Reflections on the State of Society and Why I am Studying Permaculture

My attention has moved from annual crop production to long-term, permanent crop production. I am certain that real wealth will not be found in bank accounts and retirement accounts – which the Federal Reserve is systematically destroying (whether intentionally or out of ignorance and hubris I don’t know, and it doesn’t matter). Wealth is to be found in paid-off farming land and house, established food production systems on that land, and the personal infrastructure that makes it possible to thrive without increasingly expensive and eventually crippling fossil fuel-based energy resources, if necessary.

We are already past the tipping point. A real-world analysis of the economic state of the United States shows that our profligate spending and debt-creation behavior, and the response of the world to it – notably the increasing capacity for other nations to bypass the dollar for international trade settlements – has already created the conditions for a bleak future. Our national government’s increasingly bellicose attitude and heavy-handed, even imperious attitude toward other nations is adding to the problem by convincing other nations that they don’t want to deal with America or Americans and American businesses, much less help us as we slide into economic difficulty. This current President, in particular, has been incredibly clumsy and myopic in his and his administration’s conduct of international relations and diplomacy. It is starting to haunt us as they increasingly mock, ridicule, and dismiss him – and by extension, our country.

I have no doubt that we and our descendants will have a significantly lower standard of living than we are accustomed to, and generally prepared to accept. Significant strife and finger-pointing is now on our horizon, but no matter who is blamed or whose goods are confiscated “for the people,” desperation will follow. Few people are ready for what is coming, or have even taken any steps toward preparedness. Yet, individual freedom is threatened by it; there may be little time to get equipped before severe constraints on resources, resource allocation, and individual choosing make it impossible to retrofit.

Here are two excerpts from each of two texts that inform my thinking and current practices.

1) Using the analogy of Lucy continually enticing Charlie Brown into trying to kick the football she has positioned, only to move it at the last second, causing him to land on his back, David Stockman discussed the poor behavior of the US Federal Reserve as it affects the American Middle Class. This section is on pages 368-369 of his 2013 book, “The Great Deformation: The Corruption of Capitalism in America.”

a) Charlie Brown Lunges Again: The Fed’s Third Stock Market Bubble

With the free market interest rate mechanism deeply impaired if not destroyed, and downside risk virtually eliminated from the price of equities and other risk assets, the stock market bounded upward by 50 percent from its post-crisis [2008 Lehman et all bubble bust] bottom by March 2010. It didn’t matter that the Main Street economy was still underwater. At that point, real GDP was still 3 percent below its 2007 cyclical peak, while payroll employment was off by 7 million jobs and industrial production was lower by 10 percent.

So it was evident that Wall Street was not pricing a conventional economic recovery. Instead, Wall Street was pricing in a brimming confidence that it could compel the Fed to continue supplying monetary juice for the indefinite future.

The punters were not mistaken. By early 2012 the S&P index reached 1,300 and was therefore up by nearly 100 percent from its March 9, 2009, reaction low. Once again, stock prices seemed to be growing to the sky. But also, once again, not really. The S&P 500 index had first crossed the 1,300 level thirteen years earlier in March 1999. Charlie Brown was now lunging at the football for the third time.

The Fed’s data for household balance sheets nailed the story. By year-end 2011, when the Fed was well along inflating its third equity bubble, the figure for household stock and mutual fund holdings stood at $12.7 trillion. That was uncannily identical to the $12.7 trillion level posted in December 1999.

So three equity bubbles notwithstanding, Main Street America had spent a decade going nowhere, even as it was violently whipsawed along the way. Still, the idea of instant riches was kept alive by the Fed’s continuous attempts to levitate the stock market. Moreover, the Fed’s press releases and other smoke signals now added an especially nasty twist to its bubble syndrome: namely, that Charlie Brown would be forced to lunge at the Fed’s third equity bubble, whether he wanted to or not, because the nation’s central bank made it perfectly clear that it intended to eliminate all the alternatives.

In fact, by promising to keep nominal interest rates on low-risk money market funds at zero for six years, from December 2008 until mid-2015, Bubbles Ben Bernanke threatened to confiscate the real wealth of Main Street America unless it cooperated and chased after high-risk asset classes. Nor would this confiscation be trivial. The CPI [Consumer Price Index, a measure of retail costs-of-goods, hence inflation] will have averaged 2.5 percent per year during the Fed’s “era of ZIRP (zero-interest-rate policy)” while no-risk and liquid money market funds will have yielded essentially zero after taxes.

[In other words, any American who wants to save money in savings accounts and no-risk CDs and money markets would earn nothing after taxes, while inflation increases 2.5% per year; therefore, just to stay even, Americans are being forced to invest in equities (stocks and stock funds) – while the zero interest rate policy is creating a third stock market bubble since 1990, because speculators can borrow funds cheaply, and because the Fed is telegraphing that, as in 2 previous recent cases, it will prop up the stock market’s speculator class when the bubble bursts again.]

