Amplifying When the “Solutions” Become the Problems

Charles Hugh Smith published an insightful post on his blog this week, you can read it here.

The gist of the post concerns solutions that are simply becoming the next problem. From the post:

If we look at yesterday’s chart of overlapping crises, we note each crisis began as a purported “solution.” The “solutions” are: more debt (now a problem); more centralization (now a problem); financialization (now a problem); promising more benefits to everyone (now a problem), and so on.

The cold truth is all these institutional-state-cartel “solutions” serve the few at the expense of the many. This is not a side-effect; it is the intended output of these “solutions.” In other words, these “solutions” work great for the parasitic few at the top skimming all the wealth, power and income, at the expense of the exploited many and the stability of the system as a whole.
Those benefiting from these destructive “solutions” may think the system can go on forever, but it cannot go on when every “solution” becomes a self-reinforcing problem that amplifies all the other systemic problems.

Andrew Breitbart often famously said, “Politics is downstream from culture.” Our culture appears to be more focused on avoiding the pain than solving the problems – however avoiding the pain requires us to also avoid reality. James Kunstler remarked here:

These days, the hardships of history are shattering the nation and our response politically has been to take refuge in a matrix of rackets. Most of these rackets are economic, because it’s the essence of racketeering to extract the greatest benefit possible from the object of your racket at the least cost to the racketeer. In plain English, it’s an organized way of getting something for nothing. The identity politics of our time is another form of racketeering — extracting current maximum benefits on claims of mistreatment, often bygone, specious, or only imagined.

And so one of the truly existential questions of the moment is whether we’ll continue to be a nation, even geographically, and a lot of sentient observers aren’t too sure. Apparently we’re not too sure we even want to be. This is why the campaign slogan of Hillary Clinton, “Stronger Together,” rang so false when the Democratic Party worked so diligently in 2016 to construct separate identity fortifications and then declared culture war on the dwindling majority outside the ramparts. And you’re surprised that Donald Trump won the election?

We are apparently no longer willing to face our problems as a coherent, cohesive people – we are divided into identity groups fighting each other over table scraps. This trend does not just threaten our economic fortunes but our ability to maintain ourselves as a national entity. Conversely the matters we are focused on have little to nothing to do with our actual problems – and the solutions merely feed into the next set of problems.

So – take a big step back and take a deep breath – understand that no one at the moment has an appetite to deal with our actual problems and there is very little demand to deal with our actual problems as yet.

Hoping to help change that.

Change Is Afoot

I peruse the news every morning and not the news you may necessarily see on Fox, CNN, NBC, CBS etc.

Several articles of note recently – that the EU Tax Chief says that a Le Pen win is the end of the European Project, another that France leaving the Euro would be the largest sovereign default in history,  the EU is conducting warfare via finance and that Trump’s economic predictions for U.S. growth are overly optimistic.*

* Disclaimer: I have no idea if Le Pen will win and no idea if there will be a Frexit. However it is obvious that some people of note find that plausible. I am not alleging that Le Pen will win or lose. I have not a clue.

All these articles tie together.

If Le Pen wins or not – change in Europe is afoot.

The EU, and specifically Germany, continues to re-nogotiate the terms of the debt which Greece owes. Greece will never be able to pay back the debt they have acquired. Everyone knows this. Each time the semi-annual Greek debt crisis reappears Germany extends terms and demands additional Greek assets as collateral. Germany has no practical way to collect the collateral on this debt when Greece defaults. There is no longer a Wehrmacht which will plow through the Balkans to get to Greek assets hence all of the Greek islands and airports and such that have been pledged as collateral cannot effectively become ‘German.’ Not going to happen.

This is all a charade that the EU goes through in order to avoid the day of reckoning. The EU wishes to avoid that day of reckoning because when that day of reckoning occurs it is highly unlikely to be contained to Greece.

This takes us back to Le Pen – and Trump – who have policies which will compel that day of reckoning upon Europe. The EU is a house of cards built upon debt which is mathematically impossible to repay. Le Pen wishes to pull France’s cards out of the house of cards and go their own way. There is a saying:  “It does not look like panic if you are the first to do it.” If France pulls out of the EU there will afterward be panic and the remaining members will most likely attempt to pull their cards out of the house of cards before it collapses – which in and of itself will cause the collapse of the EU as a viable political entity.

Contagion is what a Greek default represents. Contagion is what a Le Pen electoral victory represents. A great many people in Europe believe that contagion is what Trump ultimately represents.

This is not a small or insignificant thing.

This leads to Trump’s economic predictions for U.S. growth being overly optimistic and tying all of this together. Trump is forecasting 4-5% economic growth for the United States over the next number of years. For context, eight years ago Obama also forecast 4-5% economic growth for the United States over his term in office. Obama never saw 3% GDP growth, let alone 4% or 5%.

The primary restraint on our economic growth is the Zero Interest Rate Policy (ZIRP). Europe and Japan have even gone to a Negative Interest Rate Policy (NIRP). ZIRP and NIRP restrains growth, punishes retirees and savers and savages pension plans. ZIRP is a disincentive to invest in standard interest rate bearing instruments because of the lack of yield. Consequently it distorts the markets in a manner in which equities are more attractive and propels equities markets ever upward.

Propelling equities markets ever upward also allows the Federal government to increase its’ tax revenues via capital gains taxes on the sale of these equities.

Over the last eight years the world has absorbed unprecedented levels of debt – government debt, corporate debt and personal debt. ZIRP and NIRP allows this debt to continue to be serviced. For example – last year the Federal government cost to service the debt was about $250 billion at an interest rate that was a little bit above a quarter of one percent interest. The Federal budget was just about $4 trillion and about $3.4 trillion in tax revenue was collected. Do the math on how much it will cost the Federal government to service the debt at an interest rate of 2.5%, 5% etc. One pretty quickly gets to the point where the Federal government consists of servicing the debt, defense and the patent office. Even if you allow for historically low rates – one quickly arrives at a number that requires all Federal revenue be allotted to interest payments.

We know – that is highly unlikely to be allowed happen. The logical avenue is that we will not be voluntarily returning to market rates which will eventually create its’ own set of crisis.

Ultimately these are lethal problems – not today, not tomorrow, not next week but at some undetermined point on the horizon. Sadly our present response seems to be hoping some smarter people in the future can figure this out. Even sadder is that we are running out of runway for that future.

Quite a few people are having a difficult time grasping that math is not ideological.

Quote Of The Day

Quote of the Day: “The key insight of Adam Smith’s Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.” ― Milton Friedman