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Economic Collapse Ahead – Monty Pelerin’s World : Monty Pelerin’s World

Economic Collapse Ahead – Monty Pelerin’s World : Monty Pelerin’s World.

collapse11ages (2)

An inevitable economic collapse has been warned about since this website began over four years ago. This forecast never pretended to be able to predict its timing.

Over its existence, the website has dealt with many topics non-economic. Let me remind readers of the three key economic points that have been consistent since its beginning:

  • There is no recovery nor can there be a recovery without a massive economic reset, a collapse.
  • Government interventions over the last several decades have put us into this position.
  • Government is now trapped and, like a wounded animal, will do anything to survive including harming the economy and those dependent on it.

The bias that we all carry is that assuming people who agree with us are smart. That is an indirect form of reinforcement and self-aggrandizement that can be dangerous. It is a cousin of Mark Twain’s warning that it is what you know that ain’t true that is most damaging. At the risk of committing this error, I recommend an article by Captain Hook who expresses sentiments in line with my own. Here are some excerpts which are perilously close to what I have expressed:

  • inflationprinting-moneyWe are getting close to the day of reckoning this fiat currency economy suicide mission the Fed(s) has engineered for us. So you better get ready, because they will not ring a bell at the top of the stock market to warn the party is over –

  • … the end of the line in QE debt monetization related economic growth is almost here – with diminishing returns in money printing and central bank balance sheet growth re-accelerating. And while it’s true central authorities can still increase QE to offset diminishing returns, and in fact have stated they intend to do just that in Europe and Japan early next year … the effects of all this money printing will be negligible. And before it’s all over don’t be surprised to see QE in the States moving from $1 Trillion per year (where we are now) to $1 Trillion per month, and to infinity essentially. [ I think a collapse will occur before they get close to Captain Hook’s monthly projection.]

  • …  it will never stop until the system blows-up…

  • Add to this picture a new and naive Fed chair, with visions of sugar cookies in her head, and one does need wonder how US Treasury yields remain sanguine in coming years. Because once confidence is lost a negative spiral can grip macro-conditions quickly given the hollow nature of the much talked about ‘economic recovery’…

  • … it’s not just the bubble in Treasuries one should be worried about, which up until this point has been no trouble at all with the QE backstop. There are also stocks and real estate to worry about as well, where you know a problem exists when the speculators are speculating on the degree of speculation. Because there’s no free lunch despite what lying bureaucrats would like you to believe, given

  • … this lunacy can obviously continue for longer than anybody with a whisper of common sense could conceive. The sad part of this entire mess is the crazier it gets, the more anxiety is created, the more people will hold back, the more the Fed will have to print money, the more stocks will go up – until we reach the point of ‘heart attack’ for the over-drugged junkie. Then, the bond market is going to blow up, and it’s all over.

  • We are caught in a liquidity trap that demands the Fed monetize some 70% of all net bond supply; meaning rates would be considerably higher if they were not doing so. So, don’t fall for any of the BS ‘taper talk’. This is just Kabuki Theater for fools because key debt markets are becoming increasingly stressed.

  • … the Fed(s) have no choice but to keep accelerating the craziness, which will become a problem for the bond market once rigging efforts on the part of the bureaucracy’s price managers begin to fail noticeably. You will know this is the case when they can’t keep credit markets supported anymore, which will tip diminishing returns into freefall. (i.e. and in turn re-accelerate the need for more money printing as things spiral out of control.)

  • … don’t be fooled by taper talk, which has the effect of catching offside short sellers when weak data points come out, causing a short squeeze. (i.e. that’s what happened last week post the Fed minutes release.) What market participants don’t realize yet is such talk is just expectation management on the part of the Fed so that people are not surprised when it happens…

  • Who needs gold when the ‘traditional’ stock market is going up – right – especially when Da Boyz are making copious amounts of fiat currency underwriting the tech fads of the day. And with stocks still under-owned on some measuresQE set to spread to Europe (and increase in Japan), and the average hedge fund managerstruggling to play catch up, which means stocks are likely going much higher, gold could remain in the doghouse for some time yet, well into next year.

  • Gold will of course be the place to be in the end, when all the Ponzi finance has collapsed… Better buy some gold so you can eat when inflation goes through the roof bailing out this ship of fools.

I disagree somewhat on the margins with a few of the comments presented above, but this disagreement is minor and could be seen as nitpicking. In general, the statements presented are very much in line with my thinking.

As always, the critical question is how long the economic fraud can continue.

