Second look (see TAE Sep 2) at the "Children who live in the slums, Dubuque, Iowa"
Ilargi: Today's post is unusual(-ly short), for our standards. Stoneleigh was interviewed by Jim Puplava at Financial Sense recently, and she lays out very clearly, once again, what we see coming.
I thought it would be a good idea to make the interview available to all our readers. I haven't come upon a transcript yet, but if anyone wants to do one, let me know at theautomaticearth dot gmail dot com, and I'll be happy to post it here. And I do apologize to Jim Puplava for not being able to get a word in edge-wise.
Update Sunday September 5: I added a transcript of the interview, for which we owe our longtime reader DIY'er a huge THANK YOU!.
Jim Puplava at Financial Sense interviews Stoneleigh
Preparing For and Learning to Survive the Coming Perfect Storm: Part 1
Click here to choose your preferred audio format:
RealPlayer WinAmp Windows Media MP3For further reading, essays (primers) from The Automatic Earth that are mentioned in the interview:
From Financial Sense:Nicole Foss: Nicole M. Foss is co-editor of The Automatic Earth, where she writes under the name Stoneleigh. She and her writing partner have been chronicling and interpreting the on-going credit crunch as the most pressing aspect of our current multi-faceted predicament. The site integrates finance, energy, environment, psychology, population and real politik in order to explain why we find ourselves in a state of crisis and what we can do about it. Prior to the establishment of TAE, she was previously editor of The Oil Drum Canada, where she wrote on peak oil and finance.Her academic qualifications include a BSc in biology from Carleton University in Canada (where she focused primarily on neuroscience and psychology), a post-graduate diploma in air and water pollution control, the common professional examination in law and an LLM in international law in development from the University of Warwick in the UK. She was granted the University Medal for the top science graduate in 1988 and the law school prize for the top law school graduate in 1997.
On this week’s Financial Sense Newshour, Nicole lays out her ominous thesis of a coming deflationary depression, made worse by peak oil. Nicole believes that the depression will cause demand for energy to go down, creating further energy shortages and less and less economic growth.
Transcript
Preparing For and Learning to Survive the Coming Perfect Storm: Part 1, September 4, 2010
JP = Jim Puplava
SL = Stoneleigh
JP: My next guest on the program is Nicole Foss, also known as Stoneleigh, she has a blog, it's calld The Automatic Earth dot blogspot dot com. She joins us as we talk about the Big Picture.
As we've been talking about on this program today, getting prepared for things, whether it's a natural disaster, financial disaster, a major disruption -- in terms of how we live, where we live, and that's why I wanted to have Nicole on the program, because she talks about, sort-of the bigger picture, what are the things coming down the road that you need to be aware of?
So, joining us on the program now is Nicole Foss.
This just from a headline out at Der Spiegel, it says a study by the German military think tank has analyzed how peak oil might change the global economy. The internal draft document, leaked on the Internet, shows for the first time how carefully the German government has considered a potential energy crisis.
SL: I think a lot of governents are taking it very seriously. But they're not mostly talking about it in public because nobody wants to, uh, frighten anybody. But I think there's a lot of that going around, a lot of talking things [?] a lot of confidence games, and... But I think they understand perfectly well that, uh, peak oil is a reality.
01:28
JP: The thing that surprises me, I was reading into your background, one of the reasons I wanted to have you on the show, Nicole, is because of your views on peak oil, because to me, there've been several things that strike me, we've had these big warning signs, in 2005 we had Robert Hirsch's report to the US Government, we had Matt Simmons' Twilight in the Desert, [SL: mmhmm] and we had the peak of conventional oil production.
What has really struck me about this year, is the UK Energy Institute in January, the UK Task Force in February, March it was Oxford University, The University of Kuwait, April it was the US Government, in June it was Lloyd's of London, and on the day you and I are speaking, it's the German Government. And yet you very seldom hear so much of this in the media, you would think they would want to prepare for something like this, or at least take some kind of action, in preparing the public, much in the way they did for war!
SL: I'm not convinced they want the public to know anything about it at all. I think they prefer to keep anything that might be remotely alarming under wraps because they don't want the public to be spooked, I mean we're already pretty much on a knife edge with regard to finance. And so they just do not want anyone spooked at this point. Because there are so many things that could unfold quickly if the confidence game that they've been playing doesn't actually work.
