Two recent columns, one about the “pension crisis” (which should include all promises of future payment streams, e.g., public pensions, Social Security/Medicare and corporate benefit plans) and the other about the National Debt (which could be scaled up to include all credit market debt, even including contingent contractual payment systems like derivatives), highlight two sides of the same (credit) coin.
What do you think of my view that debt issuance (credit growth) on this scale does three things:
- It creates the illusion that wealth can be consumed (by paying armies of people to do stuff that a true market would never sustain) while the holders of the IOU’s (bondholders) believe they still have the wealth.
- By doing #1, it encourages a society-wide orgy of capital consumption, because instead of a natural split between capital formation/capital maintenance and consumption, the “have my cake and eat it too” places an illusion of capital on one side of the scale, so people in society drastically increase consumption to balance.
- It empowers political apparatchiks, political factions and all spendthrift, high-time-preference permanent children because he who pays the piper calls the tune, even if payment is made with the nation’s Mastercard. It rewards profligacy and financial stupidity. And you always get more of whatever is rewarded in life.
My conclusion is that monetary debasement [abetted by removing silver (1964) and gold (1971) from US money] skewed people’s “mental accounting” of conditions, reinforcing a vast, collective rationalization for policies that as a whole look like our society is an 18-year-old sailor on shore leave, turned loose in a whorehouse with a (seemingly) no-limit charge card.
This explains how the USA instituted policies that packed up and shipped entire industries to foreign lands, and how mercantilist foreign nations bulldozed vast tracts of land to build factories catering to over-consumption on a level no sane person could imagine.
Here’s my point: If this all is true, then the intermediate effects are as follows:
- Tens of millions of people (or it could be billions, if the ripple effects across the world are as large as they could be) have invested vast sums of money and time into obtaining training and experience for occupations that have many times the actual, underlying demand that should exist absent the warping effects of over-consumption. The poster child for this is everything medical, because we know that medical spending in the USA far outstrips that even in command economies. There are far too many doctors, nurses, pharmacists, physical therapists and everyone one the food chain that feeds into them, from drug companies and device makers to imaging companies and diagnostics. What happens to them when the music stops? Unemployed people are the signal that all the time and money they consumed qualifying for their occupation was destroyed. When the debt-orgy-spending collapses, it will reveal unimaginable effort and time (college courses & degrees, especially) was just Peter digging a ditch and Paul filling it back in…waste.
- Entire industries now exist for which, absent the kid-in-the-whorehouse spending, would never have occurred, or occurred at a tiny fraction of the size they are now. We have no idea what industries will literally wink out of existence when this orgy of overspending finally exhausts itself.
- The wealth represented by tens, or hundreds, or a thousand billion dollars of IOU’s is currently warping political systems like never before. Borrowers (in the form of lawmakers, executives, etc.) are in thrall of debt-holders, and debt-holders are reaching right through politicians to directly pull the levers that change the rules of society. This is quietly creating a sense that ostensibly “free” countries in the West are becoming overt oligarchies, and the term “neo-feudalism” is a reasonable label for this. Political power is wholly unaccountable, and political systems are lurching dangerously away from the shared values that sustain peaceful polities.
- Entire sub-populations now feel entitled to “the good life” regardless of their contribution to producing it. This fuels the resentment and inter-group hatred that grows rapidly.
Seen from a distance, we know this all cannot go on. But it has sustained far beyond logic and reason. It is very much like the band plays and the passengers continue to dance, even as the icy waters of the North Atlantic creep up the tilting deck to wet the dancers’ feet.
Such is the mighty capability of people to rationalize their irrational beliefs. When the smartest men among us apply themselves to explaining folly with such elegant sophistry that up can be sold as down, we cannot know in advance how far our society can steam into Fantasy Land.
We are not sailing into uncharted waters without navigation aids. We are adrift in a three-dimensional fantasy, a dreamland where all is gain, none is pain, and if the party begins to wane then the cure is “more Soma!” A man experiencing a pleasant, even ecstatic dream may struggle to avoid wakefulness; our society (our very civilization) resists consciousness even as cognitive dissonance grows to be a deafening alarm clock.
Will this dream lead to sober wakefulness? Or will it transition directly past sobriety and straight into nightmare?
