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The Trends to Watch For in 2014: Charles Hugh Smith | Peak Prosperity
The Trends to Watch For in 2014: Charles Hugh Smith | Peak Prosperity.
At the beginning of this year (2013), I identified eight key dynamics that will play out over the next two to three years (2013-2015):
Trend #1: Central Planning intervention in stock and bond markets will continue, despite diminishing returns on Central State/Bank intervention
Trend #2: The omnipotence of the Federal Reserve will suffer a fatal erosion of confidence as recession voids Fed policy and pronouncements of “recovery”
Trend #3: The Mainstream Media (MSM) will continue to lose credibility as it parrots Central Planners’ perception management
Trend #4: The failure of what is effectively the “state religion,” Keynesianism, will leave policy makers in the Central State and Bank bereft of policy alternatives
Trend #5: Economic Stagnation will fuel the rise of Permanent Adolescence
Trend #6: Income, the foundation of real economic growth and wealth-distribution stability, will continue to stagnate
Trend #7: Small business—the engine of growth—will continue to decline for structural reasons
Trend #8: Territorial disputes will continue to be invoked to distract domestic audiences from domestic instability and inequality
I know it may strike some as “cheating” that my forecast is for these trends to be consequential within a three-year window rather than by a specific date, but note these are trends, not events, and trends tend not to matter until suddenly they do. This is the nature of Pareto Distributions, in which trends are inconsequential until they reach a critical mass of 4% of the populace, at which point the “vital few” exert outsized influence on 64% of the populace.
Let’s see how the trends developed in 2013:
Trend #1: Intervention yielded outstanding returns on corporate profits and stocks, but diminishing returns on employment, household incomes for the bottom 80%, and growth, all of which are historically subpar:
Trend #2: The Fed’s members are still regarded as heroic demigods who benignly manage the Earth’s economy. When (not if) the stock market rolls over in 2014-15, Fed omnipotence will suffer.
Trend #3: This one is difficult to track, but anecdotal evidence (declining circulation of many mainstream print media, declining viewership in some cable news channels, etc.) may reflect rising disenchantment with the media’s coverage of key issues.
Trend #4: I think it is quite clear that the Fed and its posse of experts have no alternatives to ZIRP (zero interest rate policy) and QE (quantitative easing).
Trend #5: This one is difficult to monitor. If we use the percentage of young people still living at home and the rise of “selfies” (photos taken of oneself), then perhaps a case can be made that this trend is already visible.
Trend #6: Median household income has edged up, but I suspect this is the result of higher incomes for the top 10% rather than widely distributed gains. Since the top 10% collect 51% of all income, it stands to reason that increases flowing to the top will boost median income even if the bottom 90% sees declines in income:
Trend #7: The unintended consequences of the Affordable Care Act have yet to fully play out.
Trend #8: China’s recent invocation of a “defense zone” that includes the Senkaku Islands suggests this trend is definitely in play.
I also listed eight outcomes:
Outcome #1: The counterfeiting of risk-free assets will continue to be a primary policy of the Status Quo.
Outcome #2: Risk will continue to be transferred en masse to the public.
Outcome #3: Democracy in America is officially dysfunctional.
Outcome #4: Incentives will continue to be structurally perverse, and the rule of law will continue to be bent by individuals, enterprises, and the government.
Outcome #5: Health care (a.k.a. sick care) will continue to be an enormous drag on the economy as diminishing returns, fraud, complexity, and defensive medicine add costs without equivalent improvements in health.
Outcome #6: The costs of complying with Obamacare will act as an inflection point in the decline of small business
Outcome #7: The trend of the Status Quo “solving” perceived problems by adding layers of immense complexity to systems already suffering from marginal returns will continue.
Outcome #8: The informal cash economy will continue expanding, as those who choose to opt out of the Status Quo and those who must opt out as a survival mechanism do so.
Without going into detail, I think a self-evident case can be made that each of these outcomes is already visible at the end of 2013.
