Archive for the ‘Self-Sufficiency’ Category

Five potential emergencies- climate crisis

Sunday, May 2nd, 2010

Today, we will talk about the last of the five potential emergencies- climate change. Now, we must stress that we are not scientists here and therefore, our opinions on climate change are one of an amateur.

With regards to climate change, our guess is that the minority do not believe that the earth is warming up. On the other hand, for those who believe that the earth is warming up, the debate is on whether global warming is caused by human activity or is due to a cyclical pattern of earth?s weather system. If the former is true, then the onus is on the world to adopt green technology and reduce fossil fuel usage (e.g. via ETS, carbon cap, etc). If the latter is true, the focus should be on adaptation by the human race.

For the rest of the article, let?s assume that the earth is warming up(regardless of whether it is caused by humans or nature). What will be the consequences then?

According to the April 6, 2007 UN climate panel study on global warming, damaged property and lost productivity caused by severe weather are expected to rise. Storms will be more severe, hurricanes, typhoons and cyclones will affect countries. For those who had been directly affected by floods and bush fires, it will be a mini-TEOTWAWKI scenario. Obviously, those with self-sufficiency and survival skills and stockpiles of supplies will do better than those without.

Droughts will also occur more often, which will worsen the depletion of underground aquifers, which supplies millions of people with water. It will also affect food production. As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

Looking ahead, global warming could lay waste to a wide arc of fertile, wheat-growing farmland stretching from Pakistan through Northern India and Npeal to Bangladesh.

As you can surmise by now, this arc of fertile land happens to be located at countries suffering from over-population. Elsewhere, he wrote,

Some scientists say that for each temperature rise of 1.8 degrees Fahrenheit (1 degree Celsius) above the historical average during the growing season, there is about a 10% decline in grain yields.


The important thing you have to understand is that by looking at each of the five emergencies in isolation, they seem manageable. But as we alluded in Thinking tool: going beyond causes & effects with systems thinking, the reality is more complex than each one of them added together individually. Each of these five emergencies will feed of one another, into positive and negative feedback loops. That will compound, accentuate the effects and introduce unanticipated side-effects, which in turn will feed back into the existing problems.

Five potential emergencies- food crisis

Thursday, April 29th, 2010

Today, we will resume the series on the self-sufficiency theme- food.

Global agriculture entered a new bull market since 2003. Look at this chart:

World Grain Production, Consumption

As you can see, the world has been consuming more grain that it produces for years already. There was a bumper crop in 2008-2009, but 2009-2010 is expected to return to deficit. That means, in the big picture trend, global grain inventory is running down. As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

The trend in global stockpiles has been lower- hitting 31-year-lows in 2008- as once-mighty surpluses were used up.

In the context of rising global population who needs at least an additional 31 million tons of grains per year. In addition, as the emerging consumers from China and India become wealthier, they are consuming more meat, which requires even more grain.

Also, if you believe in climate change (e.g. global warming), we can expect more floods, droughts, heat waves, cold snaps, crop-devouring pests around the world, which will affect agriculture yields.

Food inventory deficits are bad enough. Consider the fact that the average US meal travels about 1500 miles to get from farm to plate means that means that a looming energy emergency (see Five potential emergencies- energy crisis) will compound the problem further. Since much of the developed world is run on tight margins (see Another Achilles Heel of modern society- narrow margin), all it takes for many people to go hungry very quickly is an oil crisis. As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

The average supermarket only has about three to four days worth of food stocks on its shelves. In an emergency situation or real disaster, this food is going to disappear in a matter of hours as people stock up.

So, each day as you eat your meal in front of you on the table, do not take them for granted.

Five potential emergencies- water

Thursday, April 15th, 2010

Continuing from our previous article, we will focus on the issue of water security today. Please note that while this series of articles are on the theme of self-sufficiency (or rather, using our reader David?s words, ?community-sufficiency?), they are also great investment themes. As the Chinese word for ?crisis? has two components- danger and opportunity, each of these five potential emergencies is a source of both danger (societal collapse) and opportunity (lucrative investments).

With 70% of the earth?s surface covered by water, it is ironic that water can be a problem. But consider this diagram:

With potable water, scarcity leads to profits

As you can see from this diagram, less than 1% of the earth?s freshwater are readily available for human consumption.

