Dmitry Orlov actually lives on a boat just north of Boston (maybe Revere?). I’d love to run into him sometime.
The 5 stages of economic collapse: Financial, Commercial, Political, Social & Cultural
Having given a lot of thought to both the differences and the similarities between Russia and the U.S. - the one that has collapsed already, and the one that is collapsing as I write this – I feel ready…to define five stages of collapse to serve as mental milestones as we gauge our own collapse-preparedness and see what can be done to improve it.
So writes Dmitry Orlov (www.cluborlov.blogspot.com) in edited excerpts from his original article* entitled Five Stages of Collapse.
Hang the Bankers
Orlov goes on to say, in part:
…The proposed taxonomy ties each of the five collapse stages to the breaching of a specific level of trust, or faith, in the status quo. Although each stage causes physical, observable changes in the environment, these can be gradual…
The 5 Stages of Collapse
Stage 1: Financial collapse
Faith in “business as usual” is lost. The future is no longer assumed [to] resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.
Stage 2: Commercial collapse
Faith that “the market shall provide” is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.
Stage 3: Political collapse
Faith that “the government will take care of you” is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.
Stage 4: Social collapse
Faith that “your people will take care of you” is lost, as local social institutions, be they charities or other groups that rush in to fill the power vacuum run out of resources or fail through internal conflict.
Stage 5: Cultural collapse
Faith in the goodness of humanity is lost. People lose their capacity for “kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity” (Turnbull, The Mountain People). Families disband and compete as individuals for scarce resources. The new motto becomes “May you die today so that I die tomorrow” (Solzhenitsyn, The Gulag Archipelago). There may even be some cannibalism.
The Five Stages of Collapse
Although many people imagine collapse to be a sort of elevator that goes to the sub-basement (our Stage 5) no matter which button you push, no such automatic mechanism can be discerned. Rather, driving us all to Stage 5 will require that a concerted effort be made at each of the intervening stages. That all the players seem poised to make just such an effort may give this collapse the form a classical tragedy – a conscious but inexorable march to perdition…Let us sketch out this process.
Stage 1 (Financial) Collapse Scenarios
Stage 1 collapse, as we are currently observing it, consists of two parts:
-
a part of the general population is forced to move, no longer able to afford the house they bought based on inflated assessments, forged income numbers, and foolish expectations of endless asset inflation. Since, technically, they should never have been allowed to buy these houses, and were only able to do so because of financial and political malfeasance, this is actually a healthy development.
-
men in expensive suits tossing bundles of suddenly worthless paper up in the air, ripping out their remaining hair, and (some of us might uncharitably hope) setting themselves on fire on the steps of the Federal Reserve. They, to express it in their own vernacular, “fucked up,” and so this is also just as it should be.
The government response to this could be to offer some helpful homilies about “the wages of sin” and to open a few soup kitchens and flop houses in a variety of locations including Wall Street. The message would be: “You former debt addicts and gamblers, as you say, ‘fucked up,’ and so this will really hurt for a long time. We will never let you anywhere near big money again. Get yourselves over to the soup kitchen, and bring your own bowl, because we don’t do dishes.” This would result in a stable Stage 1 collapse – the Second Great Depression.
However, this is unlikely, because in the U.S. the government happens to be debt addict and gambler number one. As individuals, we may have been as virtuous as we wished, but the government will have still run up exorbitant debts on our behalf. Every level of government, from local municipalities and authorities, which need the financial markets to finance their public works and public services, to the federal government, which relies on foreign investment to finance its endless wars, is addicted to public debt. They know they cannot stop borrowing, and so they will do anything they can to keep the game going for as long as possible.
About the only thing the government currently seems…fit to do is:
-
extend further credit to those in trouble,
-
set interest rates at far below inflation,
-
accept worthless bits of paper as collateral and
-
pump money into insolvent financial institutions.
This has the effect of diluting the dollar, further undermining its value, and will, in due course, lead to hyperinflation, which is bad enough in any economy, but is especially serious for one dominated by imports. As imports dry up and the associated parts of the economy shut down, we pass Stage 2: Commercial Collapse.
Stage 2 (Commercial) Collapse Scenarios
As businesses shut down, storefronts are boarded up and the population is left largely penniless and dependent on FEMA and charity for survival, the government may consider what to do next. It could, for example:
-
repatriate all foreign troops and set them to work on public works projects designed to directly help the population.
-
promote local economic self-sufficiency, by establishing community-supported agriculture programs, erecting renewable energy systems, and organizing and training local self-defence forces to maintain law and order.
-
order the Army Corps of Engineers to bulldoze buildings erected on former farmland around city centers, return the land to cultivation, and to construct high-density solar-heated housing in urban centers to resettle those who are displaced.