So, I mean you're seeing a lot of cheerleading in financial terms, and really not a lot of real information at all, whether it's energy, whether it's finance, or pretty much anything else, uh that they, there's, the public are being fed this constant diet of pablum, of you know, bread and circuses and and things like that, and if ... there really is very little information out there in the mainstream, if you want to know what's going on, how the world works, you have to go looking for it yourself, and really not very many people do.
03:25
JP: Maybe we oughta start out, Nicole, and just tell our listeners a little bit about your background, and then also your website, The Automatic Earth.
SL: Well I have a rather long and convoluted interdisciplinary background, I was a biologist to start with, then I did environmental science, I worked as an environmental consultant for a while, then I did two law degrees because I was interested in the codification of power hierarchies, and all in the name of finding out how the world really works.
And a lot of work I've done in both biology and law was energy-related, so, and I was a Research Fellow at the Oxford Institute for Energy Studies writing books on nuclear safety in Eastern Europe (or lack thereof), and European energy policy, I worked on... but I studied finance for about 15 years, just independently, because I was fascinated with watching where the money goes, in order to find out where the power flows are, how the power structures work. And what sort of theoretical foundation there might be for the way money works. In order to try to make sense of history, particularly financial history. So I was doing that independently.
I also ran the AgriEnergy Producers' Association of Ontario and I've been involved in grid connection for renewable energy, since I came to Canada. So I've worked on power systems, and ... just this really rather large range of topics, and some people have said to me "Well, couldn't you focus?" but to me the whole point is to look for the biggest possible big picture. And to focus too far down on any one topic is simply to ignore the complexity that tells us what's really going on. I mean I'm ultimately a big picture person because I have focused on all these different areas at different times, and now I'm working on integrating them.
05:15
JP: Nicole, on your website, you have an updated piece that you published as of July 22nd called The Big Picture According to the Automatic Earth -- an Updated Primer Guide. Let's talk a little bit about that, because you begin talking about, you have a link to an article, The Resurgence of Risk, [SL: yes] this goes back to The Oildrum in Canada, which you posted on August of 2007, and then, uh, you also have something, uh, looking at, sort-of, the bubble picture that was developing, the top of the great pyramid, Entropy and Empire, and then the Economics and Nature of Political Crisis.
SL: Ah, this really is trying to integrate all manner of work, and practical and theoretical work, and trying to build the biggest possible big picture. I mean essentially, what I think we're looking at, that really drives a lot of what we're seeing at the moment, is this enormous ponzi scheme. The credit expansion we've experienced, that absolutely is grounded in ponzi dynamics, which is why I wrote At the Top of the Great Pyramid. But I think what we've been looking at is the development of an enormous ponzi scheme, an enormous, you know, Enron times a million where you have a structure that looks huge and robust, but is actually hollowed out from the inside and devoid of structure. And it's very much prone to implosion.
And one of the things we've been trying to make clear at The Automatic Earth all the way through is that it's deflation that we are facing. And the reason for that is that that's how ponzi schemes always end. The excess claims to underlying real wealth are extinguished, and that is deflation by definition. Because deflation is the contraction of money and credit relative to available goods and services. And that's exactly what we're about to see. And I think, a lot of my view about how energy is going to play out, is really going to be quite colored by my view of what's happening with the financial system, and deflation, because the time frame for finance is much shorter than the time frame for changing any available energy supply. So while energy is a key driver on the way up, finance is the key driver on the way down because it plays out so quickly.
And I think over the next few years, finance is going to rewrite the energy debate. Which is not to say that, you know, I in any way deny peak oil. Obviously, I think peak oil is a fact, is a given, but I think that the way finance is going to interact with peak oil is absolutely critical. And I would say though that you can look at peak oil in two ways, you can look at the finances of peak oil, which is what I used to do at The Oil Drum when I was editor at The Oil Drum Canada, and what the whole Oil Drum site has always done, you can also look at it as a phenomenon of human herding behavior, which is completely divorced from the science, this is people's perception of oil supply, of relative scarcity versus glut.
