Keeping Up Appearances

As the US stock market reaches new all-time highs day after day after day, people ask, “When is your decline going to start? You promised!”

They are gracious, they leave out the, “you fucking idiot!” part.

When indeed is the ‘Big One’? Prognosticators announce impending catastrophe and it never happens. Prophets of doom are pilloried … the deflationary collapse never takes place. Instead there are the Pollyannas: “The good times are here, forever. You lost! Get over it!”

The overabundance of good times is certainly why every year thousands of ordinary suburbanites are overdosing on heroin: they obviously can’t stand all the winning! It turns out too much of a good (any)thing is toxic; more success and half the people in the country will be shooting Narcan into the other half. Meanwhile, ‘Brand X’ prognosticators are accused of crying wolf too often. Good grief! The wolf-criers are necessary because they create the ‘Wall of Worry’ that all bull markets must climb in order to reach new highs. Here is irony at work: we are murdering ourselves by way of our prosperity at the same time there is nothing we can do- or are willing to try in order to save ourselves from it!

Predicting out the future is … well, you know. The US government spends hundreds of billions of dollars to gather intelligence to predict … just about anything. There are a thousand different bureaus, agencies, organizations, one-man shops, Silicon Valley startups; also satellites, spy ships, aircraft, torture chambers, radio- and Internet intercepts: there are snoops, informants, analysts; the world is crawling with spies. None of above were aware the Soviet Union was about to come undone, they were unaware even as the collapse was taking place! None of these agencies foresaw the ‘Arab Spring’. They were caught with their pants down by every one of the various oil crises even as these were telegraphed by conditions on the ground well in advance. Analysts missed the fracking ‘revolution’, a forty-year old technology by the time it was finally deployed. Analysts missed the massive post-80s industrial revolution in China; they skipped school prior to the rise of #ISIS even though they had a hand in its creation. The analysts, bosses, money managers and central bankers missed one finance crisis after the other, they also didn’t recognize the tsunamis of excess credit that preceded each and every one of them. The word we look for here is ‘hard’. If it was easy to see into the future, everyone would do it and future would never happen, it would be predictable, like the past. Nothing would ever change. Predictability, permanence and stability … In a sense, the inability to predict serves our immediate interests. Predictability suggests ‘civilization’. We don’t want that.

We also don’t want a crash, that includes everybody in- and out of finance. Everybody wants to keep their jobs or get better ones, they want to keep their yachts and private jets, bonuses and stock options: we all have bills to pay. Even a modest decline in asset prices would mean collateral damage, (the) over-leveraged banks would be rendered insolvent. A 1931-style banking crisis would be devastatingly worse; managers are determined to do whatever it takes to prevent one. They’ve had almost ten years of practice as well as vast resources that can be brought to bear: key men are propped everywhere, there are bailouts. Moral hazard is infinite, real interest rates are negative. Banks effectively pay their largest clients to borrow — businesses, governments and tycoons. The statisticians lie, the media lies, economists are clueless and then they lie. Companies use cheap money to repurchase their own shares = these are Ponzi schemes. Manufacturers stuff inventory channels. Loans are extended to any- and all life forms that can draw breath. Because wars are good for business there are wars. Because depredation of nature is good for business our world and everything in it is … degraded. Because the economy is built around endless business expansion, there it is. If real expansion isn’t possible because of natural resource constraints, there is the fake expansion. We have become extraordinarily good at kicking the can, at keeping up appearances. This is why there is no crash today … we’ll worry about tomorrow when it comes. We predict the static condition of endless growth and by doing so we create it. The outcome is the bizarre, twilight ‘anti-civilization’- overly medicated world we have stuck ourselves with because we have given ourselves no other choice.

Figure 1: US GDP since the end of World War Two (Chart by Fred, click for big): Just as nobody correctly predicted collapse, nobody predicted our prosperity! Who in 1950 could have possibly guessed?

Looking at this chart it would be safe to predict national income would continue going forward as it has in the past. Yet, for most of human history the line was flat or changed very slightly, tracking the rise- and fall of human population. It summed up what resources (capital) could be accessed with muscle- and animal power, plus water, wind and firewood. As it is, everything below the blue line represents the total natural capital converted into waste by industrial America over the past 80 years = the ‘liability’ side of the GDP balance sheet. This is capital that can never be accessed a second time. The implication is there is are limits and that they are closer than they were 80 years ago. What the chart cannot indicate is how much capital remains accessible or how long it might take to exhaust it. As such, national income is an inadequate forecasting tool.