To those who say the government (or central bank) can simply print (or press a key on a keyboard to credit an account) the money to pay all of these obligations I say this:
You are a fool. Only things that exist can be consumed. That which has been consumed cannot be re-consumed. This means that we cannot “consume” the future, we only over-consume what exists today, including the capital on which future products (payments) depend in order to come into existence.
Printing money (or simply typing it into electronic existence) does not produce anything. All it does is increase the number of claims on what then exists. This means that in order to satisfy all the future demands for payment, either payers steal what they don’t actually own in order to make the payments (this is taxation for governments), or if they run the central government they dilute the value of the monetary units, paying people with debased money while robbing every owner of property, including those who own that government’s money, by con artistry.
Capital destruction today must make satisfying future payment obligations even harder. Thus we see that our future is trapped at the collision between current capital consumption and mathematically-impossible future payment obligations. You sophists who rationalized all this for the last 30-50 years were the salesmen of catastrophe, the pushers of drugs to addicts that amount to a mutual suicide pact.
Your names will be associated with infamy for the rest of human history.
Excellent rationale, DC. I WISH I could get my husband to read it or condense it to a thirty second blurb he’d pay attention to long enough to realize that they really can’t just keep adding zeros forever.
Nick is a practical man and has read the writing on the wall as far as our leaving our cushy gubment jobs that had no real meaning or purpose to buy a place in the hills where we work work work and get very little done but feel greater satisfaction than after any ten thousand dollar pay raise resulting from a union negotiation. But, when I try to convince him that we might as well buy all the things we need for the place right now rather than waiting until we really need them (tractor, gasoline storage, solar panels and batteries, etc.), he tells me that there will be no mass collapse due to the debt because “they” will just add more zeroes.
So, I embezzle funds and buy things and hide them. LOL. I did that in 2008 as well and boy is he glad because you cannot buy some of the things I bought then any longer.
But I wish he would stop believing it can continue.
Think of how well fed the world would be if only farmers would apply the same principles to farming that bankers apply to money and economics.
An endless supply of fresh food and no one actually has to work for it to have it.
Maggie, one of the most difficult things for me is to imagine what will be cheaper (for those still solvent) in the future and what will be unavailable at any price, so that I can buy the latter now.
For all I know, a hobby farm (and the knowledge to operate it) is in the latter category. I see this as Plan D (TEOTWAWKI.) I currently choose to live by splitting my resources between Plans A, B & C, hoping that I’ll be able to buy food no matter what. Food and water are the major distinction between Plan D and all the others. I know my current home would be condemned within a few weeks of loss of electricity, especially if the sump pump could no longer run and it was rainy season.
Given that I’ve expected this fantasy to end for (I shit you not) 21 straight years, I am very reluctant to push all my chips onto Plan D, and even the Plan C stuff I’ve done comes with enormous carrying costs each month that passes in Fantasy Land.
It’s truly maddening.
It reinforces the painful lesson I’ve learned, that reason and logic do not rule people at either the individual or societal levels. We are animals of great emotion and our passions rule us. Our higher brain functions are slave to the master of our emotions where biases, belief and premise are inextricably tied to our sense of self and our ego.
Waiting for the dream to end in wakefulness is folly. We never wake up (or perhaps some of us realize our propensity to be steered by our impulsive mind and learn to be vigilant and slap that irrational mind’s hand away from the wheel while we’re “driving.”)
All of human social behavior ends up being one big collective vice, not unlike a gambling addiction. All of us harbor this, it’s part of our human mental nature.
Once you see it that way, it’s not something you can change, it’s just another variable you need to account for.
Anonymous, so true.
Our modern marvels are so magical* that people have lost the common-sense ability to see past the sales puffery of our 24/7 ad-agency consume-or-die life.
*By this, I mean all of our modern life looks like magic. Who among us knows how a cell phone works? How water gets to our tap? How a car, a bus or an airplane works, down to the level of the engineers whose combined talents produced it all?
Leonard Reed wrote, I, Pencil, in (I think) 1955. He irrefutably shows that not one person on Planet Earth knows all the knowledge to produce a simple #2 pencil.
Scale that up and see that our entire world looks like magic to our primitive minds.
So it’s no surprise that people today behave like they can have their cake and eat it too. Just pass a law making it so, and pass another law that jails anyone who says otherwise.