-
reduce homelessness by imposing a steep tax on vacant residential properties and funneling the proceeds into rent subsidies for the indigent.
With plenty of luck, such measures may be able to reverse the trend, eventually providing for a restoration of pre-Stage 2 conditions.
This may or may not be a good plan, but in any case it is rather unrealistic, because the United States, being so deeply in debt, will be forced to accede to the wishes of its foreign creditors, who own a lot of national assets (land, buildings, and businesses) and who would rather see a dependent American population slaving away working off their debt than a self-sufficient one, conveniently forgetting that they have mortgaged their children’s futures to pay for military fiascos, big houses, big cars, and flat-screen television sets.
A much more likely scenario, however, is that the federal government (knowing who butters their bread) will remain subservient to foreign financial interests and:
- impose austerity conditions,
- maintain law and order through draconian means, and
- aide in the construction of foreign-owned factory towns and plantations.
As people start to think that having a government may not be such a good idea, conditions become ripe for Stage 3.
Stage 3 (Political) Collapse Scenarios
After a significant amount of bloodletting, much of the country becomes a no-go zone for the remaining authorities. Foreign creditors decide that their debts might not be repaid after all, cut their losses and depart in haste. The rest of the world decides to act as if there is no such place as The United States – because “nobody goes there any more”…
Stage 3 collapse can sometimes be avoided by the timely introduction of international peacekeepers and through the efforts of international humanitarian NGOs. In the aftermath of a Stage 2 collapse, domestic authorities are highly unlikely to have either the resources or the legitimacy, or even the will, to arrest the collapse dynamic and reconstitute themselves in a way that the population would accept.
As stage 3 collapse runs its course, the power vacuum left by the now defunct federal, state and local government is filled by a variety of new power structures. Remnants of former law enforcement and military, urban gangs, ethnic mafias, religious cults and wealthy property owners all attempt to build their little empires on the ruins of the big one, fighting each other over territory and access to resources. This is the age of Big Men: charismatic leaders, rabble-rousers, ruthless Macchiavelian princes and war lords. In the luckier places, they find it to their common advantage to pool their resources and amalgamate into some sort of legitimate local government, while in the rest their jostling for power leads to a spiral of conflict and open war.
Stage 4 (Social) Collapse Scenarios
Stage 4 collapse occurs when society becomes so disordered and impoverished that it can no longer support the Big Men, who become smaller and smaller, and eventually fade from view. Society fragments into extended families and small tribes of a dozen or so families, who find it advantageous to band together for mutual support and defense. This is the form of society that has existed over some 98.5% of humanity’s existence as a biological species, and can be said to be the bedrock of human existence. Humans can exist at this level of organization for thousands, perhaps millions of years. Most mammalian species go extinct after just a few million years, but, for all we know, Homo Sapiens still have a million or two left.
Stage 5 (Cultural) Collapse Scenarios
If pre-collapse society is too atomized, alienated and individualistic to form cohesive extended families and tribes, or if its physical environment becomes so disordered and impoverished that hunger and starvation become widespread, then Stage 5 collapse becomes likely. At this stage, a simpler biological imperative takes over, to preserve the life of the breeding couples. Families disband, the old are abandoned to their own devices, and children are only cared for up to age 3. All social unity is destroyed, and even the couples may disband for a time, preferring to forage on their own and refusing to share food. This is the state of society described by the anthropologist Colin Turnbull in his book The Mountain People. If society prior to Stage 5 collapse can be said to be the historical norm for humans, Stage 5 collapse brings humanity to the verge of physical extinction.
Conclusion
As we can easily imagine, the default is cascaded failure: each stage of collapse can easily lead to the next, perhaps even overlapping it. In Russia, the process was arrested just past Stage 3: there was considerable trouble with ethnic mafias and even some warlordism, but government authority won out in the end. In my other writings, I go into a lot of detail in describing the exact conditions that inadvertently made Russian society relatively collapse-proof. Here, I will simply say that these ingredients are not currently present in the United States.
In light of the unfolding global sovereign debt fiasco…[however, I have now come to the conclusion that, after] years of both government and finance betting on a future that cannot exist, doubling down every time they lose again, the Five Stages of Collapse is nothing but a nice theory.
[Instead,] I think that the stage 1 (financial) and stage 2 (political) collapses will compress into a single chaotic episode. Commercial collapse will not be far behind, because global commerce is dependent on global finance, and once international credit locks up the tankers and the container ships won’t sail. Shortly thereafter it will be lights out.
AWD says:
Because It Worked So Well For Stalin…
Submitted by Simon Black of Sovereign Man blog,
Five-year plans in the Land of the Free? Apparently it’s not that far off from reality.