Additional Trends to Watch in 2014
Since the trends listed above are still operant, these eight are additional rather than replacement trends:
Trend #1: The Number One growth industry in the private sector will increasingly be lobbying the government for favors. When the State selects the winners and losers throughout the economy, then companies are essentially forced to make their case for special dispensations via campaign contributions and unrelenting lobbying. Elected officials benefit from their centralized powers as the line of corporations anxiously pressing campaign cash on them lengthens in direct proportion to the expansion of State power.
This is the essence of what some call the Corporatocracy that effectively governs the U.S.A. and what I call the Neofeudal Cartel/State system, as the State and its chosen cartels dominate the economy and society in a fashion that can only be described as neofeudal.
Since organic growth from increases in wages and purchasing power are limited to the top 10%, the only sectors that can possibly gain growth from rising sales are Porsche dealerships and other luxury outlets that cater to the top 10%. But since the number of households adding income is a thin 10 million out of 121 million households, moving more luxury goods offers little growth opportunities for the rest of the economy, which is stagnant at best.
As a result, lobbying the central State for favors is the default “growth industry.”
Trend #2: The difference between anemic growth and recession will increasingly be semantic. This is another “How many angels can dance on the head of a pin?” debate in which Ivory Tower/State economists parse juiced or manipulated data to conclude the economy is “growing slowly” or slipping into negative growth; i.e., recession.
Experientially, if purchasing power and discretionary income (what’s left after paying taxes, rent, mortgages, food, utilities, etc.) are both declining for 90% of households, the “growth” in inventories, exports, and other factors that feed into gross domestic product (GDP) are not reflecting the economy we actually inhabit.
Trumpeting what amounts to signal noise as “steady growth” is adept perception management (i.e., propaganda), but if it doesn’t include increases in purchasing power and discretionary income for the bottom 90%, it’s a propaganda embarrassment, like the Fed official hyping the declining cost of tablet computers while someone in the audience shouts, I can’t eat an iPad!
Trend #3: The decline in local government services will accelerate as rising pension/healthcare costs squeeze budgets. Local governments (city, county, state) have avoided the politically combustible collision of rising pension/healthcare costs and angry taxpayers tired of service cuts by accounting trickery and jacking up fees and taxes. Crunch-time has also been put off by rising home values that pushed property tax revenues higher.
These solutions are running out of rope: Property values have topped out, and accounting trickery hasn’t solved the fiscal impossibility of maintaining services and meeting pension obligations in a stagnant economy. When push comes to shove, services must be cut, either by bankruptcy or by negotiation. Since the likelihood that taxes will drop is zero, taxpayers will get fewer services for their taxes.
Trend #4: Middle-class income, purchasing power, and discretionary income will all continue to stagnate. Unless you define “middle class” as those households earning $150,000 and up (9.1% of households)—and if you define the top 9% as “middle” class, your definition has lost all meaning—what’s left of the middle class will see real and discretionary income continue to stagnate. The causes of this decline in labor’s share of the economy are structural and cannot be remedied by lowering interest rates to zero or jacking up the stock market: Zero-interest rates have deprived households of income, and few in the bottom 90% own enough stock to affect their wealth. (Source: The Distribution of Household Income and the Middle Class)
Trend #5: Junk fees will continue to replace legitimate taxes. Fearful of blowback from ever-rising taxes, local governments have turned to junk fees as the preferred method of “revenue enhancement.” These include sharply higher fees for recreation, parking tickets, permits, etc., and a multitude of add-ons to property taxes and other existing tax structures. Local authorities are counting on the taxpayers to sigh but do nothing as long as the fee increases are small enough to avoid triggering political resistance.
In our small California town, the city has raised the fees for trash pickup by more than 100% in recent years—ironically, their reason is that recycling (which they encourage) has reduced the amount of trash being collected. This sort of nonsensical rationalization for radically higher fees will join the usual justifications; i.e.,We can no longer fill potholes and pave streets unless we raise your taxes.
