Run on the Banks

I was talking to my brother about the "state of the world" and had an epiphany that we are in the midst of something closely akin to a run on the banks.  Several times in our history banks ran out of money during panicked mass withdrawals of funds not because there is anything inherently wrong with the banks, but because people lost confidence that their money was safe.  It is well known that banks do not maintain enough cash to cover the total amount of deposits - they invest depositor's cash to make a profit.  That means that if all of the depositors withdraw their savings at the same time, many will end up short when the reserves run out.  A few, or even a lot, of depositors can safely withdraw the cash, but if people start to panic thinking that it they wait they will lose their money - then all hell breaks loose.  The fear that a bank may become insolvent turns into a self-fulling prophecy whereby the fear turns into a panicked withdrawal by the depositors, that in turn causes an otherwise healthy bank to enter into instant bankruptcy - with the result of large scale negative impacts on the depositors, the community and if the event spreads in a chain of events to other banks, it can cause the collapse of the banking system and the overall economy. This has happened several times in history, including being one of the primary causes of the "Great Depression."  It is also a large part of the reason for the sudden financial collapse during the "Great Recession" starting in 2007.

My epiphany has to do with the current "mad scramble" for natural resources.  One obvious example includes the amazing increase in oil and natural gas production in North America (including Mexico, the United States and Canada).  The United States has recently become the worlds largest producer of oil and natural gas.  That's amazing.  Even more amazing is what we are doing with it - we are sending it overseas to our "competitors," selling it at rock-bottom prices.  We are madly drilling, digging and refining with the apparent goal of removing all of our accessible supplies as quickly as possible.  At the same time, the other producing countries are buying up our resources at record low prices because we have created such a glut on the market as to crash the prices to less than half of what they were just a year ago. Those countries see very clearly that there is no hurry - if they conserve their resources we will eventually be forced into buying from them at very high prices, and they will maintain their "energy security."  We (the United States) are in an apparently insane process of destroying our reserves in a rush to create very large short terms profits for a few international and European corporations. 

It appears that oil companies are panicked that they will be blocked from using up the free natural resources provided to them by the citizens of North America.  They appear to be operating from the fear that if they don't get it all right now it won't be available in the future.  Fracking is an example of a short term, high profit technique that is likely to be shut down soon because of the known wide-spread environmental destruction that it causes.  As soon as regulations prohibit the practice, then those resources will no longer be easily and cheaply available, so the best option for gas and oil producers (they are actually miners, not producers - they don't produce anything) is to get as much as possible as quickly as possible.  This rush has the feeling of being a rush on the deposits very simlar to a run on the banks.  The fact that fracking results in hundreds of millions of gallons of water tainted with toxic chemicals being pumped into under ground aquifers at a time of great climate uncertainty when those bodies of ground water may be critical for our survival has no impact on the desire to get as much as possible before the deposits run out.


Another example that I have talked about in my blogs has to do with the sudden rush to drill new water wells in the Sacramento Valley.  We are in what appears to be a protracted drought related to climate change.  The drought is causing a rapid decline in the quantify of ground water contained in the ancient aquifers of the valley.  Currently, there are no restrictions, regulations, monitoring or charges for water pumped from the aquifers by agricultural wells in the Valley.  Surface water from snow packs in the mountains is regulated and billed, but not underground water - it is freely available to anyone with the money to drill wells are run the pumps.  There seems to be a great fear that the aquifers will soon fail naturally or become unavailable because of new regulations, meaning that the "bank" will run dry.  This fear seems to be fueling a great run on the banks of our underground water - everyone attempting to get their part before it runs out.  What are they doing with the water?  They are growing things - mainly things like almonds that are almost all sold in Asia.  We are mining our water to make non-nonessential crops that are shipped to our competition so that they (the Asian countries that purchase the almonds) can reserve their precious water supplies to be used for growing essential crops and other uses. California is often called "the breadbasket of the world" - meaning that we are using up our natural resources to ship food around the world, which is the same as shipping our water around the world in the form of food.  Maybe there is a better way.

In both of these examples (mining for hydrocarbons and mining for water) the basic resource is free (or almost free), all that needs to be done is get it.  These are two examples of important resources that are part of "the commons" - those important natural resources that are not owned by anyone, but which are needed by everyone.  Water, air, good weather, buried resources, fish, ocean resources, species diversity, and all the other elements of "the environment" are part of these commons.  There appears to be a growing fear that the resources in the commons are soon to be depleted, restricted, regulated or otherwise made unavailable as a "free" resource to anyone who can get them - and this fear is fueling a run on the resources similar to a run on the banks.

In the 1920's, prior to the Great Depression, there was a steady and troubling series of small bank failures across the United States (and around much of the"western world").  These failures were small, locally disruptive, but not troublesome enough to be noticeable by most American's.  In fact it was a time of great prosperity and fun.  It was the "Roaring Twenties" in America and the "Golden Age Twenties" in Europe.  However, there was also a slow uptick in the failure rates of banks that sharply increased starting in early 1929, followed by a great increase in stock values, culminating in the crash of the market in the Black Tuesday crash of October 1929.  This was followed in short order by a worldwide run on the banks as people panicked that if they didn't get their money out in time they would get nothing (which turned out to be true once the panic was underway).  We all know the results of the panic.

The crazy and inexplicable run on many of our essential natural resources (particularly in petroleum products, water and ocean fisheries) has the feel of a panic that the resources will be lost by those who don't grab first.  I have been confused by what is happening because it makes absolutely no sense from the prospective of sustainability, of fairness, of planning for the future, of husbanding resources, of directing short and long term investments for humanity and the environment, or anything else that I can think of.  However, it makes PERFECT sense if it is driven by a panic similar in cause to a run on the banks.  From that perspective, it all makes perfectly good sense - it is a reasonable response to the fear that the freely available resources in "the commons" will soon be lost if they are not grabbed right now.