Yesterday Senator Tom Harkin introduced S. 544, “a bill to require the President to develop a comprehensive national manufacturing strategy.”
In effect, Senator Harkin wants the President to centrally plan the economy. Never mind that the President has zero experience in business or manufacturing. But hey, this worked out so well for Stalinist Russia, it’s no wonder Mr. Harkin wants to copy that model.
Not to be outdone by Mr. Harkin’s long-sighted vision, President Obama is drawing up plans to turn over Americans’ financial data to the nation’s spy agencies. So now, on top of everyone else, law-abiding citizens in the Land of the Free can count on the CIA and NSA combing through their bank statements.
Of course, it’s all for your protection against men in caves who wish to do you harm.
This is the same reason they irradiate and/or sexually assault airline passengers. It’s why they have to be able to assassinate Americans on US soil by remote control plane. It’s why they’ve authorized military detention of US citizens. Etc.
When you step back and look at the big picture, it really makes one wonder – how big of a piano needs to be dropped on people’s heads before they notice what’s happening..?
I acknowledge that people have roots. I understand that folks can’t easily pick up and leave their jobs, friends, and family. I understand there’s a lot of inertia involved.
But if you see the writing on the wall, there’s so much you can do to protect yourself against this lunacy. Own precious metals, preferably stored overseas. Open a foreign bank account. Ship your retirement savings abroad. Travel a little bit. Know, in advance, where you would go if you finally hit your breaking point and needed to leave the country.
The trend is clear. Every single day the political elite gives us even more evidence that they’re working overtime to destroy the economy and what few remaining civil liberties still exist.
It’s a difficult truth to acknowledge given that most people have been brainwashed from a very early age in public schools to trust in their government. But placing any amount of confidence in this system utter folly. And dangerous.
There’s no need to panic; rather, it’s important to take measured, rational action. The above recommendations are not alarmist, they’re steps that make sense no matter what happens.
In almost any scenario, you won’t be worse off for having gold and silver stashed away overseas. You won’t be worse off for traveling abroad and finding a nice place you enjoy. You won’t be worse off for taking back control of your retirement savings.
Yet it the bottom falls out, you’ll be one of the few people left standing. Unless, of course, you’d rather wait for the next five-year plan to kick in.
Well-loved. Like or Dislike:
11 
0
14th March 2013 at 8:01 pm
AWD says:
Thought provoking read. These collapse scenarios are all starting to sound the same. Warnings coming from everywhere and everyone. Anybody who doesn’t heed these warnings is going to be in a mess of trouble.
Personally, I would be quite happy in a small collective of 15-20 people, defending our turf, no more worry about taxes, breading a law I didn’t even know existed, bills, the government, lawsuits and lawyers, and all the other bullshit of modern existence. But then I live in the country. Good luck to the people living in the cities.
Well-loved. Like or Dislike:
8 
0
14th March 2013 at 8:06 pm
BUCKHED says:
As I’ve said here before….having a farm in an area that my family has lived in for 200 plus years is an advantage. I know who I can trust and who I can’t. We have a secure area and the place is populated with educated rednecks. It’s going to be a wild ride but in talking to my relatives who are in their 80′s and older it may not be so bad to revert to an agrarian based time.
Well-loved. Like or Dislike:
6 
0
14th March 2013 at 6:58 am
dc.sunsets says:
I *still* don’t get it.
99.99999% of people expressing an opinion on the denouement of this historic period of credit/debt creation claim to expect (what seem to me to be) mutually incompatible things.
First we agree that the vast majority of what constitutes “money” today is nothing but “faith-based” (mostly electronic) IOU’s (from T-bills & T-bonds which the Fed is monetizing furiously to Muni bonds, Junk bonds, securitized land, homes, student loans, car loans, etc., unused credit lines on credit cards, etc.). Very little “money” is paper banknotes that have physical existence.
Next, however, comes the cognitive dissonance: (Paraphrasing) “When the system breaks, and people can’t pay their bills (i.e. they HAVE NO MONEY) then we’ll DROWN in money (hyperinflation).
Come again?
Incomes are going DOWN. People are getting booted from their homes for lack of money, not because their wheelbarrow isn’t big enough to cart the banknotes necessary.
In 2008 the real period of (temporary) crisis occurred when an entire class of IOU’s (the Commercial Paper market) suddenly was deemed “no good” and all the value associated with it simply evaporated.
Folks, that’s deflation in action.
Those worrying about imminent, massive INflation must be asleep! What are we experiencing but massive inflation RIGHT NOW! It’s propping up stocks, it’s (so far) holding the line on the value of T-bonds, and it’s keeping the lights on at defense contractors, hospitals, and universities, but everything else is turning into empty strip malls.