That reminds us very much of what?s happening to China?s water supply. We first mentioned China?s water crisis at What is the key risk faced by China (according to Jimmy Rogers)?. With a fifth of the world population, China has only 7% of the world?s fresh water. Of these 7%, we wonder how much are polluted and abused? We saw documentaries and reports of China?s rivers being so polluted that they cannot even support aquatic life, much less human life. As at 2006, half of China’s population consumes drinking water contaminated with animal and human waste that exceeds permissible levels, which is why China has the highest liver and stomach cancer death rates in the world.

Globally, the situation is not good. With global warming, dry areas are becoming drier (e.g. droughts) and wet areas wetter (e.g. floods). As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

In 2002, 8% of the world suffered chronic shortages. More than 80 countries, with 40% of the world?s population, are already facing water shortages? The UN forecasts that by 2050, 4 billion people will lack adequate water as entire regions turn dry.

In Australia, we have severe droughts for many years already.

Water scarcity and climate change is one issue. Water infrastructure that delivers the water to the taps in your home is another issue. Booz Allen Hamilton released a report in 2007 titled, Lights! Water! Motion!. estimated that over the next 25 years, modernizing and expanding the water, electricity, and transportation systems of the world?s cities will require approximately $40 trillion. Of that, 60% of that bill is water infrastructure.

Water pipes and systems have a useful lifespan of between 50 to 100 years. Therefore, we can suggest that say, 1/75th of water infrastructure have to be replaced every year. The best places in the world are replacing 1/200th of it every year. Water leaks from ageing pipes. Here are some rough figures for water loss through pipes:

  1. Hong Kong- 33%
  2. Sydney 35%
  3. Philadelphia 30-35%.
  4. Places throughout the state of California: 10-25%.
  5. London: 35%

As you can see by now, climate change, pollution, abuse and ageing water infrastructure are reducing the margins with regards to our water supply. We are not saying that there will be a water disaster soon. But water emergencies may manifest itself in the form of disruptions (e.g. burst pipes), contamination to evacuations, and in the worst case, war (the UN said that the next war in the Middle-East may be over water).

Bottom line: bad for localities, but potentially good for water companies.

Five potential emergencies- energy crisis

Tuesday, April 13th, 2010

As you have read from our series on the self-sufficiency theme, the modern complex societies that we live in is not as robust as it seems. The reason why it seems robust is that (as we wrote in our ?How To Foolproof Yourself Against Salesmen & Media Bias? report), we have the habit of falling into one of the mental pitfalls. When you see that the tap flows and lights turn on reliably day after day, this mental pitfall will lull you into complacency. Then one day, when crisis happens, it will hit everyone on the head that modern life is fragile.

One of the main potential emergencies that can quickly disrupt our modern way of life is this: energy emergency. As we wrote in An Achilles Heel of modern society- specialisation and division of labour,

The crucial question to ask is this: what is the ?glue? that stick together all these specialised and divided labour into a system that we called the ?economy?? The answer is: energy.

Today, we can have 99% (a figure that we plucked from the sky, but you get the idea) of the population not working and yet not starve. That?s thanks to the Green Revolution that allows more and more food to be grown by less and less people.

But this comes at a cost- energy. As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

Energy consumption by agriculture has increased 100 times, or more. According to 1994 data, 400 gallons of oil equivalents are expended annually to feed each American. The energy consumption breaks down as follows:

  1. 30% for the manufacture of inorganic fertilizer
  2. 18% for the operation of field machinery
  3. 15% for transportation
  4. 12% for irrigation
  5. 7% for raising livestock (not including animal feed)
  6. 5% for crop drying
  7. 5% for pesticide production
  8. 8% miscellaneous

These estimates don?t include the energy used in packaging, refrigeration, transportation to retail outlets, and cooking.

At the same time, the vast majority of Americans have gotten further and further away from their food sources.