 

Economic Prosperity Ahead or A Train A Comin’ – Monty Pelerin’s World : Monty Pelerin’s World

Economic Prosperity Ahead or A Train A Comin’ – Monty Pelerin’s World : Monty Pelerin’s World.

Whether the light at the end of the economic tunnel represents sunshine or an on-coming train depends on whom you ask. I am of the opinion that it is a train a comin’. Economic matters cannot get better until we hit bottom and rebuild from the ashes. That need not be except government policies drive us there.

Government, especially the current one, has incented people to not work by providing overly long and generous benefits. Society has an obligation to take care of its less fortunate, but it does not have an obligation to encourage people to join that group and then make it comfortable enough that they have little incentive or ability to leave. The dole should not be a safety net, not a career choice!

One political party in particular has interest in seeing dependency grow. It forms a substantial part of their support and power. The creation of more dependents is the creation of more voters and more electoral success. No society can grow or recover when government deliberately undermines the need to work. That path leads to poverty and destruction.

bernanke2222222imagesPrinting money is no substitute for effort. It does not create things or wealth. The myth of Keynesian economics is not the answer to a society that declines in labor force participation and has fewer productive people supporting more dependents. Incentives at the individual level must be changed in order to make work more desirable and attractive than welfare.

A society whose workforce is in decline is one that can pretend to live at former levels only by consuming the wealth and capital created by previous generations. This behavior is equivalent to the man who used to make $250,000 per year in a job and now is unemployed. To save face, he continues to live as if he is still earning at his previous rate. He achieves this short-run living style only by consuming the capital that he built up from years of hard work. At some point, he runs out of capital and must live as a pauper (or the modern equivalent of one).

Our economy and government both behave like this formerly rich man. Both are consuming the seed corn in order to maintain the appearance of well-being. Politicians will continue this behavior until the music stops. Hopefully when that happens there is enough left of society and freedom to allow a rejuvenation.

Many believe that government and its partner the Federal Reserve are wise and strong enough to avoid this crash. If printing money and spending money were a solution, there would be no poverty anywhere in the world. Even the poorest country has a government and can afford a printing press.

Thus far there has been no collapse. However, that is equivalent to the man who jumps off the Empire State building and is heard to say as he flashes by the fortieth floor: “So far, so good.” His fate was sealed when he jumped. Similarly, so is our economy’s. Economics has its own gravity. It is as powerful and immutable as that of physics.

“So far so good” is not acceptable for an economy. There has been no economic recovery since one was falsely declared in June of 2009. The distortions and mis-allocations imposed on the economy for the last several decades are cumulative and have finally reached that stage where they can no longer be covered up. The myth of a recovery is getting harder to maintain.

A complete cleansing of the mal-investments, distorted incentives and regulatory burdens must occur before a true recovery can take place.

Can the economy flutter around is some kind of air pocket at the fortieth floor for a year or even several before resuming its destiny with terra firma? Perhaps, but it cannot fly without wings and these have been removed by regulatory interference and economic interventions over the course of decades. They can re-grow, but not before a complete and total cleansing.

A major crash is coming. The dot.com bubble and the housing bubble were not crashes, at least as I imagine a crash. They were the beginnings of corrections that were aborted by government economic intervention. The country survived these two major bubbles, but only at the cost of making the next one bigger. Government did not save us from these two events. They created them and by deferring their correction assured the next one would be bigger and more painful.

The video below shows a train moving down a track. It struck me as a reasonable metaphor for our economy. The train represents market forces, slow but powerful. The train does not appear threatening. But, like markets, it represents a massive force. That the video is in slow motion exaggerates the surprise and the force.

 

Government may believe it is in control of the economy, but it is not. It may think it is influencing and controlling outcomes. To some degree it is and has. However the forces that have built up over decades of these interventions cannot, at some point, be controlled. The mismatch between Ben Bernanke, Barack Obama, the Federal establishment and all their dollars and regulations is about to be run over by the train that represents decades of suppressed market forces.

No government is a match for hundreds of millions of citizens who are represented by markets. Suppressing markets is suppressing the will of citizens. At some point markets dig in their heals and say enough. Then government is helpless.

 

Economies Don’t Die – Monty Pelerin’s World : Monty Pelerin’s World

Economies Don’t Die – Monty Pelerin’s World : Monty Pelerin’s World.

economicdeath

This country will die. History will record the cause as due to an event worse than the Great Depression. That diagnosis will be wrong.

Economies do not die except when they are murdered. Free markets are self-equilibrating, healing themselves unless they are prevented from doing so.

The very purpose of government intervention is to produce outcomes that otherwise would not occur. Intervention is always an attempt to overcome the natural equilibrium at which an economy would settle. Its very purpose is to thwart the intentions of individuals who make up the economy. Intervention is intended to alter the natural healing process.

