlor game: ooh, how deliciously awful it will all be! THE GLOBAL ECONOMY WON'T RECOVER, NOW OR EVER.

Here is an excellent summary of energy realities: A physicist models the city:

West illustrates the problem by translating human life into watts. “A human being at rest runs on 90 watts,” he says. “That’s how much power you need just to lie down. And if you’re a hunter-gatherer and you live in the Amazon, you’ll need about 250 watts. That’s how much energy it takes to run about and find food. So how much energy does our lifestyle [in America] require? Well, when you add up all our calories and then you add up the energy needed to run the computer and the air-conditioner, you get an incredibly large number, somewhere around 11,000 watts. Now you can ask yourself: What kind of animal requires 11,000 watts to live? And what you find is that we have created a lifestyle where we need more watts than a blue whale. We require more energy than the biggest animal that has ever existed. That is why our lifestyle is unsustainable. We can’t have seven billion blue whales on this planet. It’s not even clear that we can afford to have 300 million blue whales.”

I highly recommend this excellent analysis of energy consumption and production which was forwarded to me by knowledgeable correspondent Nathan P.

The author analyzes his own annual energy use and leads us to the conclusion that our 10,000 watts a day lifestyles must be trimmed to around 2,000 watts a day to be sustainable with current technologies.

He then goes on to extrapolate how many windmills, solar arrays and nuclear power plants we as a species will have to install over the next 20 years to replace current consumption of fossil fuels.

As I recall, it will require one new nuclear power plant a week for the next 20 years, plus thousands of new solar and wind arrays.

A significant amount of this planetary project is possible, but not likely, for the reason noted above: energy will remain too cheap for alternatives to make financial sense until it doesn't, and then it will be too late.

I am not a doom and gloomer, however, because history offers us abundant examples of civilizations which prospered on 2,000 watts a day or less, long before civilization became dependent on fossil fuels.

There will be a massive transformation of the status quo, however, and the outcome is in our collective hands.

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