Thursday , 23 October 2014

The 5 Stages of Economic Collapse: Financial, Commercial, Political, Social & Cultural – Where is the U.S. Now?

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Having given a lot of thought to both the differences and the similarities between Russia and the U.S. – the one that has collapsed already, and the one that is collapsing as I write this – I feel ready…to define five stages of collapse to serve as mental milestones as we gauge our own collapse-preparedness and see what can be done to improve it. Words: 2500

So writes Dmitry Orlov (www.cluborlov.blogspot.com) in edited excerpts from his original article* entitled Five Stages of Collapse.
This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Orlov goes on to say, in part:

…The proposed taxonomy ties each of the five collapse stages to the breaching of a specific level of trust, or faith, in the status quo. Although each stage causes physical, observable changes in the environment, these can be gradual…

The 5 Stages of Collapse

Stage 1: Financial collapse

Faith in “business as usual” is lost. The future is no longer assumed [to] resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse

Faith that “the market shall provide” is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

Stage 3: Political collapse

Faith that “the government will take care of you” is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

Stage 4: Social collapse

Faith that “your people will take care of you” is lost, as local social institutions, be they charities or other groups that rush in to fill the power vacuum run out of resources or fail through internal conflict.

Stage 5: Cultural collapse

Faith in the goodness of humanity is lost. People lose their capacity for “kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity” (Turnbull, The Mountain People). Families disband and compete as individuals for scarce resources. The new motto becomes “May you die today so that I die tomorrow” (Solzhenitsyn, The Gulag Archipelago). There may even be some cannibalism.

The Five Stages of Collapse

Publication date: May 2013

Although many people imagine collapse to be a sort of elevator that goes to the sub-basement (our Stage 5) no matter which button you push, no such automatic mechanism can be discerned. Rather, driving us all to Stage 5 will require that a concerted effort be made at each of the intervening stages. That all the players seem poised to make just such an effort may give this collapse the form a classical tragedy – a conscious but inexorable march to perdition…Let us sketch out this process.

Stage 1 (Financial) Collapse Scenarios

Stage 1 collapse, as we are currently observing it, consists of two parts:

  1. a part of the general population is forced to move, no longer able to afford the house they bought based on inflated assessments, forged income numbers, and foolish expectations of endless asset inflation. Since, technically, they should never have been allowed to buy these houses, and were only able to do so because of financial and political malfeasance, this is actually a healthy development.
  2. men in expensive suits tossing bundles of suddenly worthless paper up in the air, ripping out their remaining hair, and (some of us might uncharitably hope) setting themselves on fire on the steps of the Federal Reserve. They, to express it in their own vernacular, “fucked up,” and so this is also just as it should be.

The government response to this could be to offer some helpful homilies about “the wages of sin” and to open a few soup kitchens and flop houses in a variety of locations including Wall Street. The message would be: “You former debt addicts and gamblers, as you say, ‘fucked up,’ and so this will really hurt for a long time. We will never let you anywhere near big money again. Get yourselves over to the soup kitchen, and bring your own bowl, because we don’t do dishes.” This would result in a stable Stage 1 collapse – the Second Great Depression.

However, this is unlikely, because in the U.S. the government happens to be debt addict and gambler number one. As individuals, we may have been as virtuous as we wished, but the government will have still run up exorbitant debts on our behalf. Every level of government, from local municipalities and authorities, which need the financial markets to finance their public works and public services, to the federal government, which relies on foreign investment to finance its endless wars, is addicted to public debt. They know they cannot stop borrowing, and so they will do anything they can to keep the game going for as long as possible.

About the only thing the government currently seems…fit to do is:

  • extend further credit to those in trouble,
  • set interest rates at far below inflation,
  • accept worthless bits of paper as collateral and
  • pump money into insolvent financial institutions.

This has the effect of diluting the dollar, further undermining its value, and will, in due course, lead to hyperinflation, which is bad enough in any economy, but is especially serious for one dominated by imports. As imports dry up and the associated parts of the economy shut down, we pass Stage 2: Commercial Collapse.

Stage 2 (Commercial) Collapse Scenarios

As businesses shut down, storefronts are boarded up and the population is left largely penniless and dependent on FEMA and charity for survival, the government may consider what to do next. It could, for example:

  • repatriate all foreign troops and set them to work on public works projects designed to directly help the population.
  • promote local economic self-sufficiency, by establishing community-supported agriculture programs, erecting renewable energy systems, and organizing and training local self-defence forces to maintain law and order.
  • order the Army Corps of Engineers to bulldoze buildings erected on former farmland around city centers, return the land to cultivation, and to construct high-density solar-heated housing in urban centers to resettle those who are displaced.
  • reduce homelessness by imposing a steep tax on vacant residential properties and funneling the proceeds into rent subsidies for the indigent.

