“The State Is That Great Fiction By Which Everyone Tries To Live At The Expense Of Everyone Else”

“The state is that great fiction by which everyone tries to live at the expense of everyone else.” ― Frédéric Bastiat

Everyday I hear a complaint along the lines “Why does the government allow this to happen?”

Bastiat had the answer – very few feel it is any longer their obligation to help their neighbor – it is now the amorphous ‘government’ that is obliged to remedy any and all pain. How many people calling for single payer or Medicaid for all are currently writing a check to cover another persons healthcare? Pretty close to zero – that is the job of somebody else to pay for it, not their job. Their job is to vote to alleviate pain, not actually personally do anything to alleviate pain. Basically they believe in outsourcing their humanity.

To the point Bastiat was making – if you ‘vote’ for it then it will be the expense of someone else, not you. That is the mindset. That it is completely bogus is irrelevant. The government feeds this perception by creating credit out of thin air in order to sustain an ever greater debt load in order that the mindset that it is the job of somebody else to pay, not their job, can be continued. As Thomas Sowell said, “It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it.” Reality has left the building.

As long as the central banks can continue generating credit from thin air the illusion can continue.

The day the illusion ends will be quite sporting – and it will someday end.

Buckle Up!

Yesterday I shared a newspaper column I wrote two years ago, Unwinding. In it I said, “The pattern is common, they come to believe that they can solve the problems in the world by changing human nature. That belief is inevitably acted upon by using all of the power they can amass in order to compel people to change. What will follow will often be people changing their behavior because they fear the consequences represented by the force compelling them to do so. However forcing people to change their behavior in the face of dire consequences is not the same as changing human nature.

That is the rub in this belief system. You cannot use force to change human nature, you can use force to change human behavior. Ever more force is required in order to maintain that ‘change’ in human behavior. ‘Ever more force’ has a logical end and when that logical end is reached the logical end of the ‘change’ is also reached.”

A couple of days previous to that I quoted Paul Brodsky extensively in a blog post – “Mr. Trump’s “Being There” presidency is reflecting an inconvenient truth back on a society that has, until maybe now, successfully deluded itself into believing government is functionally the glue holding society together. Though he does not mean to, Mr. Trump is single-handedly demonstrating to groups ranging from idealistic Washington elites to social media zombies to southern white supremacists that Madisonian government has become a dignified cover for the financial, commercial and national security interests that control it. We suspect those interests would rather the reach of their power be less visible”

Who really is running this country? That is not an intro to a Ron Paul conspiracy theory but an honest question. It seems to be ever more obvious that Trump is not running it – the bureaucracy he supposedly directs counters and foils him at every turn. If that Federal bureaucracy is not working for Trump, whom are they working for? As I noted previously, Goldman-Sachs alumni have taken nearly every meaningful economic position in the administration. Who is running the country? Rather than that question being ask in terms of a grave crisis and a complete subverting of the will of the voters and the electoral process it is instead celebrated as victory by the Washington establishment and the media.

Fred Reed posted in his blog over the weekend, “Clearly the people at the top, in the editorial suites in Manhattan, at Goldman Sachs, at Lockheed-Martin, know what they are doing. They want Trump out so they can continue looting. From their point of view, the placard-carriers and ball-bat wielders are, merely useful idiots. It is an odd and amusing alliance. The useful idiots, Leftists all, apparently do not know that they are carrying water for the arms industry and international finance.”

I have often pointed out that this country experienced a $15 trillion net wealth transfer during the Obama years, $15 trillion transferred from the bottom 93% to the top 7%. Each meaningful Obama policy and all of the legislation passed when the Democrats controlled congress and the White House amounted to nothing more than wealth transfers to the rich. These bills were written by corporations to benefit corporations. The Affordable Care Act drafted by the former VP of Lobbying for WellPoint, Dodd-Frank drafted by CitiGroup. The Obama administration was the pure and total take over of the Federal government by Wall Street banks and insurance companies.

Every law, policy and regulation from 2009 until January of 2017 worked to enrich the corporations and impoverish you – and the corporations and insurance companies and Wall Street banks all gained immense net wealth while you lost net wealth under Obama.

