Transition Basics

What’s all the excitement about? It’s not easy to summarize complex realities, but the trends are really not hard to grasp. They affect everyone, whether we pay attention to them or not.

Notes from The Crash Course: Information You Can’t Afford to Live Without (video) by Chris Martenson

  • The next 20 years are going to be completely unlike the last 20 years.
  • We all tend to base our view of the future on our recent experience – this is a liability.
  • Massive change could occur faster than our ability to deal with it.
  • So far, we lack the political will to make necessary changes
  • Economy: we have 1) exponential money, 2) a bursting credit bubble, 3) demographics to contend with, and 4) a national failure to save
  • Energy: we have Peak Oil
  • Environment: we have shrinking resources driven by population pressures
  • Our current level of consumption and expenditure is unsustainable.
  • This constellation of issues (economic/energy/environment) has never been experienced before
  • Exponential growth – the thing grows by some constant percentage over time; the amount is not constant. Exponential growth is a speeding up: the amount that is added grows larger over each unit of time; the time shrinks between each additional unit of amount added
  • Example: population growth. Starting at 1 million people with a growth rate of constant 1% per year the time it takes to add an additional billion people is as follows:
    • 694 years – 1st billion;
    • 100 years – 2nd billion;
    • 41 years – 3rd billion;
    • 29 years – 4th billion;
    • 22 years – 5th billion;
    • 18 years – 6th billion
  • Oil consumption has been growing at 3% per year; the US money supply has been growing at 3 – 18% per year.
  • The pace of change IS speeding up, due to exponential growth.
  • Water use,species extinction, fisheries exploited; forest loss and many other critical resources
  • The greatest shortcoming of the human race is our inability to understand the exponential function.” Dr. Albert Bartlett
  • All truth passes through three stages. First it is ridiculed; 2nd it is violently opposed; 3rd it is accepted as self evident.” Arthur Schopenhauer
  • US dollar is fiat money, i.e. by decree, not backed by anything such as gold or silver
  • We have a fractional reserve banking system whereby a bank only needs to retain a fraction of its deposits in reserve and can lend out a multiple of those deposits, for example if it gets a $1000 deposit, it can lend out 90% of that or $900, plus interest. Then that business or person getting the loan puts it in the same or a different bank and again the bank can lend out another 90%. This the original $1000 deposit grows into $10,000. Banks literally loan money into existence. This is one of two ways money comes into the existence. The other way is when the Federal Reserve creates (“prints”) money.
  • Key concept # 3: In both cases, all dollars are backed by debt (loans). Thus we have debt-based money. At a minimum, every year enough new money must be loaned into existence to cover the interest payments on all of the past outstanding debt. Therefore money must grow every year. This makes the money supply exponentially based. Debt will always exceed the amount of money in the system.
  • Key concept #4: perpetual growth is a requirement of modern banking. Without continuous expansion of the money supply, past debts would not be able to be serviced and defaults could happen, which could destroy the system. Defaults are the Achilles heel of debt based monetary systems, so we do all we can to prevent them (although many countries have defaulted over the years.) [Point to consider: Do you think perpetual growth is possible on a finite planet?]

 

 

  • So, unbacked currency is only 40 years old (since 1971)!
  • Inflation is a monetary phenomenon; it is a deliberate act of policy.
  • 1665 – 1765 there was NO inflation. We were on a gold and silver standard. Then: Revolutionary War – couldn’t coverall the costs with the gold and silver in the treasury, so the government printed money, at first backed by gold and silver. Despite the temporary increases in money supply caused by other wars (War of 1812, Civil War), during the 250 year period from 1665 to 1905 the money supply was pretty much constant and prices pretty much constant.
  • After the two world wars however inflation did not retreat, the war apparatus was maintained instead of disbanded and the gold standard was gradually abandoned, finally completely by Nixon in 1971 (due to high costs of social programs started under Johnson, as well as costs of Vietnam War – longest war in US history).Therefore, past 40 years have been completely unbacked and we can see inflation has become a constant since then
  •  
  • Inflation is now a permanent feature of our economy.
  • “Paper money eventually returns to its intrinsic value – zero.” Voltaire, 1729
  • Keynes: “…there is no more positive or subtle or surer means of destroying the existing basis of society than to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of the citizens.
  • Key concept #7: growing debt levels implicitly assume that the future will be larger than the present. [We must grow in order to repay the debts. Can our economy grow forever?]
  • Debt is a claim on future human labor. The easy credit of the federal reserve gave rise to the roaring 20’s, then the credit bubble burst.
  • Key point: our debt markets assume that the future will be much larger than the present.
  • The US government is insolvent, i.e. liabilities exceed assets (the first step toward bankruptcy).
  • From 1959 to 1985 the US savings rate was 9.2%, Europe’s was 10% and China’s was 30% (!!)
  • But since the early ’80’s its declined precipitously in the U.S.:

 

