Print the page
Increase font size

Climate vs. Financial “Tipping Points”

Chris Campbell

Posted July 13, 2021

Chris Campbell

--The phrase “tipping point” is usually used to describe some watershed event that can’t be controlled once it spills over.

The most common definition is “a critical juncture at which unstoppable change takes place."

Put another way, it’s when a system becomes so fragile that tiny changes can push a system into a completely new state. (Think of the last game of Jenga you played and what the tower looked like right before it fell.)

If you search for the word “tipping point examples,” you’re likely to be bombarded with articles about how the world is on the verge of a cascading, systemic climate collapse.

While, on the surface, this global “tipping point” seems like the biggest fear amongst climate-concerned environmental scientists…

Many ecologists have qualms with the way the climate change issue is framed.

Crying Wolf, Ignoring the Fox

Corey Bradshaw, an esteemed ecologist with over 300 peer-reviewed scientific articles under his belt, says this trend in environmental science of writing about “planetary tipping points” and the related “planetary boundaries” is a version of ‘crying wolf while overlooking the foxes.’

Bradshaw argues that the monomaniacal focus on a singular hypothetical planetary tipping point (the wolf) distracts from the localized, indisputable tipping points (foxes). 

“It’s really the stuff of Hollywood disaster blockbusters,” he writes, “the world suddenly shifts into a new ‘state’ where some major aspect of how the world functions does an immediate about-face.”

Barry Brook, an Australian Research Council (ARC) Laureate Fellow, and Chair of Environmental Sustainability at the University of Tasmania, concurs:

“At a local scale,” he writes on the Brave New Climate blog, “there are definitely warning signs that an ecosystem is about to “tip”. For the terrestrial biosphere, tipping points might be expected if ecosystems across Earth respond in similar ways to human pressures and these pressures are uniform, or if there are strong connections between continents that allow for rapid diffusion of impacts across the planet.”

But, he says, the biosphere is a dynamic system of dynamic systems. Not all pressures are treated equally throughout the system and ecosystems on different continents aren’t strongly connected. A better approach, he argues, is to focus on the local tipping points, which are much more serious and threatening.

Brook maintains that “the responses of ecosystems to human pressures like climate change or land-use change depend on local circumstances and will therefore differ between locations. From a planetary perspective, this diversity in ecosystem responses creates an essentially gradual pattern of change, without any identifiable tipping points.”

By focusing entirely on the wolf and trying to find a “magic pill” one-size-fits-all solution, both ecologists contend, we neglect the real problem: the army of foxes.

Now, compare that to the global financial markets -- an entirely different story. The financial markets are highly interconnected and the risks we face are, indeed, systemic.

Crying Fox, Inviting the Wolf

In 2012, David Korowicz, a physicist and human-systems ecologist, authored a lengthy 78-page white paper titled: "Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse."

Korowicz argued that the global financial system is in danger of tipping toward systemic collapse. 

Here are just a few of the points of risk outlined in the paper:

→ The collapse of Lehman Brothers in 2008 and the “flash crash” in 2010 revealed how quickly financial turmoil can spread across interconnected markets.

→ Advanced economies rely almost entirely on “Just-in-Time” logistics systems. The upside is that they can track real-time demand for goods automatically and adapt to those changing signals. The downside? Most modern cities keep around 3 days worth of food for the total population on hand. The danger is that there isn’t much inventory in the event of an emergency, increasing risk of total breakdown during supply chain disruptions.

→ Adding additional risk, the tens of billions of supply chain interactions that happen all around us are too many and complex for anyone to fully see and understand. Most policymakers, well-meaning or not, make decisions based on linear and outdated economic models, designed for the stable and simpler times they were created. Any actions made to control the complexity using these models will only lead to disorder and chaos, spreading and popping up in unexpected places.

→ The bailouts only added further insult to injury. When sovereign nations backstop insolvent banks, says Korowicz, it doesn’t remove the risks associated with debt defaults. Those risks are simply shifted elsewhere and magnified over time. He uses Spain as an example: When the country bailed out its banks it in the process increased its own debt. This caused bonds to sell off. This caused the banks, buyers of Spanish bonds, to become even more insolvent due to the decrease in asset values. Banks across the developed world are holding increasing amounts of their country's sovereign debt, thus increasing overall system risks.

The global economy is entirely dependent on credit expansion–new debt must be issued to service the interest on old debts. When the economy contracts, the ability to service old debts disappears and debtors become insolvent. This creates an endless merry-go-round of debt, concentrating wealth and causing massive distortions and displacements throughout the economy. 

→ Finally, therefore, the banking system is incredibly concentrated. Koworicz showed that 75% of payment flows between banks on an average day are conducted among only 0.1 percent of the banks in the US Fedwire payment system.

Korowicz shows what might happen when the “tipping point” is breached: 

1.] "As financial and monetary systems become more unstable, the risks associated with doing anything significant to change or alter the course increase."

2.] "The actions taken to prevent a crisis, or preparations for dealing with the aftermath of a crisis, may help precipitate the crisis."

3.] "The growing stress in our very complex globalised economy means it is much less resilient."

As you may know, my colleague, Graham Summers, has been tracking this trend even longer than Korowicz.

But where Graham and Korowicz differ is that Graham sees the next collapse as not just systemic…

But also systematic.

And, by his estimates, tomorrow, July 14, is when a trillion dollar “extinction event” is set to start to unravel the financial markets.

Until tomorrow,

Chris Campbell
Managing editor, Laissez Faire Today

Life (and Trading) Lessons of the World’s Greatest

Posted July 08, 2021

By Chris Campbell

Jesse Livermore was the world’s greatest and worst trader…

Hyperinflation Hits Lebanon, Clubs Are Packed

Posted July 07, 2021

By Chris Campbell

The “fifth column” of total currency collapse…

Block to the Future: The Rise of Non-F*ckwithable Tapes (NFTs)

Posted June 29, 2021

By Chris Campbell

This is what crypto mass adoption looks like…

Before Hyperinflation Hits, Write This Down

Posted June 23, 2021

By Chris Campbell

More lessons from Romania’s currency collapse…

Privacy Isn’t Dead. It’s Profitable.

Posted June 17, 2021

“Well, I’ve got nothing to hide, so why should I care?”

The Gerasimov Doctrine: “A New Kind of War”

Posted June 14, 2021

By Chris Campbell

“Deep inside the Pentagon,” says Jim Rickards, “they’re already fighting the next world war.”