In no small measure Trump was elected to end this corporate ownership of the Federal government. It is undeniable that Trump is failing at kicking the corporations and insurance companies and Wall Street banks out of the government. It is also undeniable that most of the GOP is onboard with the corruption. If we had an honest media we would be treating this for what it is – the greatest threat and crisis since the Civil War. The corporations and insurance companies and Wall Street banks do not want to give up these policies, these regulations, these laws that allow them to gain wealth at your expense.

Somehow the American Left is standing foursquare in line with the corporations and insurance companies and Wall Street banks efforts to continue to plunder the country.

When I repeat James Kunstler’s line “Sometimes societies just collectively go insane” this is the level of insanity to which I refer. The one thing that 90% of Americans should be agreeing on – that corporations and insurance companies and Wall Street banks should not be plundering the country – the Left has decided is A-OK with them. Not only is the Left good with corporations and insurance companies and Wall Street banks plundering the country they are increasingly willing to back that view up with baseball bats and axes.

There is simply no end to the level of force the American Left is willing to bring to the table in order to allow corporations and insurance companies and Wall Street banks to continue to plunder the country.

It is just as Hayek said, “If socialist understood economics they wouldn’t be socialist.” This is the predicament this country finds itself in – Leftist refuse to entertain that what they are doing and want to do enriches the elites and impoverishes the masses. No amount of data will apparently convince them of the results of their position – and the more data presented the more vehement the resistance. The corporations and insurance companies and Wall Street banks are more than wiling to fund and support the Left to allow the plunder to continue.

The Left truly and sincerely believe that they are in the process of changing human nature. The Left truly and sincerely believe that force is justified in bringing about this change. They are wrong on both counts and no matter how truly and sincerely they believe something that is wrong – it is still wrong.

I have long said that Trump does not have the skill set or personality for the job at hand. I think that is shown to be true daily. It is unlikely to get better. Each day it looks more likely that the battle is corporations + Wall Street + insurance companies + American Left vs. Everyone Else.

Buckle up, Everyone Else is not going quietly.

A Couple Of Indisputable Facts

A couple of indisputable facts:

We are living through the greatest credit bubble in history.

If credit bubbles do not continue to expand then they pop.

We are reaching the absurd stage in the attempt to keep growing the credit bubble. Ford is saying they will look past credit scores when people wish to purchase a new Ford (Note: the auto industry is already plagued by sub-prime loan repossessions). Some government-guaranteed mortgages are now ‘no appraisal’ loans. Central banks around the globe continue to inject credit into markets – to find people and entities willing to absorb that credit is getting more difficult and as a consequence standards are being continually lowered.

Government officials are encouraging people to take loans against the equity in their homes and more and more people are now doing just that. Even the anemic sub-2% GDP growth that we have been suffering through is now in danger – the government needs people to take out more loans to buy more stuff to keep GDP growth on the positive side.

‘Your-home-as-an-ATM’ is back with a vengeance.

GDP growth has indeed been anemic, auto sales are dropping, housing may have reached a plateau and Americans have individually and collectively more debt that ever before. The ability of central banks such as the Federal Reserve to continue levitating markets may be reaching a logical end. Janet Yellen and her cronies insist that is not true – but all of these same people insisted that the economy was in no danger in 2007 and 2008 as well so keep that in mind.

Some smart people believe we have reached peak asset value.

We have decided to substitute liquidity injections for actual growth. Central banks have now purchased assets equivalent to 40% of global GDP. How much more is out there to buy and propel ever upward? The Japanese bond market has effectively ceased to exist – the Bank of Japan is assumed to be the buyer of everything. The ECB is running out of things to buy – including corporate bonds.

It is generally assumed that the Federal Reserve will re-start Quantitative Easing, i.e. the purchase of assets, if the bubble starts to slip. As of this moment the Federal Reserve is still promising to ‘normalize’ their balance sheet – in other words sell the assets they had purchased under previous QE efforts.

