Every Collapse Follows the Same Five Stages (2)

This piece is the middle portion of Chapter 8 (2) of The Declaration of the Age of Physical Economics (Yoon Jong-won, Yoon So-ri, Yoon Jun). It is an academic exposition presenting the authors' physical economics hypothesis, and the body, figures, and citations follow the manuscript as written.

What Kind of Period Each of the Five Stages Is

The Discovery in the Medical Domain

DTDMC is in fact a law that was first discovered in the medical domain. The work of tracing the common pathway of aging and chronic disease became the starting point from which the shape of the five stages emerged. Let me point out one rather interesting fact. In specialized medicine, arteriosclerosis, chronic renal failure, diabetic complications, Alzheimer's, and osteoporosis have each been diagnosed separately. Yet it was found that behind the surface of these five diseases lies the same single molecular event. That discovery became the foundation for establishing the five stages.

The medium that flows within the human body is the calcium ion. 99 percent of the body's calcium is stored in the bones, and within the blood it is maintained only within the very narrow range of 8.8 to 10.4 milligrams per deciliter. The channel is the microvasculature with a diameter of 100 micrometers (about one-tenth the thickness of a hair) or less. Most of the roughly 100,000 kilometers of blood vessels in the human body belong to this category. An interesting fact is that every cell in the body is in direct contact not with large blood vessels but with the microvasculature. Oxygen, nutrients, hormones, and immune cells all reach the cell only after passing through the microvasculature. This means that if the microvasculature is blocked, the cells beyond it begin to starve immediately.

The deposit that hardens within the microvasculature and blocks the flow is microcalcification. Linda Demer and Yin Tintut of the University of California in the United States published a comprehensive review paper in the journal Circulation in 2008, organizing at the molecular level the evidence that vascular calcification is not merely a product of aging but an active mineralization process. Mineralization is the action by which cells combine inorganic minerals such as calcium and phosphorus to form hard crystals. The event in which calcium and phosphorus combine at the microvascular wall to form microcrystals proceeds long before clinical symptoms appear. This means that at the micro stage, which standard imaging cannot capture, the main body of the five stages is already at work.

Let us look in turn at how the five stages operate within the human body. In the factor stage (stage 1), the four triggers of deficiency, inflammation, acidosis, and hypoxia accumulate latently within daily life. Binding the first letters of their English names, we call them DIAH. In the onset stage (stage 2), at the moment the accumulated triggers cross the threshold, parathyroid hormone (a hormone that acts to raise the concentration of calcium in the blood) is secreted, and calcium flows out of the bones. In the blockade stage (stage 3), the leaked calcium hardens into microcalcification on the microvascular wall and narrows the channel, and at the same time, because of the fluctuation in blood calcium concentration, the calcium signal inside the cell also wavers, so the signal channel is blocked together. In the manifestation stage (stage 4), the microvascular blockade surfaces in seven forms. These are obstruction and rupture, dulling, signal blocking, hardening, overgrowth, disconnection, and structural collapse. In the annihilation stage (stage 5), multi-organ failure progresses and leads to death.

The fact that these five stages really do operate has been verified again and again through cross-checking of the medical literature. The calcium deposition seen in arteriosclerosis, the ectopic calcification seen in chronic renal failure (the phenomenon in which calcium is deposited in tissues where calcium should not harden), the microvascular damage seen in diabetes, and the cerebrovascular calcium deposition seen in Alzheimer's. Specialized medicine has diagnosed these four separately, but when looked at on the molecular level, all are confirmed by an extensive body of literature to be variations of a single event. The five stages, in effect, reveal a common pathway that could not be seen precisely because specialized medicine is divided into specialties.

Yet the very fact that the five stages operate in medicine left one question. Would the same five stages also operate in fields outside of medicine? The answer is resolved in a review of natural systems that looks in turn at stars, rivers, ecosystems, and climate.

The Collapse Law That Applies to Every System in the World

The fact that the same five stages operate across fields is made clear through cross-checking of the natural science and life science literature. The names of the medium, the channel, and the deposit differ from field to field, but the structure of the five stages itself is preserved without fail. The paths by which stars, rivers, ecosystems, and climate collapse all follow the same order of the same five stages. Let us follow along one field at a time.