How did they manage to perform these basic services 10 or 20 years ago with much smaller budgets? The answer: See Trend #3, skyrocketing pension and healthcare costs.
Trend #6: The African oil exporting nations will move from the back burner to the front ranks of geopolitical flashpoints, joining the South China Sea, the Mid-East, and North Korea. I recently discussedThe Scramble for Africa’s Oil and the “resource curse” that is fueling the potential for conflict over Africa’s untapped oil wealth:
Trend #7: Americans will continue to passively accept the rise of the Police/National Security State. This may eventually change, but for the next few years the existing motivations for passive acceptance of increasing centralization of power will continue to hold sway.
The first is complicity: The 49% of all Americans—156 million out of 317 million—who receive direct transfers/benefits from the Federal government see little reason to rock the boat or put their cash from the government at risk. (Source)
The second reason is a rational fear of State power: fear of getting tear-gassed and arrested should you join a protest, for example, and a generalized fear of putting whatever you still have at risk by confronting a government given to secrecy and retribution against whistleblowers, protesters, etc.
Trend #8: The Federal government will quietly absorb the rising losses from defaulting student loans rather than reveal the bankruptcy of the entire Higher Education/Student Loan Cartel. There are myriad ways to quash the recognition that the Higher Education/Student Loan Cartel is failing to provide useful education while it burdens younger generations with $1+ trillion in high-interest debt: quietly forgive some defaulted loans, stop enforcing collection of defaulted loans, etc. The Federal government doesn’t want to call attention to its management of this powder keg, as widespread recognition that the system is broken will unleash calls for a general debt amnesty that will blow the big-debt-for-worthless-degrees system wide apart.
In Part II: Outcomes to Bet On in 2014, we’ll forecast the most likely consequences of these trends. With such understanding comes the opportunity to position ourselves in front of them for protection and/or profit.
Click here to access Part II of this report (free executive summary; enrollment required for full access).
The World According To Ron Paul | Zero Hedge
The World According To Ron Paul | Zero Hedge.
With 72% of those polled believing “big Government” is more of a problem now than 4 years ago, it is hardly surprising that Ron Paul blasts “the failure of government is all around us” in this brief FOX news interview. Perhaps it is the fact that “Obamacare has been such a trasparent failure of big government,” along with Keynesian economics, and the NSA debacles; that more and more of even the most liberal are realizing just what America has become. “It’s really great news that people are starting to recognize this,” Paul adds, because there is no way to replace the status quo “until people give up on what we have.”
Guest Post: What’s Real? What’s Fake? | Zero Hedge
Guest Post: What’s Real? What’s Fake? | Zero Hedge.
Is the unemployment rate real or fake? It is obviously fake, but we want to believe the fake is real for a variety of reasons.
We like to think we know the difference between what’s real and what’s fake. When we’re fooled by a fake Rolex watch purchased for $20 on some humid Asian street corner, we shrug it off: it’s no big deal because the fake isn’t harming anyone.
And when it’s difficult to discern the fake from the legitimate, as in fine art paintings and financial policy, we rely on experts to differentiate between the two.
But what if the “experts” are as clueless as the rest of us? What if they’ve been corrupted by easy money to authenticate the fake as legitimate? Consider ObamaCare, an extraordinarily complex policy that “experts” assure us is a phenomenal advancement that is “working well.”
But what if ObamaCare is a fake? What if it is really not insurance at all, but a giant skimming machine designed to enrich and solidify the power of the state-cartel that operates the sickcare system?
“Experts” (PhDs and Federal Reserve economists) assure us our financial system is the core engine of “growth” in our economy. But what if this assertion is simply a useful illusion, and the reality is that the U.S. financial system is a giant skimming operation that harvests immense profits off the real economy to the benefit of the few, the financial cartels and their lapdogs in the Central State?
“Experts” in the Federal government assure us the unemployment rate is 7%. But if we include the 91.5 million people of working age who could be working (and would be working in a work-fare economy), then the real unemployment rate is double the official rate: 14% or even higher.