This could get very sporting. There is a school of thought that all financial crisis are liquidity crisis. This is the reason that central banks began the liquidity injections eight years ago – the question that begs is if removing the liquidity injections would simply land us back to where we were eight years ago? In other words – all the central banks provided was eight years of CPR and when they stop will the patient die? All evidence indicates that is the case. If it is not the case the central banks would have ceased the liquidity injections years ago. This is the trap that we find ourselves in.

The flip side of that is that to continue the liquidity injections also continues the wealth and income disparity. During the eight years of Obama 60% of all economic growth took place in a single sector of the economy: financial services. In other words, Wall Street Banks received 60% of the GDP growth during the Obama years. Insurance companies got about 20% of the economic growth during the Obama years – so only 20% of economic growth went to people not on Wall Street or the insurance companies. Additionally Obama is the first President to never reach a 3% GDP growth rate – what little growth went to the rest of the economy was atrocious to begin with.

Why are those percentages so terrible and one-sided? The policies of the Federal Reserve combined with legislation such as Dodd-Frank and the Affordable Care Act distorted markets in a manner where it was less profitable to invest in productive business and more profitable, and much less risky, to invest in assets which the government and Federal Reserve were essentially guaranteeing and funding. What happened is pretty straightforward. It was theft pure and simple, but straightforward. On top of that the rehypothecation and collateralization of credit combined with the implicit and explicit government and central bank guarantees has created a situation where simply introducing credit, or being in a spot where you can invest in credit, is much more profitable than anything being funded by the credit.

Absolutely distorted markets created an absolutely distorted economy where a few people profit beyond imagination while the bottom 90% continually bleed wealth and income.

The error – or cowardice depending on how you view it – of Bush and Obama and Bernanke and Yellen was in not allowing the economy to reset after September of 2008. Firms that should have gone out of business were rescued and have become zombies. They are only profitable – and only continue to exist – due to the largesse of the government and Federal Reserve. At the same time legislation such as Dodd-Frank and the Affordable Care Act along with enhanced EPA regulations and other enterprise stifling actions raised the bar to new business enterprises being formed. The Obama administration each and every year saw more businesses go out of business than were started – that had never occurred before in all of American history. The lack of startups combined with the zombies is the reason why nearly 9 million full-time private sector jobs were lost during the Obama years – and that leads directly to why you have a President Trump.

How the governments and central banks will escape the trap they have laid for themselves without collapsing the entire house of cards is unclear. Any successful escape will have to include real moral courage, the ability to explain what is happening, the ability to stand up to the entrenched interest gaining wealth from these distortions and the ability to gain the co-operation of and co-ordinate with many entities around the world.

What are the odds…

Interesting Days Lie Ahead Of Us

 

James Kunstler recently sat for a podcast interview and it is worth your time to listen.

 

Some meat:

 

“What we’re seeing is the result of behavior of people who have no idea what they’re doing. Most of the major systems that we rely on are entering a state of failure of one kind or another. And, of course, the larger problem is that they’re interlinked, and that their failures will be mutual and self-amplifying.

 

These systems include the energy system that has powered industrial civilization, the oil and gas industries which you’ve talked about a lot and I think that our listeners understand pretty well — although the finer points of it, like the ‘energy return on investment’, is something that’s certainly not understood by the general public, or most of the officers in our government, and certainly not in the New York Times, Washington Post or other major media outlets. They just don’t get that.

 

That energy problem is reverberating through everything, including agriculture and our inability to use the oceans in some way that’s not going destroy them. And the medical system. The education system. All these systems are blowing up. In the absence of being able to run them coherently in any kind of economic way, they’ve turned in to rackets — basically, people are trying to make a profit off of them dishonestly one way or another.

 

Because we’re immersed in comprehensive dishonesty in our culture, we no longer recognize what we’re doing or what the truth of our situation is. It’s pretty dismaying to see our culture flounder, particularly in trivialities and bad ideas(…)

 

My own guess is that the denouement to all this is going to involve disorder in the financial realm, because finance is the life blood of the techno-industrial society we live in. When that gets into trouble, the problems are going to thunder through all the other realms of our culture, and then we’ll be forced to pay attention. And I think that these financial disorders are not far off. When they happen, things are going to change.

