I have yet again been at a loss for what to write. Call it writer block. The truth is that I am unable to carry on talking about the same things over and over again trying to get a point across. That’s because there are only so many angles you can explore in attempting to make others see what is going on and, frankly, nothing has changed ever since I started ranting on Facebook now some three years ago. Things have not changed; policies have not changed; attitudes have not changed neither at the political level nor, indeed, at individual level. No one person that is presumably “in charge” has come up with any ideas let alone introduced new policies that might help to mitigate the effects of what by now looks like will be a depression and, in my opinion, will evolve into global conflict.
What I may describe as a typical and widespread state of denial is exemplified by the latest from Ambrose Evans Pritchard in the Telegraph:
This is the excerpt that got me going:
“Dr Sarrazin should be locked up in a Frankfurt Sanatorium. It was such flippancy that led to the Lehman disaster, requiring state rescues of half the world’s financial system. ”
AEP throws out this comment referring to the fact that Sarrazin is advocating to let Greece default; i.e. go bankrupt. In this one liner, AEP sums up what is wrong not only with people’s perception of reality but, at a deeper level, he highlights the shortcomings of a fiat monetary system. If you read this blog, you will know that the combination of fiat money and a political system based on personal and economic freedoms must necessarily result in an inflationary dynamic that is inherently exponential thus limited mathematically. As an exponential dynamic, inflation requires the ever growing intervention of government in the form of, for example, bailouts and subsidies. Thus, as the inflationary dynamic progresses, government’s intervention progressively becomes larger and larger. Think for example of all the car companies or airlines or banks or steel companies that have been saved throughout the past thirty years and that therefore went to feed the current industrial and commercial overcapacity. The problem is compounded by the fact that the companies that are “saved” are rarely the most efficient and are instead, the larger, most bloated and/or the most politically connected. By and large, small efficient companies are allowed to go under. But the large industrial complexes are rarely allowed to.
So the problem is not, as AEP suggests above, that we let inefficient (or corrupt) companies go under. The problem is that fiat money is predicated on the constant expansion of credit and the monetary base that inevitably requires keeping alive entities that logically should be purged from the system in order to maintain a healthy economy. As we keep saving the larger better connected corporations, they become larger still until they become behemoths that suffocate all other entities in their sphere of influence. But, crucially, saving a corporation does absolutely nothing to make it more efficient.
The problem is that if we insist on keeping alive entities that don’t have the intellectual or material capital to exist, our interventions must perforce progressively become larger and larger. Hence your Lehmans, AIGs, Citibanks, GMs, Fords … or your Greeces, Italies, UKs…
Here I am going to digress slightly and tie in to two pieces I have come across recently and that, in my opinion, are both relevant to this discussion.
The first one is a blog post that comes to us from John Williams “SwarmUSA” blog and that elegantly summarizes what you have already read on this blog but in a slightly different format.
And this is the central graphic representation.
Any resemblance to this blog’s header is not coincidental.
This chart explains why my pet chart the Money Multiplier looks like it does.
Regarding the other fascinating piece I have come across that I think is very relevant to where we find ourselves in today, I owe thanks to the tandem of posters “Mugwump” and “Forestgold” who post on the VOY forums for bringing it to my attention. Incidentally, the VOY forums are some of the more intellectually stimulating forums I frequent or lurk on.
As articles go in the main stream press, this is a good one. But what puts it in context it is Forestgold’s find of a piece of research carried out by one Associate Professor Jean Twenge of the University of San Diego that says:
“Many of today’s young adults seem temperamentally unprepared for the circumstances in which they now find themselves. Jean Twenge, an associate professor of psychology at San Diego State University, has carefully compared the attitudes of today’s young adults to those of previous generations when they were the same age. Using national survey data, she’s found that to an unprecedented degree, people who graduated from high school in the 2000s dislike the idea of work for work’s sake, and expect jobs and career to be tailored to their interests and lifestyle. Yet they also have much higher material expectations than previous generations, and believe financial success is extremely important. “There’s this idea that, ‘Yeah, I don’t want to work, but I’m still going to get all the stuff I want,’” Twenge told me. “It’s a generation in which every kid has been told, ‘You can be anything you want. You’re special.’”
