Primer Guide 2017

The Automatic Earth (TAE) has existed for almost ten years now. That is nearly ten years of exploring and describing the biggest possible big picture of our present predicament. The intention of this post is to gather all of our most fundamental articles in one place, so that readers can access our worldview in its most comprehensive form. For new readers, this is the place to start. The articles are roughly organised into topics, although there is often considerable overlap.

We are reaching limits to growth in so many ways at the same time, but it is not enough to understand which are the limiting factors, but also what time frame each particular subset of reality operates over, and therefore which is the key driver at what time. We can think of the next century as a race of hurdles we need to clear. We need to know how to prepare for each as it approaches, as we need to clear each one in order to be able to stay in the race.

TAE is known primarily as a finance site because finance has the shortest time frame of all. So much of finance exists in a virtual world in which changes can unfold very quickly. There are those who assume that changes in a virtual system can happen without major impact, but this assumption is dangerously misguided. Finance is the global operating system – the interface between ourselves, our institutions and our resource base. When the operating system crashes, nothing much will work until the system is rebooted. The next few years will see that crash and reboot. As financial contraction is set to occur first, finance will be the primary driver to the downside for the next several years. After that, we will be dealing with energy crisis, other resource limits, limitations of carrying capacity and increasing geopolitical ramifications.

The global financial system is rapidly approaching a Minsky Moment:

“A Minsky moment is a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money. The spiraling debt incurred in financing speculative investments leads to cash flow problems for investors. The cash generated by their assets is no longer sufficient to pay off the debt they took on to acquire them.

Losses on such speculative assets prompt lenders to call in their loans. This is likely to lead to a collapse of asset values. Meanwhile, the over-indebted investors are forced to sell even their less-speculative positions to make good on their loans. However, at this point no counterparty can be found to bid at the high asking prices previously quoted. This starts a major sell-off, leading to a sudden and precipitous collapse in market-clearing asset prices, a sharp drop in market liquidity, and a severe demand for cash.”

Continue reading “Primer Guide 2017”

Negative Interest Rates and the War on Cash

As momentum builds in the developing deflationary spiral, we are seeing increasingly desperate measures to keep the global credit ponzi scheme from its inevitable conclusion. Credit bubbles are dynamic — they must grow continually or implode — hence they require ever more money to be lent into existence. But that in turn requires a plethora of willing and able borrowers to maintain demand for new credit money, lenders who are not too risk-averse to make new loans, and (apparently effective) mechanisms for diluting risk to the point where it can (apparently safely) be ignored. As the peak of a credit bubble is reached, all these necessary factors first become problematic and then cease to be available at all. Past a certain point, there are hard limits to financial expansions, and the global economy is set to hit one imminently. Continue reading “Negative Interest Rates and the War on Cash”

Gold – Follow the Yellow Brick Road?

In light of the rapidly-propagating loss of confidence, and consequent shift to deflation, with falling prices across the board as a result, it is appropriate to review our stance on gold. The yellow metal is often perceived as a panacea – a safe haven guarding against all manner of potential financial disruption. It has long been our stance at the Automatic Earth that this is far too simplistic a position to take. We live in a complex world for which there are no simple one-dimensional solutions. It is important to distinguish between the markets for paper gold and for physical gold, and to understand the risks inherent in gold ownership in order to manage them. As we wrote back in 2009:

Firstly, the goldbugs are right that physical gold is real money (unlike paper gold, which is just another Ponzi scheme). It has held its value for thousands of years and will continue to do so over the long term. However, that does not mean that gold prices cannot fall or that purchasing gold now is the right way for everyone to preserve capital….People’s circumstances are different. Those circumstances determine their freedom of action, both now and in the future.

Continue reading “Gold – Follow the Yellow Brick Road?”

The Boundaries and Future of Solution Space

A great deal of intelligence is invested in ignorance when the need for illusion is deep. 
Saul Bellow, 1976

More and more people (although not nearly enough) are coming to recognise that humanity cannot continue on its current trajectory, as the limits we face become ever more obvious, and their implications starker. There is a growing realisation that the future must be different, and much thought is therefore being applied to devising supposed solutions for that future.

These are generally attempts to reconcile our need to make changes with our desire to continue something very much resembling our current industrial-world lifestyle, with a view to making a seamless transition between the now and a comfortably familiar future. The presumption is that it is possible, but this rests on foundational assumptions which vary between the improbable and the outright impossible. It is a presumption grounded in a comprehensive failure to understand the nature and extent of our predicament. Continue reading “The Boundaries and Future of Solution Space”

China And The New World Disorder

Our consistent theme here at the Automatic Earth since its inception has been that we are facing a very powerful deflationary depression, following on from the bursting of an epic financial bubble. What we have witnessed in our three decades of expansion and inflation is nothing short of a monetary supernova, and that period has been the just culmination of a much larger upward trend going back many decades at least. We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history.

Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. We have built an incredibly complex economic system, but despite its robust appearance it is over-extended, brittle and fragile after decades of fuelling its continued expansion by feeding on its own substance. Continue reading “China And The New World Disorder”

Interview Nicole Foss for ‘A Simpler Way: Crisis as Opportunity’

 

This almost 2-hour long interview was recorded in Samuel Alexander‘s backyard in a Melbourne suburb in April 2015. Part of it is slated to be used in a documentary called “A Simpler Way: Crisis as Opportunity”, written and produced by Jordan Osmond and Samuel Alexander. The documentary is set for release in April 2016. (Kudos for picture and sound quality, guys!)

The film-makers about their project:

The purpose of the documentary is to unflinchingly describe the overlapping crises of industrial civilisation and explain why a ‘simpler way’ of life, based on material sufficiency not limitless growth, signifies the only coherent response to those crises. The dominant mode of development today seeks to universalise high-consumption consumer lifestyles, but this is environmentally catastrophic and it has produced perverse inequalities of wealth. Even the privileged few who have attained material affluence rarely find it satisfying or fulfilling, because consumerism just leaves people feeling empty and alone. Consequently, our forthcoming documentary seeks to show why genuine progress today means rejecting consumerism, transcending growth economics, and building new forms of life based on permaculture, simple living, renewable energy, and localised economies.

But what does that mean? And how should we go about building a new world? Mainstream environmentalism calls on us to take shorter showers, recycle, buy ‘green’ products, and turn the lights off when we leave the room, but these measures are grossly inadequate. We need more fundamental change – personally, culturally, and structurally. Most of all, we need to reimagine the good life beyond consumer culture and begin building a world that supports a simpler way of life. This does not mean hardship or deprivation. It means focusing on what is sufficient to live well. The premise of our documentary is that a simple life can be a good life.

One of the main concerns driving this documentary, and the Wurruk’an project more generally, is the uncomfortable realisation that even the world’s most successful eco-villages have ecological footprints that are too high to be universalised. In other words, even after many decades of the modern environmental movement, we still don’t have many or any examples of what a flourishing ‘one planet’ existence might look. This is highly problematic because if people do not have some understanding of what sustainability requires of us or what it might look like, it will be hard to mobilise individuals and communities to build such a world. A Simpler Way represents an attempt to envision and demonstrate what ‘one planet’ living might look like and provoke a broader social conversation about the radical implications of living in an age of limits.

We hope that this documentary will challenge and inspire people to explore a simpler way of life and to begin building sufficiency-based economies that thrive within planetary limits. If you feel this is a worthwhile film for social change, please support our project by donating here [link coming soon] and sharing the link with your networks.

The Death of Democracy in a Byzantine Labyrinth

The project of European Union, and its single currency experiment, were politically an attempt to unite fractious nations in order to put an end to a history of horribly destructive conflict. Economically, the goals were to scale up governance in Europe, to transition from the national to the transnational level in order to wield more power as a larger trading block. As such it was very much in line with the global trend of the last thirty years towards scaling up almost everything. However, as we have observed before, such expansions are inherently fragile and self-limiting:

This in-built need to expand, sometimes to the scale of an imperium in the search for new territory, means that the process is grounded in ponzi dynamics. Expansion stops when no new territories can be subsumed, and contraction will follow as the society consumes its internal natural capital….

….A foundational ingredient in determining effective organizational scale is trust – the glue holding societies together. At small scale, trust is personal, and group acceptance is limited to those who are known well enough to be trusted. For societies to scale up, trust must transcend the personal and be grounded instead in an institutional framework governing interactions between individuals, between the people and different polities, between different layers of governance (municipal, provincial, regional, national), and between states on the international stage.

This institutional framework takes time to scale up and relies on public trust for its political legitimacy. That trust depends on the general perception that the function of the governing institutions serves the public good, and that the rules are sufficiently transparent and predictably applied to all. This is the definition of the rule of law. Of course the ideal does not exist, but better and worse approximations do at each scale in question.

Over time, the trust horizon has waxed and waned in tandem with large cycles of socioeconomic advance and retreat. Trust builds during expansionary times, conferring political legitimacy on larger scale forms of organization. Trust takes a long time to build, however, and much less time to destroy. The retreat of the trust horizon in contractionary times can be very rapid, and as trust is withdrawn from governing institutions, so is political legitimacy. Continue reading “The Death of Democracy in a Byzantine Labyrinth”

Volatility and Sleep-Walking Markets

A recent Business Insider chart of the day feature was particularly interesting. Called The stock market is asleep, it observed that the US market has been in a period of very low volatility:

Market technician Ryan Detrick noted that it’s been 8 weeks since we’ve seen a weekly move of at least 1% up or down in the S&P 500. That’s the longest such streak we’ve seen in 21 years.

The suggestion in the article is that the market will go on rising until the economy enters a recession, the implication being that a long period of low volatility is a sign of market health. In fact it is quite the opposite. A sleep-walking market is a reflection of complete disregard as to risk.

Markets enter such periods of complacency when there has been a long uptrend, with periods of very low volatility reflecting where the market has come from, not where it is going. Such periods are far more likely to be a sign of an impending trend reversal than of a continued uptrend. Continue reading “Volatility and Sleep-Walking Markets”