During the 82-year period on this chart there have been eleven recessions, added together these amounted to a total of 35 quarters, eight-and-a-half years of downturns. This means the US economy experiences declining growth about ten percent of the time with incidences being for the most part relatively brief, less than a year. Past performance suggests the next eighty year period will be similar with the economy being in recession about ten percent of the time. This isn’t set in stone: countries such as Australia and Netherlands have been able to avoid recessions for long periods; 25 years and more. An argument can be made that no obvious reasons exist why the US cannot do the same.

American recessions have tended to follow the credit cycle; periods of expansion followed by inventory buildup then fire sales. Credit is expanding now but this only feeds the illusions, (Andy Xie):

The mistaken stimulus (bank lending) has the unintended consequences of dissipating real wealth and increasing inequality. American household net worth is at an all-time high of five times GDP, significantly higher than the bubble peaks of 4.1 times in 2000 and 4.7 in 2007, and far higher than the historical norm of three times GDP. On the ­other hand, US capital formation has stagnated for decades. The outlandish paper wealth is just the same asset at ever higher prices.

Banks simply trade each others’ securities back and forth using self-generated credit, all the while pretending the process means something. As long as the banks can preserve the illusion of solvency the process can run on indefinitely: Dow 45,000,000.

Maybe not: the end comes when debt service costs consume total borrowing capacity; a ‘Minsky Moment’; what occurred in Argentina and Greece and is underway in Venezuela.

The end comes when finance players are perceived as insolvent in the way of Walter Bagehot:

“Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone … “

This is what happened to Lehman Brothers in 2008: they were considered insolvent despite the protestations and proofs offered by the company, they could neither borrow nor lend, their credit was gone. And because Lehman was in most ways ‘like’ all the other money-center banks, it’s failure reflected on the others, their credit was gone as well.

The outcome was a bailout by the government and Federal Reserve: funds were handed over to the banks no questions asked, funds borrowed from the exact same banks that were bailed out! Outrageous … there was nowhere else the funds could have come from: the $700 billion dollars demanded by Treasury Secretary Hank Paulson in September of 2008, “Now or Never”- plus the tens of trillion$ offered afterward by Bernanke! Both government and Fed held their noses and ignored the widespreading rot and criminality. There was grumbling from the public but soon enough they followed the ‘lead’ of their betters, and why not? The alternative was a smashing depression that nobody wanted. Over time, the banks were seen to survive, executive bonuses remained intact: fakery succeeded and perceptions changed. A handful of companies were sacrificed, others nationalized or gobbled up by other firms. Meanwhile, ‘Green Shoots’: the sub-$40 oil prices of 2009 allowed the consumers to jump back into their SUVs and start shopping again, leading everyone to the point, “When is your decline going to start?” When, indeed …

Keep in mind, the Lehman debacle was part of a crisis that only a handful were able to foresee. Here is a proven forecasting tool, the Economic Undertow ‘Triangle of Doom™’:

Figure 2: Triangle d’ Doom, (by TFC Charts, click on for big): The descending trend line suggests the real credit capacity is shrinking. In 2008, the high price was $147 per barrel. By 2014 the triggering price could only reach $115 … there was insufficient credit to allow end users to bid past that price! All else being equal, the price high-enough to cause a credit event this year would be about $90 per barrel. If the price was that high, everyone would be feeling it including traders on Wall Street. The current price range of $40 – $60 per barrel represents a significant discount. It’s high enough to constrains consumption to some degree — by historical standards $50/ is high — but it’s not high enough to walk the system off the plank.

The smallish crash in the energy sector is why we haven’t had the giant crashes everywhere else. Even as low prices hammered drillers and fuel speculators, they saved the rest of the economy and boosted the stock markets! The drillers are further underwater than ever but this does not matter as they were underwater at the higher prices, they simply borrow more. Their job is to keep bankruptcy at bay each day as it comes … while looking for tomorrow to take care of itself.

The question next is how long would it take for declining credit sufficiency to cause the current fuel price to be ‘too high’?

Figure 3: The Triangle of Doom Extended (click on for big); this is a better representation of the trend line than Figure 2 which does not include the highest price point in 2008. Extending the line suggests a few more years of ‘cheap-ish’ fuel before even that price is unaffordable and the fuel regime collapses: roughly 2022. It could be a bit farther out or there could be another fuel price collapse. Should the Minsky Moment arrive or a major bank fail, the crisis would occur sooner.

Creditworthiness is an analog for available resource capital. As capital is exhausted, a greater proportion of what remains must be deployed to extract and consume what little remains. At some point this process itself … becomes unaffordable. Even now, end users’ credit access is up for grabs. Moral hazard, low interest costs and current monetary policy shift credit away from customers toward their vendors, tycoons and finance itself. As the customers are ’emptied out’ and fall by the wayside support for those who depend on them and their flow of credit evaporates: over the longer term, tricks used to keep up appearances cannot substitute for top line revenues and actual solvency.

… and It’s called ‘progress’.