Is the unemployment rate real or fake? It is obviously fake, but we want to believe the fake is real for a variety of reasons.
The 1974 Orson Welles documentary (recommended by correspondent K.K.) F For Fake helps elucidate this peculiar dynamic of human nature.
The master art forger who plays a central role in F For Fake noted (self-servingly, but amusingly so) that his addition of a few fake Modigliani paintings into the world’s collections did no damage to Modigliani (long since deceased) or the collectors, who benefited from the opportunity buy a Modigliani masterpiece.
We want to believe the fake unemployment rate of 7% rather than the real rate of 14+% because the officially sanctioned forgery feeds our belief that our bloated, corrupt Empire of Debt is sustainable, fair and working well. To accept that we’ve been bamboozled, ripped off, taken advantage of and ultimately cheated out of an authentic economy and life by swindlers is too painful.
How is the Federal Reserve’s creation of money out of thin air not officially sanctioned forgery, a forgery we accept because we are like the collectors who are willing to buy forgeries as masterpieces, as long as they’re good forgeries, rather than forego the joy of owning a masterpiece?
Just as the belief in the provenance of a masterpiece creates its value in the marketplace, so it is with money: if it is created by a central bank and ultimately backed by the State’s right to tax its citizenry, we consider it legitimate, even though it is clearly an intrinsically worthless forgery of real value (i.e. gold, silver, land, cans of beans, machine tools, etc.).
And just as the value of a masterpiece is shattered by the loss of faith in its value, so it is with money: should the belief that creates the value fade, so to will the practical utility of the money.
Any doubts about the value of the euro, yuan, yen or dollar are dismissed by the mainstream as the confused ravings of a lunatic fringe, because maintaining the faith in the provenance of paper money is essential to the power created by financial engineering. But it’s worth keeping in mind that this belief in the value of money created out of thin air by the conjurer’s wand is just that, a belief.
Between a Rock and a Squishy Place | KUNSTLER
Between a Rock and a Squishy Place | KUNSTLER.
The rock is reality. The squishy place is the illusion that pervasive racketeering is an okay replacement for an economy. The essence of racketeering is the use of dishonest schemes to get money, often (but not always) employing coercion to make it work. Some rackets can function on the sheer cluelessness of the victim(s).
Is it fair to suppose that money management is at the heart of the sort of advanced, complex economy that developed early in the 20th century? I think so. Money is the lifeblood of trade and of investment in productive activities that support trade. Of course, in order for money to have meaning, to function in such transactional relations, the people must be convinced that it legitimately represents its face value. Otherwise, money must be labeled “money” — that is, a medium of exchange suspected of false value. An economy that uses “money” — especially an economy of rackets — is an economy in a lot of trouble, and that is where ours is in December 2013.
The trouble reached escape velocity in the fall of 2008 when a particular brand of racket among the Wall Street kit-bag of rackets got badly out-of-hand, namely the business of selling securitized bundled mortgages and their “innovative” derivative “products” to dupes unaware that they were booby-trapped for failure which would, perversely, hugely reward the seller of such trash paper. These were, in the immortal words of Senator Carl Levin (D-Mich), the “really shitty deal[s]” propagated by the likes of the Goldman Sachs crypto-bank — so-called collateralized debt obligations — pawned off on credulous pension fund managers and other “marks” around the world greedy for “yield.”
It turned out that all the large banks trafficking in such booby-trapped contracts ended up choking on them when “the music stopped” — that is, when the derivative “swaps” payoffs at the heart of this particular racket began to fail, sending up a general alarm that all such “products” were primed to blow up the entire “banking” system. By the way, the quotation marks I so liberally resort to are necessary to denote that in such a matrix of rackets things are not what they appear to be but only what they pretend to be.