Every so-called “economic” problem can be traced back to prior political intervention(s). Political actions deemed necessary today result from damages inflicted by prior government interventions.

Damages and distortions are cumulative. Once begun, politicians are unable/unwilling to stop intervening as the pain of allowing the economy to return to equilibrium increases with each intervention. Eventually an economy’s ability to grow and recuperate is impaired:

  • Prices become inflated and distorted by liquidity and regulatory interventions. They no longer reflect true supply and demand.
  • Capital is mis-allocated as a result of false interest rate signals. Eventually this capital is seen as unprofitable and is abandoned.
  • Cheap lending and low lending standards encourage imprudent and eventually unsustainable levels of debt.

These distortions decrease an economy’s efficiency. General economic metrics like GDP eventually grow more slowly as a result, prompting calls for more political intervention. Eventually the distortions and disincentives grow to a point where standards of living and economies stagnate and then retrogress.

These relationships are as old as civilization itself. Politicians know, but they find it politically advantageous to ignore. The political class believes itself to be superior and entitled. They consider themselves to be above the law. For them, citizens are sources of plunder, to be exploited so that they may hold onto power and wealth.

The economic crisis is coming. It will occur because feckless, venal “leaders” consider the personal cost of stopping their actions to be greater than continuing. That may be true for them, but it is not true for the country.plunder

Sadly, much of the electorate is as corrupt as the political class as Angelo M. Codevilladiscusses below. The economic collapse is inevitable. It may also be deserved.

Democracy has no cure for a corrupt demos. Politicians’ misdeeds taint them alone, so long as their supporters do not embrace them. But when substantial constituencies continue to support their leaders despite their having broken faith, they turn democracy’s process of mutual persuasion into partisan war.

Consider: In 1974 President Richard Nixon lied publicly and officially to cover up his subordinates’ misdeeds. His own party forced him to resign. In 1998 President Bill Clinton lied under oath in an unsuccessful attempt to cover up his own. But his party rallied around him and accused his accusers. In 2013 President Barack Obama lied publicly and officially to secure passage of his most signature legislation. But when the lies became undeniable, his party joined him in maintaining that they had not been lies at all.

The point is that Nixon’s misdeeds harmed no one but himself because no one excused them. But Clinton’s and Obama’s misdeeds contributed to the corruption of American democracy because a substantial part of the American people chose to be partners in them.

OcareThe difference between the mentalities of Republicans circa 1974 and of Democrats twenty-five and forty years later is the difference between a society before and after democratic corruption. Forty years ago, just as in our time, the President of the United States headed a coalition of groups with material and ideological interest in his Administration. But, back then, the beneficiaries of power were willing enough to subordinate their interests to the greater good of maintaining the bounds of democratic partisanship. In our time, however, the constituents of Democratic Administrations so identify their own status and benefits with “the greater good” that the very notion of bounds to their own partisanship makes no sense.

Today’s Democrats argue that, some deceptive language aside, President Obama had every right to implement his view of medical care for America, as well as other things, because he was elected twice having promised something of the sort. But, in 1974, Republicans could have argued that Nixon had been elected twice, the second time by the largest margin in US history, specifically to undo the 1960s. In fact, Nixon’s lies about what he knew of his subordinates’ misdeeds were entirely irrelevant to the purpose for which he had been elected. Why should the Republican constituencies who had worked so hard have given up on the Nixon Administration? Why did Barry Goldwater, Mr. conservative himself, go to the White House to tell Nixon he had to resign?

Quite simply because he knew – everyone seemed to know, then – that respect for the truth is what enables a democratic society that resolves its differences by mutual persuasion, and that absent that respect society devolves into civil war. Nixon’s lie had not imperiled the workings of American government. But it had transgressed the essential principle. Thenceforth, no one could take him at his word. All would have to regard him as acting for himself or his party, alien to the rest. And if his party stuck with him, the rest of America would have to regard that party as alien.

Bill Clinton’s 1998 lie under oath, and then on national television proved so by DNA analysis of his own sperm, placed him precisely in Nixon’s position. But his party, by sticking with him, reversed the essential principle to which the Republicans of 1974 had adhered. Its constituencies had worked hard to reverse Ronald Reagan’s 1980s. They had raised taxes, institutionalized abortion, and vastly expanded government. By this time, they had convinced themselves that the rest of America is composed of inferior people. Why should they have jeopardized their position just because their man had fellatio in the Oval Office and lied about it?