In the ‘old days’ civilizations were local. One could fail ‘over here’ even as others survived ‘around the corner’. Our industrial waste-based economy is global; universality brings all resources including crude oil within our grasp. Regardless of the markets, resource exhaustion is ongoing, this is the background story: it must be paid attention to. Everything else we do is part of the fooling ourselves process.

The goods offered by now-obsolete civilizations were permanence and stability. These are not really goods at all but rather moral virtues representing the ascendance of human ambition to an idiosyncratic upper limit of physical and mental development. Periods of high civilizations were considered to be ‘golden ages’ and for good reason. The narrative was one of humans emerging from animalistic savagery and barbarism, evolving to the point of imagining themselves possessed of the characteristics of gods. Reaching this near-godlike state was meant to be permanent; why not? If not actual gods how about the next best thing? The dynamic was virtue — civic and otherwise — leading to its attainment set in granite; ‘how to’ could only be earned with mastery and sustained effort. The means to virtue was self discipline, creativity and imagination. The civilized were certainly not paupers but it did not matter; the civilized whole was always greater than the sum of individual components.

Fast forward; godliness has been reduced one of a long line of frauds and sales-pitches, replaced by consumer goods and the banal processes to emit them. Virtue to- permanence is the antithesis of economic growth. Permanence means no markets for (new) smartphones, ‘e-cars’ or tract houses every other year or so, it also means nobody cares whether they have these things or not. Social media gadgetry, Sheetrock and plastic junk are offered up as aspirational, but these are meaning-free counterfeits, available to anyone with a charge card. In the place of civilization we have ‘the’ economy: it permits us to buy, to speculate, cannibalize, burn and waste and to borrow. Economy doesn’t allow us to ‘create our way out of the box’ — any box. Creativity gets in the way of the buying and the borrowing needed for the economic throughput regime to continue. Economy exalts mediocrity, sameness, loss of identity and transience, all in the service of fashion as the highest and most comforting (non-) virtues. The standards industrial economy set for itself are minuscule, the bar is always low, stumbling over it is easy, the costs, so far, are low. At the same time, the inability to stumble is never enough to undo the project. In this way mediocrity ‘normalizes’ or recalibrates the meaning of success in all the different ways to serves itself … to the point where half the people are busy reviving the corpses of the other half.

Mediocrity is itself an industrial product like (canned) pleasure and the ‘good jobs’ that never materialize. The physical products of industry are clichés rendered as such by design, they are the containers- or bearers of mediocrity. The mediocratic status of the products reinforces that of the enterprise that extrudes them like turds from the endless furnaces, pit mines and assembly lines. (False) hope — marketing — propels the process, the promise of something better, of a slightly less mediocre tomorrow. No wonder we are in a state of clinical depression: it’s “gimme the dope or get me out of here”! By jettisoning civilization we have left ourselves with nothing to reach for, we are stranded in the twilight, half-men, no longer godlike but not quite devils, either. We have become nothings, we are the sour taste inside our own mouths.

Growth has become the only permissible revolution against the status quo. ‘Old stuff’ is never good enough except with the added ‘nostalgia premium’. The imperative is always more, everything ‘more’ must be new. All else is subject to ‘creative destruction’. Even as these old things are proven useful, they ‘stand in the way of progress’ so out they go! Where does that leave us? Waiting for our chance at the Narcan.

56 thoughts on “Keeping Up Appearances

  1. Ken Barrows

    And all the while, it takes more energy to extract the next barrel of oil or million BTU of natural gas. Timing on when it goes kaput isn’t really important if the thermodynamic equation is deteriorating.

    I am amazed, though, that credit keeps chugging along. Fed raises the federal funds rate and long term interest rates stay low (lower YTD). Short term rates rise but the collapsing yield curve is no sweat for bank stocks. “Confidence” is a wonderful thing for the short term yet irrelevant for the long term.

    1. Mister Roboto

      The important thing to keep in mind is that for coming up on two years now, the European, Japanese, and (to a lesser extent) Swiss central banks have been showering the world financial markets with printed money on monthly basis. Without that, we would have gone into significant deflationary compression back during the middle months of 2016. It is probably these printed-money showers that have made it possible for the money-losing “fracking revolution” to continue mostly unabated since the collapse of the price of oil in late 2014.

  2. Tagio

    Thanks, Steve, great article.

    “As it is, everything below the blue line represents the total resource capital converted into waste by industrial America over the past 80 years = the ‘liability’ side of the GDP balance sheet. This is capital that can never be accessed a second time. ” I’ll never look at the GDP line in the same way again.

    I am sure it has not escaped your attention that if you draw the Triangle of Doom from the high peak in 2008 and low peak circa 2009 through the current price, the intersect is closer to late 2019. Well, we sits and we waits for time to tell.