First, stars. The death of a star shows the case that takes the longest time among the five stages. The medium that flows in a star's core is fusion fuel, that is, hydrogen and helium. The channel is the pressure gradient of the star's center, that is, the difference whereby pressure rises the closer one gets to the center. The deposit is the heavy elements that accumulate as a result of fusion. In the factor stage (stage 1), hydrogen is slowly depleted over billions of years. In the onset stage (stage 2), when the core's hydrogen concentration falls below the threshold, the compensatory reaction of contraction and heating of the outer envelope is activated. In the blockade stage (stage 3), fusion stops and a collapse along the two axes, in which gravity overwhelms, occurs. In the manifestation stage (stage 4), the star expands into a red giant (a state in which the outer envelope has greatly swollen so that the surface temperature has fallen) and surface changes become visible. In the annihilation stage (stage 5), it converges into a supernova explosion or a white dwarf. It takes billions of years to collapse, but the order of the five stages itself is exactly the same as the aging that occurs within the human body.

Next, rivers. The death of a river shows the same order within a far shorter time than a star. The medium that flows in a river is water, the channel is the riverbed, that is, the bottom of the river, and the deposit is sediment. In the factor stage (stage 1), insufficient rainfall and excessive water withdrawal accumulate over decades. In the onset stage (stage 2), drought crosses the threshold and the compensatory reaction of dependence on groundwater is activated. In the blockade stage (stage 3), a collapse along the two axes, in which the water source is depleted and the riverbed silts up, occurs together. In the manifestation stage (stage 4), the phenomenon in which the river dries up and fish species die off becomes visible. In the annihilation stage (stage 5), the basin ecosystem itself collapses. The Aral Sea, which dried up as a result of the excessive irrigation projects of the former Soviet Union after 1960, is the clearest case that shows the entire five stages all at once.

The collapse of an ecosystem also follows the same order of the same five stages. The medium is the flow of nutrients, the channel is the food chain and the connections between species, and the deposit is the settlement of invasive species or the extinction of a keystone species. In the factor stage (stage 1), habitat destruction and environmental pollution accumulate. In the onset stage (stage 2), the population of a keystone species falls below the threshold and the nutrient flow begins to be disturbed. In the blockade stage (stage 3), the nutrient supply and the connections between species are severed at the same time. In the manifestation stage (stage 4), the phenomenon of a sharp decline in species diversity is observed. In the annihilation stage (stage 5), the existing ecosystem collapses and shifts to a different regime.

The collapse of the climate system is also on the same trajectory. The medium is the carbon cycle, the channel is the sinks of forests, oceans, and wetlands, and the deposit is the carbon dioxide that accumulates in the atmosphere. In the factor stage (stage 1), greenhouse gases accumulate over roughly 250 years since the Industrial Revolution. In the onset stage (stage 2), the critical concentration is breached and the abnormal response of the climate system begins. In the blockade stage (stage 3), a collapse along the two axes, in which the absorptive capacity of the sea and forests weakens and the atmospheric circulation system breaks down, proceeds together. In the manifestation stage (stage 4), extreme weather anomalies occur one after another. In the annihilation stage (stage 5), it crosses a tipping point (an event in which a system shifts abruptly to a different stable state) and enters a new climate regime. A review paper that Tim Lenton and his fellow researchers of the University of East Anglia in the United Kingdom published in the Proceedings of the National Academy of Sciences of the United States in 2008 identified the Earth's tipping elements, including the Greenland ice sheet, the West Antarctic ice sheet, and the Amazon rainforest, and organized the finding that once atmospheric carbon accumulation exceeds a certain limit, irreversible results, that is, results that cannot be undone once they occur, follow.

The names of the medium, the channel, and the deposit differ from field to field, but the structure itself is the same. The time it takes to collapse ranges enormously from billions of years to decades, but the order of the five stages itself is preserved as it is in every field. The fact that the death of a star, the drying of a river, the collapse of an ecosystem, and the transition of the climate proceed on the same single law, this in itself is the weightiest ground for the five stages to qualify as a universal law.

