Yes...but!

March 3 2008

Home > Columns >Yes...But! Year 8-17a

Last week’s column provoked considerable reaction. No wonder: it predicted the mother of all economic depressions, a total collapse of the American economy. The dangerous situation prompted the US politicians to summon Ben Bernanke to appear before both the Senate and the House of Representatives. Interesting to watch how, on Capitol Hill, the chairman of the Federal Bank, presumably the most important money-man in the world, said with a straight face that inflation was of no concern, that it soon would revert back to the target of 1-2 percent per year.

Forget it. I realize that this man who determines America's economic policy, is in a position more difficult than any of his predecessors, except perhaps the situation Paul Volcker faced. He had to deal with price hikes in excess of 10 percent from 1970-1980 and forced money rates up as high as 15 percent. That was in a time when the Federal Reserve Bank could still make a difference. Now its influence has diminished considerably, which is why Bernanke is facing 'Mission Impossible' because we have some colossal dangers converging: peak oil, peak food, peak water, peak people, peak prosperity, all which signal permanent peak prices. Just in the last week oil stubbornly stayed over the $100.00 mark, while wheat prices boomed and concern over the availability of water grew.

So what should ordinary citizens do in these circumstances? As I e-mailed one of the concerned readers: forewarned is forearmed. We must psychologically prepare ourselves for drastically different times, not only economically, but also socially and culturally. In the last 100 years our entire society has become totally dependent on non-renewable oil, whose production has now reached a plateau, after which the supply will fall, which means - there are no ifs or buts here - our current way of life will disappear, perhaps rapidly. We must prepare ourselves for that, mentally first. Become familiar in your mind with “Life After the Oil Crash,” and act accordingly. Dr. Thomas Homer-Dixon, soon to head a new think-tank in Waterloo, on the last page of his book “The Upside of Down” writes: “Our first step down this path ( of reconsidering our values) must be to acknowledge that our global situation is urgent – that we are on the cusp of a planetary emergency – and then to begin a wide-ranging conversation about what we can and should do.”

I have started that conversation. Here is another warning. Don’t assume that your pay will remain the same, let alone increase because in the coming economic slowdown tax revenues will drop drastically, forcing governments on all levels to increase charges, while at the same time prices of all goods and services will jump. It's well to remember that, historically, our way of life has been exceptional, thanks to ballooning energy possibilities. That balloon is about to pop. We now face the worst of all worlds, which makes me suggest that all wages and pensions will go down as well.

I believe it is wise for those who have houses bigger than they need- which applies to most people – to scale down, which will reduce space to heat and lessens real estate taxes. It also makes sense to tackle traveling costs, as fuel will receive a double whammy from both higher prices and more taxes, including a carbon penalty: governments, anxious to reduce Green House Gases, will need the extra revenue to compensate for less income elsewhere. Think Europe.

If you can, ask an friend, relative or colleague to together buy two semi-detached dwellings, preferably with a large lot, where a vegetable garden is a distinct must, located on public transit.

Barton Biggs, who was ranked Number One U.S. Global investment strategist, in his recent book, “Wealth, War and Wisdom,” mentions the “Black Swan” phenomenon. A “Black Swan” is an event that comes as an utter surprise to most and will change the world. He cites such examples of as the rise of Hitler, Pearl Harbor, the fall of the USSR, September 11 2001.

I believe that today the Sub-Prime Mortgage Crisis is such a Black Swan. For years I have warned against this. Peak Oil, another of my hobby horses, is the Mother of all Black Swans. Says Barton Biggs in his conclusion “By definition the next Black Swan will be some form of total breakdown of civilized society and the social and financial infrastructure as we know it.” He then asks, “What can you do?” His answer, "Have a farm or ranch somewhere far off the beaten track.. The control of food-producing land is a basic instinct of mankind… You should assume the possibility of a breakdown… It is expensive to move early, but it is far better to be early than to be too late."