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Is Canada Ignoring Signs of a Coming Economic Collapse?

Two experts lecturing in Vancouver warn resource-rich nations aren't immune.

Justin Ritchie 1 Feb

Justin Ritchie covers energy, ecology and human behaviour on The Extraenvironmentalist, which airs on CiTR 101.9 FM and in podcast form. He works at UBC as the Sustainability Coordinator for the Alma Mater Society, where he'll soon be finishing his MASc in materials engineering.

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Nicole Foss and Richard Heinberg want to prepare you for what's coming.

With a fragile situation in Europe and wild volatility in global financial markets over the last few months, what's in store for Canada?

This February, Vancouver will host Nicole Foss and Richard Heinberg, two people who have said for years that the paradigm of economic growth is ending forever, and that the consequences will be dire -- even for wealthy Canada.

In January 2008, Foss co-founded The Automatic Earth (TAE), named after Paul Simon's song about the boy in the bubble. Along with her co-writer (who contributes under the pen name Ilargi), the site has grown from a side project into garnering enough traffic to place it amongst the world's top financial blogs.

"I try to explain to people how to take it one step at a time," says Foss, who relocated from her research fellow position at Oxford to a farm in Ontario in 2000. "It is easy to get paralyzed by the enormity of what's happening, but if we look at it one step at a time... it doesn't have to be overwhelming, and we'll just keep putting one foot in front of the other."

After a few years of creating bioenergy projects on her farm, she worked at the Agrienergy Producers' Association of Ontario, gaining a deeper perspective of energy issues in the Canadian context. Though TAE now covers more than just energy, she and Ilargi use energy issues to explain a bigger financial picture.

"Far too often, people look at one aspect of reality and assume away the context because it is messy and complex. We fundamentally disagree with that approach," she says. "We embrace complexity and will weave together as many threads of the big picture as we possibly can, and will make that complexity comprehensible."

The default chain

Richard Heinberg has written about energy issues for over a decade with books like The Party's Over and Peak Everything, and is now the senior fellow-in-residence at the Post Carbon Institute. Like the team behind TAE, he uses the larger energy picture to explain the coming financial collapse.

In his latest book, The End of Growth, Heinberg explains that traditional macroeconomic approaches to stimulate economic growth won't work because of the larger energy picture. European economies can no longer grow fast enough to service the debts they have accumulated. Heinberg explains that the world stands on the verge of financial collapse.

"What we have to worry about right now are some of the European countries defaulting, starting with Greece, and then that could spread to Spain, Portugal, Italy and perhaps even France. Then the banks that hold those countries' bonds would be in a dire position, and those banks would start to fail. That would trigger a chain reaction that would bring down the global financial system," he says.

In Foss's view, a financial collapse is only the first wave of an uncertain future.

"We're looking at a train wreck, where the engine hits the wall first and each car hits the wall soon after, and you have this pancaking of the whole train, because all these things are connected. Finance is first -- it's the engine, at the moment, that's been the defining factor for just how complex we are and the crash that's coming."

A financial crash is the first in a wave of energy crises, water crises and more, Foss says. "Each car of the train can be thought of as different aspects of complexity, but when one crashes, all the others hit it, and you end up with a much bigger accident."

Heinberg explains this predicament began in the early 20th century, when the problem was overproduction.

"Using cheap fossil fuels, we could make stuff faster than people could buy them. We solved that problem with advertising and consumer credit. We talked people into buying more stuff and made it easier for people to buy stuff by taking on more debt. You can see this starting with the automobile industry, a big ticket item that few could pay for with cash," he says.

"Since the 1970s, debt grew faster than GDP and energy consumption in the west. This lead to the debt bubble of the last few years and when that bursts, the whole edifice falls apart," he concludes.

Canada lacks a 'culture of skepticism'

Foss travels the world to inform people of the impact global trends, like the debt bubble, can have on their lives -- yet she's hardly ever in Canada.

"Canada's at the peak of a bubble. We have a very large country and not a lot of people in it, we've never really encountered any genuine limits... compared to many places," she explains.