And if you look at the price maximums, the price maximums of oil are driven by perception. Those are not necessarily reflective of the science at any given time. And I was saying at the time when we saw oil at $147 a barrel my view was, our view at The Auotmatic Earth was that we were about to see oil prices fall off a cliff, because of what was about to happen in finance, and that's exactly in fact what happened.
And I think the runup we've had secondarily, I think we're going to see the same kind of thing, I think oil prices are going to fall a long way because we're going to see demand fall as we move into depression. But demand collapse is going to set up a supply collapse. While it buys you time initially, so that finance is the driver not so much energy supply, because you still have energy supply geared to a previous higher level of demand, so that really will drastically undercut price support. However moving forward, low prices are likely to mean no investment, no exploration, no drilling, no maintenance, and all of these things are going to set up a supply collapse a few years down the line.
So what financial crisis does, while it buys you time initially, it aggravates the situation with peak oil in the longer term. And by longer term I mean maybe only five years, I'm not talking a long way out here. But already we're seeing people cutting back on drilling, I think for instance natural gas [?] in Canada, people are cutting back on drilling because the prices are not high enough. And I think we're going to see a lot of that kind of dynamic.
So we're going to have, this is going to be remembered, I think, as a time of financial crisis for the next few years, but beyond that, I think the energy crisis is really going to bite. And if we get to a point where the economy is trying to recover again, it is going to hit a hard energy ceiling at a very much lower level than was previously available. And at that point, the limits are hard.
10:15
JP: Yeah, you have on you site, uh, this is going back to something you wrote back in June of 2009, Forty Ways to Lose Your Future, and you're laying out some forecasts, number one is deflation, I take an opposing view from that. You're very much in tune with Bob Prechter on that [SL: very much so], cash will be king, and then also something that I find interesting, in the future the consequences of unpayable debt could include indentured servitude, debtor's prison, or being dumped into the military, explain that one.
SL: Well essentially, if you can't pay a debt, then if you can't pay in money they may take your freedom instead. All of those things have been very common responses to being in debt in the past. They don't exist at the moment, with the exception of being drummed into the military. There are a lot of people who are being encouraged, shall we say, to join the military at the moment. I think the connection with debt will be much more overt in the future, i.e. we will forgive some of your debt if you go fight our resource wars, but the other things, the indentured servitude and the debtor's prisons do not currently exist. They have existed, a lot of things have existed in the past that do not exist currently, but I think it's a mistake to assume you can never have these things come back again. When you have an enormous amount of indebtedness, the civilized methods for getting out from under debt are likely to disappear.
Essentially it's like a bank run, or like early withdrawals from pension funds, or like getting out of the stock market at a top. The first few people who do it get through that door under the old rules, or the old circumstances, beyond that there simply aren't the resources there say for say a bank experiencing too many withdrawals to keep its doors open or a pension fund that's chronically underfunded to allow for early withdrawals, or a bankruptcy system to allow a trickle to become a flood where the creditors would lose out massively because debtors are allowed to walk away scott free.
All of these systems have an underlying connection in that what works when only a few are doing it, does not work when a trickle becomes a flood. And I think at that point, you're very likely to see things revived that have not been seen for a long time. Already, um, if you are not paying your credit card and you have a court judgement against you, you can be held for contempt of court and jailed, effectively for not paying your credit card debt, in places like Minnesota. This is not um, an example of the rule of law, this is as far as I'm concerned patently illegal and an abuse of state power but nevertheless, we're starting to see the beginnings of the consequences to indebtedness.
Other consequences could be, for instance, as debt is sold down the line, and say a bank feels that it isn't going to be able to recover this debt, sells it for 50 cents on the dollar to someone who thinks that they are more capable of recovering that money from people, then as that debt is sold down the line, it becomes less and less likely to be repaid and is sold for less and less money, eventually it just might end up in the hands of Vinny the Kneecapper, who is fairly confident that he can extract any money out of you that you might actually have. So there are all manner of risks that can occur when people are in debt and cannot afford to pay with money. And there will be people who are trying to reclaim debt who are prepared to put unconscionable pressure on debtors.
