The earth-shattering kaboom

When you were younger, did you ever play the game “Pick Up Sticks”?

Here’s the idea: there’s a pile of long sticks, all crissing and crossing each other. It’s a sort-of stable pile.

Each player, in turn, is required to pull a stick of the colour they spun on a dial out of the stack. If you do it without the stack falling down, it’s added to your pile for your score.

Eventually, someone is forced to pull out a stick that causes the whole pile to collapse. That ends the round.

Our society is much like that pile of pick up sticks.

One thing relates to another, but without a lot of redundancy or robustness. It’s a sort-of stable condition at best (although highly efficient as long as it all works).

We’re getting used — thanks to the banking system — to the notion of one of the sticks in the pile being “too big to fail”. It’s a stick that, whether you pulled on it first, in the middle, or last, will tumble the pile.

We have lots of those these days, without even realising it.

Take a look at Canada’s Maritimes. VIA Rail runs three days a week up to Montréal from Halifax, stopping in Moncton, NB. That’s it for rail service.

Otherwise, it’s the bus. Except that yesterday it was announced that the sole company running buses in the Maritimes has decided to shutter its operations and stop running service, period.

All of a sudden, for Prince Edward Islanders, New Brunswickians and Nova Scotians, if you don’t drive yourself, you don’t get there from here. Three whole provinces essentially left with no options.

Oh, and 100% of the petrol that goes into those gas tanks comes from overseas. Canada being an oil producer means diddly in the Maritimes, since there’s no deliveries from the west coming in.

So if, for instance, the Iranians decided to express themselves by bombing the Saudi Arabian oil terminals, the resulting supply disruptions would cascade nicely to dry up Maritime gas stations.

Then how do Maritimers get anything delivered (like food)? (See why yesterday I was writing about looking at places to live with a keener eye?)

When Lehman Brothers went bankrupt, we suddenly discovered that it was effectively the sole provider of commercial paper — the short term loans used by businesses of all types to handle payroll, buy supplies, handle shipping, etc. One “stick”: the whole commercial sector locked up in an instant.

Knight Capital, a few days ago, blew itself up (you may never have heard of them, they’re a back room firm that keeps the stock market in Wall Street moving by matching buy and sell orders from the brokers — not a market maker [who’ll buy/sell to maintain orderly price movements] but simply one that matches across the electronic ordering systems). A simple systems error, and they wiped out their capital in an hour or two. Fortunately the rest of the street stepped in quickly to help, because without them the markets would have seized up.

Pensions? Investments? All were suddenly at risk.

We saw, in 2003 with the eastern blackout in North America, how a few tree branches falling on wires that weren’t reacted to appropriately cascaded in a couple of minutes to cutting off power to tens of millions of people for three days. India’s just gone through a similar cascade of failures, with 700,000,000 in the dark and heat for a week.

How’s the Eurozone doing these days? Just because it wasn’t the headline this morning doesn’t mean anything got better. Contagion — which needs to be nothing more than a sudden fear that it’s about to go kaboom — can spread in an instant these days. With every major institution having sold derivatives to every other institution thanks to the flaw in the assumptions of Value at Risk (the metric used to judge risk and capital reserves) the whole global financial system could literally die in the space of a few minutes.

For a society that thinks money is slapping your credit or debit card into a machine, it could be a very rude awakening.

For a society that thinks central bankers can “fix” these things, it could be an extremely rude awakening, as prices soar and money is unavailable.

A more resilient world of small communities that produce for their needs, power themselves to some extent, are walkable — all the things talked about over the last six months of this blog — would be one that could weather the collapse of the pile of sticks. Yes, it wouldn’t be easy — but they wouldn’t be like the Maritimers.

Looking at the road for the trucks that never come.


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