  3. Jacob Colony

    Dammit Steve, one hopes this is a return to (semi) regular posting at The Undertow.

    Maybe it is a side-effect of the times that things seem never to come. We wait, like Parsifal.

    “Du siehst mein Sohn, zum Raum wird hier die Zeit”

    (you fucking idiot!)

  4. Creedon

    I have always wondered why there were always sufficient bond buyers for bonds when yields only go lower. I have been looking at the wrong side of the equation. The key is that debt can only increase as bond prices fall. Everything today is a manipulation and as Steve says it is all based on debt. Jim Rickards says that the FED is using the wrong models. They think they can raise interest rates. LOL

    1. Mister Roboto

      Yep. See my reply to another commentor above. In all the feverish asset-buying that the central banks have been doing since late 2008, the most consistently popular “asset” for them to buy have been debt-bonds of one kind or another, especially sovereign bonds. I’m pretty sure that central banks desperate to stave off a crash are the only conceivable major customers left for the pig-turds that are Spanish, Portuguese, and Italian sovereign bonds. Printed money is often referred to as “toilet paper”, and this analogy is apt, because the purpose of all that central bank toilet paper is to wipe up all those pig-turds! 😛

  5. Creedon

    Tagio, I also have an interest in the triangle of doom. The thing that Steve and Shortonoil have in common is that both foresee a continued drop in oil prices. In the current economic expansion there will be upward pressure on oil price. We should learn something in the next two years. Ultimately the limit will be the physical extraction of oil. Massive oil shortages would interfere with the rise of the Chinese empire.

  6. Front Range Mike

    Another nice essay Steve. It’s nice to have you writing again. I always enjoy your take on things.

    The pending, inevitable decline has been elusive, but I swear you can just feel it looming. Awaiting that opportune moment like a highly efficient predator. Although, in many ways the decline is well underway. I have never seen so many homeless people begging on street corners. I said the same thing last year and I swear they have doubled this year. Growth in the homeless seems to be on an exponential track. For these people decline is well under way.

    Of course, the system does everything legally possible, for now, to hide, ignore and make life even more difficult for the homeless. For we are at that point in the decline where perception and propping up the myth is more important than the reality your lying eyes might observe. I must admit that this house of flimsy, cheap cards has held up longer than I could have imagined 10 years ago. However, the stress cracks are really starting to show to those willing to take a look.

    Your charts above make sense. From them, it looks like we should see a resettling of a new normal in the next 2-5 years. It will be interesting to watch how things unwind during this time. Looking forward to your future essays.

    1. Mister Roboto

      My reading of the astrological tea-leaves says things will start to become unglued in earnest in 2019.

  7. dolf is back

    Let me say, reports of my death have been greatly exaggerated. Some of you might know me as oilmansachs from the oil drum, or dolph from gail’s blog, kunstler’s website, and here. Though, each day makes me seemingly older and more depressed at the way things are turning out.

    Although I like you, Steve, as you allude to, some of us need to take responsibility for our failed theories, even if the status quo never takes responsibility. We know this is the case. We know the powers that be will never be truthful…so we should hold ourselves to a higher standard.

    Things haven’t collapsed, the world has moved on, and the media matrix remains as alive and potent as ever. Resources remain priced low and plentiful. Precious metals in the doldrums. Stock and real estate markets higher than ever.

    Don’t these facts themselves deserve analysis? Doesn’t it deserve commentary? And let me say, every time I have put forward my theories, none of you doomers want to here it.

    The power managers have won. They have successfully rigged things long enough to permanently silence we doomers. We lost. And by the time doom comes around, we’ll be dead, and the people alive won’t even know what to make of it, since everything will be controlled and massaged in their time as well. The world has successfully passed from the real into the artificial, and there are just enough resources to maintain the artificial indefinitely.

    1. Ken Barrows


      Can you answer the question of whether the next barrel of oil takes more energy to extract than the previous one? If the answer is yes we’re on the same page. Resources are only plentiful in the sense that companies extract them at negative free cash flow. Or is that not so? I think you know it is debt that keeps the system going. Sit back and enjoy, man. It comes when it comes.

    2. Eeyores enigma

      Dolf – Your logic is infantile, “it didn’t happen so it never will”, WTF???

      Everything that we talked about back on TOD is still getting worse, nothing has gotten any better. This free money being thrown around only really helps those who are in a position to grab some and that seems to be only a small % and even then that wealth is virtual for the most part and it can all disappear in a blink leaving the world with even less useable FFs and a whole lot more polluted.
      If that is your idea of success then I have some mineral rights to sell you.

  8. Ken Barrows

    The stock market will not enter a bear market until TSHTF. Unlike days of yore, a collapse really isn’t going to help anybody. There will be no rebuilding for a prolonged economic boom. This A to B and B to A is the only game in town. If you cannot increase wealth, increase claims to wealth. It’s fun!