The failure of Bear Stearns followed by the implosion of Lehman Brothers and the near-death experience of AIG alerted “civilians” outside Wall Street that the banks were linked in a web of fraud and insolvency and had to be “rescued” in order for the rest of America to keep its “way of life” going. The rescue remedy proved to be several new layers of fraud that have now matured into institutionalized rackets. The best known are the Siamese twins of “Quantitative Easing” and zero interest rate policy (ZIRP). The lesser-known racket was the 2009 rule change by the Financial Accounting Standards Board that allowed banks to make up whatever numbers they felt like in reporting the value of their holdings (“assets”).
Hence, these dishonest, regularized operations can be labeled a hostage racket with coercion at their core. The coercion comes in the form of the threat that any let-up in the stream of QE “money” enjoyed by the banks in the form of carry-trade “loans” and “primary dealer” premium cream-offs will send the economy back to the stone age. Overlooked in this equation is the ongoing destruction of ordinary citizens (a.k.a. the “middle class”) who have already lost their grip on the emblematic “way of life” Wall Street is working so tirelessly to defend. Politicians are, of course, deeply implicated and indeed directly involved in all these rackets, since these hired handmaidens make and execute the laws protecting Wall Street’s looting operations.
The catch to all this, lately, lies in the cognitive dissonance between the symptomatic euphoria of record stock market indexes versus the conviction of a few hardcore skeptical observers that the rackets are now so reckless and impudent as to be beyond any hope of control and on a trajectory to bring about hardships orders of magnitude above anything imagined in 2008.
So-called “health care” is also a hostage racket, since sick people are hardly in a position to bargain for anything, but it is only a sub-system of the larger matrix of rackets that have made this such an unusually dishonest society. My guess is that ObamaCare is sure to make it worse, and pretty quickly too, since the rules for ObamaCare were written by the hireling lobbyists of the industries that benefit from the racketeering.
The big mystery in all this remains: where are the people with some institutional power who might stand up and denounce all this perfidy? What has made us such a culture of cowards and cravens that the best we can do is produce a couple of comedians who speak truth to power in the form of jokes. Most of this is not that funny.
By the way, one reason for the vulgar orgy of “consumerism” that, in recent years, has turned the Thanksgiving holiday into a sort of grotesque sporting event, is to mount a crude demonstration that our “money” is a viable medium of exchange. The dumbest people in the land are induced to swarm through the merchandise warehouse stores and fight to exchange their “money” for hard goods offered at false “bargains.” I wonder how much of it is a dress rehearsal for what happens in a hyper-inflation?
Duct Tape Politics | KUNSTLER
Duct Tape Politics | KUNSTLER. (source)
The ObamaCare website rollout fiasco, joined by the bait-and-switch “You can keep your current insurance (not)” tempest, obscure the fundamental quandary about so-called health-care in America: that it is a gigantic racket structured to allow countless layers of grift and counter-grift. The end product of all that artifice is that medical care costs twice as much in America as any other civilized country, and that it has to be operated by a cruel and despotic matrix of poorly coordinated bureaucracies that commonly leave people more disabled financially than the diseases that brought them into the system.
ObamaCare was designed to work like a giant roll of duct tape that would allow the current cast of characters in charge (Democratic Progressives) to pretend that the system could keep going a few years longer. But it looks like it has already blown out the patch on the manifold and is getting ready to throw a rod — which duct tape will not avail to fix.
I had three major surgeries (hip, open heart, spine) the past year and paid attention to the statements that rolled in from my then-insurer, Blue Shield (the policy was cancelled in October). These documents were always advertised as “this is not a bill” and that was technically true, but it deflected attention from what it really was, a record of negotiated scams between the “providers” (doctors and hospitals) and the insurance company.
There was never any discussion (or offer of discussion) of the cost of care before a procedure. When asked, doctors commonly pretend not to know what their work costs. Why is that? It’s not to spare the patient’s feelings. It’s because sick people are hostages and both the doctors and the hospital management know they will agree to anything that will get them through the crisis of illness. This sets up a situation that allows the “providers” to blindside the patient with charges after the fact.
