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Look Around You And See Where We Are Now

If you want to understand what is on our event horizon right now — as the blurb about this blog in the sidebar says the blog is about — look around you without rose-colored glasses. Take off the funky shades and see what reality really looks like. Here is how we got to where we are now:


How did we get here?


What happened in 2008 was that we came to the natural end of an economy founded on debt. As this blog has always maintained, that is the wrong foundation to build on from the start. The simplest form of common sense should tell you that you cannot create prosperity out of escalating piles of debt.

In 2008, the debt-driven economy entered its final throes of death, but the economeisters who created it and became fabulously rich on it still believed that debt was the road to prosperity. Had not their decades of success proven that loosening the terms of debt and taking out ever larger amounts of it, both personally and nationally, was a solid path to prosperity?

They are the ones who won the argument during the Reagan years, and their persuasive scheme became the only basis for building an economy that those who live through those years politically knew. Naturally, they were hugely successful … for the time being. It made sense that they would be phenomenally successful, but not for the reasons they posited.

Having gone through college in those year, I am one who has written all of his professional life about the bankruptcy of that fundamental idea and said its end would come. At the same time, I’ve said that there would be a long party at the punchbowl because the ability to governments to absorb debt is enormous.

Let’s call that economy the dinosaur at the punchbowl.

You can have a lot of fun and ramp up huge growth in GDP when most of it isn’t being paid for as you go. As I wrote decades ago, it’s amazing how much fun you can have when no one is paying for it. It’s like throwing a party with dad’s credit card. Only, dad was throwing the party this time and using his kid’s credit card. Be that as it may, the party was on, and people were getting drunk on wealth and having a great time.

Well, some people were, but trickle-down economics — another one of their schemes — didn’t really trickle very well. It seemed to, but that was an illusion of the fabulous amounts of debt the middle class was taking on at the same time. Anyone who argued with such fast-rising success was seen as a fool.

Then came 2008, and their dinosaur economy suddenly lay dying at their feet. It had grown old over the decades, and they had not noticed. It was no longer the healthy growing beast they had created.

Naturally, they wanted to save this beast of their own creation, which had made them rich; so they did more of what they always do as a way of getting the dinosaur economy back on its feet; but this time they found they had to raise debt exponentially as a form of life support. It now took their utmost efforts — exercised in feats and tricks that had never been tried by governments and their central bankers in the history of the world.

They found they now had to maintain there Herculean efforts without stop for years to keep the dinosaur on its feet and performing. While their measures stabilized the economy for the past seven years, they did not lead to a real recovery because the dinosaur never became capable of living on its own. I think by definition one would have to call recovery of the patient that time when the patient is finally able to live again without artificial life support.

The bigger the economy got, the more debt it needed to consume to stay alive; and its rate of consumption was now terrifying … unless you kept on your government-provided rose-colored glasses that made red ink look black, instead of scarlet.

Debt as a path to prosperity was a flawed idea that provided short-term growth (thirty years of it), while having no longterm sustainability. It’s also a path that ends in global wreckage when multiplayers reach their point of default at the same time, bringing down the last of the die-hard beasts with them.

Economic sense built on the laws of economics tells you that you cannot expand debt forever without one of the most fundamental economic laws — the law of diminishing returns — saying you get less and less increase in lifestyle for the increasing cost as debt piles up.

But who was listening to real economics anymore?


Where are we now?


The economic buy ambien online fast shipping denial of those who got rich off this scheme was enabled by the astronomical capacity of governments and central banks to run up debt since they ran both the banks and the governments. As such, the easily gotten gains were able to continue for a long time as mountains of debt grew everywhere around the rich until they could scarcely see over these mountains.

In 2008, however, we reached that stage on the curve of diminishing returns where the parabolic costs turned sharply upwards in order to maintain the same growth that was delivered in the early years of this Ponzi economy. We called that dawning of truth about the failed ideas “The Great Recession.”

Governments refused the truth because you cannot sell despair and increased their pile-up of debt exponentially higher, reaching that point where the economic engine finally begins to overheat and has nowhere to go.

Naturally, this ramp-up, known as quantitative easing, appeared to be creating recovery because its artificial respiration breathed a final stir of life into the old dinosaur economy. It gasped toward the end of 2009 and staggered to its feet again. As its footing seemed to stabilize, the economeisters all sang of “recovery,” but the beast’s economic life was now totally sustained by artificial respiration that required a bellows along with every other form of life support that its masters could throw at it.

Keeping it alive and looking half normal was now a full-time job. Some people during this final time pointed out that it didn’t look quite normal anymore — that odd things like bonds going up when the stock market went up and like stocks going up when economic news was bad were happening. These things they said were dangerous anomalies.

“Aw, be quiet,” said the economeisters. “Wealth has returned. These side effects of our medicine will disappear when the medicine is no longer needed.

But their great work cannot truly be regarded as “recovery” if the beast can never live on its own. The simple truth that the rapid expansion of debt required to maintain economic “growth” could not continue still evades them.

Reality hits you all the harder when you deny what is coming. Now, with such strong medicine still in play, the great beast is faltering again. Stocks have gone nowhere for almost a year. Dark clouds are growing closer all around.

So, where we are now is that point in the law of diminishing returns where you find the end is hideously parabolic where the upward trajectory of debt suddenly becomes a topless wall. We stand in the short period before that point where the increased costs are suddenly running almost straight up with very little motion forward as a reward for those costs. So, when interest on that debt goes up, that path we’ll hit the wall.


Economic Denial Reigns Supreme


In the early days of the Great Recession under George Bush, I said that the government had chosen a solution of plowing the deep snow straight ahead, instead of off to the side. The result would be that the pile of snow in front of the plow would get higher and higher until the plow couldn’t push it any longer.

We have now reached that point where the government hasn’t got much left to push the dinosaur economy forward, but they cannot stand to see the hideous thing they believed in die and prove them wrong. They may, as Peter Schiff has said, continue low interest indefinitely and turn on QE4, but it will be a disaster if they do, and they know that because to do so is to admit failure unless extreme circumstances provide them some brief argumentative cover — i.e., that they only had to resort to QE4 because of temporary extreme circumstances that have nothing to do with the medicine they have been administering.

I think, however, they believe in their lies because their wrong beliefs have made them rich, and that is proof of success to most people. Therefore, if the present market stabilizes for the next couple of weeks, I think they will boldly raise interest rates in order to prove their recovery.

That’s the moment when they pull the dinosaur off the last of its artificial life support. Watch when they take the respirator away and their great moment of proving their recovery was a success turns into despair as the dinosaur begins immediately to gasp.

What lies, then, will they tell in order to keep the people in rose-colored glasses? Slap on the QE4 and turn back on the zero-interest air supply and say, “Just kidding?” In a world of people wanting to believe in recovery will they find ready believers for their next tricks, or will reality break in with such force that terror strips the glasses off everyone?

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