Mapping of the Five-Stage Media Across Four Fields of Natural Systems

The Five Stages Applied to the Economic Field

Now let us move in earnest to the economy. In what shape does the same universal law operate in one nation's economy? What economic items take the positions of the medium, the channel, and the deposit? The work of answering this question is in fact the starting point of this entire book, and this section is the part that briefly summarizes that work.

The medium that flows within one nation's economy is cash. Cash is the medium of all transactions, and it makes possible every flow among households, firms, and the government. The channel is the funding path that runs from a household's disposable income to the sales of the neighborhood shop. The large funding path, that is, the flow between large firms and financial institutions, and the small funding path, that is, the flow between households and the self-employed, are connected from the large flow to the small flow, from top to bottom. Only when it reaches the shop at the level of the back alley is one full circuit completed. The deposit that hardens within the channel and blocks the flow is the loan interest that drains out of disposable income each month. The interesting point is that, while the principal is a resource that can be recovered again, interest is money that never returns once it goes out. In this respect, interest occupies exactly the same position as the microcalcification within the human body. On this structure of the medium, the channel, and the deposit, the five stages operate in turn.

In the factor stage (stage 1), pressure accumulates latently within the economy. The macro indicators look normal, but inside the system the burden deepens. Seen through the daily life of an ordinary citizen, it looks like this. Wages stay the same, yet prices rise little by little. Credit card spending increases a little each month, but the limit is still ample. The customers at the neighborhood shop decrease little by little, but the owner brushes it off, thinking "it must be the weather." A young person takes out a student loan but thinks, "I can pay it back once I get a job." Even when the government puts out real estate policies, the market shows little response. Everything looks the same as usual, but inside the system this is the period in which debt, costs, and polarization are steadily piling up. The length of the latency is usually about 5 to 10 years. The case in South Korea between 1990 and 1996 in which short-term foreign currency borrowing accumulated over 7 years, the case in the United States between 2001 and 2007 in which household debt accumulated over 6 years, and the case in Japan in the late 1980s in which growth dependent on asset prices accumulated over about 7 years. All show the same time flow. This book calls this accumulation structure the funnel theory.

The pressure accumulated in the factor stage converges into four triggers at the funnel's outlet. These are deficiency (Divergence, in which the polarization of assets and income makes available liquidity concentrate on one side), high cost (Inflationary cost, the simultaneous rise of wages, raw materials, and financial costs), high prices (Asset acidosis, in which asset prices greatly exceed their original value base so that the system acidifies), and monetary sclerosis (Hypoxia of liquidity, in which liquidity stagnates so that transactions and credit creation are paralyzed). Recalling that in the medical domain deficiency, inflammation, acidosis, and hypoxia were the triggers of calcium leakage, in the economy these four states operate as the triggers for withdrawing from the emergency vault. The only difference is whether the medium is calcium or cash; the structure of the triggers is almost exactly the same.

In the onset stage (stage 2), at the moment the accumulated triggers cross the threshold, the system activates a compensatory reaction that pulls out emergency resources. This book calls the academic formulation of this stage the leakage theory. In the human body it is the action by which calcium flows out of the bones, and in one nation's economy it is the action by which households, firms, and the government take out loans and interest arises. Only the medium has changed from calcium to cash; the action is the same. Seen through the daily life of an ordinary citizen, it looks like this. Because wages are not enough to live on, one breaks a savings account. Because the savings run dry, one dips into an overdraft account. Because the overdraft limit fills up, one takes out a card loan. Because even that is not enough, one holds out a hand to one's parents' household or borrows money from relatives. One by one, future resources are pulled in to plug the present. The self-employed use their retained earnings, and firms increase short-term borrowing. The state releases its foreign exchange reserves or injects emergency fiscal spending. In that future assets are mobilized in advance, it occupies exactly the same position as the calcium leakage within the human body. The point that some of the mobilized resources cannot return to their original position is also the same. The loan interest that drains out each month is deposited in marginal households, marginal firms, and the local credit sector, and begins to narrow the channel. The event in which South Korea's foreign exchange reserves in 1997 fell from 33.2 billion dollars to 3.9 billion dollars within a single year, and the event in which the assets of the U.S. Federal Reserve swelled from about 870 billion dollars in September 2007 to about 2.2 trillion dollars in December 2008. Both are the two faces of this onset stage. The flow in which the emergency vault shrinks and the flow in which it swells look like exact opposites, but in that their original function has been degraded, they are the same event.