All of the above by the author is true, however, before we can address our overspending fantasies, we need to identify and root out the utter corruption that has infested our government. It would require someone to call a spade a spade, and it maybe extremely naive for me to state that Donald maybe that person, but so far he’s been walking that walk so far, and if he goes after Hillary like he’s indicated to this point, perhaps there may be a glimmer of hope to accomplish that.
Wardawg, I partially agree, but the problem is deeper. Our society has been infantilized by this cult-like embrace of equality.
It led to democracy and that led to delusions that debt for consumption is okay.
As I see it, we get the government to which our neighbors consent, or even more, we get the government that promises to give “the people” what they want.
Government has been acting like Santa Claus because the governed are a nation of children, the Lost Boys of Peter Pan who never grow up.
Trump represents the first political attempt to turn the country to the Right since…probably Hamilton. Not only is it too little, too late, but I argue that the populace of the USA has to pass through a long, difficult, punishing period to re-teach age-old common sense, that you can’t have something for nothing and 2+2 can never equal more than 4.
A single election, even 8 years of President Trump, won’t change that, and if he is president during the end of this Fantasy, he’ll be tarred with blame for the meltdown.
We live in interesting times. The adventure promises to become much more Indiana Jones, a lot less Disney World.
“Given that I’ve expected this fantasy to end for (I shit you not) 21 straight years…”
Jeebus H. Christmas, DC…I’m in year 5 and my patience was gone 3 years ago.
@DC… well, we are living the dream here on our little piece of hill ground. We went straight to plan D I guess, but I still hate the idea of all the effort we have in fiat going down the tube when we could have tools and items that will help us should TEOTWAWKI come sooner rather than later.
Thanks for the article and reply.
I’ve got a garden to till.
Agree 100% DC Sunset that the populous requires a huge dose of common sense to be restored. I believe the trajectory of the economy will bring the necessary reality for that education to us very soon. The question that concerns me is whether that corruption I earlier referred to will be addressed or not. If not, the will of the criminals will continue to debase the culture making it even harder to crawl from the muck. Not saying Trump can do much to change the left/right paradigm, but just hope he can call bullshit to all the waste and corruption that we’ve endured so that common sense can have a chance to start to work on the body politic. Maybe that’s too wistful on my part, only time will tell. Thanks for the response.
I can tell all of you here that I know where I was and what I was doing on that fateful day in August back in 1972, and I had NO idea how it was going to impact my future life. And impact it… it did.
My hatred of fiat currency, (hence my handle on TBP) has come at a price. Nobody in my circle of “friends” understands what, and how money works, and they are borrowing and spending as if there is no tomorrow. “Fiatman60 they say…. you are such a Bill Downer!!!” Yep!! that’s because it won’t/can’t continue forever. Simple math…. Time is money….. Money is time. Our time is finite…
At some point in time…… someone with BIG, DEEP pockets is gonna say” Hey.this can’t go on” and run for the exits. It won’t be the governments….. they don’t have any wealth: they get the FED and the bankers to print it up for them. It won’t be you and I, the common people and your friends, that are over $100,000.00 in debt at 19% interest. Nope….. It will be the big corporations that don’t have time limits on their lives (corporations can live forever) and the derivative bets they place at the Wall St casino’s Some estimates are that there are over 900 Trillion dollars of derivative bets worldwide!!! I could write a book on this subject, but I won’t bother.
To all of the poster’s above……..
Scouts Motto……. “Be Prepared!!”
A good and thoughtful post, DCS. I too believe that we must go through a period of pain when the hangover from our multigenerational debt binge occurs. Those who are entirely reliant on government largess will be hurt, for sure. When you think about it, even those with what seems productive jobs in a lot of industries are in the same boat. Our entire MIC is nothing but a huge welfare program. All those 10s of thousands of people employed making the useless F35, for example. All of those jobs will vanish as well. I think that will get hit a lot harder than the medical field. I also don’t think we have an over abundance of actual doctors and nurses either. It’s the ancillary bullshit that’s grown up out the admin and insurance industry that will get wiped out. This will actually be a good thing. Think about how much cheaper it would be to just pay a doctor for their care rather than having to pay a cut to countless administrators and insurance people for everything.