The implication is clear. As energy prices increase (and they will), prices for our basic survival need- food- will increase. If you believe in the China growth story (i.e. the secular rise of China), you will have to seriously question whether the global energy production can keep up with the colossal demand of a rising China (see The Problem that can throw us back into the age of horse-drawn carriages). Since most of our energy comes from fossil fuels (especially oil), the question is this: how quickly can the global economy restructure itself away from using oil? To retool and reconfigure the entire economy away from using oil is not that easy and it takes time.

This is just the best-case scenario- a gradual rising in oil prices over the years, resulting in a gradual declining in the standard of living. There are other worse possible scenarios?

Now, consider these facts (source: The Ultimate Suburban Survivalist Guide):

  1. 81% of the world?s discovered and useable oil reserves come from just 10 countries.
  2. 30% of the world?s oil comes from just 3 countries- Iraq, Kuwait and Saudi Arabia.

Now, look at the second point more carefully. What is common among the three listed countries?

All three of them are close neighbours of Iran. The Iranians, who are Shiites Muslims, have ambition of dominating that region. They are steering the Shiites in these three countries into their sphere of influence. No doubt, part of their plan for domination includes acquiring nuclear weapons. If the Iranians (who are led by their mad President Mahmoud Ahmadinejad) acquire nuclear weapons, it will significantly tip the balance of power in the region away from the US.

If you see how Russia uses the supply of natural gas as a tool against its neighbours (e.g. Ukraine), we can imagine the Iranians trying the same on the Western world.

There is a worse scenario than that. That region is a potential military flashpoint. What if Israel miscalculates (see New urgency for action against Iran) and plunge the region into war? In any shooting war involving Iran, we have no doubt that they will find ways to block the Straits of Hormuz, one of the energy chokepoints in the world. As the US Department of Energy reported,

Chokepoints are narrow channels along widely used global sea routes. They are a critical part of global energy security due to the high volume of oil traded through their narrow straits.


The international energy market is dependent upon reliable transport. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs. In addition, chokepoints leave oil tankers vulnerable to theft from pirates, terrorist attacks, and political unrest in the form of wars or hostilities as well as shipping accidents which can lead to disastrous oil spills.

A temporary disruption lasting not more than say, 40 days is manageable for the US because they can open up their Strategic Petroleum Reserve. But if the emergency last longer than that, then there will be a heavy price to pay.

That?s not all the Iranians can do in a shooting war. Since the oil fields of 30% of the world?s oil is so near Iran, our guess is that it would not take them too much to take down these oil fields? productive capacity. Back in 1990, Saddam Hussien sabotaged the oil fields of Kuwait by setting fire to them. An irrational Iranian President will surely think of trying something worse with missiles, artillery shells, ground troops or worse still, nuclear missiles. Although the Iranian may not have military technology as sophisticated the US (although the gap is probably closing with Russian help), they have a large pool of manpower to call up as canon fodder. During the Iran-Iraq war, the Iranians used human wave techniques to beat back the Iraqis.

Therefore, a second oil crisis (the first one is in the 1970s) is definitely possible. The question is, are you ready?

Before complex societies can collapse…

Monday, April 12th, 2010

We are certainly living in interesting times. Our global village is facing very serious challenges ahead and very unfortunately, many of these challenges are confronting humanity at around the same time. As we wrote in the previous two articles (Another Achilles Heel of modern society- narrow margin and An Achilles Heel of modern society- specialisation and division of labour), the two Achilles Heels of modern complex societies will mean that it will be very difficult for nations and the world to adapt and adjust to these challenges.

In his book, The Collapse of Complex Societies, Joseph Tainter seems to say that as societies get more and more complex, more and more investments will produce less and less benefit until the point is reached when investments in more complexity no longer brings and increase in benefits. This is the point when complex societies are at its most vulnerable. Such societies can easily weather crisis in the past (e.g. military loss, drought, resource depletion, etc). But at that point, another crisis will become the tipping point that triggers the final collapse.

Regarding the idea that more and more investments will start to produce less and less returns as societies become more and more complex, it reminds us of many state governments in Australia. The Australian public are generally fed up with more and more state government incompetence as more and more public money are sunk into wasteful non-results. Although we are not sure whether Australia is at the point whereby investments are no longer producing any benefits, it seems that it is getting closer day by day.