The denouement of this massive monetary debasement via CREDIT must be a CREDIT COLLAPSE. This would entail the money supply collapsing, at least temporarily. During that period of time the desperation FOR money should be historic as well.
Unless one believes that the Fed & Treasury will, overnight, replace all those IOU’s with banknotes, monetary debasement via credit must reverse and result not in “destruction of THE dollar” but destruction of vast sums “OF” dollars…leaving any still-existing dollars dramatically higher in purchasing power.
Sure, eventually the cretinous clowns ruling us may well crank up the literal printing presses and issue $100,000 bills to reflate the money supply, but until that time comes, there are two conditions we will likely experience: crushing credit inflation (now) and crushing credit collapse deflation (sooner or later).
Like or Dislike:
4 
1
14th March 2013 at 9:16 am
Thunderbird says:
We think that the elite and the mystery men behind the curtain are running things and causing all the economic problems we are facing; but this is not true. The truth is bigger than them. What is running the course of events is life itself. We; nor the elites, really have any control at all and can do nothing to change what is happening.
Life is tenacious and hangs on to the most despicable of conditions. The population is growing and resources are being eaten up. Our technology and machines have only increased the rate of consumption.
The politicians are the human manifestation of how life works in it’s own interest and uses us the people; the sleeping automations, to maintain it’s aim of eating everything to maintain it’s own existence.
Life is self regulating. I eat therefore I self regulate. It is a greater force than man. Man is just one form of life.
We are so self centered and arrogant that we really think we can DO in life when in reality we cannot do anything. We are all driven by outer impressions that cause our reactions.
We have no clue of what the future will bring. Based on out timeline of the length of a human life in our own time we are getting impressions that we are interpreting as perilous times coming. This is reasonable as far as our conditioned intellect is concerned. But we have no proof except what past generations have said. But our past generations have never lived in such a time.
But one thing seems to be certain: We live in a matrix, and the movie “Matrix” really drives home the idea that we are asleep in this matrix of life. Those that begin to wake up are greeted with a very disappointing picture of being trapped in something that consumes our energy without our conscious consent.
Those that are preparing for a collapse of the economy are not working in vain. The political, social, and cultural fragmentation is already happening, and the economic collapse is in progress. Life is driving this; not the elite or politicians who are only reacting to their own impressions. Life is comfortable with insanity. If you don’t believe this statement do a study on plant and animal life. Life does not need human life but rather uses it for it’s own purpose; which is to eat.
Man has harvested many resources on the earth for his existence and polluted the oceans. The thin film of life that covers the surface of our planet has been affected by man’s work to harvest resources, and by the products of the concentrated chemicals & compounds developed from her body. Look at all the spent fuel rods from atomic power plants we are unable to neutralize?
Life is getting ready to act on us (man) for it’s own benefit. In fact it already is. Our first stage of destruction is already in progress. This stage is called “INSANITY.’ Look at all the “laws” we are now creating in government and the “policies” management in corporations are making and tell me you don’t see insanity involved with the creation of these laws and policies?
We live on a planet dominated by life; and we are a part of that life. Want to divine our future? Don’t look to God; but rather, look to LIFE. It is soon to put us in our place. The ones that survive will be the ones who have learned how life works and how to live in harmony with it.
Like or Dislike:
0 
0
14th March 2013 at 11:37 am
Matte Kudasai says:
DC Sunsets
You are correct.
I’ve been saying this since 2008 and way too many people have gone off the rails with this.
The FED is fighting DEFLATION by INFLATING the money supply. There will be a time for the FED to exist, however it is not likely to happen anytime soon. In the meantime we will play this cycle game in a coordinated, around the globe currency devaluation in order to provide some stability.
It will take a new “economic” revolution to break out of this super cycle. And that revolutionary technology will create the next great bubble. Under the current environment of a world swimming in cash, I would suggest when that discovery/innovation occurs, money will pour in so fast it will make your head spin. This is when the FED will have to drastically reduced the money supply.
Until that happens the FED has no other choice but to continue these cycles of dollar destruction and dollar strength.
Deflation is a bitch.
Like or Dislike:
0 
0
14th March 2013 at 12:02 pm
Thunderbird says:
Matte Kudasai:
It seems by what you are saying the era of small independent business is over. If this is correct than what was termed as the American Dream will never return.
What happiness do you see in corporatism dominating the economic landscape in monopoly form, with individuals not allowed to create their own business reality and economic freedom?
My economic freedom along with yours is based on our ability to create for ourselves from the substance around us and not have to give accountability to the IRS. Bowing to other men that control the economic system is not freedom; it is slavery.
This is what America is today. I see corporatism as being very similar to the old Soviet style communism. There is no incentive for the people to create; only consume until everything is used up.
Like or Dislike:
0 
0
14th March 2013 at 1:24 pm