Monday, February 27, 2012

It's the end of the world as we know it

I've just been to a talk by Nicole Foss, AKA Stoneleigh of the Automatic Earth. She is an expert in peak oil, finance and climate change and how these three interact. Among other things she predicted the GFC in 2008, which is something not many can say. She talks about the oncoming 'perfect storm' of firstly economic collapse, then an energy crisis and then climate change. It's not a very upbeat story to say the least! The talk she gave, despite being very blunt and to the point, was a strangely enjoyable and empowering experience. I felt privileged to be informed about this stuff, especially on the economic issues. I won't go into great detail, but here is a brief summary of what I took from the evening:

  • The perfect storm presents 3 huge challenges to humanity. The first of these is an imminent global economic collapse and it may come any time between tomorrow and the next 5-10 years. The main cause of this is that the true value of assets held globally is a fraction of what is stated on paper. This means that for every $100 you have in the bank, shares, insurance, pensions, house value, etc the real value may just be $1 or $10 in the future. This is a classic deflationary bubble, which is bound to burst at some stage. 
  • When the shit really hits the fan and people realise this, it will be too late. The first ones to grab the real assets will be banks and other corporations (see the recent case of MF Global), leaving the average Joe with nothing. The implications of this are very scary, this could happen to your bank/pension fund/broker/insurance company/investments some day.
  • Nicole predicts that at a certain point, a contagion will ensue and panic will cause local and national collapses to trigger a global crisis. Given the current level of globalisation this is not hard to envisage. Just look at Greece (due to default any day now) and the rest of Europe.
  • Deflation will follow, with a credit crunch, higher unemployment, higher interest rates and higher taxes.
  • Australia is not immune to this crisis. A collapse in Europe will lead to a collapse in China and without exports to China Australia's economy will go down the gurgler pretty quickly. In fact no countries are immune, although the poorer countries with good social cohesion will most probably suffer the least.

  • The next challenge will be an energy crisis, caused by peak oil. Discoveries of conventional oil have plumeted in the last decade, in fact most of the oil we are using now was discovered in the 60's and 70's. Recent discoveries are smaller and crucially much harder to tap. Net energy (the amount of energy you can use after taking in to account the amount you used to get it) of new supplies is rapidly decreasing, from 100 (1 unit in to get 100 out) to around 15 now. This will continue to decline until it's not worth bothering to drill (1 to 1).
  • Other sources of fossil energy (such as coal and natural gas) will not be able to make up for the drop in oil production due to lower energy density and greater distances to markets.
  • Renewables, whilst being an important part of future supplies, have low energy density and require huge inputs of energy to change infrastructure from a centralised model to a more local, decentralised model. 
  • Drops in oil production will require huge changes to the way we live, eg pharmaceuticals, agriculture, building, transport.

  • The third crisis is climate change. The details may be up for debate, but CC is a fact and it will affect your future and that of generations to come.
  • Carbon reduction schemes will most probably become redundant due to huge emissions reductions caused by the credit crunch. This does not mean we should be complacent about cutting emissions, it's just a reality that economic crises lead to less consumption and hence less pollution.
  • Climate change may mean higher temperatures, more droughts, more cyclones, more flooding or even huge drops in temperatures depending on location.
But wait, don't slash your wrists quite yet! Nicole stressed that there are many things we can do on a personal and community level to be prepared:

  • Reduce your levels of debt as a priority. When banks feel the crunch interest rates will go sky high. Add the risk of losing your job or getting a pay cut and you can see why debt is bad. If you can shift money from shares or pensions to pay off debt it might be a good option, since the value of these will collapse in time. One great suggestion I heard was this: in Australia you can't access your superannuation (pension) funds until about the age of 65. BUT you can make your fund self managed, then use the funds to pay off a friend's home loan and they do the same to pay off yours. I love this idea and I'm going to investigate further. 
  • It may be good to reconsider if you are thinking about getting into the property market. House prices are still hugely inflated despite drops since 2008. All deflationary bubbles in the past (such as the 1930's) follow the same pattern of exponential growth followed by a sudden fall and the prices after the fall are always below the level when the boom started. This boom started in 1983, so house prices are due to drop to pre 1983 levels and won't rebound for many decades or more.
  • If you own your home then make sure you want to stay there for the long term, since it may be impossible to sell your home in the future. Renters may have an advantage in that they will have greater freedom to move to places with less conflict or more opportunities.
  • Save cash (cold hard cash) and buy short term government bonds. This will tide you over the critical first few months of the crisis. Banks may not give you your money if you want it, this happened in Argentina recently. Government bonds are safer than bank deposits since governments will stay liquid longer than banks.
  • Invest in things which will reduce your ongoing costs, eg solar panels, rainwater tanks, growing your own food.
  • Build links in your community. This could be as simple as getting to know your neighbours better or as ambitious as setting up a community garden or decentralised power hub. Strong communities will be able to work together to pool resources and skills in order to reduce the impacts of the collapse.
  • Stay healthy if you can. Private and public health insurance schemes may collapse, meaning medical bills shift to a pay as you go basis.
  • Prepare psychologically and tell your friends and family about these issues. People who can avoid fear and panic will be better off.
If you can make these changes and the crash doesn't come what have you lost? Nothing really, in fact you've probably gained a fair bit. I would urge you to take this seriously and investigate further. If you can catch Nicole's remaining Australian and New Zealand talks do so (see the Automatic Earth for details). Otherwise you can buy or rent the DVD "A Century of Challenges".

So, it's not quite the end of the world as we know it, but the party's pretty much over. Sorry to be the bearer of bad tidings, please don't shoot the messenger! I hope Nicole Foss is wrong, I really do. But something tells me she's not, it just rings true...


  1. hoo, that was chipper! I know what you mean about empowering though - we are in the midst of planning a spend though it seems counter logical given there is not alot coming it but just feel the pressure to sort some things out - so loved this post - thanks so much.

  2. hmm, been pondering overnight - do you know much more or where to find more about the paying off a friend bizzo? could you email me any thing you have if you have a moment? cheers
    umatji at gmail dot com

    1. I know what you mean, we are considering some reno's at the moment and it does seem the wrong thing to do. However, if it makes the place more liveable and efficient then it will be good. No news on the super to pay off the home loan yet I'm afraid. I'll let you know when I hear more.