Across the Pacific Oceans, we see many American states (most notably, California) more or less bankrupt. It seems that more and more money have to be thrown just to maintain the status quo. To his credit, Barrack Obama is attempting to reform the American system to reverse this trend.

When you look at the economic ‘results’ that the Chinese get by throwing money at their system, it looks like they are at the earlier part of the investment cycle. Ditto for the rest of Asia, excluding Japan. But mind you, the Chinese had already experienced collapse of their complex societies dozens of times in their thousands of years worth of history.

As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

Our [American] society is probably the most complex that has ever existed. Bigger and bigger investments in agriculture, medicine, energy and government are bringing smaller marginal returns.

But all this is still not enough to ring about a civilisations collapse. In Tainter’s view, a real collapse only happens in a power vacuum. That is the reason Europe did not collapse long ago- if one country fell, it was taken over by its neighbour- and according to this line of reasoning, is why the next collapse will be global in scale. Because this time, if one of the leading powers of the world goes down, we are so interconnected that we all go down.

Now, the question is: what about China? If the US collapse, will China be the ascending power that fills the ensuing vacuum? Or will it collapse along with the US? Or will it just continue on its own business and leave the US in the dark?

That’s the reason why Marc Faber is recommending that investors have half of their investments exposed to Asia. That is a very useful advice for very high net worth people who have the money and connections to resettle. But for the rest, it is very important to have your own plan B if something happens in your local area. Sean Brodrick made a very good point in his book,

Despite the scary scenario I’ve outlined so far, I don’t think societal collapse is a done deal. I believe we’re going to see waves of chaos going forward… … after a breakdown, the chaos will likely recede, and there will be some sort of recovery, perhaps even a return to normal.

As I said earlier, Rome didn’t fall in a day. It took hundreds of years from when the first wave of barbarians crossed the frontier to when Rome itself was finally conquered…

But if you were a Roman citizen unlucky enough to be in one of the areas that quickly descended into chaos, it was a world-changing and potentially fatal event.

The last paragraph is the point to remember. Your entire country will not be likely to collapse overnight. But if you are unlucky, your local region can be the one that descend into chaos first. The hard question to ask is: do you trust that your government (e.g. NSW State government) will have the resources, and competence to cope with large-scale crisis? We are not talking about small-scale crisis that affects small communities- we are talking about a scale large enough to affect at least hundreds of thousands of people.

If you are going to plan for Plan B, then you will have to increase the margins in your life and acquire skills outside the area of your specialisation.

Another Achilles Heel of modern society- narrow margin

Thursday, April 8th, 2010

From our previous article (An Achilles Heel of modern society- specialisation and division of labour), we talked about one of the Achilles Heel of modern society- excessive specialisation and division of labour. Today, we will introduce another Achilles Heel of modern society- lack of margin.

First, we will delve more on the concept of margin. Let’a look at the examples below:

  1. When you read a book, you will find the text being surrounded by a narrow band of space. What if the publisher of the book decides to maximise the usage of space and print the text right to the edge of the paper?
  2. When you look at the motorway, you will find that many of them have enough space on the edge of the road to fill another car lane. What if the designer of the motorway decides to maximise usage of space and make the lanes so narrow that your car’s wheels are only centimetres from the edge of the road and the next lane?
  3. In the world of aviation, aeroplanes must be separated between each other by a considerable distance. Should two planes come within, say 400 metres of each other, it is considered a ‘near’ miss. Why don’t air traffic controller maximise the usage of airspace by letting planes fly less than 400 metres from one another?

In all these examples, the boundary indicating the limit beyond which something should not go or below which something should not fall is very generous (relatively). That is, there is a wide margin. Margin is the space beyond what is exactly needed. It is the extra and excess buffer beyond what is required. To illustrate this point, let’s have some examples:

  1. Every year, you earn more than what you need to spend.
  2. You arrive at a meeting 15 minutes early.
  3. You have a party for 50 people but you order enough food and drinks to feed 60 people.
  4. You plan your time for next week such that you will have many hours of free time.

In the above examples, you are giving yourself a buffer (margin) far beyond what is solely needed.

