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Editor's Note: This article was written by Chris Martenson, an economic researcher and futurist specializing in energy and resource depletion.By my analysis, we aren't yet on the final path to recovery, and there are one or more financial "breaks" coming. Underlying structural weaknesses haven't been resolved, and the kick-the-can-down-the-road plan is going to encounter a hard wall in the not-too-distant future. When the next moment of discontinuity finally arrives, events will unfold much more rapidly than most people expect. My work centers on figuring out which macro trends are in play and then helping people adjust accordingly. Based on trends in fiscal and monetary policy, I began advising accumulation of gold and silver in 2003 and 2004. I shorted homebuilder stocks beginning in 2006 and ending in 2008. These weren't "great" calls; they were simply spotting trends in play, one beginning and one certain to end, and then taking appropriate actions based on those trends. We happen to live in a non-linear world, a core concept of the Crash Course. But far too many people expect events to unfold in a more or less orderly manner, with plenty of time to adjust along the way. In other words, linearly. The world doesn't always cooperate, and my concern rests on the observation that we still face the convergence of multiple trends, each of which alone has the power to permanently transform our economic landscape and standards of living. Three such trends (out of the many I track) that will shape our immediate future are:
Individually, these worry me quite a bit; collectively, they have my full attention.History suggests that instead of a nice smooth line heading either up or down, markets have a pronounced habit of jolting rather suddenly into a new orbit, either higher or lower. Social moods are steady for long periods, and then they shift. This is what we should train ourselves to expect.
No smooth lines between points A and B; instead, long periods of quiet, followed by short bursts of reformation and volatility. Periods of market equilibrium, followed by Minsky moments. In the language of the evolutionary biologist Stephen Jay Gould, we live in a system governed by the rules of "punctuated equilibrium."Complex Systems
Our economy is a complex system. The key feature of such systems is that they're inherently unpredictable with respect to the timing and severity of specific events. For the uninitiated, they can look enormously fragile and prone to flying apart at any minute; for the seasoned observer, there's an appreciation that the immense inertia of the economic system will almost always delay and dampen the eventual adjustments. Like everybody else, I have no idea exactly whatâ??s going to happen, or precisely when. Anybody who says they do know should be greeted with a furrowed brow and a frown of suspicion. I prefer to assess the risks and then take steps to mitigate those risks based on likelihood and impact.Which means that although we can't predict the size (exactly how much) or the timing (precisely when) of economic shifts or world-changing events, we can certainly understand the risks and the dimensions of what might happen. Just as we can't predict when an avalanche will release from a steep slope, or even where or how big it will be, we can readily predict that constant snowfall coupled with the right temperature conditions will lead to an avalanche sooner or later, and more likely in this gully than that one. Given certain conditions, we might expect one that's larger or smaller than normal. Although we don't know exactly when or how much, we do know that when snow accumulates, so do the risks of more frequent and/or larger avalanches.Such is the nature of complex systems. While inherently unpredictable, they can still be described. The most important description of any complex system is that it owes its order and complexity to the constant flow of energy through it. Complex systems require inputs. This is one way in which we can understand them. Given this view, one easy "prediction" is that an economy without increasing energy flows running through it will stagnate. To take this further, an economy that's being starved of energy becomes simpler in the process -- meaning fewer jobs, less items produced, and a reduced capacity to support extraneous functions.Accepting "What Is" The most important part of this story is getting our minds to accept reality without our passionate beliefs interfering. By "beliefs" I mean statements like these:
While each of these things might be true, they also might be false and therefore misleading, especially during periods of transition. Our job is to remain as dispassionate and logical as possible. Let's now examine more closely the three main events that are converging -- Peak Oil, sovereign insolvency, and currency debasement -- using as much logic as we can muster.Peak OilPeak Oil is now a matter of open inquiry and debate at the highest levels of industry and government. Recent reports by Lloyd's of London, the US Department of Defense, the UK industry taskforce on Peak Oil, Honda (HMC), and the German military are evidence of this. But when I say â??debate,â? I'm not referring to disagreement over whether or not Peak Oil is real, only when it will finally arrive. The emerging consensus is that oil demand will outstrip supplies â??soon,â? within the next five years and maybe as soon as two. So the correct questions are no longer, "Is Peak Oil real?" and "Are governments aware?â? but instead, "When will demand outstrip supply?" and â??What implications does this have for me?â? It doesn't really matter when the actual peak arrives; we can leave that to the ivory-tower types and those with a bent for analytical precision. What matters is when we hit â??peak exports.â? My expectation is that once it becomes fashionable among nation-states to finally admit that Peak Oil is real and here to stay, one or more exporters will withhold some or all of their product "for future generations" or some other rationale (such as, "get a higher price"), which will rather suddenly create a price spiral the likes of which we haven't yet seen. What matters is an equal mixture of actual oil availability and market perception. As soon as the scarcity meme gets going, things will change very rapidly.In short, it's time to accept that Peak Oil is real -- and plan accordingly.
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