My hip “revision” operation was necessary because my original implant was a defective (“innovative” circa 2003) metal-on-metal joint that released metal fragments into my system and it had to be removed. The stated charge for replacement part — a simple two piece bearing made of metal and plastic, about the size of tangerine — was $14,000. Blue Shield “negotiated” the price down to about $7,000. If you go to the websites of any of the manufacturers of these things, you will not see any suggested retail or wholesale price. The markup on these things must be out of this world. Cars come with four ball joints that carry roughly the same time warrantee, and they come with a staggering array of “extras”— engines, transmissions, air-conditioning, seats, air-bags, and radios. The pattern was similar for the other surgeries and what they entailed. I ended up paying five-figures out-of-pocket. Lucky for me that I saved some money before this all happened. I don’t have kids so I haven’t been paying extortionate college tuitions during my peak income years.
All the surgeries I had required hospital stays. For the hip op, I was in for a day and a half in a non-special bed (no fancy hookups). The charge was $23,000 per day. For what? They took my blood pressure nine times. I got about six bad meals. The line charge on the Blue Shield statement said “room and board.” It would be a joke if this extortion wasn’t multiplied millions of times a day across the nation. Citizen-hostages obviously don’t know where to begin to unravel this skein of dreadful rackets. If you think it’s possible to have a productive conversation with an insurance company rep at the other end of the phone line, then you’re going to be disappointed. You might as well be talking to a third-sub-deputy under-commissar in the Soviet motor vehicle bureau.
This ghastly matrix of corruption really only has two ways to go. It can completely implode in a fairly short time frame (say, five years, tops), or we can, by some miracle of political will, get our priorities straight and sweep away all the layers of racketeering with a single-payer system. The evidence in other civilized countries is not so encouraging. England’s National Health Service has degenerated into a two layer system of half-assed soviet-style medicine for the proles and concierge service for the rich. France’s system works more democratically, but the nation is going bankrupt and eventually their health care network will fall apart. The Scandinavian countries have relatively tiny populations. I don’t know, frankly, how the Germans are doing.
Here in the USA, you can make arguments for putting a greater share of public money into a single-payer system. For instance, if we redirected the money spent on our stupid military adventures and closed some of the countless redundant bases we run overseas. That would be a biggie. Given the current choke-hold of the military-industrial complex on our politicians, I wouldn’t expect much traction there.
You can argue that nobody complains about government spending on the highway system, so why should “the people” complain about organizing a medical system that really works? Obviously, there’s no consensus to make that happen. Too many doctors want to drive BMWs. Too many insurance executives and hospital administrators want to make multi-million dollar salaries. Too many lobbyist parasites and lawyers are feeding off that revenue stream. Too many politicians with gold-plated health insurance coverage don’t want to change the current distribution of goodies. End-of-story, as the late Tony Soprano used to say.
It’s the old quandary of fire or ice… which way do you want to go? Since I’m interested in reality-based outcomes, my bet would be on implosion. In any case, several of the other systems that currently support the activities of our society are scheduled for near-term implosion, too. That would be the banking-finance system, the energy supply system, and the industrial agriculture system. As those things wind down or crash, you can be sure that everything connected with them will be affected, so the chance that we could mount a real national health care system is, in my opinion, zero.
The ObamaCare duct-taped system will go down. The big hospitals, HMOs, insurers, pharma companies will all starve and shrivel. Like all things in the emergent new paradigm, they will reorganize on a small and much simpler basis. Everyone will make less money and high-tech medicine will probably dwindle for all but a very few… and for them, only for a while. Eventually, we’ll re-set to local clinic style medicine with far fewer resources, specialties, and miracle cures. There will be a whole lot less aggravation, though, and people may die more peacefully.
Finally, there’s the pathetic American lumpen-public of our day itself, steadily committing suicide en masse by corn byproducts, the three-hundred pounders lumbering down the Wal-Mart aisles in search of the latest designer nacho. What can you do about such a people, except let fate take them where it will?