And 21 years is a long time. I’m sort of in the same boat for the last 5 or 6 years, I’m to the point now where I don’t doubt it could drag out another decade or more. We will essentially turn into Japan, with their slow motion train wreck playing out. Until major currencies start collapsing, I sometimes think we will just keep muddling along with a slow but steady decrease in our standard of living and less and less freedom. This isn’t to say that there won’t be pockets of violence and unrest, but I have come to the point where I think “the big one” is probably still a ways off.
Think about my 21 year time in the barrel.
1998 I made $40k in options in about 6-8 weeks as the LTCM debacle played out.
1999 and I lost every dime, and then a whole lot more.
2000 I was shorting every time the NASDAQ hesitated, but each time it just re-lit another stage of the rocket and higher it went. I capitulated literally 2 weeks before the top in March that year, and never found another entry as the NASDAQ fell 80%, top to bottom. I also didn’t buy when it bottomed.
2008 I doubled my capital at risk, only to give it all back in 2010 when I thought I saw the market show signs it was going to fulfill its potential for decline. It didn’t.
Worst was that I called the 2009 low by one week, but because I figured only a bear market rally was due I decided to sit out rally. That was at SPX = 680 and now it’s 2045.
Last August I made some money, then gave it all back again.
Some people have a hard time learning.
What was it someone said?
Some people learn by reading.
Some people learn by watching others.
But most people have to pee on the electric fence for themselves.
Having taught HS, I know we received educations (up until The Civil Riots Act) and we can read and write but I doubt 10% of young adults could read that article. I bet this is the year TSHTF because the FSA Communist will refuse to turn over power and Conservatives have virtually died out like churches. Few people realize that the Central Bankers and TPTB are creating the money for us to borrow to our economic deaths; sure TPTB become richer and more powerful (that includes all government employees and contractors) but when the interest on the government debt can no longer be paid, they cut your balls off; take a look at Greece to see your future.
” sure TPTB become richer and more powerful” It’s clear this is done by “trading” debt based fiat for title. By “cut your balls off” you mean evict/reposes and retain title, its a good deal if you can get in on it.
All title is clearly drifting to a singularity. While not there yet, it seem the logical conclusion for its condensation.
Plan D is available to most right now, with the information and technology available, the basic suburban layout could feed and shelter a family all year(except in dry climes), convenience is the only inhibitor, delivering most willingly to the few for the basics. No need to bug out, the power is there for most.
This inability to meet life’s basic necessities is a foundational plank in socialist platforms. Convenience kills Liberty.
I maintain that we live in a theocracy, but the top 0.01% is laughing like mad at the stupid proles who buy into it.
The top 0.01% is absolutely using the debt machine to obtain legal title to everything that’s not nailed down.
My question is whether neo-feudalism will actually work for much longer. I think the “Equality, Fraternity, Liberty” moment is coming….the Progressivist Cult is inching closer to eating its own tail.
Thanks DCS, I like your comments and posts here, and on Vox.
Maggie: I agree with your outlook but am curious what you have found can not be bought today that could be in 2008, thanks.
@DJ… I suppose it can be bought but not in the same manner nor at the same price. Some is weapons related and I just won’t mention what it is here. But trust me, buying the items then was not the ordeal it would be now and could be done anonymously, which is why my husband is happy I’m a little bit sneaky.
However, one of the items I will mention is the Mormon dried food that at that time, could be packaged at one of their “Bishop’s Kitchens” by a group of people who called and scheduled with the Team of Elders running the operation. Our group of FF members went several times between 2008 and 2013, canning for ourselves and family members. I went one last time before we made the move here and was told that due to FDA intervention, the Bishop’s Kitchen would no longer be able to have people in to can the food, but would have to can it themselves and sell it canned. The FDA decided that having two people supervise the operation was not good enough. Even though in the history of the OKC facility, no one had ever gotten hurt.
So, I just went and looked and you can still purchase the cans of food from the various facilities where formerly you could take a group and can for yourself, but the prices are more than doubled for the items.
It was a damn shame because many charitable organizations used the facility to put up food for the poor, especially around Christmas.
Nick thought I was nuts for going so many times, but honestly, if I didn’t have several years’ supply of apples for my Apple Pie in a Jar, he and my son would be deprived of one of their favorite treats.
