How Systems Break: First They Slow Down

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Alternatively, we can cling to a state of denial, and the dominant system will be replaced by arrangements that are not necessarily positive.

The reality that cannot be spoken is that all the financial systems we believe are permanent are actually on borrowed time. One way we can judge this decline of resilience is to look at how long it takes systems to recover when they are stressed, and to what degree they bounce back to previous levels.

Another is to look at the extremes the system reaches without returning to "normal": for example, interest rates, which rather than normalizing after seven years of suppression are being pushed to negative rates by increasingly desperate central bankers.

The key insight here is that financial systems and indeed economies function as natural systems. Central planning/central banker manipulation appears to control the system, but this control masks the reality that the system is increasingly fragile and prone to collapse, not just from internal dynamics but as a direct result of central bank manipulation.

The warning signs of fraying resilience are all around us.

Nature's Warning Signal: Complex systems like ecological food webs, the brain, and the climate all give off a characteristic signal when disaster is around the corner.

"The signal, a phenomenon called 'critical slowing down,' is a lengthening of the time that a system takes to recover from small disturbances, such as a disease that reduces the minnow population, in the vicinity of a critical transition. It occurs because a system’s internal stabilizing forces—whatever they might be—become weaker near the point at which they suddenly propel the system toward a different state."

Recent email exchanges with correspondent Bart D. (Australia) clued me into the Darwinian structure of this critical slowing down and loss of snapback (what we might call a loss of reslience).

The dominant systems do not operate in a vacuum; beneath the surface dominance of one system are many other systems that are suppressed by the dominant system.

As the dominant system weakens/slows down, these largely invisible systems quickly expand to occupy more of the ecosystem. An example in the financial realm is barter: in a system dominated by central bank/state issued money and digital transactions, barter still exists but on a very modest scale.

When central bank/state currency loses its value and utility (due to devaluation of the currency, hyper-inflation, etc.), then barter expands rapidly to fill the vacuum left by the demise of the dominant system.

The ecosystem example illustrates is how critical transitions occur: as the dominant system slows down, other systems fill the ecosystem niches that are opened up by the weakness of the dominant arrangement. At some point, the equilibrium of the ecosystem is disrupted and a new balance of other dynamics become dominant.

In the realm of currencies, the rise of crypto-currencies is an example of a nascent new system gaining ground as the dominant system slows/decays.

In financial systems, this process can be at least partially conscious: we can see the dominant paradigm weakening, and start developing other systems that can compete for the coming openings in the financial/social ecosystem.

Alternatively, we can cling to a state of denial, and the dominant system will be replaced by arrangements that are not necessarily positive. Conscious development of alternatives that can compete transparently for dominance as the status quo decays is the most effective avenue to more resilient, sustainable systems.

This essay was drawn from Musings Report 2016-3. The Musings Reports are emailed weekly exclusively to subscribers and major contributors ($5/month or $50/year).

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Took Red Pill's picture

How the system breaks; slowly at first, then all at once

Bill of Rights's picture

Its been breaking for decades now, yet we are still here.

RafterManFMJ's picture

First rule of a system break: Cardio.

Dicey's picture

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Open a free bitgold account, buy gold by depositing money and pick which vault you want it stored in from numerous vaults around the world. Store your gold in different vaults too. Then pick up a BitGold prepaid Mastercard so you can spend your money in your BitGold account as normal. If your currency collapses you've still got your gold. When the price of gold goes up, as it's doing, so does the value of your BitGold account. You can choose to take receipt of your gold whenever you want to. This is a much safer way to hold your money in an account than a traditional bank where bail-ins (stealing your deposits) has already occurred in several places in the world and will occur everywhere one day. The banks are bankrupt, only rampant criminality by banks and governments is keeping the system going...for now. Protect yourself and your family and get a bitgold account. It's a no brainer.

Taylor's picture
Taylor (not verified) Dicey Apr 20, 2016 9:20 AM

This is Donald Trump's most shocking statement yet,

However the mainstream media isn't saying a word about it!

What are they really trying to cover up?

http://legitorscamreview.com/the-final-bubble

zeronetwork's picture

Once you "pull it ", it goes down free fall.

natronic's picture

It's got another decade or so before it breaks completely.

Silver Bug's picture

And the cracks are already starting to appear. This correct, farce of a system is going to implode in upon itself in a way that has never before been seen. It will be ugly and grim, but hopefully we'll have the common sense to fix our wrongs. We'll see.

