MONDAY, SEPTEMBER 14, 2009
September 14 2009: Colliding collapses
Greyhound bus trip from Louisville, Kentucky, to Memphis, Tennessee.
Passengers on the Memphis-Chattanooga bus
Ilargi: Michael Panzner at Financial Armageddon has a nice little graph that not just invites discussion, it in fact probably invites potentially endless discussion. 
Panzner introduces it like this:Which Crisis?
People are beginning to think that the worst of the crisis is behind us. But which crisis are they referring to? If they mean the financial crisis, they may be right. In fact, I would be surprised if the apocalyptic events of last fall did not mark a high point, of sorts.
However, there's plenty more trouble to come. From where I sit, the next big unraveling is playing out in the real economy. As the truth hits home that there is no recovery and those in charge have used up all their bullets, businesses and individuals that have been hanging on in hope will throw in the towel.
Once that happens, unemployment will ratchet up well into the double digits, bankruptcies, foreclosures and evictions will explode, those who have not yet adjusted their spending habits will make a dramatic about-face, and tax revenues will evaporate, driving many state and local governments to the brink.
He uses this as an introduction for Ambrose Evans-Pritchard's Lehman is a footnote in the great East-West globalisation crisis
You can see why markets and governments both like to blame Lehman Brothers for the "Great Contraction". Such wishful thinking shields investors from the nasty reality that deeper forces are at work: it absolves officialdom from its own destructive role in fixing the price of credit too low for 20 years, luring us into debt. [..] Lehman no more caused the economic convulsions of the last year than the assassination of an Austrian prince caused the First World War.
But I want to focus on that graph, because it seems to provide a great little window to try and shed some clarity on what our various -and undoubtedly diverging- views on the topic of our various -and undoubtedly diverging- crises are.
First of all, my initial reaction was that we're nowhere near the top (which should really be the trough, the graph should be put upside down) of the financial crisis, and certainly not past it. The only thing that makes some of us believe so is the magnitude of government bail-outs, but they are very much part of the problem, not the solution. And Panzner's words say as much, but his graph contradicts it.
Secondly, the whole suggestion of a timeline is confusing to the point where it's downright faulty. While it's tempting to assume that the financial crisis will neatly give way to an economic one etc., it's also misleading. Of course we will see enormous social implications of the finance crisis, but we might just as well state that the finance crisis is a direct result of the social(-political) one.
The repeal of Glass-Steagall comes to mind as an example of a society deep in crisis. It was a consequence of the banking system gaining far too much power in the political scene, a situation that has only worsened since its acceptance in 1999. Not many people would recognize it as such, but that makes it no less accurate. Nor did the social-political problems in the US start there.
I think both the idea of a time sequence in the graph and the fact that it wishes to name crises as more or less separate events lead to an overall picture that leaves too much to be desired.
What helped was when I started thinking about the respective lines in the graph as different dimensions. That way, time becomes -mostly- a non-factor, while the crises can come together as both separate and simultaneous.
Because the crises we talk about here necessarily overlap, I think it should be clear from the start that there is a strong suggestion of issues that span, as it were, through multiple dimensions. Since that is not exactly something the human mind is perfectly equipped for, perhaps we can recognize right off the bat in there a first explanation for our difficulties in understanding where and how our crises overlap.
In physics -or even religion, for that sake-, we may have a sense that a 4th (no, not time) and 5th dimension exist, but we can't build a workable model from that. The sweet spot in 1 dimension is the middle of a line, in 2 dimensions the middle of a plane, in 3 the middle of a cube. But in 4? Or 5? 6? 21? Forget it, we can't point it out. We can't do it, at least not easily, and not intuitively. Math helps, and so do computers, since they have no such limitations. For us, though, all that remains necessarily abstract.
Perhaps that's also why we struggle so much with our efforts to make sense of these converging crises. To which, as we can all understand, we should really add a few more. Energy crisis, climate crisis, just to name a few. Overpopulation is another one.
Once you get to think about it, it seems impossible to decide which crisis came first. Our credit problems don't just have social implications, they also result from them. From one angle, like Panzner's, you might say that the finance crisis has peaked (or bottomed), but from another that seems a ridiculous thing to say.
And we can take it one -ultimate- step further. Perhaps it's our very inability to oversee all the converging problems, to for instance visualize anything more than three-dimensional, that leaves us so tragically ill-equipped to work our way out of the troubles caused by the complexities we ourselves have built.
At the same time, thinking about a simple thing like that little graph above might help to get us a bit closer. If you take the four two-dimensional crisis lines in the graph, and you imagine them in a 3-D setting, it's not that hard to see them converge in more and more intricate ways than they do in a 2-D world.
So well, there's a little thought experiment. One that will undoubtedly mean very little to some people, and more to others. I'm left wondering if it would actually be a potential aid if we'd approach our predicaments from the point of view of string theory or fuzzy systems, where multiple dimensions are no obstacle. We don’t have much to lose; the way we're going about it now, we're getting nowhere. Fast. We don't have the brains for it.
Tuesday, 22 September 2009
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