Where is the train taking us? - Aussie Stock Forums

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  1. #1

    Default Where is the train taking us?

    The last 12 months has been troubling economically and the events of the last few months in particular has challenged almost every belief most of us have had. Could we have ever imagined the collapse of so many of our biggest financial institutions and be calmly talking about the imminent bankruptcy of GM and probably Ford.

    So is the system still working or are we in terminal decline? I feel schizophrenic on the issue. On one hand my research on environmental issues in particular Peak Oil and Global Warming scares the daylights out of me. The figures are clear. Yet in the rest of the world ....nothing seems to happen. It seems too scary to really face up to making the big changes necessary to survive the forseeable.

    I came across an interesting analysis of the collapse of societies recently. I have attached a small except and left the url. What are your thoughts on the question? Is the train talking us home or over a cliff?

    The Five Stages of Collapse
    by Dmitry Orlov

    Hello, everyone! The talk you are about to hear is the result of a lengthy process on my part. My specialty is in thinking about and, unfortunately, predicting collapse. My method is based on comparison: I watched the Soviet Union collapse, and, since I am also familiar with the details of the situation in the United States, I can make comparisons between these two failed superpowers.

    I was born and grew up in Russia, and I traveled back to Russia repeatedly between the late 80s and mid-90s. This allowed me to gain a solid understanding of the dynamics of the collapse process as it unfolded there. By the mid-90s it was quite clear to me that the US was headed in the same general direction. But I couldn't yet tell how long the process would take, so I sat back and watched.

    I am an engineer, and so I naturally tended to look for physical explanations for this process, as opposed to economic, political, or cultural ones. It turns out that one could come up with a very good explanation for the Soviet collapse by following energy flows. What happened in the late 80s is that Russian oil production hit an all-time peak. This coincided with new oil provinces coming on stream in the West - the North Sea in the UK and Norway, and Prudhoe Bay in Alaska - and this suddenly made oil very cheap on the world markets. Soviet revenues plummeted, but their appetite for imported goods remained unchanged, and so they sank deeper and deeper into debt. What doomed them in the end was not even so much the level of debt, but their inability to take on further debt even faster. Once international lenders balked at making further loans, it was game over.

    What is happening to the United States now is broadly similar, with certain polarities reversed. The US is an oil importer, burning up 25% of the world's production, and importing over two-thirds of that. Back in mid-90s, when I first started trying to guess the timing of the US collapse, the arrival of the global peak in oil production was scheduled for around the turn of the century. It turned out that the estimate was off by almost a decade, but that is actually fairly accurate as far as such big predictions go. So here it is the high price of oil that is putting the brakes on further debt expansion. As higher oil prices trigger a recession, the economy starts shrinking, and a shrinking economy cannot sustain an ever-expanding level of debt. At some point the ability to finance oil imports will be lost, and that will be the tipping point, after which nothing will ever be the same.

    This is not to say that I am a believer in some sort of energy determinism. If the US were to cut its energy consumption by an order of magnitude, it would still be consuming a staggeringly huge amount, but an energy crisis would be averted. But then this country, as we are used to thinking of it, would no longer exist. Oil is what powers this economy. In turn, it is this oil-based economy that makes it possible to maintain and expand an extravagant level of debt. So, a drastic cut in oil consumption would cause a financial collapse (as opposed to the other way around). A few more stages of collapse would follow, which we will discuss next. So, you could see this outlandish appetite for imported oil as a cultural failing, but it is not one that can be undone without causing a great deal of damage. If you like, you can call it "ontological determinism": it has to be what it is, until it is no more.

    I don't mean to imply that every part of the country will suddenly undergo a spontaneous existence failure, reverting to an uninhabited wilderness. I agree with John-Michael Greer that the myth of the Apocalypse is not the least bit helpful in coming to terms with the situation. The Soviet experience is very helpful here, because it shows us not only that life goes on, but exactly how it goes on. But I am quite certain that no amount of cultural transformation will help us save various key aspects of this culture: car society, suburban living, big box stores, corporate-run government, global empire, or runaway finance.

    On the other hand, I am quite convinced that nothing short of a profound cultural transformation will allow any significant number of us to keep roofs over our heads, and food on our tables. I also believe that the sooner we start letting go of our maladaptive cultural baggage, the more of a chance we will stand. A few years ago, my attitude was to just keep watching events unfold, and keep this collapse thing as some sort of macabre hobby. But the course of events is certainly speeding up, and now my feeling is that the worst we can do is pretend that everything will be fine and simply run out the clock on our current living arrangement, with nothing to replace it once it all starts shutting down.


  2. #2

    Default Re: Where is the train taking us?

    Well mate what do you expect from a Russian.
    Bit disappointed in an engineer though, being a recently retired engineer myself.
    In Oz we tend to be more optimistic.

    Our solution is to eat, drink and be merry. And of course watch football and cricket. (lets piss off the cricket as its just boring!) It will all come back into place eventually.

    You are looking at some excellent buying opportunities. Just pick those with good balance sheets, not too much leverage and with ability to generate cash. They exist. Starting to look like this is close to the buying time. We seem to be bottoming albeit it with a lot of volatility

  3. #3

    Default Re: Where is the train taking us?

    Towns, cities, states and countries are all ultimately based on some foundation as far as economics is concerned.

    For example, Canberra is based on public administration, Mt Isa is based on mining and the Gold Coast is based on the recreational spending of money earnt elsewhere. That is the fundamental underpinning of those areas' economies.

    Take away that underpinning and the whole thing collapses pretty fast. Just think about what would happen to Canberra without government administration. Or to the Gold Coast if tourism simply stopped. Outright economic collapse would be inevitable once sources of credit were maxed out as there simply wouldn't be the income to sustain much in terms of economic activity.

    The US' economic success is and has always been heavily influenced by oil. American oil gave an immediate advantage to local industry to be followed by national wealth from exports of oil and related activity (drilling equipment etc). And the US has remained tied to oil, hence it's no surprise to see the end of currency linkages to gold and subsequent decline in US industry began not long after the US became a net oil importer and accelerated after their production peak.

    Oil drives the US economy just as public administration drives the Canberra economy. Hence it's logical to expect Peak Oil to equal Peak USA economy not just in terms of growth or dominance, but in absolute terms. Likewise no surprise to see the present chaos unfold almost immediately oil prices surged on the back of plateauing production.

    What next? Well I do think Australia will come through OK eventually simply because we still have a substantial natural resource base, particularly energy. But we'll only prosper once we accept that the previous game is up and it's about production rather than consumption and speculation from now on.

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