Chapter 19: Future Shock Â
What I am offering is a comprehensive view of how all of our problems are actually interrelated
and need to be viewed as such or solutions will continue to elude us.
Â So letâ€™s review the key trends, which
appear to be converging on a very narrow window of the future.
Â We began with an understanding of money and
the fact that our money is loaned into existence, with interest, and that this results in powerful
pressures to keep the amount of credit, or money, constantly growing by some percentage
every year. This is the very definition of exponential growth, which we can easily see
in our money, and, of course, inflation charts. Â
Keeping this dynamic in mind, we encountered the data on debt, which is really a claim
on the future, vastly exceeding all historical benchmarks. The flip side to this, but a significant
sociological trend in its own right, is the steady erosion of savings observed over the
exact same period of time. Combined, we have the highest levels of debt ever recorded,
coincident with some of the lowest levels of savings ever recorded.
Â And we saw that our failure to save extends
through all levels of our society and even includes a desperate failure to invest in
our infrastructure. Â
Next, we saw how assets, primarily housing, have been in a sustained bubble that is now
bursting and will take many years to play out. When credit bubbles burst, they result
in financial panics that end up destroying a lot of capital. Actually, thatâ€™s
not quite right; this quote says it better: Â
Â Â Â â€œPanics do not destroy capital; they merely reveal the extent to
which it has been previously destroyed by its betrayal into hopelessly unproductive
works.â€ Â
Â Â Â - John Stuart Mill, Political Economist (1806 â€“ 1873)
Â So we learned that a bursting bubble is not
something that is easily fixed by authorities, because their attempts to limit further damage
are misplaced. The damage has already been done. It is contained within too many houses,
and too many strip malls sold for too high prices, and too many goods imported and bought
on credit. All of that is done. All thatâ€™s left is figuring out who ends up holding the
bag, and right now these guys are working hard to assure that thatâ€™s you.
Â Then we learned that the most profound US
government financial shortfall rests with a demographic problem that itself cannot be
fixed by any act of policy, or law, or level of optimism. It is simply a fact. An inconvenient
fact of circumstance, much like gravity sometimes, but a fact nonetheless.
Â Even more than this, we learned that the assets
boomers use to describe their wealth (stocks, bonds, and houses) all have to be sold to
somebody at some point in order to extract their value. And we raised the uncomfortable
observation that there are simply fewer people behind the boomers to whom these assets can
be sold. When sellers exceed buyers, values fall.
Â Through all of this, the economic numbers
that we reported to ourselves were systematically debased until they no longer reflected reality.
If false data leads to bad decisions, then itâ€™s no wonder that we find ourselves
in our current predicament. Only by returning to an honest self-appraisal can we plot a
strategic and meaningful course to the future. Â
Then we learned that energy is the source of all economic activity, and that oil is,
by far, the most important source of energy. Our entire economic configuration is built
around the assumption of unlimited growth in energy supplies, but this is an easily
refuted proposition. Â
Individual oil fields peak and so do collections of them. And so Peak Oil is not so much a
theory as it is an observation about how oil fields age. We then explored the tension that
obviously exists between a monetary system that enforces exponential growth and the fact
that our primary energy source has either already peaked or will soon. Somehow, the
US has not even begun to invest in a future without cheap oil. We have no â€œPlan
B.â€ Â
Lastly, we noted that the environment, meaning the worldâ€™s resources and natural systems
upon which we depend, is exhibiting clear signs that our exponential population is driving
exponential exploitation of resources, hastening their final depletion and altering ecosystems
at alarming rates. Also, we learned that even minor changes to the systems we depend on,
such as rainfall patterns, can create massive, usually unplanned, costs that will take priority
over other needs. Â
And, yes, weâ€™ve faced problems before, and weâ€™ll face these as well. The concern
comes when we view them all at once. Â
Placed on a timeline, we see that a bursting housing bubble is already happening just as
the first wave of boomers enters retirement. At the same time, peak oil demand will outstrip
supply, forcing an enormously expensive adjustment even as unknowable costs associated with resource
depletion and a shifting climate lurk in the not-too-distant future. And sitting over all
of this, limiting our options, will be our national failure to save and invest, and historically
unprecedented levels of debt. Â
This timeline, stretching from now to 2020, reveals a truly massive set of challenges,
converging on an exceptionally short window of time.
Â The question becomes, â€œWhere will the
money come from to apply to each of these challenges, if our savings are depleted and
our debt levels already in uncharted territory?â€ Â
Any one of these events will prove to be a difficult strain on our national economy,
while any two could be disruptive. If three or more happen simultaneously? Itâ€™s
not hard to foresee the economic destruction of our country as a result, or perhaps the
dollar utterly ruined as a store of wealth. Â
How many trillions will be required to fund boomer retirement? How many trillions to reshape
our transportation infrastructure to accommodate Peak Oil? Where will the tens of trillions
come from to make up the shortfalls in pensions and entitlement programs? How do we make good
on our pension and entitlement promises while burdened with the highest debt loads ever
seen? Where does the money come from to clean up the aftermath of a bursting asset bubble?
How much more expensive will food and minerals be in the future, when oil has peaked but
many more people are placing higher demands on increasingly marginal resources?
Â Each of these key trends or threats will take
years, if not decades, to address, and yet we find them all parked almost directly in
front of us, without any serious national discussions or planning. With every passing
day we squander precious time, while the problems grow larger and more costly, if not thoroughly
intractable. Buying time is not a strategy and will prove to be a disastrous tactic.
Â The mark of a mature adult is someone who
can manage complexity and plans ahead. My opinion is that, with few exceptions, the
current political and corporate leadership of this country are doing neither. We need
to change this. Â
It is long past time to give up the adolescent notion that we can have our cake, eat it too,
and borrow more when itâ€™s gone. Â
It is time, quite simply, to return to living within our natural and economic budgets. We
need to set priorities, set a budget, and stick to both.
Â And you? If you havenâ€™t already, you
need to begin to embrace the possibility that the path to the future might not be straight
- it may take a few twists and turns and end up somewhere unexpected - and that you
happen to be alive at one of the most interesting points in human history, a time when a great
shift may occur. This can be frightening or it can be exhilarating, and that choice is
yours. Â
So what do we do about all this? What can you do, and what steps should you be considering
right now? Â
Please join me for the final chapter of the Crash Course. Thank you for listening.