[Ache]

http://www.chrismartenson.com/page/tran ... pectations

Chris Martenson: Right. I noticed, too, that you know, our money is also. It’s an agreement between ourselves. We have an agreement: I have lots of paper in this room, but you and I might agree that only the stuff in my wallet has this utility, right? And here’s one of the things that I think is really sort of a characteristic of our time. I certainly pick this up in my work: I notice that a lot of people are very nervous.

You wouldn’t think people would be this nervous with the GDP allegedly growing at 2.8% or whatever they’re claiming at this point. This nervousness, I think, comes from the idea that this contract is breaking down. There is something really fundamentally wrong with this story that most people are picking up and that politicians, bless their hearts, and monetary authorities, bless their hearts, are missing almost entirely at this point in time, which that there is something with the model. And the old model was, we’re going to grow, grow, grow. If you look at Bernanke’s recent testimony to Congress and to the Senate, if you look at the most recent statements from Obama or out of the EU, all of them are talking about, we want to get to a resumption of growth right away, as fast as possible. We want jobs to grow. Who can be against that? We want trade to grow. We want consumption to grow. We want all these things to grow. And more and more people, I found, have started to look at that story and say wait a minute, there’s something broken in that story. And you don’t have to think about it all that long, I don’t believe, these days, to really understand the flaw in that particular model. And we have now lots of evidence that there are flaws in this model.

First: A, do you see it that way? B, if that’s true, why is it that people like you and I are talking about it, and thousands, if not millions, of other people are talking about it, and we can’t even get to square zero in terms of public acknowledgment at what we would call the highest levels?

Nate Hagens: Well, first of all, yes, I do agree that that is the case. I think we have peaked globally in growth. Certainly, in real terms. It’s possible that in 2013 or such we see a nominal increase in global output, but I doubt it. I think the problem - well there’s a lot of problems - but one of the main ones is if it was a 5% or 10% belt-tightening or switch that needed to happen, you would see more politicians go in that direction. But it’s such a huge change, the implications of the end of growth and what that means for our institutions and the way that our society is organized. The politicians now would be thrown out of office because people, the average American is not educated to understand these things, so it’s a very threatening story. I mean, it’s very difficult to grasp that the biggest threat to the American way of life is the American way of life. And that’s kind of a profound crossroads that we’re at. While the world is advocating that Chinese and Pakistanis should aspire to an American footprint, it probably makes more sense for Americans to aspire to a Chinese or Pakistani footprint - but try selling that. So I think the politicians and the average person -- and there are evolutionary, well-understood reasons for this -- we are not going to respond to this crisis until the crisis is truly upon us. And then, given the lead time and the ten or twenty years we need to really rejigger the infrastructure, it’s not going to be enough time.

Chris Martenson: Not going to be enough time to make a smooth, disruption-free –

Nate Hagens: Not a smooth transition, correct.

Chris Martenson: Right. So to me it really looks like a catch-22 at this point in time. We can’t really acknowledge the problem until it’s a problem. By the time we do that, it might be too late to really undertake a smooth transition.

So I really want to drive home this point, though, about the connection between energy and, let’s say, finance. So let’s imagine for the moment, Nate, that you owned all the bonds in the world. Somehow they all came to you, and you understand that growth is no longer possible. What do you think the value of your bond portfolio would be, before that moment of recognition, and after?

Nate Hagens: Well, I think there would be three timeframes. There would be before, and they would be worth a hundred, or par. And immediately after, the end of growth means that we’re going to have a deflationary spiral, because things are going to unravel. So in deflation, bond prices go up, because interest rates are going to go down. But ultimately, they’re going to be worth zero, because people aren’t going to be able to pay them back. There’s two issues: We have a huge amount of aggregate claims on the future. My research estimates, you add up all of the aggregate debt in the OECD, it’s around $250 trillion, and that’s not including financial derivatives where J.P. Morgan owes Goldman-Sach some hundred billion dollar swap on currencies. Excluding that, it’s around two hundred and fifty trillion. We are transitioning from a period of understanding we will never be able to pay that back - I think a lot of people understand that - to a period where we will not even be able to service that debt. So that’s the theater that’s going on right now.

As far as what is the value of all the bonds in the world if I owned them? It’s hard to answer that without knowing what the objective is and what trajectory the world goes on. I could give you multiple answers, but ultimately they’re going to be worth less. We’ve got a giant haircut coming our way. It could be as little as 50%, as much as a 100%, and I would say between 70% and 90% percent in the next decade.

Chris Martenson: So it’s sort of like Templeton’s view on housing from a few years back. It sounded crazy at the time, but the trajectory is still good for him to be potentially right on the housing side. How about for stocks, then? How much of say the total stock index fund? How much of that value is growth a component of?

Nate Hagens: Well, growth is a component of everything in our system. So I’m not necessarily calling for a stock-market crash in the next decade, but I am calling for within the decade we probably won’t have a stock market. That’s a scary thing to contemplate, but this entire system is based on more every year, and we’ve extended the system by a decade or more by little bells and whistles and allowing people to buy houses with no money down and the repeal of Glass-Steagall. And since 2008, the crash in private and household credit has been made up by government stepping in and providing 11% of our GDP just from deficit spending. And that bullet has now been spent. So the whole thing starts to unravel once they’ve spent all the bullets they have. And I don’t know that it really matters, really; stocks go down 10% or 50% or 100%, we have to restructure the way that we think about society. Competing for nominal, digital wealth is going to go away as the main cultural objective.

Chris Martenson: And would that conspicuous consumption, does that get rethought, or do we just keep that up to the bitter end? Is that a biological function?

Nate Hagens: Conspicuous consumption is part of nature. There are displays in the wild of ornate horns and plumage, etc., because those confer special advantages in mating, via sexual selection, etc., so some elements, some level of conspicuous consumption, will always be part of our species, our culture. But the way it’s promoted now, where we just are on this consumption treadmill, where we buy more and more things and don’t feel satisfied from the marginal purchase, I think that will go away. When the amount of novelty and extraneous products in the shelves kind of go away and people are more concerned about how their community and their friends and family are going to have more basic needs going forward than frivolous things. I think that’ll happen naturally.

Chris Martenson: And this is going to be part of why I think the transition is going to be difficult for a lot of people. Even though personally I cut my standard of living in half and I have a higher quality of life, and I did that very consciously over time, and I’m thrilled with it. I know other people, if it’s forced upon them, however - our living standards fall, and they fall because there’s a debt problem or an energy problem, or the combination of both, whatever, some confluence of events - that they’ll feel and experience this as a loss. And I was talking with Dan Ariely and he explained that loss is something is something that we are wired, biologically wired, to avoid. So when I summarize all this and I put it into a spot, I say okay, so we have this physical constraint that’s coming because of Peak Oil. There’s nothing we’re going to do about it. We can’t out-clever that. It’s just a constraint, it’s a limitation, there it is. We could manage it well or we can manage it poorly, but it’s there. We have a political system that’s not really geared for the magnitude of the change that we’re seeing, so the most likely outcome is that we’re going to wait, we as a culture are going to wait until we’re forced to deal with this. That’s probably going to come with disruptions. So my question here is, given all of that: What do you see as the most likely outcome, and then what do people do, what do communities do to prepare before we get to things like maybe, you know, big picture, what should the world or our country do? If we could start at the sort of the individual level, you’ve been facing this for a long time, you’ve learned a lot of things. How are you facing this?