In her 2006 book, Generation Me, Twenge notes that self-esteem in children began rising sharply around 1980, and hasn’t stopped since. By 1999, according to one survey, 91 percent of teens described themselves as responsible, 74 percent as physically attractive, and 79 percent as very intelligent. (More than 40 percent of teens also expected that they would be earning $75,000 a year or more by age 30; the median salary made by a 30-year-old was $27,000 that year.) Twenge attributes the shift to broad changes in parenting styles and teaching methods, in response to the growing belief that children should always feel good about themselves, no matter what. As the years have passed, efforts to boost self-esteem—and to decouple it from performance—have become widespread.
These efforts have succeeded in making today’s youth more confident and individualistic. But that may not benefit them in adulthood, particularly in this economic environment. Twenge writes that “self-esteem without basis encourages laziness rather than hard work,” and that “the ability to persevere and keep going” is “a much better predictor of life outcomes than self-esteem.” She worries that many young people might be inclined to simply give up in this job market. “You’d think if people are more individualistic, they’d be more independent,” she told me. “But it’s not really true. There’s an element of entitlement—they expect people to figure things out for them.”
Ron Alsop, a former reporter for The Wall Street Journal and the author of The Trophy Kids Grow Up: How the Millennial Generation Is Shaking Up the Workplace, says a combination of entitlement and highly structured childhood has resulted in a lack of independence and entrepreneurialism in many 20-somethings. They’re used to checklists, he says, and “don’t excel at leadership or independent problem solving.” Alsop interviewed dozens of employers for his book, and concluded that unlike previous generations, Millennials, as a group, “need almost constant direction” in the workplace. “Many flounder without precise guidelines but thrive in structured situations that provide clearly defined rules.”
All of these characteristics are worrisome, given a harsh economic environment that requires perseverance, adaptability, humility, and entrepreneurialism. Perhaps most worrisome, though, is the fatalism and lack of agency that both Twenge and Alsop discern in today’s young adults. Trained throughout childhood to disconnect performance from reward, and told repeatedly that they are destined for great things, many are quick to place blame elsewhere when something goes wrong, and inclined to believe that bad situations will sort themselves out—or will be sorted out by parents or other helpers. ”
Taken together, the article and the excerpt from the book, do add a new dimension to understanding where we are and how we arrived here. The fiat monetary logic is designed to and does thrive on a heightened sense of entitlement of society. Well, actually, it thrives on society not understanding its requirements and implications thus requiring that the state provide a biased and directed type of education. But, nonetheless, you see how we get to where we are.
If you think back to all the various crisis that afflicted us just in the past thirty years for example, you will notice an unmistakable trend whereby our governments’ interventions have become progressively larger from the financial point of view but also more intrusive in the life of individuals and therefore more restrictive.
If you’ve read my blog then you know I think we have reached the end of this inflationary cycle. This is the day of reckoning that alarmists have been warning about for decades. I think we are there. We are bankrupt with no possibility to compensate our bankruptcy with more inflation.
My contention is that we’ve been bankrupt for a good many years. The difference is that for as long as our “leaders” could push inflation into the system, the material effects of bankruptcy could be shunted forward in time. My contention is that we are no longer able to push inflation into the system. We are trying. God knows we are trying. That’s what the dozens of Trillion of Dollars that have been created were aimed at. Bernanke (and by implication all other central bankers around the world) is trying to make good on the promise he made when he stated: “Making sure it [deflation] does not happen”.
However, until some indicators do not tell me otherwise, I think (and it is purely my personal opinion) that this is the end of the road. This is crunch time. And with crunch time we will very likely get us a world war. A war this one, that will have to create the conditions so that our (the West’s) industrial capacity can be revived while depleting that of other nations and during which we can employ the millions of homeless, hungry and dispossessed that are likely to be crowding our streets looking for some politician or banker to lynch in coming months.