"People here are far more complacent, so they don't see the bubble in property for what it really is. They don't see the energy issues for what they are, because they think, 'We have the tar sands, we're an energy superpower, we don't have anything to worry about,' and that's certainly not the case at all."

Most of her travels take her to the United States, where the housing bubble peaked in 2006 and people are feeling economic pain, or to Europe, where people are becoming more concerned about the euro crisis. So if the rest of the world is starting to see a coming financial and economic crash, why isn't Canada?

Foss attributes it to the lack of a culture of skepticism.

"In Canada, there's too much faith in things that come from the top down, whether the mainstream media, or reliance on public services that come from government," she said. "When you have a tradition of good government, you haven't had to deal with any limits, and I think that breeds complacency. People have not been as prepared as they have in other places to look deeper, to question the assumptions their lives are based on. I don't think we have a culture of acute skepticism here."

Yet skepticism is what's needed to prepare for the coming crash, she says. "At times like this, a culture of skepticism serves you really well. It encourages you to question what your existence is based on; what are your dependencies, what are your vulnerabilities, where are the coming trend changes."

Without questioning where the global trends are going, Foss says that people tend to imagine the current trend going on forever.

"That's like getting in your car and hitting the gas, while only looking in the rear view mirror. What we need to do is look forward and anticipate trend changes."

Energy superpower with no electricity?

What is Canada missing about its place in the global picture? For one, Foss challenges the Harper government in its thinking that Canada is an energy superpower.

"We don't account for net energy here in Canada, the amount of energy remaining after extraction. For the tar sands, we put in an enormous quantity of natural gas at one end and produce syncrude at the other, but if you look at it in energy terms, we're not making a lot more energy than we put in. We make money at it because right now natural gas is relatively cheap compared to syncrude, so this is really an arbitrage between cheap natural gas and expensive syncrude, but this isn't an energy source."

Canada may soon find itself with plenty of syncrude and no electricity, claims Foss.

"Ontario is leaning on nuclear plants it never got around to paying for that are now nearing the end of their design life, there's little grid capacity for new renewables, and they want to shut down the coal plants. Ontario is facing having to replace more than 80 per cent of its generating capacity within 15 years, and it's not going to have the money, the time or the grid infrastructure. Ontario will be lucky not to freeze in the dark," she says.

A eurozone collapse would devastate global oil prices, Foss goes on to say.

"You would have a situation where capital is scarce, economic activity is falling and you have relatively lower energy prices in nominal terms, though in real terms the price will be higher. Energy isn't getting cheap because the price is falling, but it is getting harder to earn money on an investment."

Her main point: uncertainty and volatility coupled with falling prices would kill the oil sands project because investors would hesitate to inject capital.

Vancouver's bubble bursting

Foss will be telling audiences in Vancouver that it isn't immune from a global financial collapse either.

"What you have in Vancouver is enormous amounts of speculative purchasing, especially from abroad. People don't even intend to live there, and they buy these homes because they only ever think they can go up. This is the classic definition of a bubble. What happens is your vibrant city gets hollowed out and turned into a resort."

She recommends that people begin recognizing this bubble and preparing for it immediately.

"I would tell people to get out from under debt if you possibly can. For many people, that will involve selling a property they own. If you sell a property you get out of debt, and by cashing in equity, you also hold liquidity. This is critical to riding out a depression, which is what we're on the verge of. Rent is not throwing money away; rent is paying somebody else to take the property price risk for you, which is a very good bet in the current circumstances."

To those who say the city is different, Foss has a message.

"Vancouverites should beware. It is never different here; it is never different 'this time.' One rationalizes all sorts of reasons why property prices are justified.

Prices are undermining the economic and social vibrancy of the city enormously, she goes on to say. "It's such a sad situation, that's built up to this pinnacle of financial lunacy and speculative mania. It is a shame if people don't see it in time to do anything about it."

Nicole Foss speaks at Langara College on Feb. 2 from 7-9 p.m. in Theatre 5 (Room A130).

Richard Heinberg speaks at UBC on Feb. 9 in the Centre for Interactive Research on Sustainability Main Lecture Hall from 12:30-2 p.m., and also at Langara College on Feb. 10 at 5 p.m.  [Tyee]

Read more: Energy, Politics, Environment

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