If you live life full of margin, wouldn’t that make you a much happier and relaxed person? As you step towards the edge of your buffer, your stress level goes up, your anxiety goes up and you become much more uptight, irritable and impatient. That’s because you are stepping towards the point of no return (e.g. accidents, bankruptcy, late for important appointment, etc). You see, the whole point of a buffer is to give you a margin for error against the unexpected (i.e. the Black Swans).

But look at the reality of modern society:

  1. Back in 2007, when the private equity fashion was in vogue, companies with ‘lazy’ balance sheet (i.e. buffer of cash) are marked for takeover.
  2. Home buyers leverage to the hilt and increase their debt servicing burden to the point that they have very little beyond what they absolutely need.
  3. As one of readers said, there’s a cult of efficiency in this modern world where everything have to be run at maximum efficiency with as little slack as possible.
  4. According to The Ultimate Suburban Survivalist Guide,

    Nothing is stored for very long in a supermarket, but then, with just-in-time inventory, nobody stores anything. Grain is produced and stored in the Midwest and shipped daily to the rest of the United States. The system we have now is a huge contrast to what the US did up until the 1980s. At one time, up to a year’s worth of grain was stored in elevators around the country. But now, very little is stored. We produce what we consume each year. So what’s plan B if somethign goes wrong? There’s no plan B.

  5. Modern retailers uses a just-in-time strategy “that strives to improve a business’s return on investment by reducing in-process inventory and associated carrying costs.”
  6. If you are a professional, you will notice that most people around you have very little time buffer. Every slice of slack time will be eliminated quickly by meetings, deadlines and pressure to produce more and more output in less and less time.
  7. Many investor uses margin lending, CFDs and other forms of leverage to ‘maximise’ their returns.

We can go on and on with more and more examples. As you would have noticed by now, modern society disdains the idea of having any slack. Every buffer must be eliminated and utilised. The usage of every penny and second of time must be maximised to produce some kind of output. Even economies are structured that way. The Australian economy, for example, is one of high leverage. In the labour market, it was not long ago that there were cries of “skills shortage.” Also, as we wrote in Black Swans lurking around Australia?s banking system, Australian banks are concentrating their risk on mortgages, in their quest for maximising profit.

What is the consequence of miniscule margin? As you can see by now, by eliminating every slice of margin in the path towards maximising results, the margin for error increases. The GFC is the result of the elimination of financial margins to the extreme. As margins decrease, the vulnerability to Black Swans increases (see Failure to understand Black Swan leads to fallacious thinking).

So, in view of all that, we wonder how much margin does our increasingly complex and marginless society has against threats to our modern way of life?

An Achilles Heel of modern society- specialisation and division of labour

Tuesday, April 6th, 2010

Last month, in Hedging against currency crisis with electronic gold, we asked whether you are interested in reading articles with TEOTWAWKI (The End Of The World As We Know It) theme (i.e. survival skills/gears, self-sufficiency, guns, supplies stockpiles, e.t.c). This is the result of the reader poll:

  1. Almost 60% are interested.
  2. Almost 29% are indifferent
  3. Around 11% are not interested

Therefore, it seems that the majority wants to read more on the TEOTWAWKI theme. In future, if there is enough material on TEOTWAWKI, we may spin off those topics to another blog and linking to them from here. That way, we can keep stick to the theme in this blog for new visitors and at the same time, cater to our long-time loyal readers who are interested in the TEOTWAWKI theme.

But before we start the series on TEOTWAWKI, we must prepare the groundwork and establish the premise of this theme. If not, visitors may think that we are a bunch of extremist survival nuts. Our loyal readers will want to be assured that we are not becoming nut cases…

Firstly, we think it is important to start with the correct words to describe this theme. As you can see from our previous articles, incorrect words lead to wrong and fallacious thinking. For example, in Will governments be forced to exit from ?stimulus??, we railed against the economic jargon called “stimulus.” Therefore, as we write this article, it gradually dawned on us that TEOTWAWKI is probably the incorrect word (or rather, acronym) to use- it gives people the impression that we are a bunch of survival nut cases. Instead, we think the better word is “self-sufficiency.” This word nicely encapsulates the idea that we are driving at and is consistent with the general tenor of this blog.