Published as an E-book for the first time!
The 20th Anniversary edition
With an entertaining new introduction by the author
charles hugh smith-System Reset 2014-2015
charles hugh smith-System Reset 2014-2015. (source)
Resets occur when the price of everything that has been repressed, manipulated or obscured is repriced.
The global financial system will reset in 2014-2015, regardless of official pronouncements and financial media propaganda hyping the “recovery.” Despite the wide spectrum of forecasts (from rosy to stormy), nobody knows precisely what will transpire in 2014-2015, so we must remain circumspect about any and all predictions– especially our own.
Even as we are mindful of the risks of a forecast being wrong (and the righteous humility that befits any analysis), it seems increasingly self-evident that financial systems around the world are reaching extremes that generally presage violent resets to new equilibria–typically at much lower levels of complexity and energy consumption.
John Michael Greer has described the process of descending stair-step resets (my description, not his) as catabolic collapse. The system resets at a lower level and maintains the new equilibrium for some time before the next crisis/system failure triggers another reset.
There is much systems-analysis intelligence in Greer’s concept: systems without interactive feedbacks may collapse suddenly in a heap, but more complex systems tend to stair-step down in a series of resets to lower levels of consumption and complexity–for example, the Roman Empire, which reset many times before reaching the near-collapse level of phantom legions, full-strength on official documents, defending phantom borders.
In the present, we can expect the overly costly, complex, inefficient, fraud-riddled U.S. sickcare (i.e. “healthcare”) system to reset as providers (i.e. doctors and physicians’ groups) opt out of ObamaCare, Medicare and Medicaid; like the phantom armies defending phantom borders of the crumbling Empire, the vast, centralized empire of sickcare will remain officially at full strength, but few will be able to find caregivers willing to provide care within the systems.
Just as much of the collateral supporting the stock, bond and housing bubbles is phantom, many other centralized systems will reset to phantom status. As local and state governments’ revenues are increasingly diverted to fund public union employees’ sickcare and pension benefits, the services provided by government will decline as the number of retirees swells and the number of government employees actually filling potholes, etc. drops.
Local government will offer services that are increasingly phantom, as stagnating tax revenues fund benefits for retirees rather than current services. On paper, cities will remain responsible for filling potholes, but in the real world, the potholes will go unfilled. In response, cities will ask taxpayers to approve bonds that cost triple the price of pay-as-you-go pothole filling, as a way to dodge the inevitable conflict between government retirees benefits and taxpayers burdened with decaying streets, schools, etc. and ever-higher taxes.
As for phantom collateral–the real value of the collateral will be undiscovered until people start selling assets in earnest. As long as everyone is buying, the phantom nature of the collateral is masked; it’s only when everyone tries to get their money out of asset bubbles is the actual value of the underlying collateral discovered.
When assets go bidless, i.e. there are no buyers at any price, the phantom nature of the supposedly solid collateral is revealed. Price discovery is one way of describing reset; transparent pricing of risk is another way of saying the same thing.
When risk has been mispriced via state guarantees, fraud, willful obfuscation, complexity fortresses, etc., then the repricing of risk also resets the system.
Resets occur when the price of everything that has been repressed, manipulated or obscured is repriced. The greater the manipulation and financial repression, the more violent the reset. What been manipulated, obscured or repressed? Virtually everything: risk, credit, assets, labor, currency, you name it. Everything that has been manipulated by central banks and central states will be repriced.
Trust is difficult to price. Every reset erodes trust in the capacity of the centralized status quo to manipulate/repress price to its liking. Once trust in the system is lost, it cannot be purchased at any cost.
Related articles
- The Gathering Storm (theburningplatform.com)
Two Forces and Three Bears | KUNSTLER
Two Forces and Three Bears | KUNSTLER. (source)
In these climax years of industrial technocratic society, two opposing forces shape the destiny of government: the desperate effort to control everything versus the decline of the ability to carry out that effort. The result will be the loss of legitimacy and the collapse of government from the highest levels, moving downward until the real power to make anything work re-sets at a feasible and appropriate level — probably very local. This dynamic is seen very clearly in three spectacles du jour: the “national security” (spying) mess, government-sponsored accounting fraud in finance, and the ObamaCare rollout.