  9. ellenanderson

    Steve says: “Their job is to keep bankruptcy at bay each day as it comes … while looking for tomorrow to take care of itself.”
    It sometimes feels as though that is my job too. At least some of tomorrow will have to take care of itself since preps will/can never be really complete – due to lack of information, money and Steve’s First Law.
    Seems that mainstream political discourse now consists of 1. Corporate conservatives, 2. Populist conservatives, 3. Corporate neo-liberals, and 4. Populist neo-liberals (confused elderly socialists.) There really isn’t any political expression of true conservation/degrowth/anarchism which is what could follow collapse of industrial capitalism. No one can see a path from here to there that isn’t too awful to contemplate. Better that people stay local and out of the way if that remains possible.
    So 2022? Really that long? If that is your best guess it sounds as good as any.

  10. Creedon

    Jim Rickards says:
    “The head of Russia’s central bank, Elvira Nabiullina, has reported to Vladimir Putin that “There was the threat of being shut out of SWIFT. We updated our transaction system, and if anything happens, all SWIFT-format operations will continue to work. We created an analogous system.”

    Russia is also part of a reported Chinese plan to install a new international monetary order that excludes U.S. dollars. Under that plan, China could buy Russian oil with yuan and Russia could then exchange that yuan for gold on the Shanghai exchange.

    Now it appears Russia has another weapon in its anti-dollar arsenal.

    Russia’s development bank, VEB, and several Russian state ministries are reportedly teaming up to develop blockchain technology. They want to create a fully encrypted, distributed, inexpensive payments system that does not rely on Western banks, SWIFT or the U.S. to move money around.

    This has nothing to do with bitcoin, which is just another digital token. The blockchain technology (now often referred to as distributed ledger technology, or DLT) is a platform that can facilitate a wide variety of transfers — possibly including a new Russian-state cryptocurrency backed by gold.

    “Putin coins,” anyone?

    The ultimate loser here will be the dollar. That’s one more reason for investors to allocate part of their portfolios to assets such as gold.”
    Creedon says: the rest of the world needs to find a way out of the petrodollar system that no longer serves them. The U.S. banksters have just been on a five year spending spree that is coming to an end and it remains to be seen how it turns out for them. I hear that a lot of stock market money is being borrowed into existence. Everyone knows that the financial system is dishonest, which is one reason that they can keep oil on line. I would expect fuel shortages by 2022. It’s hard to see where, long term the banksters can place their hopes for continued success.

    1. steve from virginia Post author

      The problem for China & Russia is neither are credit providers. That is, they cannot lend to anyone including themselves. This is something to keep in mind: all industrial development requires credit.

      Credit provision is not easy; it cannot simply be declared otherwise Somalia would be a credit provider. Credit provision requires currency, a national treasury, a banking system (that can at least mimic solvency), a lender of last resort, enforceable contracts, private property, rule of law and a system of jurisprudence. China and Russia have some of these things but not all, key aspects are ‘left out’: private property, enforceable contracts and rule of law/jurisprudence. Both countries are dictatorships with arbitrary rule that favors leadership in all things including any disputes between countries. They are not credit worthy, are fakes due to their (perceived) military power and willingness to over-leverage their foreign exchange reserves.

      The collateral for China’s ‘wealth’ (and Russia’s) is their forex reserves = borrowed dollars and euros. Neither country can afford to refuse dollars or euros or trade without them. They can fulminate all they like … but they are stuck.

  11. Creedon

    Steve says, ‘ This is something to keep in mind: all industrial development requires credit”
    I don’t want to belabor the point, but you can’t say the China or Russia for that matter is not developed. Both China and Russia are industrially developed.
    You are saying that China, which is industrially developed, developing a military and aircraft carriers is totally dependent on dollars provided through the forex exchanges. This is a little hard to believe. They due issue credit. They have a very large industrial economy. They build things. They have banks. They are paying for oil with the yuan and developing a gold exchange.
    The entire world issues money through the central banking system, which is based on the issuance of fiat money based on nothing but the FEDs or that countries recognition that the Central bank has the right to do so. When oil is gone the issuance of the Federal reserve will be absolutely worthless and the future depends on any country having the resources to keep the system going. Russia has oil. They are self sustaining in oil, we are not. Russia is also likely controlling more and more of the middle east. We are not allowed to do regime change in the country of our choice, simply because they have decided to not trade oil for dollars.
    If you are right, all other countries will fail ahead of us and we will have dollar scarcity. I reserve judgment.

  12. Creedon

    The world economy for the last 40 years has been dominated by the petrodollar system. The petrodollar system is backed be the greatest military industrial complex to ever grace the face of the earth.