 

http://marcfabersblog.blogspot.com/2016/04/dr-marc-faber-federal-reserve...

bshirley1968's picture

"Hopefully we'll have the common sense......."

Are you kidding?  There has to be some reprogramming at the expense of some real pain and suffering. The next phase is liable to make the French Revolution look like a fairy tale dream.

We have lost all sense of moral direction.  The country has the character of a four balled Tom cat.   You hope?  Better put it somewhere other than in the people of this country.  How do how think we got here?

bshirley1968's picture

"Hopefully we'll have the common sense......."

Are you kidding?  There has to be some reprogramming at the expense of some real pain and suffering. The next phase is liable to make the French Revolution look like a fairy tale dream.

We have lost all sense of moral direction.  The country has the character of a four balled Tom cat.   You hope?  Better put it somewhere other than in the people of this country.  How do how think we got here?

hannah's picture

we have families with multiple generations that have never had a job. we are printing money to cover debt......this cant go on much longer.

Debugas's picture

q: this cant go on much longer

a: why not ? as long as you can produce enough food to feed the sheeple it can go on

Joe Cool's picture

Everybody knows where we are in the cycle...

Even the insiders are whispering amongst themselves...

In the end, it will be a real shit show...

For all to see...

new game's picture

like an iceberg as it slides to the ocean...

arby63's picture

When you know you cannot stop it the only logical solution is to plan for survival throgh it.

Firepower's picture

Murka's given off a stench for decades.

It'll continue for a long time. It took centuries for Rome to fall. Murka is even wealthier.

Whale carcasses take the longest to disappear.

Even "Detroit" is still around, stinking up the place.

 

wtshtf porn is for Preppas and folks who like to think " they're DOING SOMETHING!"

Your grandkids may have to be the ones turning out the lights - but odds are, they'll be coloreds then and will be the happy ones "taking over".

Winston Churchill's picture

Rome took centuries to fall only because the top speed for communication and decline was that of a marching

legion. Keep kidding yourself.

I will live to see it, and my now deceased doctors said I would be worm food long ago.

Firepower's picture

I will live to see it, and my now deceased doctors said I would be worm food long ago

 

Corespondingly, then the speed of technology also benefits BIGov maintaining infrastructure and ruling power.

But, yes. The End Is Near  bc you outlived your doc.

Winston Churchill's picture

Entropy is a bitch.

The Roman road that ran thru' my school grounds was still quite sevicable after 1800 years without

maintainence.Can we say the same about any of our roads or modern technology  ?

Memedada's picture

I would disagree. Rome’s capital was built to last (we can see their structures all around Europe, North Africa and the Middle East today). They had an infrastructure that wasn’t surpassed before the industrial revolution (pawed roads, water/Aqueducts, bathing houses, sewerage systems etc.), they had silver, iron, copper and gold mines powered by water (and slaves), they had standing professional and well-equipped armies, they had plenty of fertile land, peoples and well-managed cities. The people (especially the Roman citizens) had skills.

US is built to profit (meaning everything is built to last for as short a while as possible = planned obsolescence = one of many examples of why “capitalism” doesn’t work for the greater good). The US population has been dumbed down for ages – they’re by design made obsolete and at the same time made unable to question their own predicament as other than “their own fault” (like many on ZH who kicks downwards at the FSA [and no, not referring to the FIRE-sector, but the people at the bottom of the pyramid  fighting for the crumps thrown at them]). The US collapse is going to be quick and painful. The question is what will be next. For an outside observer it looks as if the US population is conditioned to accept “a strong leader”. My guess is unmasked fascism (what you have today but outspoken and celebrated by the masses). We (in the rest of the world) are going to have some fighting to do.

 

Firepower's picture

"rome" is merely The Standard Example of comparison between Western cultures.

The timetable For America's Burial http://wp.me/p2kmGE-LR is relative to the amount of loud alarms issued during the period of collapse.

More Ammo's picture

"US is built to profit (meaning everything is built to last for as short a while as possible = planned obsolescence = one of many examples of why “capitalism” doesn’t work for the greater good)."

 

If by "capitalism" you mean "crony capitalism" the current euphemism for "cartels" then the statement is true but otherwise not.

If we had true "capitalism" we would be able to buy things that last, But we can't because of sociopathic thieves at high levels (Cartels).

Once these sociopaths got hold at the top and started breeding the FSA,  What the hell do you expect to happen?