 

The math implies a 15 percent reduction in real wealth during Bernanke’s six-year experiment in savings destruction. It is not surprising at all, therefore, that the bubble-vision financial news networks are able to find an endless string of money managers who expect the stock market to go up because “the Fed is forcing you to buy equities.” They will be proven right – until the third bust materializes from the Fed-sponsored speculations now under way.

Whatever the longevity of the Fed’s third equity bubble, it cannot be gainsaid that the historical thrift habits of the American middle class have been kept dormant for another decade. Even after a devastating housing crash and another equity market meltdown, the household savings rate rebounded only tepidly, and stood at just 3.5 percent near year-end 2012.

Consequently, after a decade in which American households saved out of current income in a niggardly manner, and chased the illusion of instant riches from financial speculation instead, they are deeper in the hole than ever before. The violent inflation and crash of the Greenspan stock market bubble in 2000-2002 proved to be not a warning bell, but just the catalyst for another dose of monetary heroin, which under the Bernanke Fed became an addiction.

b) How the $11 Trillion Housing Bubble Bloated Main Street Consumption (pages 369-70)

The greatest housing bubble in history obscured this underlying impoverishment for a time. Indeed, when the Fed slashed interest rates down to 1 percent by June 2003, thereby igniting a ferocious housing price escalation, Greenspan, Bernanke, and the rest of the monetary politburo professed not to notice the bubble. Nor did they acknowledge that it was compounding the problem of low savings.

Someday historians will surely wonder how it was that the Fed herded the nation’s aging population to nearly a zero savings rate by 2007, when it was evident that the soaring gains on household real estate were artificial and unsustainable.

In all, the Fed’s serial bubble making during the years after the dot-com peak kept Main Street distracted by hype and hopium, even as overall net worth stagnated. After the flashy bubbles in equities and real estate were liquidated, the gain in total household assets barely kept up with inflation, while the household debt burden doubled over the twelve-year period.

Accordingly, the net worth of American households rose by just 2.5 percent in constant dollars during the entire first decade of the 21st century; yet even that miserly figure obscured the reality that the median household net worth actually declined by 27 percent in real terms, from $106,000 to $77,000. Since the after-inflation net worth of the top 10 percent of households actually rose by 17 percent, all other households experienced steep declines.

This perverse skew can be laid directly on the doorstep of the Fed. The net worth of the bottom 90 percent of households is heavily concentrated in residential property. In its wisdom, the nation’s central bank encouraged households to massively increase their mortgage debt, but then proved incapable of preventing the collapse of the resulting housing asset bubble. In the crunch resulting from a 35 percent housing price decline versus mortgage debt obligations which remained contractually fixed, the net worth of Main Street households was hammered like never before.

2) Permaculture co-founder David Holmgren wrote a philosophical text on the topic, called “Permaculture: Principles and Pathways Beyond Sustainability” (2002). Here are a couple excerpts (from the 2011 reprint) relevant to the problem Stockman catalogues. These are from chapter two, discussing the principle “Catch and Store Energy”:

a) The modern pattern (page 29)

In modern affluent societies, the flow of energy in forms useful to people (food, materials and services) has become so reliably available that energy capture – and even more so, energy storage – has ceased to be a major concern. So long as people have a flow of money to buy, the provision of basic needs has been left to farmers, mining engineers, and so on. In the extreme development of modern urban living, no food or fuel is stored in the house and purchasing power is dependent on credit, which itself is dependent on permanent employment.

At the same time, economic rationalism in business and government has led to the decline of large-scale stores of food, fuels, materials, essential spare parts and permanent employment in the interests of economic efficiency, which in turn increases the likelihood of disruption and even disaster.

b) Conclusion (page 51)

In a time of rapid change and short-term thinking we need to rebuild the aspect of our culture that emphasises (sic) caring for the future, as well as deciding what is worth investing in for the benefit of our grandchildren and descendants. This principle [Catch and Store Energy] provides a framework for considering what may have value in an uncertain world.

Holmgren then adds a story that illustrates the persistent cultural myopia we must each break in order to think pragmatically for the long-term recovery of our social well-being:

On a Permaculture Design Course I was demonstrating form-pruning of box eucalypt forest regrowth when I was asked whether it would not be better to let the trees grow crooked and branched so that future generations would not cut them down for timber. My reply was that we needed to consider what future generations would think of us, who, having lived high on the hog of fossil fuel affluence, decided to leave them nothing in the way of high-quality renewable resources because we didn’t trust that they would use them wisely.