This is a posting about what some call the impending
collapse of the American and eventually the world economic system — that
seems more feasible everyday. Please read the piece by Dmitry Orlov, an
engineer whose research and observations of the Soviet collapse show
similarities to a collapse here in the United States. I’ll offer my
take. Give me yours.
My recent columns here,
Mumbai Implications and the Age of American Survivalist and It’s Time For Bunker
Mentality, brought some email response from some good friends in Wisconsin.
Bill, an old-time friend,
Hi John - It was really
eerie reading your latest blog, since I had recently read the link above. It was
the part about neighbor against neighbor in both blogs that really grabbed me.
The link is a very long read, but relevant based on your latest thoughts.
In addition, Bill’s son,
Geoff, wrote me as well with the subject line: holy crap! My columns and a piece
written by Dmitry Orlov had many similar warnings.
So I read his piece and
Geoff’s “holy crap” is warranted. I hope you’ll re-read my pieces and read
Dmitry’s here. Post your comments below.
From here in this posting, I
will offer my assessment of Dmitry Orlov’s piece. But first, a reminder.
Predicting the future is a
no-win situation. Maybe I’m too influenced by the Black Swan theory, but there
are random events that happen and change the course of history. Being able to
decipher and explain history and its events, years after, is one thing. However,
predicting it as it unfolds is another. There are things that will happen over
the next year or two we never saw coming; they’re random events. There will also
be things that happen that seem random at first and then make sense only
There are three possible
events. The first would be the discovery or the harnessing of a cheaper energy
source. The second is the financial rescue of the United States by the Peoples
Republic of China. Trust me; China needs our economy to keep their society
running smoothly with more than one billion people. I’ve heard this from a
number of sources I respect. The third is the stimulus package might actually
work and transform America – as costly down the road as it might be.
Another thing to remember
when reading Dmitry is that he witnessed the collapse of the Soviet Union. This
may seem pompous, but the Soviet system is not similar to the American system.
And Russians are not similar to Americans. I truly believe the American people
will not allow a collapse of our system. Our principles and beliefs will be
fought for as our Founding Fathers did in 1776 and as Lincoln did at the start
of the Civil War.
Dmitry also has a distrust of
our politicians and our political system. Who wouldn’t? But I think in times of
crisis, we Americans rise to the occasion. We’re much better at reacting rather
than planning for catastrophe. The fact that Republicans and Democrats are
dropping most of their ideological stands to support President-elect Obama is
one good sign.
Dmitry also has a silly
notion of forming a Collapse Party. He calls it whimsical, but he says the
platforms of this party are being followed. This is a minor point of contention
for me, but I think it shows a naïveté of the American political psyche. We’re
serious when it counts.
Does this mean I’m
disagreeing with my previous posts and Dmitry? No. What he predicts and what I
hint at are realities – as awful as they may seem. But let’s not get caught up
in who’s right about predictions. Who wants to stand on the scrap heap of
America and gladly say, “I told you so.”
What Dmitry and I echo are
warnings. Be prepared to live with far less wealth and luxury. Take care of
those you love. Think about hunkering down with elderly parents or younger
Dimitry’s posting is called
The Five Stages of Collapse which was an article and a speech he gave in
November, 2008. In a nutshell, here is his theory about how we’re trying
fruitlessly to avert this crisis.
The technical term is
“deleveraging,” and the response is the bailout. The federal government will be
bailing out the banks and the insurance companies, the auto companies, and state
governments. Call it the bail-out treadmill: we are borrowing faster and faster
just to keep from falling down. The treadmill is actually a good metaphor.
Imagine what would happen if you went to a gym, got on a treadmill machine, and
just kept punching up the speed, as high as it will go. What happens is you trip
and fall, and find yourself flying backwards.
More specifically, he paints
a picture of what our currency will look like.
Because most of our debt
is denominated in our own currency - the US dollar - the US will not have to
declare sovereign default, like Russia was forced to do in the 1990s. Instead,
we can inflate our way out of national bankruptcy, by printing a lot of dollars.
We will repay our national debt, but we will do so in worthless paper money,
bankrupting our international creditors in the process. There is sure to be
plenty of pain for everyone, especially everyone who is used to having plenty of
money, because their money will no longer make the world go around. Once the US
has to start earning foreign currency in order to pay for imports, you can be
sure that imports will become quite scarce.
Can this happen? Yes, it can
easily. The fact that underlies this is the American consumer who is tapped out:
no savings; no or little retirement; no equity in their home; and now a hoarding
mentality. Every other economic downturn ended because of the American consumer.
Dmitry believes no effort by
government and the financial industry can change this.
Financial collapse is
already quite far along, and is guaranteed to run its course. Bailouts can make
insolvent institutions look solvent for a time by providing liquidity, but one
thing they cannot provide is solvency. For instance, no matter how much we bail
out the auto companies, making any more cars will still be a bad idea.
Similarly, no matter how much money we give to banks, their loan portfolios,
loaded down with houses built in places that are inaccessible except by car,
will still end up being worthless. By continuously nationalizing bad debt, the
country will make itself into a bad credit risk, and foreign lenders will walk
away. Hyperinflation and loss of imports will follow.
I tend to agree with him. I
think the toxic assets held by our financial institutions are so vast that no
one is revealing them to us. At first, the government bailout was going to buy
up those assets. Then the Paulson play changed: the government will now take
ownership stakes in the financial institutions. Why the change? My theory is the
toxic assets are so vast and the activity surrounding them is so criminal that
revealing them would lead to a more sudden collapse. Still, with time, a slow
deleveraging, and sound economic stimulus package, we might emerge OK in a few
years. The question is this: do we have that amount of time?
Dmitry says no. So what will
the first signs of collapse look like?
When all of that starts to
unravel, it is likely to do so from the bottom, not from the top. Local
officials are more accessible than remote Washington bureaucrats, and so they
will be the first to be overwhelmed by the anger and confusion of their
constituents, while Washington remains unresponsive. One likely exception may
have to do with the use of federal troops. It seems almost a given that troops
repatriated from the more than 1000 foreign military bases will see action right
here at home. They will be reassigned to domestic peacekeeping duties.
And this is what I hear from
police sources who are frightened. They know their budgets are being cut
drastically and people will have to fend for themselves.
Despite Dmitry’s apparent
doom and gloom, he offers solutions for the future.
We may learn to dodge
financial collapse by learning to live without needing much money. We may create
alternative living arrangements and informal production and distribution
networks for all the necessities before commercial collapse occurs. We may
organize into self-governing communities that can provide for their own security
during political collapse. And all of these steps put together may put us in a
position to safeguard society and culture.
talks about watching out for each other. I mentioned stepping up Neighborhood
To make it intact through
times of great need, the only reasonable approach, it seems to me, is to form
communities that are strong and cohesive enough to provide for the well-being of
all of their members, that are large enough to be resourceful, yet small enough
so that people can relate to each other directly, and to take direct
responsibility for each other’s well-being.
Some of Dmitry’s observations
and proposals touch on some theories of another good friend and thinker, John
Alexander, PhD, whose findings are used by American Special Ops. In a
posting from February of 2008, I write about his theory of the end of the
nation-state as we know it today.
I have forwarded Dmitry’s
piece to John to get his take. Until then, let’s hear yours.