Thus by placing their own material and ideological interests above the truth, the Democrats took upon themselves a license to lie – not just about personal matters, which was their argument at the time – but about whatever might serve their purpose.

Obama’s premeditated, repeated, nationally televised lies about the “Affordable Care Act” are integral, indeed essential, to his presidency and to the workings of the US government. The outcome of two national elections depended on it.

Even more significant is his contention that he never said what he said, and that what he said was true anyhow. In interpersonal relations, such a contention is an insult that makes civility impossible; because to continue to treat with someone who makes such affronts is self-degradation of which few are capable. In political life, such an insult is a declaration of war.

The deadly problem is that Barack Obama is not just an individual, nor even the head of the US government’s executive branch. He is the head of the party to which most government officials belong, the party of the media, of the educational establishment, of big corporations – in short of the ruling class. That class, it seems, has so taken ownership of Obama’s lies that it pretends that those who are suffering from the “Affordable Care Act” don’t really know what is good for them, or that they are perversely refusing to suffer for the greater good.

This class, in short, has placed itself as far beyond persuasion as Obama himself. Democracy by persuasion having become impossible, we are left with democracy as war.

 

Another Step Closer To Economic Armageddon – Monty Pelerin’s World : Monty Pelerin’s World

Another Step Closer To Economic Armageddon – Monty Pelerin’s World : Monty Pelerin’s World.

armagedges

Draghi introduced additional ease into Europe this morning.

A surprise rate cut (67 of 70 economists did not see it coming, which provides a proxy IQ test for these geniuses) created turmoil in markets.

What this means by noon today is unknowable. What it means in a larger context is not:

  • Europe is not in good shape. Anyone who believed they were, should be disabused of such notions.
  • The forcing down of interest rates once again further exacerbates the longer-term mis-allocation of resources. Such actions may buy time, but only at the cost of greater problems down the road.
  • Maco-economics is failed witchcraft which should be apparent to anyone paying attention. Yet it will continue to be used to justify “remedial” actions out of desperation.
  • Governments around the world have only this hammer (liquidity/stimulus). They will hammer away even though that cannot solve the problem(s).
  • Liquidity and stimulus will not end in the US or Europe until markets end it. The market ending will be either an implosion or a crack-up boom. Either is possible at this stage.
  • Governments are in full pretend mode. They have no control over the situation other than to fool people into believing that things are getting better.
  • The policies employed by governments ensure the destruction of economies and themselves. Governments spiral downward toward defaults and bankruptcy that will take economies with them.
  • Currencies are being destroyed in terms of purchasing power.
  • Nothing is being done to correct economic problems. Politics has deemed true remedies too severe. They are off the table, replaced by extend and pretend actions.
  • The shelf-life of this government fraud is limited. Economic Armageddon is coming.

The frustrations of watching this play out are huge. So too is the knowledge that this entire scheme jeopardizes more than living standards and economies. It threatens the very future and quality of civilizations themselves.

 

 

Citizens Are The Soylent Green of Today’s Politics – Monty Pelerin’s World : Monty Pelerin’s World

Citizens Are The Soylent Green of Today’s Politics – Monty Pelerin’s World : Monty Pelerin’s World. (FULL ARTICLE)

Neither American political party is worth supporting. Each has interests inconsistent with those of the American public. The claimed political differences are mostly cosmetic, designed for marketing advantage. Both parties act in their self interest which does not coincide with that of the citizens or the well-being of the country.

Each party behaves like a self-serving criminal gang. The quaint concept of serving the public exists no longer. Routinely they exempt themselves  from the rules and laws they impose on the rest of the country. Their policies enrich the political class while the rest of the country becomes poorer.

Mark Twain described Congress as our ”distinctly native American criminal class.”Albert J. Nock went further, generalizing Twain’s somewhat parochial observation:

Taking the State wherever found, striking into its history at any point, one sees no way to differentiate the activities of its founders, administrators and beneficiaries from those of a professional-criminal class

Lest the reader think these two individuals confused or biased, a more complete collection of quotes on government is available here: Do Only Dumb People Believe in Government?

How The Game Changed…

 

Extreme Fear Is Reasonable | Monty Pelerin’s World

Extreme Fear Is Reasonable | Monty Pelerin’s World.

You Are In The Ponzi Scheme Whether You Realize It Or Not | Monty Pelerin’s World

You Are In The Ponzi Scheme Whether You Realize It Or Not | Monty Pelerin’s World.

 

Why Things Will Get Worse — Much Worse | Monty Pelerin’s World

Why Things Will Get Worse — Much Worse | Monty Pelerin’s World.

 

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