Deflated, economy in decline: a talk with Nicole Foss

Nicole Foss.

Photo: Nicole Foss.

Financial blogger Nicole Foss is the co-editor of , writing under the nom de plume Stoneleigh. Foss formerly ran the Agri-Energy Producers” Association of Ontario, where she focused on farm-based biogas and renewable energy. She recently spoke at the ASPO-USA conference in Washington DC and afterwards took questions on her ASPO presentation, “The Post-Peak Economy.”

Loughrey:  Of the three storms threatening our modern way of life—peak oil, climate change, and economic crisis—you focus on the economic storm. Your expertise is in energy, so why emphasize economics?

Foss: The repercussions of the economic storm come faster. We decided to put the primary focus on finance at The Automatic Earth because of the time-scale issue. We want people to prepare soon enough so they don’t lose what they have in the systemic banking crisis. If they are prepared, then they will have the financial resources to fight the peak oil and climate change challenges. They have to get through deflation if they are going to retain the freedom of action to deal with those crises.

Loughrey: Your message is that a severe depression much worse, and lasting longer, than the 1930s, is arriving soon due to the credit collapse. The US government claims to have averted that scenario with the bank bailouts. How do you respond to their official pronouncements of a recovery?

Foss: The recovery is an illusion. The measures only appear to have worked because there is a stock market rally to support them. None of what Hank Paulson did in 2008 worked because we were in a declining phase at the time. Once we turn the corner into another market decline, then nothing they do is going to appear to work.

Loughrey: Many in the peak oil community believe higher oil prices created our economic crisis. You disagree. Why?

Foss: You don’t need to postulate a shortage of energy to precede a financial crisis. Because financial bubbles are Ponzi schemes, and are therefore inherently self-limiting, they reach a top and they crash on their own.  The spike in mid 2008 to $147 per barrel was a massive speculative bubble. We said at the time that it would be followed by an enormous price crash, and it was. This smaller speculative bubble will end the same way. Oil prices could go down quite sharply to as low as $20 a barrel.

Loughrey: The peak oil community is preparing for hyper-inflation. What would a person expecting deflation do in preparation that might not occur to someone expecting inflation?

Foss: Hold cash and get out of debt. Deflation means that cash will hold its value; while property and other assets will not. Whether you expect inflation or deflation, it is wise to have supplies stored: things to eat, to use as spare parts, or to trade for things you will need.

Loughrey: What’s your impression of economists? You’ve got the Keynesians on one side saying “let’s spend our way out of our troubles” and you’ve got monetarist Chicago boy-Frieidmanites on the other side saying “let’s drown the baby in the bathwater.”

Foss: I think a plague on both their houses. Friedmanites do not understand the role of credit in the money supply. They define money too narrowly so they don’t understand why deflation is coming. Secondly they assume away the people. To them, economics is a machine explained by physics without having to understand sationistbonus people. Their economics model cannot describe the real world because economies are based in collective human behavior.

To Keynesians I would say when you are in a hole, stop digging. When you are already drowning in debt, more debt isn’t going to work. It is just throwing more money down a giant black whole of credit destruction. Furthermore, it is putting additional excess claims to underlying real wealth in the hands of the very people who are best positioned to cash them out. So it is tilting the deck in favor of the big boys again.

I am in favor of tilting the deck toward the average person by preparing them against deflation. Ordinary people will do something useful with rescued wealth for the sake of their friends, families and communities.

Loughrey: How will the crisis you expect play out for different economic classes?

Foss: When you fall out of a window, how much it hurts depends on what floor you’re falling from. If you are a person with no debt and few assets, it’s like falling out a ground floor window. Whereas the upper-middle class who seem to be wealthy but are cash poor, and up to their eyeballs in debt, and who have no skills, to them it will feel like falling out of the 100th floor window. So it’s how much cash they have going forward that will matter, not atoledo how much they’ve seemingly had in the past. We will see a big shakeup of who has what. The people who do well will not necessarily be the people who are wealthy now. Some of them are going to be so devastated, so incapable of living without money that they may drink themselves to death, like people did in Russia.

Loughrey: How do you see the foreclosure crisis resolving?

Foss: Government has a no-win choice. Do you support the banks and allow them to foreclose even though they cannot legally prove title? Angry people are going to say you are enforcing fraudulent contracts only against the little guy. Yet if you do not allow fraudulent foreclosures to proceed, then there will still be enormous anger. People who had been paying in full will be upset that others will get a house for free. They’ll realize that their mortgage notes are equally fraudulent and stop paying. In the end the banks will fail and the little guys will then lose their savings, leading to more anger. There is no good solution.

Loughrey: You recently spoke to some Transition groups in the UK.  Will Transition initiatives succeed in a deflation?

Foss: The Transition movement fits well with my attempts to put resources in the hands of ordinary people at the local level. I do think they have to face the financial crisis in order to help people. Otherwise they will not have enough of a sense of urgency and not enough wealth will end up in the hands of ordinary people.

Secondly, they must broaden their tent by including politically conservative Tea Party types, the unemployed, and racial minorities.  Otherwise demagogues will manipulate people’s anger to divide us and we will all be worse off. The right has some good values, like their work ethic, and self reliance, and they understand peak oil. If you only focus on what you dislike, you can’t build the bridge. The left is more likely to reach out because of its inclusiveness values. So the effort has to come from the left.

Loughrey: Your recent speech in Marquette Michigan emphasized psychological inoculation. What’s that?

Foss: If you are expecting something, then it doesn’t come as much of a shock. By warning people what’s coming, I am hoping to keep people out of movements of anger, like the Tea Party. Anger sucks all the energy out of you to prevent you from helping your friends, neighbors and family. It is better to accept reality; get over it; and move on. Join something positive and constructive instead, such as a relocalization or Transition group.

Loughrey: Is there anything else you’d like to say to Transition Voice readers?

Foss: Stay in a constructive positive head space. Make an effort to understand the financial situation to develop your sense of urgency so you can build a different world.

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Comments

  1. Helen Loughrey says

    NB: This interview took place by telephone during Nicole’s speaking tour in the midwestern US while promoting her new DVD presentation ‘A Century of Challenges’ – which I highly recommend- and which can be viewed online at The Automatic Earth website.

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