Much of the prosperity and luxury that we enjoy today is possible only because of specialisation and division of labour. That is the opposite of self-sufficiency. As societies get more and more complex, the specialisation and division of labour becomes finer and finer. Consequently, we are all losing more and more of the basic skills that many of our forefathers will find trivial. As we expend more and more effort and energy in getting more and more skilled in our area of finer and finer specialisation, we ‘outsource’ more and more of our basic needs to other people who are specialised in those areas.

While specialisation and division of labour is vital for economic prosperity, there is an Achilles’ Heel- economies become more and more vulnerable to economic shocks. As we explained before in Overproduction or mis-configuration of production?,

This is the key insight from the Austrian School of economic thought. Over-production or over-investment is not the problem. Rather, the trouble lies in the mis-configuration of production and mal-investments.

As labour becomes more and more specialised and divided, it becomes harder and harder to reconfigure the misconfiguration of supply and demand for labour that is the result of economic shocks.

To illustrate this point further, consider this fact: 1% of the US population grows all of the food for all Americans (source: The Ultimate Suburban Survivalist Guide). We have no doubt this is the same for Australia too- that the tiny minority of the population supplies the entire population with food. So, what does the other 99% of the population do? As you would know the answer by now, the working proportion of the other 99% are specialised and divided into their own area of speciality, serving the rest of the population.

The crucial question to ask is this: what is the ‘glue’ that stick together all these specialised and divided labour into a system that we called the “economy?” The answer is: energy. As we wrote in Smart money in alternative energy?Part 1: current energy quandary,

The most important ingredient that drives the efficiencies, comforts, automation and wonders of today?s modern way of life is energy. The trains, cars, ships and aeroplanes that transport massive quantities of people and goods over vast distances quickly require energy in the form of fuel. The heavy machines that do heavy physical work far beyond the scope of human labour require energy too. The powerful computers that process and store vast amount of data and information as well as automate mental labour requires energy in the form of electricity. The heating in winter and cooling in summer of our abode requires energy too. Take energy away and our modern way of life will very much grind to a halt and bring us back to the hard life of our ancestors. In fact, contemporary life rests on the premise of abundant and cheap energy.

In the food example, for the 1% of the population to supply food to the other 99%, there must be a way to distribute them through vast distances. In Australia’s case, some of the final consumers of the food that it produces are overseas, separated by thousands of kilometres of oceans. Not only that, the production of inorganic fertilisers that gives modern agriculture the amazing yields requires a lot of energy. With today’s modern machines and equipment, the farmer today can do the job of multiple ancient farmers at much faster speed. This requires energy.

Now, assuming that energy prices will be getting more and more expensive in real terms in the long run (i.e. Peak Oil, secular rise of Chinese/Indian demand, e.t.c), what will this imply? The conclusion is clear: the real cost of many things that we take for granted today will increase- that includes the cost of food, which is one of our most basic need. With that, it implies that the division and specialisation of labour that underpin the modern way of life as we know it will be fading away. That does not mean we will all return to the stone ages. But it will mean that it will be getting more and more expensive to ‘outsource’ our basic needs to other specialised labour. That means, we will have to be more multi-skilled and self-sufficient, which is the way our forefathers were in the first place.

Should there be any Black Swans (e.g. geopolitical acts, natural disaster) that will disrupt the just-in-time supply of energy to our local area, our modern way of life will be disrupted instantly. If the disruption is too sudden and unexpected, and relief is not on its way quick enough, society can easily descend into chaos simply because the highly specialised and divided labour of today’s society will not have the basic self-sufficiency skills to adjust. Also, having the skills alone is not enough- without adequate stockpiles of essential supplies, all the skills and adaptability will not help much. Think about it: how many of us keep a stockpile of basic supplies that are essential to our daily needs? Many urban dwellers simply buy supplies from the nearest supermarket as the need arises. Should there be a severe disruption of energy and other basic services, many otherwise decent folks will have to resort to looting the supermarket just to survive. As we read The Ultimate Suburban Survivalist Guide, we learnt that during Hurricane Katrina in the United States, some decent folks looted the supermarkets in order to distribute supplies to their neighbourhoods.

In short, the specialised and divided labour of today carries an Achilles Heel. There is another Achilles Heel of modern society. Keep in tune!