May 2012 - Richard 'Jerry' Haworth: It’s a Greek myth

Dmitry Orlov wrote an article called “The Five Stages of Collapse” which provides an intriguing insight into the categorisation of societal collapse. He lists the following collapses in order:

1.     Financial collapse
2.     Commercial collapse
3.     Political collapse
4.     Social collapse
5.     Cultural collapse

History provides us with many examples of societies who, like Icarus, flew too close to the sun and fell from the sky in a ball of flame, each for different reasons. The common denominator did seem to be the chronology of these stages. A secular downtrend may stop at any one of these levels. i.e. 1987 was firstly a financial collapse with a small commercial collapse which bounced back fairly quickly, ditto 1997, 1998, 2000 and 2001. The deciding factor for the relative short cycle and the quick bounce-back was the deep belief in the Central Bank’s ability to go “out back” and replenish reserves from the “money tree”.

2008 saw a financial collapse worldwide. Like Daedalus, commercial collapse has been trying to follow the financial “Icarus” down for the last 4 years but is staying aloft, just above stall speed, spluttering along in fits and starts. 2012 ushered in the era of political collapse especially in Europe and the Middle East where governments are either reaching for their parachutes or getting thrown out the plane without them!

So the current economic situation seems to be a mixture of the first three stages of collapse but worryingly, is snowballing in both time and extent. The next stage will quite possibly be social and cultural collapse. The Greeks and Spaniards may well start down this route as the options on the table don’t seem to hold any hope for their population at large, especially the young people who, like in Spain, are 50% of the potentially working population. It is quite possible that we have never seen anything like it in history and as such, are totally ill-equipped to find a permanent solution.

Maybe the solution is collapse itself

An African bush fire is devastating but totally necessary on the savannah as it starts a new cycle of growth which in fact, cannot start without it.  Competitive destruction has been a hall-mark of capitalism before nanny states decided we don’t need it anymore.

How does this affect us financially? We are in a period of massive financial destruction but as a financial system, we still have the option of destruction by deflation, inflation or stagflation; two polar opposite outcomes which require polar opposite strategies. For example, for inflation – assume debt, invest in equities, commodities and property: deflation – cut back on debt, go to cash, liquidate equities, property and commodities.

Simply put, if governments do nothing, there will be massive deflation, if governments print they MAY turn deflation into inflation, possibly hyperinflation or stagflation. Whatever way we go, it will most likely snowball to an extreme scenario. The only silver lining is that extreme scenarios are what all our Funds are designed for.

As Simon Mikhailovich said in his recent interview “Going for Gold in a Dangerous World”

“They (financial crises) destroy money, not lives. Human history ultimately is the history of ebbs and flows of wealth, and the ability to preserve wealth over time requires a very proactive approach. Secular changes that disrupt technologies are traditionally very, very difficult, and many will lose. But some people will win. Tremendous wealth was created during the Great Depression. The idea is to position oneself to survive financially and potentially enhance one's position.