  • Savings are essential to the formation of investment capital.
  • Due to state and cities’ failure to save, state and municipal pensions are underfunded by$1 trillion (!!!). Corporate pensions are also underfunded.
  • Our bridges,roads, waste water treatment and other infrastructure are seriously degrading, rated a “D” in 2005 by [?]
  • “An imbalance between the rich and the poor is the oldest and most fatal ailment of all republics.” Plutarch
  • The top 1% in US owns 35% of all net household wealth and 56% of all stocks by value
  • The top 20% owns 85% of all net household wealth and 80% of all stocks by value
  • Entitlement programs like social security and medicare are really transfer programs and depend on significant number of current workers to fund them.
  • In 1950 we had 7 workers per 1 retire – this worked
  • By 2005 we had 5 workers per 1 retiree
  • By 2030 we will have less than 3 workers per retiree = totally unworkable
  • Who will buy the baby boomers assets when they sell them (real estate, stocks, bonds)??? Fewer workers, therefore value of boomers’ assets will decline steeply (because more sellers and fewer buyers)
  • The government needs to control our expectations of inflation and they accomplish this by manipulating the data using substitution (assuming we switch to something cheaper), geometric weighting (items rising fastest like FOOD and ENERGY are weighted less because they assume we’ll use less of them) and hedonics (quality adjustments). See shadowstats.com for details.
  • Social security and medicare are tied to the CPA (consumer price index) and people living on social security, and hospitals are having a hard time financially because inflation is actually much higher than reported by the government.
  • The GDP (gross domestic product) is similarly manipulated. 35% is bogus – no cash that ever changed hands (he explains all this in detail).
  • Books: The Party’s Over; Twilight in the Desert; Beyond Oil; list websites the oildrum.com, assoc for the study of peak oil and gas u.s.,life after oil crash
  • Oil provides over 50% of our energy use
  • Oil and natural gas provide over 75%
  • US peak oil discovery was around 1930; peak US oil production was around 1970, thus approx. 40 years between peak discoveries and peak production from those fields.
  • In 1970 we produced 10 million barrels per day, now it’s 5 million. We used to produce 2/3 of our own oil and import 1/3; now we produce 1/3 and import 2/3.
  • We have 104 nuclear plants currently. We would need 750 nuclear power plants to equal 10 million barrels per day.
  • Of the solar,wind and biofuels currently installed we would need 2,000 times that much to equal 10 million barrels per day. That’s a heckuva lot of capital investment.
  • World oil discovery peaked in about 1964.

  • Since 2004 it’s been flat
  • As soon as there is a gap between supply and demand there will be economic dislocations. When crossover happens (demand exceeds supply), food prices will increase.
  • Oil and gas are such amazing substances – it takes the equivalent to 50 fit slaves to supply the energy needs of a US household
  • 1 gallon of gas = 500 hours of hard human labor
  • @ $10 per hour, one gallon of gas = $5000/gallon
  • The average amount of food an American requires uses 400 gallons of oil per year
  • Food production and distribution uses 2/3 of domestic oil production
  • Key fact #1 – global oil discoveries peaked in the mid-1960’s
  • Key concept #9 – peak oil is a well defined process (it’s a fact) – we just don’t know exactly when
  • Key concept #10 – The amount of work that oil performs for you is equivalent to having hundreds of slaves
  • Key concept #11 – Oil is a magical substance, finite in supply, but of unlimited importance in our society
  • Technology does not equal energy source – there is no next source of energy to replace oil
  • Key concept #12 – oil exports are being hit in two ways: by rising demand and declining production
  • Oil exports are being exponentially squeezed in two directions subjecting them to high rates of decline
  • Chapter 16 energy economics

 

  • Key concept #13 – the price of energy is irrelevant. Net energy is everything, i.e. how much energy does it take to get the energy out of the ground? When it drops below three to one (i.e. one unit of energy gets you three units of resulting energy),it becomes uneconomical to extract/produce the energy.
  • Key concept #14 – social complexity relies on surplus energy (social complexity is our complex advanced civilization)
  • Ch. 17 – energy & the economy

 

  • Ch. 18 the environment
  • Over 70MM more people every year which is more than 3x the 10 biggest US cities combined
  • Ch. 19 future shock – summary of all
  • Ch. 20 – What should I do?
  • Personal risk mitigation plan: 1) decide you need to take action(s); 2) assess your position; 3) rank the possibilities; 4) prioritize

 

  • Consider time & impact (high/low)– likelihood (high/low) (make quadrant)
  • 0 – 2 years (2008 – 2010) – housing bust (yep!); credit bubble bursts (yep!), recession deepens (yep!);
  • 2-4 years (2010- 2012) – oil demand/supply crossover (yep!); boomer retirement (yep!);
  • 4 – ? years (2012 to ?) – national insolvency (yep!); end of debt based money (not yet); new economic model (not yet)

  • Combine impact and likelihood; like fire insurance – low probability/high risk
  • YOUR COMMUNITY IS YOUR GREATEST SOURCE OF WEALTH. People survive big changes best with the help of others.That’s what Transition Brevard is all about!