“their own fault”  you damn right it is.  I was born in a shithole, parents dead at 16 and I had nothing but my own immature ass to depend on and if I can dig it out then so can they.

 

You are right on one point, the system needs to come down.

ClydeCrashcup's picture

I hate the word "capitalism".  It is nowadays so loaded with so many different contradictory meanings to so many different people as to be almost meaningless.  Does it refer to 19th century capitalism?  Today's quasi-fascist crony capitalism?  Corporatism?  What?

It would be much better to just refer to "free enterprise" (assuming that that is actually what one is trying to discuss).

XAU XAG's picture

This essay was drawn from Musings Report 2016-3. The Musings Reports are emailed weekly exclusively to subscribers and major contributors ($5/month or $50/year).

 

 

FUCK OFF

Systems been breaking since 1913, with a major in 1971................Tick Tock MF'RS

BeaverCream's picture

This has been a bubble since the 80s when the government essentially nationalized pensions and retirement savings with 401k and IRA ponzi schemes.

swmnguy's picture

An excellent point, except they did the evil opposite of Nationalizing them.  They removed all the guarantees to savers, guaranteed sure money to brokers, and relieved employers of all responsibility.  Getting rid of pensions also took the most stable money out of the bond market, making it far easier to loot the bond market without too many people noticing.  At least if they'd nationalized pensions, they might have included some level of security to savers.

Once again, diverting the public's money into connected corporate hands.  

venturen's picture

nothing negative 5% interest wouldn't fix....maybe with a tax holiday for the 1% as well    /sarc

Ghordius's picture

"When central bank/state currency loses its value and utility (due to devaluation of the currency, hyper-inflation, etc.), then barter expands rapidly to fill the vacuum left by the demise of the dominant system.

The ecosystem example illustrates is how critical transitions occur: as the dominant system slows down, other systems fill the ecosystem niches that are opened up by the weakness of the dominant arrangement. At some point, the equilibrium of the ecosystem is disrupted and a new balance of other dynamics become dominant.

In the realm of currencies, the rise of crypto-currencies is an example of a nascent new system gaining ground as the dominant system slows/decays."

this rhymes with that imho exceptional assumption that all fiat dies... together

historically, it never happened this way. hyperinflations, for example, usually support other fiat systems. currencies usually die... mostly alone

evidence is all around the world, in any "black market" you might want to visit

In Zimbabwe during HY, you could buy whatever you wanted... as long as you paid with South African Rands, American Dollars or gold nuggets

In Germany, Hungary, Austria between the wars, or even more recently in Yugoslavia, the same, from French Francs to American Dollars to British Pounds

Americans themselves had historically little exposure to foreign currencies, agreed. But in the event of an American HY, I would not be surprised by the widespread use of Mexican Pesos or Canadian Dollars next to, yes, the private cryptocurrencies

I would even be less surprised by the rise of private banknotes, mind. corporate banknotes, for example, like a "McDonald's meal" note, or a "Frappuccino" note from that ghastly thing I forgot it's name. it's all IOUs, after all

----

edit: big corporate America is huge. in the event of an American HY, they would need something, too. that's the most likely source in the possible event of the rise of the first serious "Ersatz" currency. perhaps Google Credits versus Apple "CrediChips"?

misalkin's picture

Shorting stocks and long on gold/silver gave me in last 2 years once 100% cash lose and now about 90% of cash lose.

Where is that world colapse? I am just losing cash, and even if the collapse will come it is not likely i will get ma cash back, not to mention about some interest.

misalkin's picture

If i didn't invest also in physical i would be totaly broke by now.

 

Memedada's picture

Well, don’t play at a rigged casino. And you should’ve investigated more before investing. There’ve been warnings against leveraged positions in gold and silver since the beginning of this shit-show.

Try this side: www.silverdoctors.com.

 The point of investing in silver and gold is to get outside the system – so buying inside the system is pretty much just a hard earned lesson for you.

misalkin's picture

Yep exactly, this is just rigged casino.

XAU XAG's picture

Only Trade trends..............up or down

And remember Trends can be one Min, Hour, Day, Week, Month, Year or Years.

 

Never trade opinions or gut instinct.

 

The Trend is always your friend. 