 

You and I have been quite frustrated over the last eight years at the ability of certain authorities in our culture to manipulate prices and levitate markets and intervene in the physics of our economy. That just can’t go on forever. Even though it’s frustrating to watch, it looks to me like it’s climaxing. The disorders that are already present in our economy are manifesting now in our politics. And that to me is a pretty dangerous sign.”

 

Kunstler is infinitely more capable than I am at communicating these truths. The key here is “we’re immersed in comprehensive dishonesty in our culture, we no longer recognize what we’re doing or what the truth of our situation is.” Paul Brodsky recently alluded to our actual plague not being ‘fake news’ but ‘fake politics.’ The majority spend their time arguing about what to do in regard to a situation that only exist in fantasy. Let me give you a prime example – while the official Federal budget is about $4 trillion the Feds accumulate north of $4 trillion in additional debt each year that they choose not to count. The actual Federal government obligations exceed $8.4 trillion a year. This is the problem we should be dealing with, not the $4 trillion. Another example, while the official Federal debt is in the neighborhood of $20 trillion, the Congressional Budget Office says the actual Federal debt is $210 trillion – the gap is due to the annual accumulation of debt that the Federal government chooses not to count. $210 trillion in debt is the number we should be working with. As Kunstler said – “we’re immersed in comprehensive dishonesty in our culture” – and the fake politics that goes along with that comprehensive dishonesty.

 

For eight years we have been told about ‘economic recovery.’ The truth is that central banks have propelled asset classes ever upward by direct intervention in the markets. Central banks have now purchased assets equal to 40% of the world GDP. Printing money and then using that money to purchase assets in order to propel preferred asset classes upward now qualifies as ‘economic recovery’. The concept of ‘moral hazard’ is as antiquated as the curtsy.

 

Still not at peak absurdity!

 

Charles Hugh Smith recently posted “Ideology as Addiction.” Some gems from that post:

 

“Ideology fills two basic human needs: certainty and purpose. a constant state of uncertainty places a corrosive burden on the mind, emotions and spirit; the solution is a decision or resolution that resolves the uncertainty.

Humans need purpose to guide their life; aimlessness is debilitating and unnatural.

Addiction provides purpose, as the life of the addict is guided by the need to satisfy the addiction.

Ideology also provides purpose: the believer is called upon to defend and evangelize the ideology as an abstraction, and support its manifestations in the real world.

Addiction is an all-or-nothing state of being. If an individual can abandon the addiction at will and feel no deprivation, it isn’t an addiction; if sporadic half-measures suffice, it isn’t an addiction.

Ideology is also an all-or-nothing state of being. One doesn’t believe in capitalism or socialism, for example, in half-measure or occasionally when the whim strikes; one is convinced of the rightness of one’s ideology as a permanent state of certainty.

There is a sense of belonging and betrayal implicit in ideological beliefs that mirrors addiction. The sex addict, for example, feels only fellow sex addicts can possibly understand the compulsion and satisfaction of that particular monkey on one’s back.

In the state of ideological certainty/ addiction, only fellow believers can possibly grasp the perfection and rightness of the ideology. Thus this certainty is not just a state of being; it is also a state of belonging, hence the similarity of belonging to a cult and addiction.

To cease believing is heresy and an abject betrayal of the brethen/sisterhood. Hell hath no fury like a membership scorned or abandoned.”

 

It would certainly appear that people are indeed addicted to ideologies. That the ideologies are rooted in fantasy, fake politics and can only be maintained with comprehensive dishonesty (even if the true believer does not recognize the dishonesty) is what allows a certain class to exploit the fantasies to their economic benefit. Indeed certain classes continue to feed the ideologies, fantasies and fake politics – even financially supporting them – because they can create immense amounts of wealth for themselves from the addiction to fantasy.

 

Like Kunstler I believe the systems are breaking down – and breaking down because they are premised on dishonesty. Printing money, injecting liquidity, hiding debt, and purchasing assets in order to maintain an illusion does have a logical end. How does society react when that logical end is reached? What happens when a critical mass recognizes it was fake politics? What happens when the ideological addicts are compelled to unwind in the face of reality?