That will be at a private level, but at a state level, if bankruptcy is made harder and harder (as is already the case by the way -- we're already seeing it more difficult to access bankruptcy) I think if that becomes more the case, then we could be looking at other consequences like debtor's prisons, like indentured servitude. After all, I mean indentured servitude ties in with peak oil as well, to get back to that, that right now we all have between 50 and 100 energy slaves each, just in our ordinary middle class lives in North America. We flick switches and things happen, we turn keys and things happen.
When you do not have energy slaves any longer, well the traditional recipe for the elite has been slavery of one kind or another, if it isn't energy it may well be human. So this ties in with the idea that we could be going back to older forms of social structures that we are really not going to like very much at all. And I'm not proposing that this happens tomorrow, but I'm a big picture person, I take the long term view and I think that is one of the directions that we could certainly be going in the future.
14:57
JP:Some of your other predictions here, and let's talk about these and sort of group them. Suburbia is a trap due to dependence on these services and cheap energy, which we've just been talking about; modern healthcare will be largely unavailable; universities will go out of business; and a sense of common humanity will be lost as foreigners and those who are different are demonized. And then of course, related to energy and the scarcity of materials, resource wars. We're already seeing that in much of the third world.
SL: Yes and I believe we are going to see a great deal more of it. And that ties in with governments being aware of peak oil. I think we are very likely to be seeing resource grabs in the future. There are different ways you can do that -- you can send in the tanks, or you can tie up production in bilateral contracts, which is what China does, for instance in Africa. Either way you take oil off the market. And down the line I think when there's a perception of scarcity (which there won't be for a while, because if demand falls and production is still at the same level then there could actually be the perception of glut -- for a while, for a few short years) but beyond that when you see a supply collapse and you have this tremendous perception of scarcity, then I think we are going to see resource wars and whether it's by sending the tanks in or by tying up production in bilateral contracts, we are going to be seeing oil taken off the market. And essentially that is going to mean that oil is very likely to be priced out of the purchasing power of ordinary people.
So it'll end up being much more something that the military has more control over. Under the military or elites in one way or another. Because oil is essentially liquid hegemonic power. And right now a lot of people are able to use, to access supplies of oil at what are really very cheap prices in real terms. I don't think that will continue when you move into a sense of this real perception of scarcity. We may be five years from that point, we may be slightly longer, it's very hard to say. But I think that is the direction we're going.
If you want to talk about some of those other points, suburbia I think is a trap, because it has all of the dependencies and none of the ability to do anything about them. So, I mean you can be urban or you can be rural. If you're urban you'll have dependence, I mean there's not much you can do about it but you're living in an area where if any centralized services are going to survive it'll probably be there. If you're in a rural area, you'll pretty much have to look after yourself. So you have the ability to do something about self sufficiency, even although you're not going to be able to rely on centralized services. Suburbia has the worst of both worlds which is why I call it a trap. There really is almost nothing you can do to become self sufficient, but you're extremely dependent on distantly provided centralized services. So I think suburbia has the middle ground that really doesn't [?] in any way.
17:47
JP: [?] the unavailability of healthcare -- because we've just passed this massive healthcare reform bill, so everybody thinks we are going to have universal healthcare here. You're talking about modern healthcare will be largely unavailable.
SL:Well I think that healthcare bill is, if anything it's a tax grab as much as anything else, and a sop for the insurance companies. I don't see that providing universal healthcarre at all. I think a lot of people are going to pay the fines. The reason they don't have healthcare is they can't afford it, and if they're being told "OK, you must sign up for this or pay a fine" but the fine is cheaper. For a lot of people, they're going to pay the fine, so they'll be poorer and they'll still have no healthcare. The American healthcare system as far as I'm concerned, I must say, is an abomination. It is just about the most expensive way of depriving ordinary people of healthcare on the face of the earth. Which is not to say that I think our system is going to survive either. I mean, we have socialized healthcare, so does a lot of Europe, but it's terribly expensive, it's not very efficient.