The prices are still very good compared to other dehydrated food storage companies, so if you are nearby a Mormon facility, you might consider ordering some of the food. The carrots are wonderful… when you rehydrate them and add them to soup, you wouldn’t know they weren’t fresh. The onions make the best French Onion Soup I’ve made. I could go on, but I won’t.
You can still get the Mormon foods at a price.
https://www.lds.org/topics/food-storage?lang=eng&_r=1
Hi Maggie,
Thanks, those are very good examples and the FDA and other govt interference making what used to be considered normal preps and making people more dependent on external less wholesome and even poisonous foods, etc. is truly terrible but part of the plan, I think.
I have lived in New Zealand since late 2010 and there are Mormons here, will need to see if they have similar stuff going on. On the otherhand NZ must be 30+ years behind the U.S. in the sense that LOTS of people still sew (there are so many sewing supply and fabric stores here compared to there it blows my mind) and lots of home canning is still going on. I guess it rubs off, since being here I have taken up home brewing, bread making, gardening (veggies and fruit), etc. I am now thinking of home canning, my grandmother used to do it and looks like pretty straight forward as long as you follow the sterilisation process. Thoughts?
They control us by issuing our currency and television. Thur TV we have been lied to so much .Most people I talk to are completely unaware their in danger…Times of London 1862 comments on Lincoln.
It that mischievous financial policy, which had its origin in the North America Republic, should become
Indurated down to a fixture, then …1) that government will furnish its own money without costs.2) It will put off debts and be without debts.3) IT WILL HAVE ALL THE MONEY NECESSARY TO CARRY ON ITS COMMERCE.4) It will become prosperous beyond precedent in the history of governments of the world.5) the brains and wealth of all countries will go to North America.
That government must be destroyed or it will destroy every monarchy on the globe .1862.Right after Lincoln started to issue currency himself.
We gave the people of this REPUBLIC the greatest blessing they ever had, there own paper money to pay there own debts. Abraham Lincoln 1862
I would add he issued the money interest free without the northern banking establishment. Right before this he said……I have two great enemies , the Southern Army in front of me ,and the northern financial institutions in the rear,the one in my rear is my greatest foe ..President Lincoln 1862.
A lot people especially southerners bash Lincoln but when it came to money he knew the dangers of private banks issuing the currency with Usury ( interest)With compound interest you can never get out of debt. Albert Einstein called compound interest the 8th wonder of the world.
Regardless of variables, the middle and lower classes
are going to suffer. The pensions promised will vaporize,
and the formerly “safe” will lose that status. Some household
items can be had cheaply still…but TP eg has doubled in price
and shrunk to boot. If you have the space, tuck some items by.
We sold our city sump-pump house in 12. Good riddance.
Also the big property tax bill is gone. A person can garden, can
food, have some edible critters if they are able…but step one/plan D,
is to get out of the city. South, North, or West…whatever works.
I don’t believe the world will end. Yet, it seems prudent to get away
from the city crowds. BTW, the Mr. was on the way up…and a tire blew.
Triple A came and he was on his way. He calls various outlets…every
one is out of stock/LT tires ($250 apiece) but finally finds a small independent
that will give him 4 new at $700. Shite…maybe one should have a few tires
saved away. Out of stock. Basic tires. Get some backup folks.
Denver Police have been abusing the confidential database in their department for personal reasons — as in trying to get dates and to “enable stalking.”
According to the report by the Denver Office of the Independent Monitor, which assessed law enforcement performance for 2015, officers often faced only minor oral or written reprimands for their transgressions.
Read more at http://thefreethoughtproject.com/denver-pd-ncic/#Klvcz5uBM3KSX1WU.99
@DJ… I teach young ladies how to can safely. It is very straightforward and as long as you make sure you keep the bacteria OUT, the food is safe to eat. [I sent Admin HERE some 4-5 years’ old chicken I canned in Oklahoma when our little prepper team started working at relearning what was lost to us in modern society. If carefully canned, meat is actually more tender and flavorful in a jar than you could imagine.]
So, yes… canning one’s food is a skill that is invaluable. priceless. And therefore, the US Dept of Agriculture will certainly soon outlaw it or try to regulate it somehow. LOL