 

Interesting days lie ahead of us…

Unwinding

Sharing a newspaper column I wrote two years ago because it is still apropos

Unwinding

By Keith Nobles

Throwing something up into the air, no matter how hard and far you threw it, does not mean you have defeated gravity. These folks who support the continued distortion of the markets make an argument that is akin to “See, it has not hit the ground again so I have defeated gravity!”

Distorted markets always unwind. Unless people believe, and to be very fair most leftist do believe, that human nature and economics has changed in the most fundamental of ways it will be true again. In my opinion, the problem here is that most leftist do believe that they have used legislation and regulation and popular media to fundamentally change human nature. At the end of the day that will prove delusional. I suspect the price we pay for that delusion will be extreme.

There are many people out in the universe at the moment that happen to believe that if they use enough power and force to distort a market that it will never unwind. They also typically coincide with the people who believe that human nature can be changed via regulation, legislation and popular media.

This is not the first time that people have come to believe that they have changed human nature. Changing human nature is the basis of Marxism and all Marxist believe Marxism changes human nature. Fascism is based in the belief that it can change human nature. This is not uncommon in history; the absolute abject failure in believing that you can change human nature is also not uncommon in history.

In fact, believing you can change human nature has never once succeeded no matter how much force you use.

The pattern is common, they come to believe that they can solve the problems in the world by changing human nature. That belief is inevitably acted upon by using all of the power they can amass in order to compel people to change. What will follow will often be people changing their behavior because they fear the consequences represented by the force compelling them to do so. However forcing people to change their behavior in the face of dire consequences is not the same as changing human nature.

That is the rub in this belief system. You cannot use force to change human nature, you can use force to change human behavior. Ever more force is required in order to maintain that ‘change’ in human behavior. ‘Ever more force’ has a logical end and when that logical end is reached the logical end of the ‘change’ is also reached.

Distortions And Structural Issues And You

Paul Brodsky had this to say this week

“It should not surprise anyone that Western societies are becoming restless. Trump, Brexit, Charlottesville and, arguably, even radical Islamic terrorism are bi-products of global economic distortions largely created by the unwillingness of the Western political dimension to let the global factors of production naturally settle global prices and wages. (Sorry, it had to be said.)”

“As discussed, the biggest challenges facing the US economy and US labor stem from a distorted global price and wage scale. Mr. Trump’s domestic fiscal, regulatory, tax and immigration goals seek only to raise US output and wages. This cannot be achieved without the participation of global commerce. There is no such thing anymore as a US business that makes US products sold only in the US without being influenced by global prices, wages and exchange rates. The romantic, patriotic “made in the USA” theme does not comport with the reality that the US also seeks to keep the dollar the world’s reserve currency and that maintaining America’s power requires the US to control the world’s shipping lanes. Mr. Trump and his base cannot have one without the other. (Do we really have to articulate this?)”

“Mr. Trump’s “Being There” presidency is reflecting an inconvenient truth back on a society that has, until maybe now, successfully deluded itself into believing government is functionally the glue holding society together. Though he does not mean to, Mr. Trump is single-handedly demonstrating to groups ranging from idealistic Washington elites to social media zombies to southern white supremacists that Madisonian government has become a dignified cover for the financial, commercial and national security interests that control it. We suspect those interests would rather the reach of their power be less visible”

Brodsky used a term this week – ‘fake politics’ – not just fake news. Very apropos – the fake politics covers the market distortions and structural economic issues that the politicians lack the courage or intelligence to address.

The distortions in the global economy are causing structural issues around the world – Trump and all this we are experiencing is a by-product of those distortions and structural issues. I don’t agree with everything Brodsky said but he nailed it with “global economic distortions largely created by the unwillingness of the Western political dimension to let the global factors of production naturally settle global prices and wages” – this cannot and will not last and when the current price and wage regime collapses it is likely to do so quickly – which is why debt is your enemy.

Governments and central banks around the world are going to extraordinary measures in order to extend the lifespan of the existing paradigm – but that paradigm will be ending. When the paradigm ends it will be a global earthquake as prices and wages reset in the midst of mountains of unserviceable debt.

Buckle up…

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