And I don't think either system is going to survive when there's a dramatic collapse in the money supply, which is deflation. Which is very much what I'm predicting. I don't think it really matters that much whether one has a private system or a public system. Because both are extremely expensive and if government revenues are going to be falling or insurance companies' revenues are going to be falling as people simply have no purchasing power, I don't see either system being able to be maintained. That's not to say they collapse overnight and just disappear, but I think they will be, in America, increasingly expensive to the point where it prices almost everyone out of the market and the copays go up to the point where people reckon they're better off without insurance.
And a lot of them are already, they just don't realize it. Or in Canada where the government tax revenues are simply not going to be sufficient to maintain the level of public service that people are used to. And I think that system is going to become even more sclerotic and dysfunctional than it already is. I mean it's not that bad at the moment but the waiting times are increasing and it's getting less responsive to what people really need. And I think when there's drastically less money to fund it, then I don't see that being able to deliver a great deal.
So really I see the top down systems, the very top heavy top down systems, whether public or private, I can see them failing. And something much nimbler, and more responsive, emerging from the bottom up. But that's very likely to be pay as you go because systems like that will not have any kind of top down funding. So they'll be more able to deliver what people really need, especially at a basic healthcare level, but I think there will be an element of having to pay out of pocket to accesss these services. Now, a lot of people in the States would actually today be better off with that kind of system, because the amount of money they're having to pay is absolutely staggering. The figure I remember seeing quoted was something like twenty two thousand dollars a year as a premium. Just for a healthcare premium for a family of four. So someone has to go out and have a job, only to fund healthcare premiums. That's completely unsustainable. There is no way that system is going to survive, people will absolutely not be able to afford it. In a depression unemployment goes through the roof, people are going to be lucky to have one job, let alone two. And just the ability to afford that kind of system will disappear almost entirely.
And with it goes the business case of the insurance companies. So I really do not see that healthcare debate that you just had, actually having any real substance at all. I think if anything it'll make healthcare less accessible to ordinary people than it has been in the past. Now already you're seeing, I believe it's the number one cause of bankruptcy in the States, is illness. And there is no way that people can continue in that kind of system when the copays constantly go up, and the costs constantly rise. When people are all of a sudden going to have the rug pulled out from under their feet and they're going to have next to no money, in comparison to what they have now, almost no access to credit, their earning power severely threatened if not disappearing as well, there is no way that healthcare system is going to survive under those circumstances in its present form.
22:13
JP: You know one of your other predictions which is dear to me right now, is the collapse of the complexity of our society and I spent about fifty minutes this week interviewing Professor Joseph Tainter [SL: ahh!] on The Collapse of Complex Societies, which he's coming out with a new version and an update on it. Let's talk about that, because this modern world that we live in right now and which has been built with debt, credit, money printing. People think of how technologically advanced, we have our smart phones, we have our laptops, our computers, we have cable, satellite, uh, jet travel, all our modern electronic devices and conveniences we have, requires a lot of specialization, very complex. Go back to this healthcare bill, there's a hundred and fifty nine government agencies that are going to be created to administer that. That's complexity!
SL: It's insanely complex! All of these systems have been driven up by, well, energy subsidies, for one thing, we've had the largest energy subsidy in the history of the world, with fossil fuels, over decades and decades. Plus we've had this constant pressure to increase the money supply. So money has got further and further removed from any kind of underlying real wealth, there's this creation of excess claims to underlying real wealth, which is what I would argue is the setup for deflation as those claims are actually extinguished. But, it's a combination of energy and credit that have driven the situation on the way up and absolutely we have an unbelievable, unprecedented level of socioeconomic complexity.
And if you look at Tainter's book, the last chapter of Tainter's book, the key aspect is really peer polities, and that when you have a set of peer polities so peer groups, countries that are all locked into the same phase of expansion together, essentially nobody can collapse without simply being subsumed into another peer polity that is at the same sort of stage. What happens when you have these peer polities expanding together is they actually go a lot further together than they would separately, in other words they go considerably further down the path of declining marginal returns to complexity. And we are well into, that the more complex we make a system, the less effectively it works, by a considerable margin. And that already applies with healtcare and education and all manner of other aspects.
