Source: Reflections of a Rational Republican ©2011
“Civilization and anarchy are only seven meals apart”
— Spanish proverb
Instability is a positive feedback loop driven by weather, energy and food prices, currency fluctuations, repression, and demography.
Adverse weather conditions, in tandem with high energy prices and a weak U.S. dollar, can increase discontent in countries with repressive regimes and youth bulges. What is transpiring in the Middle East today seems to follow this pattern.
The problem with positive feedback loops is that they feed on themselves and spiral out of control. For instance, high energy prices contribute to high food prices. High food prices in energy-rich countries with repressive governments and youth bulges, lead to unrest. This unrest spooks global energy markets leading to further energy price appreciation. This price appreciation again feeds the cycle ad infinitum.
Try not to miss your next meal…
Reflections of a Rational Republican 
And these food shortages leading to energy shortages will soon be affecting Europe in a major way. Please read my blog at michaelakerib.wordpress.com
Will do, Michael.
Thanks for the heads up and for reading my blog.
Ahhh, good ole positive feedback loops! I use them often in business myself, having started with Peter Senge’s books a number of years back.
My personal primary concern right now is the two bubbles of the US$ and the government debt. I’d consider that to be the first leverage point in your diagram. Second, but equal, would be the “Discontent” entity, exacerbated by irrationality. Markets aren’t doing too bad, I just saw GDP projected at 4% growth, but I still don’t think people really understand what a tough situation we’re in.
America’s innovative – we’ll pull out of it, but for all the other entities in your diagram I am very bullish on Canada right now. That’s where a large part of my “safety” investments are going. Your thoughts?
Vern,
You have a sharp eye! You are right. The US currency has its own positive feedback loop, which as you say is fed by the deficit and U.S. government debt. On markets, I was referring exclusively to energy markets (i.e., commodity futures exchanges). My worry is that if oil prices continue to be elevated, we could be back in 2008 very quickly.
On markets, now is the time when less sophisticated investors try to get back in the market after they think they missed a huge run up. And they could get burned, again. We’ve seen a huge run up since the trough in late 2008-2009. I fully funded my 401k in the first quarter of 2009, because prices were so low they didn’t make sense. Now, I’m not so sure.
Market senitment does not feel as bullish to me as it has in the past year or so. I am not necessarily pulling out, but I am also not piling in. However, one historical fact is on your side: Markets do well in the third year a President’s administration. However, past performance does not guarantee future gains.
Food and energy commodities are where the money is. And it looks like some ag prices may have pulled back recently, so it might be time for me to profit from my positive feedback loop!
I don’t know much about Canadian markets other than Alberta is booming from the tar sands. 😉
Yes, Alberta is booming, especially Fort McMurray where the oilsands are. Saw on the news that the average MLS listing there is $800k for a new home, local gym memberships have gone from 4,000 members to 10,000 in under a year, etc. – whole bunch of indicators. I’m usually contrarian, but that news is not very public and the unsophisticated money has been holding off and playing it safe.
It would be worthwhile to check out the markets from someone who’s located in Alberta. Not much investment news really gets down south (especially to Las Vegas, where everyone’s just worried about having a job!), and you have to live in the market to know it (I used to live in it, so I know). I’ve got friends in different sectors of the industry and they’ve served as great leading indicators. 🙂 I guess when I say I’m bullish on Canada, it’s more Alberta & Saskatchewan than the entire country per se, but they look pretty sexy at the moment.
Anyways, appreciate the post. Keep ’em coming!
Great graphic and article.
I believe information sharing plays a huge role in both uprisings and revolutions. The revolutions of the 19th century were fueled in part by the speed of the newly constructed railroads and the information they shared so quickly. Do you believe the Information Age (FaceBook, Twitter, or social media in general) is fueling the current uprisings?
If so, would “social media” have it’s own place on your graphic or be incorporated in one of the blocks like “Discontent”?
I think it probably fits the discontent bucket. I see social media as more of an enabler of revolutions rather than a root cause. A good friend covered the use of social media in Egypt and his view is that without the muscle on the ground, the Egyptian protestors could have tweeted until they were blue, and nothing would have happened.
Every revolution needs foot soldiers, and the folks who are more likely to tweet are probably less likely to fight against police.