As history develops, people do things for the simple reason that it seems like a good idea at the time. Computer tech made it possible for bureaucrats and military apparatchiks to invade the privacy of everybody, but in the end it only had the effect of embarrassing the perpetrators and eroding a big chunk of the US government’s legitimacy. The attempt at maximum control will eventually lead to maximum resistance and, quite possibly, some sort of political revolution, perhaps starting with the death of the two dominant political parties. When political disruption finally occurs, it will manifest quickly, as criticality thresholds are breached. It has the potential of taking this society in very undesirable directions including civil war, theocracy, and war against other peoples.
The diminishing returns of computer technology applied to intelligence gathering are that it produces more mountains of data than any team of professionals can make sense of, and it prompts said professionals to make mischief with the information that is easiest to sort out: the financial records of ordinary citizens. Nothing will create political resistance more surely than messing with people’s money. The NSA apparatus is now a self-reinforcing monster that will strive for ever more control ineffectively, creating a debris path of ever more embarrassment and resentment. A lone true patriot like Snowden does more to oppose this monster than all the “freedom” and “liberty” spouting, flag-lapel-pin-wearing cowards in either political party.
The pervasive accounting fraud in the attempt to prop up an unsound banking system is even closer to criticality. A society that produces tradable goods needs sound money which functions as 1) a medium of exchange, 2) a store of value 3) a unit of account for establishing prices. The combined accounting frauds in Federal Reserve policy, private banking and securities markets, and government fiscal management is destroying all these functions. The more abstracted finance gets from real productive activity, the more fragile the system becomes. We are doing nothing now except adding more complexity and abstraction to it, causing the system to become more detached from reality. In effect, we’re opting to forego an economy based on goods in favor of one based on empty promises and paper swindles. The potential and probable consequent destruction of nominal wealth would be an event that advanced technocratic society likely will not recover from — in the sense that today’s standard of living could be preserved for billions of people worldwide. That destruction would herald a new dark age, this time without any prospect of recovery via the exploitation of natural resources, which will have been depleted.
The ObamaCare piece of the picture is a mere pathetic soap opera compared to the first two quandaries. The 2000-page law did nothing to address the core tragedy of medicine in America — namely, that it has evolved into a hideous hostage racket. You go to a hospital with a terrifying illness and you are susceptible to fleecing by the so-called “care-givers” for the promise that you may get to live. No prices for treatment are never discussed. They are presumed to be astronomical — but who cares if you end up dead, and if you do get to live, you’ll figure that out later. If you hold an insurance policy, these charges will be subject to a fake negotiation between grifting insurance companies and grifting hospitals, physicians, and drug companies. The price “settlements” are only slightly less a joke than the actual charges, and are obfuscated in documents designed to bewilder even well-educated policy-holders.
Even if you are insured, the charges may bankrupt you. A typical one-day charge for “room and board” in a non-specialized hospital in-patient bed runs $23,000 at my local hospital. For what? Half a dozen blood-pressure checks and three bad meals? You can be sure that ever-fewer families will be able to fork over $12,000-a-year for basic coverage. The ObamaCare legislation and its laughable rollout of a useless website is just a punctuation mark at the end of the soap opera script. The result eventually will be the complete implosion of the medical racket and a return to a very primitive clinic system, with payment in chickens or cords of stove-wood. The smaller number of surviving humans will surely enjoy better health, and greater piece of mind, when this monster racket expires of inertia, bad faith, and deceit.
These efforts to manage runaway hyper-complexity with more complexity are guaranteed to fail. Our prime task at this moment in history is managing contraction, and the means for doing that would be simplifying, not adding layers of complication larded with fraud, pretense, and mendacity.