We would not have continued that far along this path, had we not been involved in this globalized network of peer polities. But when you have this kind of globalized network and the expansion phase goes on far longer than you would conventionally expect, the price you pay for that is collapse altogether. One entity can't collapse on its own, but they can all collapse together. And I think that is what we are looking at, globalization going sharply into reverse, a tremendous simplificaton of society. So a lot of this complexity I think is simply going to disappear.
And really, a lot of this complexity is something that only the wealthy (and I include the American or North American middle class and European middle class in the definition of wealthy when you compare it to such an enormous percentage of the rest of the population of the world -- you know, we are living better than the kings of old, even if we're only middle-middle class) so the wealthy have benefitted from all this complexity. The poor have not at all, it really has not touched them except maybe negatively in terms of conflict over the resources that they happen to be sitting on and them being driven off their land so the wealthy can exploit those resources.
Essentially, the means of becoming wealthy is to be able to cream off surpluses from the umpteen layers beneath you. And we are sitting at the center of the center. We have been the beneficiaries of all that accumulation of resources, including energy, enormously so, we've been able to bring in energy resources from such an enormous amount of the rest of the world, and we have benefitted from that in terms of the complexity of the center of which we are a part. The rest of the world is actively de-developed, if you like, as the results of entropy are being felt in the third world where they are experiencing all the environmental externalities and very little of the benefit whatsoever because the resources are ending up here fueling our socioeconomic complexity.
26:57
JP: Nicole, a final question if I may, one thing that you talk about and we're seeing it here, political structures will concentrate at the center, taxation will rise substantially on the domestic population as they are squeezed to support the elite, and the rule of law will be replaced by politics of personal and an economy of favors. Here in California, if you work for the state for example, you can retire at age 55 with the equivalent of a million dollar pension. It's one reason the state's going broke. We had a city here in California where the mayor was pulling down a salary of eight hundred thousand, the head of the police department was pulling down a half a million, the part time city council were pulling down salaries of a hundred thousand and this was in a town, small town by the way, [SL: mmhmm] where the median income was about twenty nine thousand.
SL: Well all the systems that [?] the elites that benefit from being at the center, they are interested in their own survival. They are not particularly interested in the periphery that they feed off of. So, yes they have been accumulating the benefits of being at the center for a long period of time. This is one reason you don't see reform of these structures, because the people that would have to institute reform are the very people that benefit from the most from the status quo. They are not going to change this. Any human system eventually becomes sclerotic and rigid and hostage to vested interests and that's absolutely what we're seeing with our political structures today.
What ends up happening is they become unreformable and they have to collapse and something else will grow from the bottom up to replace them. But in the meantime they are going to do whatever they possibly can to maintain their own position and their own privilege, and their way of doing that primarily as tax revenues fall will be to, overall tax revenues fall, will be to squeeze anyone left who still has any means to pay whatsoever. So I'm afraid, I think property taxes will go up. Whether or not anyone actually has the income to support that, they may have a property but that doesn't mean they have any income to pay taxes with.
And the same thing happened in the Roman Empire -- when they were experiencing the beginnings of their collapse, they squeezed people until the peasants abandoned their land because they reckoned they were better off with the barbarians, and on the whole they were, because the tax demands of the empire were so great. And I think we're very much going to see the same kind of thing again, where the centralized structures, whether it's a center at a municipal level, at a state level, or ultimately on a national level, I think all of the centers will be doing their best to compensate for falling overall revenues by increasing the pressure, turning the thumbscrews if you like, on ordinary people. It's the flipside of bailouts never being for the little guy.
Bailouts are always for the insiders, whether they appear to be for the little guy or not. How about $8,000 for a downpayment on your mortgage which is nothing more than an inducement to get two or three hundred thousand dollars in more debt? How's $4,000 to put in your cash-for-clunkers scheme so you can have a new car? It's "Here, have $4,000 so you can get $20,000 in debt." All of these systems are traps for the ordinary people. All of them are bailouts, whether in disguise or not, for the elites. So the center is constantly sucking wealth towards itself in order to sustain itself. Because as far as the center is concerned, that is the important thing. So the people who are in the periphery, I think are going to find that life gets very very much more difficult very quickly. And uh, credit access will be gone as credit markets tighten. Their jobs will quite likely disappear or at least a lot of them will. We're going to be moving into a depression when you just do not have enough money to keep your systems going.
