Reverting to the Norm is going to hurt.

Over the last 200 years, the world has seen a great blip of wealth, health, and productivity that cannot be sustained. We have seen over centuries that nature will balance itself. If populations become too dense, disease will level them out. Lies will catch up to you one way or another. Morals may ebb and flow but for societies that survive, they always return to Judeo-Christian values. And over time, everything reverts to the statistical mean. No matter what you consider for ups and downs, growth and decline, there is a normal level that will always be the truth. All of this proves that while we may have a vision of our current prosperity, problems, morals and opportunities that is seen through the lens of our own experience; the further you move out from current times and events, more clearly we can see the picture of our own place on the course of human existence.

Most of you reading this know that I am an Orthodox Priest, and I know that there are biblical precepts and truths that have been violated over and over again, leading us to this point. But those are topics for other essays dealing with love, truth, and honesty. I’d also add that this is a blog post, and while I have researched and verified everything that is presented, I am leaving footnotes and references for later publication. You can search the internet for yourself, the NSA will think you’re really smart.

We are on the cusp of a grand change in the world. The two great political experiments of our time, democracy and communism, have failed.  Communism has failed because it is immoral to forcibly take “everything” from a man and share it with everyone else. The other failing of communism is that you cannot centrally plan things as complex and dynamic as a society and economy. In reality, communism is just a “feel good” face that is put on a system that keeps an oligarchy in power with special privileges, while forcing everyone one else to live at a subsistence level. As communism devolved in the Soviet Union, China and other countries, the political systems became decentralized, but still with a central, unifying government, whether it is official or not. Communist economies mutated into a variety of small businesses; large, resource and production oriented businesses, and crime syndicates. The devolution of democracy has followed the same path, although somewhat in the opposite direction. With both of these political and social experiments, the end result will be somewhere in the middle; a government that tries to control through laws, taxes, and force being opposed by small businesses that operate “under the radar,” large businesses that comply, and black market enterprises that operate in violation of the laws, taxes, and force.

The world’s economy has also developed in an unsustainable way because of cheap energy. Coal, oil and natural gas, the fuel of the industrial revolution and certainly the last century allowed business to leverage a man’s effort through the use of machines. However, the greatest growth was in the first half of the 20^th century when crude oil was $20 per barrel (inflation adjusted) versus almost $100 per barrel today. The financial justification for using fossil fuels at $20 per barrel, is much different than if it cost five times as much. By comparison, if the car you purchase to get to work (that’s your production) costs $200 per month to operate, would you choose the same care if it cost you $1,000 per month to get to work? I’m not going to address “alternative energy” except to note that of all the energy consumed in the world, only 2% is from renewable sources. It is completely unrealistic to think that we can replace the other 98% of worldwide energy from these same sources; the leverage to produce equivalent BTUs or KwH just isn’t there. Combine the increasing cost of fossil fuels, the increasing cost to extract them from the ground, and limited supply (production peaked several years ago) and we can see that fossil fuels will be going away. This means that the costs of production for products, electricity, heat, gasoline, diesel, are also going to be adversely affected by both cost and availability.

As a direct result of greed, and organizations not wanting to face their true insolvency, the derivatives markets were created. In short, derivatives are financial agreements between two parties where each is betting on an interest rate, credit default rate, or return on investment going one way or another. They are contracts where one party agrees to pay the other party money if they are wrong. By definition, these contracts will balance out; if one party gains, another party loses. The problem is these are contracts based on future events, with no real value as collateral. Where there is collateral, it is in the neighborhood of 1-2% of the contract’s value. Parties to these derivatives are every single bank, insurance company, investment brokerage, pension fund, and commodity firm in the entire world. Let me say that another way, if an organization deals in a financial market, it has exposure in the derivative market. As inflation increases, governments default on debts, mortgage backed securities are found to have no value, and financial markets fall, these contracts will have to be settled. The value of all these derivative contracts worldwide is USD 1,200,000,000,000,000 (one point two quadrillion dollars.) So when all of these are settled, half will have to be paid, or USD 600,000,000,000,000 (600 trillion dollars.) To put this in perspective, Gross Domestic Product, the value of ALL goods and services produced, in the entire world is 50 trillion dollars per year, or 1/12 the settlement value. If we were to imagine this being settled, it means that everything produced on the planet for 12 years would have to go towards paying these debts, not a single dollar, pound, or Euro for food, heat, medical care, wages, nothing. It is an impossible situation. Wait you say, what about all the money in the world. Thank you for asking, the value of all currency in the world as of 2012, is about $2 trillion US dollars, 1/300 of the amount needed. But, what about gold? The value of all the gold every mined in the world since the beginning of recorded history is estimated at $8 trillion US dollars. There is only one way that these accounts can be settled, and that is a complete reset on the world economy where no country, bank, pension or person owes any other a single cent. All financial instruments are dissolved, accounts zeroed out, and the only thing left of value are the physical assets that are possessed. There is no other way, and the value of all these financial organizations and accounts are based on the value of these fictitious derivatives contracts.

The decline does not happen all at once, but is unraveling as you read this. If we consider that the value of currency and promises (pension funds, welfare, retirement, etc.) is going to revert to zero, the only things of value are those you can touch. If industrial production is based on leveraging energy, and the energy is going away, production will have to be based on our individual efforts. There are those who say that the collapse will be catastrophic and sudden; like the doomsday preppers who look like idiots on television. Things could decline suddenly, but history shows that decline takes years, perhaps even a generation.

So what do you do? You plan for eventualities, and continue with your life. My wife and I have moved to an agricultural valley in the Rocky Mountains where we grow much of our own food, and have enough room for the entire family should things go quickly. My daughter is a teacher, and my son is studying marine biology. Will they instantly become unemployed or unemployable? No. Will my daughter have the teacher’s retirement she’s been promised? My guess is either no, or it will be a far cry from what was in her contract. Will my son be able to find work? Probably, his specialty is aquaculture; growing food. However, I would encourage both of them to live in an area where they can afford to buy (and own) a place with enough land for them to grow their own food. Live frugally, drive older cars in good condition, stay healthy, and question everything. Above all, know that God loves you, His word, the Bible tells you everything about how societies should operate, and we have an eternal place in heaven, regardless of what happens in the world around us.