  13. ellenanderson

    “They are stuck” It surely does seem that way. Somewhere – very recently – I read that China is still having to borrow money. Where did I see that?
    Short of total war everyone is stuck. I suppose war would un-stick things in a very disagreeable fashion. Although the financial system has always been made stronger by war since 1867 it is not clear that would be the case after a truly global holocaust.
    Paul Craig Roberts believes that the sabre rattling towards Iran and N. Korea is an excuse to get our missiles closer to Russia and China. Of all of the explanations I have heard in the recent past that makes the most sense.

  14. Creedon

    According to an article in Rogue Money Kazakhstan is issuing a state sponsored, crypto currency. Notice that I hear no talk of preparing to invade Kazakhstan. This probably is a trend in the direction of devaluing all currencies world wide. Eventually there will probably be a plethora of currencies, none of them worth all that much.

  15. kickasso

    “If real expansion isn’t possible because of natural resource constraints, there is the fake expansion.”

    Very True. Capitalism demands expansion – the only question is, expansion of what? In a healthy capitalist economy, it’s the expansion of things (or “stuff”). When that can’t happen, expansion of stuff is substituted by the expansion of money. Due to the way that economic activity is measured, increases in the prices of precious metals, fine art, real estate, stocks, shares, bonds and various exotic financial instruments – collectively called simply “assets” – cause benchmark indicators such as GDP to increase without any corresponding increase in aggregate consumption. An increase in the price of these items creates the illusion of growth, aka “fake expansion”.

    It is a well-established principle in economics that rich people have a much lower MPC (Marginal Propensity to Consume) than poor people. In plain English: rich people tend to save any extra money they receive, while poor people tend to spend it. It logically follows that if governments want to increase the amount of money in an environment in which an increase in aggregate consumption cannot occur, the increase in money must flow to the rich, not to the poor.

    Rising economic economic inequality isn’t a bug in this system – it’s a feature. Quantitative easing for the rich and crippling debt for the poor both serve the same function – to stave off the total collapse of this system.

    In my opinion, we shouldn’t direct our outrage at the rich, who have no more moral culpability than the winners in a casino. We should reserve our outrage for the economic system itself.

    1. Ken Barrows

      Well said, kickasso. And what the expansion of money is is the expansion of debt. The magic trick of debt rising faster than income for an extended period boggles my mind. Now, if you have $1.1M, what is the most productive “investment?” Why, buy 1,000 shares of Amazon at a P/E ratio of 2000 or so (1,100/.52), of course!

    2. steve from virginia Post author

      Actually, tycoons become tycoons by borrowing their fortunes then gulling (or forcibly compelling) third-parties to service and retire the debts.

      Tycoons are opportunists who craft narratives that are fashionable to the degree they attract (borrowed) funds. Requiring disinterested ‘others’ to repay these loans is a form of theft. Clever, but theft nevertheless. The consequence is unraveling of US ‘middle class’ as well as middle class aspirants around the world particularly in developing regions.

  16. Creedon

    I hear that Amazon is hiring contract workers as delivery drivers. Basically day laborers, burning up a bunch of gas to deliver parcels and destroy big box stores. The future won’t be about a 40 hour work week at a living wage.
    I have recently become a convert to the prospect of future hyper inflation. There are a few things that have to happen first, but eventually all this money printing will have to manifest as hyper inflation. It will destroy what is left of the middle class. It will to some extent, destroy everything. John Williams has it right.

    1. Eeyores enigma

      Creedon – In order for hyper-inflation to manifest the average jane and joe would need to have large and ever increasing amounts of money channeled their way, even unemployed/underemployed walking around with thousands of dollars of spending cash. How do you see printing money getting out there to enough of the population to cause hyper-inflation? Or are you predicting inequality just keeps getting worse?

  17. Volvo740...

    “But now the Federal Reserve is starting to reverse course, and this has got to be the greatest sell signal for financial markets in modern American history. Without the artificial support of the Federal Reserve and other global central banks, there is no possible way that the massively inflated asset prices that we are witnessing right now can continue.”

    How do we know this is true?

  18. Creedon

    Eeyores Enigma- I see a world of central banks issuing money and that is the only way for them to keep the world economy running. Eventually that flood of money onto the world stage can only lead to the money becoming worthless. To be honest my mind constantly changes on the issue. Jim Rickards is currently saying that the central banks are going to go back to zero interest rate policy. Michael Snyder above is saying the central banks world wide are signaling higher interest rates. I don’t really believe that higher interest rates are possible. That would be to purposefully destroy the world economy. Robert Pelton just said that the tensions in the middle east are continuing to rise. Some profound voices that I’ve heard say that the entire middle east will have to go up in flames, as if it hasn’t already.