BeaverCream's picture

You can't complain about losing money at the casino...if it wasn't for suckers like you they wouldn't exist.  SHould have taken your cash and gone to vegas with it, at least then you'd have some fun stories to tell.

elephant's picture

Zero Hedge was created to help the system steal people's money.  Misinformation and borderline mind control.  The alternate media and Internet echo chambers put the spotlight on Peter Schiff, Robert Prechter and others whose ideas will lead many to ruin.

Arnold's picture

Charles,

 

This is my take away from your essay, and it is a good one.

 

The warning signs of fraying resilience are all around us.

 


conraddobler's picture

Those truly in charge know all this.

It's not like they aren't going to propose sex at the funeral to the new widow they are.  Iet's just hope she has a shred of morality left and passes.

 

pickatheweek's picture

Joe Cool hates long goodbyes

Stay cool Joe

Debugas's picture

all the banks are keeping WORTHLESS PROMISES TO REPAY DEBT THAT CAN NOT BE REPAID.

Banking system is bankrupt holding shit paper worth zero

Storm Chaser's picture

 

With all due respect to CHS, I offer these thoughts as “the devil's advocate”.

No system is dominant forever. The challenge lies in accurately calling the timing of transitions (whether “critical” or not). An engineer myself, I wonder if we risk over-borrowing concepts from natural (e.g. biological) systems when examining synthetic (i.e. man-made) systems. In the latter, “alternative systems” do not swoop in to fill the voids of a weakening dominant system nearly as automatically or naturally as described. They require human decisions which are emotional and irrational, more often than not. (Case in point: Despite much discussed, and valid reasons for change, voters in this Election may wind up staying with a much-hated Establishment after all, simply out of fear of the unknown and resistance to change.)

 

Separately, concepts, however sound, have to be differentiated from evidence. “Denial” applies to evidence, not concept. Evidence is solidly in place for 7 years and going now that the Central planning/central banking system (however evil) is deeply entrenched and successfully manipulating at will. Disaster MAY be around the corner but isn't, until it is. And as the adage goes: “Trade what is in front of you, not what you think it ought to be”.

peterpam's picture

Insightful observations made in  this article.

More Ammo's picture

Though the author has make some good points it seems to be missing one important observation. 

The slowing down is just a symptom, not the cause of failure.

When a whole system slows down or even fails catastrophically it is almost always because a small component is stressed to failure that dominoes into complete failure.

Two comments above point out where I think that component is:

JRobby: I has slowed to a crawl
Mike in GA: I has too.

I think JR's comment was a typo and I laughed my as off when I read Mike's come back.

But the truth it spoke for me as well.

John Galt Everyone!

 

 

 

 

BendGuyhere's picture

E.O.Wilson's Theory of Punctuated Equilibrium is also a good metaphor for rapid social change. The system will persist until there is a failure of a critical subroutine, like the creaky, filthy New York subway carrying on until that one  60 year old transformer blows.....All the riders evacuate the subway and are now walking on the streets. A new lower energy equilibrium is reached:more crowded streets.

Rome, circa 400 AD (AD=Year of the Lord, not your NEUTERED CE='current era',if your are offended, fuck you!)

The Senate, the emperor, the army, all the critical institutional facades still in place. But, below the surface you have epidemics, famines, corruption. Soon the western empire dissolves, leaving the Church in Rome while the military/political component goes to a lower energy state-feudalism.

Storm Chaser's picture

building on comments from More Ammo and BendGuyHere...

Those who repeatedly expound demise of current system/regime consistently underestimate inertia.  It takes a LOT to topple an entrenched system/regime. It took Rome HUNDREDS of years to fall from first sign of decay.

 

New World Chaos's picture

In America, the decay reached the heartwood in 1913.  Our fate was sealed, but nobody noticed.  I am sure there were plenty of late Romans who thought things were going just great because they could skim the largesse of the government and spend all day in orgies and vomitoriums.

Storm Chaser's picture

building on comments from More Ammo and BendGuyHere...

Those who repeatedly expound demise of current system/regime consistently underestimate inertia.  It takes a LOT to topple an entrenched system/regime. It took Rome HUNDREDS of years to fall from first sign of decay.

 

fowlerja's picture

Wow...anyone who can write a sentence like this needs to go sit in a corner and think about the harm he has done to everyone's brain...

"Conscious development of alternatives that can compete transparently for dominance as the status quo decays is the most effective avenue to more resilient, sustainable systems."

Faeriedust's picture

What, you have a problem with 3 and 4-syllable words?  I'm more concerned with the author's obviously naive optimism.