We depend on an enormous money supply which is the supply of money-and-credit, because money and credit are equivalent during the expansion phase. But credit disappears during the contraction, that's the first thing to go, and credit is more than 95% of the money supply. When you try to run an economy without sufficient money, then that's like trying to run your car with the oil light on, your engine is goint to seize up if you do that, and that's exactly what's going to happen to our economy.
People say "Oh, well they'll simply print." If you try and print your way out of deflation, what will happen is the bond market, which is in control of interest rates, will jack those interest rates up to the point where debt-junky governments will not be able to pay their debts at all. This will precipitate a wave of debt default, which is deflation by definition. So if you try and print your way out of deflation, you just get there even faster. There really is no way out, once you've had the creation of excess claims to underlying real wealth. And that's all that credit is. It's quite different from a currency inflation where you actually have enormous amounts of physical currency created. This is not extra currency, it's not taking the underlying real wealth pie and dividing it into smaller pieces like a currency hyperinflation. This is the creation of credit, which is the creation of multiple and mutually exclusive claims to the same pieces of underlying real wealth pie. And when people realize that they've, these excess claims exist, there will be an almighty resource grab, underlying real wealth grab, and that is deflation. So that is vey much what we are looking at.
And I think that is just going to define, probably the next five years. Beyond that, we're going to see energy and climate and the consequences of pollution and the collapse of water supply and all manner of other things. But for the time being, I think deflation is going to be the defining concept of our time, over at least the next five years.
And that's why we focus on finance so much at The Automatic Earth at the moment. We've spent a lot of time writing about peak oil, but the time scale for finance is faster. If people don't successfully negotiate the short term, they don't have a long term to worry about. We are trying to get them to take it one step at a time, to negotiate the short term, deal with finance, and still manage to retain a certain amount of purchasing power, in order to be able to address the energy crisis that comes next. If people don't do that, they're going to lose their purchasing power, and then they'll be completely at the mercy of, of whatever states have to throw at them. Because if you have no money, you have no choices. And I want to be able to keep people invested with as many choices as possible, that means being liquid at a top and moving to being fully invested at a bottom but we are years away from a bottom.
Right now people need to be liquid, in order to be able to take advantage of the oportunities that are coming up as consumer prices and asset prices fall off a cliff. The purchasing power of liquidity will go up enormously under those circumstances exactly the way it did in the depression. Not many people will have any, but those that do will find that the world is their oyster. But only the first few people to cash out will be able to do so. That's the way ponzi schemes work -- unfortunately, the vast majority of people are going to lose their liquidity altogether.
34:05
JP:You know, Nicole, when I was talking to Professor Tainter this week, he drew a, and I think in his update to The Collapse of Complex Societies, he draws even further parallels between the US today and the fall of the Roman Empire. He talks about unfunded Social Security, Medicare liabilities, infrastructure problems, maintaining the military, and then he goes on about oppressive taxation, many of the things that you're forecasting here. I really think, Nicole, people have no idea, this almost reminds me of how bleak things were during the Dark Ages, but I think the average person on the street has no idea what's coming in the next five years. And of course, you know the media fills them with bread and circuses, so...
Well listen, as we close, if our listeners would like to follow your work, your blog, why don't you give out your website, The Automatic Earth?
SL: Yes, theautomaticearth.blogspot.com. We're hoping to move away from blogspot to a dot-com address, but we haven't uh arranged that yet, so for the time being that is the address to follow. And what we do, is, we provide the big picture to the best of our ability. And we do integrate other factors as well but we focus on finance because the time frame is shortest. Not because it's, it's the only thing that's important by any stretch of imagination. But we want people to be able to take it one step at a time and that means addressing finance at the moment.
So it's, I run it with my, my partner and I run this together, we are Ilargi and Stoneleigh, I am Stoneleigh. And what we're trying to do is provide the biggest big picture we possibly can. to help people negotiate the serious challenges that are lying ahead.
35:42
JP: All right, well Nicole Foss has been my guest, uh, you can follow her work once again, at The Automatic Earth dot blogspot dot com. Nicole, thanks so much for joining us on the program!
SL: Thank you very much for having me!