  19. dolf is back

    It does make for some humor but you guys know what I mean.
    You see, in an ironic twist, it’s doom which now keeps us alive. We await doom, we want to actually witness it. If things keep chugging along, this is actually what kills us…as Steve himself alludes to.

    Basically, all of us reading these blogs are just going to end up in the nursing home muttering to ourselves.
    “Mommy, why does grandpa talk about oil all the time?”
    “Johnny, when people become old, sometimes their minds don’t work as well as they used to. Your grandpa is living in the past. But don’t worry, now the banks create money for all of us, and the doctors create medicines for all of us, so we will never grow old like grandpa”

  20. Tagio

    The hyperinflation has been sterilized by keeping it confined to financial assets. This may have not been the conscious plan but it seems to be the result. Eventually, most of these will prove to be essentially worthless. What is in fact happening is that the CBs are cannibalizing or hollowing out the existing pool of savings too keep the system going by making the instruments in which these savings reside more and more worthless. The PE ratios actually tell the story (at a PE of 25:1, it will take 25 years to get back your investment from the expected earnings flow), but people are completely mesmerized by the increasing price and think they will get rich when fewer and fewer people can afford to buy the shares because the price goes ever higher.) While a few individuals will achieve actual wealth by cashing out and using the funds to buy real assets, instead of other financial assets, the stock and bond markets are essentially traps, because it is impossible for any substantial portion of “investors” to cash out in a small time frame without crashing the supposed values they think they have. These financial instruments are the sterilized repositories of past debasement, holding back the floodgates of super-devaluation of the currency.

    Dolf, while we may not see a “crash” in our lifetimes, it is clear that ever more regions are being written off and left to die. Leave aside the obvious examples of the Middle East and North Africa, and just look close at hand. It is horrifying to see what is happening in some parts of rural America, and it remains to be seen whether Puerto Rico will ever be restored to even its pre-hurricane standard of living, let alone “grow” and “prosper.” However, for those who manage to secure and maintain a place within the bubbles, life will continue to seem good.

  21. Tagio

    Sorry, typing too quickly: “These financial instruments are the sterilized repositories of past debasement, holding back the floodgates of super-devaluation of the currency.” Should be: These financial instruments are the sterilized repositories of past debasement, floodgates holding back the super-devaluation of the currency.”

  22. ellenanderson

    What you say sounds right, Tagio. However, at some point there will be too many people outside the bubbles for those few inside to feel secure. Fear pops bubbles fast.

  23. Tagio

    Agreed, ellen, I think they already have the numbers but are too stupefied to act, and there is no way to predict when the turnaround will occur. CBs have been remarkably able to keep fear of The People That Matter, the 1%, their apparatchiks and wannabees) at bay with the money illusion.

    The other eventual problem for the people in bubble-land (of which I am one), is that all that wonderful food, wine, bottled water, clothing, gasoline, oil and gas they rely on has to come to them across the vast wastelands on highly vulnerable, effectively indefensible rail, trucks, and pipelines. Eventually, when those outside are crushed enough and have had it, the people in bubble-land will discover a new kind of creative “disruption” that doesn’t hail from Silicon Valley. As I understand it, gangs in Mexico are already tapping pipelines for gas. A snippet from the unevenly distributed future.

  24. Volvo740...

    “While a few individuals will achieve actual wealth by cashing out and using the funds to buy real assets, instead of other financial assets…”

    I think that ‘real assets’ may also become worthless (or at least worth less) depending on what that asset is. Extreme example: Real estate in Detroit. Almost all assets require an available energy flow to be worth something. In the case that can’t be maintained, that asset is not going to be worth very much.

    Another example: Power boats. These gas guzzling machines aren’t worth very much unless they can be lived in, which many marinas don’t allow. At least sailboats offer a little less dependence on diesel to be used. But all in all, boats are expensive toys, and as such depend on wealthy people willing to pour resources into the maintenance of them.

  25. Creedon

    @Tagio: The unevenly distributed future could apply to a lot of things. The homeless on the west coast, high car prices, high medical bills, bicycling farmer’s markets, the rural poor.

  26. Creedon

    Dolph said, “Basically all of us reading these blogs are just going to end up in the nursing home muttering to ourselves.”
    That implies business as usual. I don’t think oil will be supplying the world markets in ten years and that grandpa will have a point. Just because wall street is still making the credit bubble work, doesn’t mean they will be able to forever.

  27. dolf is back

    Tagio, yes that is very insightful. There is no actual value there unless you liquidate, which makes the financial valuations in our world today quantum in nature. They are sterilized, and exist only as digits on a screen where other people, or even computers, are assigning them a value. They can go up or down, but in general the central blanks place a floor, and then backstop all assets so more and more people believe their lying eyes when they witness these values rising.