With plenty of luck, such measures may be able to reverse the trend, eventually providing for a restoration of pre-Stage 2 conditions.

This may or may not be a good plan, but in any case it is rather unrealistic, because the United States, being so deeply in debt, will be forced to accede to the wishes of its foreign creditors, who own a lot of national assets (land, buildings, and businesses) and who would rather see a dependent American population slaving away working off their debt than a self-sufficient one, conveniently forgetting that they have mortgaged their children’s futures to pay for military fiascos, big houses, big cars, and flat-screen television sets.

A much more likely scenario, however, is that the federal government (knowing who butters their bread) will remain subservient to foreign financial interests and:

  • impose austerity conditions,
  • maintain law and order through draconian means, and
  • aide in the construction of foreign-owned factory towns and plantations.

As people start to think that having a government may not be such a good idea, conditions become ripe for Stage 3.

Stage 3 (Political) Collapse Scenarios

After a significant amount of bloodletting, much of the country becomes a no-go zone for the remaining authorities. Foreign creditors decide that their debts might not be repaid after all, cut their losses and depart in haste. The rest of the world decides to act as if there is no such place as The United States – because “nobody goes there any more”…

Stage 3 collapse can sometimes be avoided by the timely introduction of international peacekeepers and through the efforts of international humanitarian NGOs. In the aftermath of a Stage 2 collapse, domestic authorities are highly unlikely to have either the resources or the legitimacy, or even the will, to arrest the collapse dynamic and reconstitute themselves in a way that the population would accept.

As stage 3 collapse runs its course, the power vacuum left by the now defunct federal, state and local government is filled by a variety of new power structures. Remnants of former law enforcement and military, urban gangs, ethnic mafias, religious cults and wealthy property owners all attempt to build their little empires on the ruins of the big one, fighting each other over territory and access to resources. This is the age of Big Men: charismatic leaders, rabble-rousers, ruthless Macchiavelian princes and war lords. In the luckier places, they find it to their common advantage to pool their resources and amalgamate into some sort of legitimate local government, while in the rest their jostling for power leads to a spiral of conflict and open war.

Stage 4 (Social) Collapse Scenarios

Stage 4 collapse occurs when society becomes so disordered and impoverished that it can no longer support the Big Men, who become smaller and smaller, and eventually fade from view. Society fragments into extended families and small tribes of a dozen or so families, who find it advantageous to band together for mutual support and defense. This is the form of society that has existed over some 98.5% of humanity’s existence as a biological species, and can be said to be the bedrock of human existence. Humans can exist at this level of organization for thousands, perhaps millions of years. Most mammalian species go extinct after just a few million years, but, for all we know, Homo Sapiens still have a million or two left.

Stage 5 (Cultural) Collapse Scenarios

If pre-collapse society is too atomized, alienated and individualistic to form cohesive extended families and tribes, or if its physical environment becomes so disordered and impoverished that hunger and starvation become widespread, then Stage 5 collapse becomes likely. At this stage, a simpler biological imperative takes over, to preserve the life of the breeding couples. Families disband, the old are abandoned to their own devices, and children are only cared for up to age 3. All social unity is destroyed, and even the couples may disband for a time, preferring to forage on their own and refusing to share food. This is the state of society described by the anthropologist Colin Turnbull in his book The Mountain People. If society prior to Stage 5 collapse can be said to be the historical norm for humans, Stage 5 collapse brings humanity to the verge of physical extinction.

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Conclusion

As we can easily imagine, the default is cascaded failure: each stage of collapse can easily lead to the next, perhaps even overlapping it. In Russia, the process was arrested just past Stage 3: there was considerable trouble with ethnic mafias and even some warlordism, but government authority won out in the end. In my other writings, I go into a lot of detail in describing the exact conditions that inadvertently made Russian society relatively collapse-proof. Here, I will simply say that these ingredients are not currently present in the United States.

In light of the unfolding global sovereign debt fiasco…[however, I have now come to the conclusion that, after] years of both government and finance betting on a future that cannot exist, doubling down every time they lose again, the Five Stages of Collapse is nothing but a nice theory.

[Instead,] I think that the stage 1 (financial) and stage 2 (political) collapses will compress into a single chaotic episode. Commercial collapse will not be far behind, because global commerce is dependent on global finance, and once international credit locks up the tankers and the container ships won’t sail. Shortly thereafter it will be lights out.

Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://cluborlov.blogspot.com/2008/02/five-stages-of-collapse.html

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One comment

  1. Reading this article, I wonder if anyone has researched what was being discussed in financial circles before WWI and WWII and compared those discussions to what is being said now?

    It would be scary to “see” history repeat itself, in that another type of World War is the only event that can hope to return global markets and the countries that operate them to some semblance of fiscal normalcy!