In the blockade stage (stage 3), deposition crosses the threshold and both axes of the funding channel narrow at the same time. This book calls the academic formulation of this stage the dual blockade theory, and formulates the intensity of the blockade as the multiplicative expression B* = CAM × DLT. Two kinds of blockade are applied together. The CAM functional signal blockade is the state in which the market does not respond even when the central bank lowers the interest rate. To picture it in daily life, it is the state in which, even when the government announces that it "will revive domestic demand," there is no change in the sales of the back-alley shop. The policy reaches as far as the large funding path, that is, between large firms and financial institutions, but does not reach the households and the self-employed at the far end of the small funding path. When a household's disposable income has almost entirely drained away into the interest on accumulated debt, then even if the policy signal arrives, the household has no capacity to take on new debt. And so the policy is not transmitted. The DLT physical channel blockade is the state in which interest deposition has narrowed the radius of the funding path itself. It is the state in which money is said to have been released into the market, yet it does not actually come into the account of the neighborhood shop. Even if the signal arrives, there is no road for the money to pass through. The moment the two blockades are applied at the same time, the very means of compensation disappears. If only one is applied, the system holds on by compensating through the other, but when the two blockades proceed at the same time, the system enters a road from which it cannot return.

In the manifestation stage (stage 4), the result of the blockade surfaces as macro indicators. This book calls the academic formulation of this stage the 7M theory. To the eyes of the ordinary citizen, this is the period in which suddenly everything seems to collapse all at once. One day the transaction bank notifies you that "the limit will no longer be raised," and within a month the company you had been working for suddenly recommends early retirement. The neighborhood commercial buildings that had been selling well begin to empty out one after another, the appraised value of the fund you had subscribed to falls by half, and the front page of the newspaper is filled every day with crisis articles. All of this in fact did not begin a month ago; it is the damage that has been progressing inside over 5 to 10 years surging to the surface all at once. Seven forms of damage appear singly or in combination. Obstruction and rupture is the acute constriction of the capital market, dysfunction is recession and worsening employment, coating and blocking is non-response to policy signals, hardening is regulatory rigidity and the failure of structural reform, overflow and burst is asset bubbles, disconnection is supply chain collapse and local extinction, and collapse is the structural collapse just before a systemic crisis. The interesting fact is that these seven forms correspond exactly one to one with the seven clinical patterns within the human body. This is one of the most central discoveries of this book. The event in which South Korea's GDP recorded negative 5.5 percent growth in 1998 and the unemployment rate soared to twice its level, the complete freeze of the U.S. interbank market (the market in which banks lend and borrow funds short-term among themselves) in September 2008, and the event in which the U.S. unemployment rate doubled from 5 percent to 10 percent in 2009. All are the surfacing of the manifestation stage.

In the annihilation stage (stage 5), if the manifestation continues and outside help does not come in sufficiently, the system itself shuts down. Seen through the daily life of an ordinary citizen, a period begins in which one must live by rules entirely different from before. The value of the currency in one's account is priced differently between yesterday and today, and the assets one has worked a lifetime to accumulate can lose their meaning in an instant. South Korea's agreement with the IMF on 58 billion dollars of bailout financing on December 3, 1997, the U.S. Congress's approval of the 700 billion dollar Troubled Asset Relief Program (TARP) in October 2008, and the U.S. Federal Reserve's entry into unlimited quantitative easing (a policy in which a central bank buys up assets such as bonds to supply funds to the market) in 2020. All are outside interventions just before annihilation. If outside intervention is late or insufficient, the system enters the harshest road of a change in the currency unit, a replacement of the form of government, and a reorganization of the industrial ecosystem. The hyperinflation of Germany's Weimar Republic in 1923, Argentina's default (a state of debt non-payment in which debts cannot be repaid by the fixed due date) and peso devaluation in 2001, and Zimbabwe's currency collapse in 2008. All are the endings of the annihilation stage. But just as the next star is born from the remains of a star, the economic system of the next era begins on the ground where the economic system of one era has collapsed. It becomes quicker to understand when one recalls that the South Korean economy in which we now live is itself a system that was newly assembled after the 1997 crisis.