    It’s as if they are attempting to destroy the world and all future generations to come through servitude to completely false and inflated financial valuations. Can it go on forever? Well forever is a long time but in timeframes meaningful to us, it can. I expect our crash to commence sometime in the next 20 years (I’m not pushing it out indefinitely), but for those of us who follow these things, that’s basically the remainder of our useful lives.

  28. Eeyores enigma

    Crash is here and now.
    It just looks different than what most expected.
    Doom is an online retail monster (not amazoom) selling $26 billion dollars of STUFF in ONE DAY! That is over 700 million packages to deliver.
    Doom is markets, schools, hospitals bombed from above killing thousands of innocent civilians, women and children, by the UN Human rights Council Chair.
    Doom is a POTUS eliminating Climate Change from the discussion, un-banning hundreds of toxic chemicals from FDA, EPA and USDA listings, actively promoting and subsidizing the increase of carbon emissions, putting a fork in public education, and on and on.
    The doom list is too long to put here.

    Doom is everywhere and getting worse by the day but many of you, in fact most people want it not to be so so badly they act like its just business as usual or even that every thing is good and getting better.

    1. dolf is back

      On the ground, I don’t see doom. Yes, I know, it’s all offshored to poor or bombed out countries, etc., but I don’t see any systemic doom.

      Everybody has jobs, food, cars, and their precious gasoline. Population keeps going higher. All of the stores are stocked all the time. The real estate prices go ever higher, the stock market goes higher, people feel confident. In fact, things are so good right now, it’s as if the last 15 years didn’t even happen.

      I’m waiting for systemic doom. I’m waiting for the financial assets to fall, for the gas stations and stores to actually start running out, for businesses to go bankrupt and for bankers and executives to start hanging themselves. Every single day, I lose and the optimists win and win. They win enjoyment of life, and untold trillions in profits.

      I enjoy nothing but the intellectual knowledge of being right. That’s not good enough. I want to be right when it comes to seeing it happen. Discussion is useless. Anybody can have theoretical discussions of what happens in 50 or 100 years.

      You guys claim, we’ve burnt up all this oil and have nothing to show for it. Not true! People are making untold wealth. All we doomers have is coming on a decade of following internet blogs, and going to our dead end jobs which we serve our betters who enrich themselves and enslave us in debt.

      1. Ken Barrows

        Did not sleep well last night? If you want more certainty, I recommend a simple religion—plenty to choose from. Maybe your comment is self-therapy because you know the reality as well as anyone. Pray for//consider the next generation.

  29. Volvo740...

    “All we doomers have is coming on a decade of following internet blogs, and going to our dead end jobs which we serve our betters who enrich themselves and enslave us in debt.”

    “Everybody has jobs, food, cars, and their precious gasoline. Population keeps going higher. All of the stores are stocked all the time. The real estate prices go ever higher, the stock market goes higher, people feel confident. In fact, things are so good right now, it’s as if the last 15 years didn’t even happen.”

    dolph, did you write both these sentences? Everybody must include the doomers, right?

    BTW, poverty in the US is real. Screaming stomachs. Tears. All of that. Real. Maybe you should get into your car and check it out!

  30. Eeyores enigma

    I suspect that the “doom/collapse” that we all anticipated, dare I say hoped for, was the whole earth shaking kind that would be so profound that all of the madness, all of the insanity, all of the inequality, racism, ignorance, environmental destruction, human degradation, all of what we hate about modern industrial civilization would END!
    Maybe its just me but I find little or nothing within modern society that can rationalize the level of profound suffering and degradation that half or more or the population must suffer for it.

    Everyone debates all of what might be done to address all of the converging consequences of collapse. Most understand that there is little that can be done. What can be done is to make sure that EVERYONE is ok. That alone is a monumental task, earth shaking in its own way, yet there is no other more positive effort humanity can make at this point, and who knows it just might bring about big change.

    P.S. I am not talking about sitting around the campfire singing kum ba yah!

  31. Creedon

    Jim Rickards is saying that every time that the Chinese devalue their currency that there is a drop in our stock market. According to Rickarrds they are now once again aggressively trying to drop the value of their currency to the max or lower. I now agree with Steve that the Chinese currency is not strong enough to become the world reserve currency. The Chinese at times try to control the holy trinity, independent monetary policy, open markets and currency value. They can never really succeed at this. There does seem to be a sort of dependency of wall street on the Chinese economy. If we do eventually face a world of dollar scarcity, it is apparently a ways off.

  32. Creedon

    If what is going to happen is that the entirety of the rest of the world is going to collapse first and then America collapses, we are in for a long, long process. Appearances are that the Middle East and maybe China are headed for more trouble. This is a marathon not a sprint. It’s a 200 mile long marathon.

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