We all seem to have this thing we do where we get stuck in time on a particular topic. We all do it with music – some timeframe in our life in which the music meant something and we just do not proportionally progress from that timeframe. For example – I find myself listening to a lot of Led Zeppelin and The Who, I know all the words to ‘Thick As A Brick’ by heart. However it is not just music – we all have a favorite era from the past for vehicles and art and many other things.
It seems at least once a week that I quote what James Kunstler said in February of 2016 – “Sometime societies just collectively go insane.”
Kunstler’s reasoning for why this occurs is interesting (and he has provided previous historical examples of such) – in that societies lose the courage, the appetite, the willingness to deal with major problems. This is a gradual process – it does not just happen one Tuesday at noon – that evolves into an unwillingness or perhaps even inability to see that major problems exist. Societies which find themselves in this state substitute the trivial, less important or even fictional problems for the actual problems and hence end up living in a fantasy world – “Sometime societies just collectively go insane” – of spending their time and energy and resources attempting to solve the meaningless or non-existent problems until they are overwhelmed by the inevitable and relentless grind of the actual major problems which they have failed to even acknowledge until it was too late and undeniable.
FYI for some perspective on this – Kunstler is a Democrat who thinks his own party has simply gone insane – so don’t think this is some wild libertarian theory.
FYI some more – Kunstler thinks both parties have gone insane and that it is a reflection of “Sometime societies just collectively go insane.”
We have real problems and we have real problems around basic things like math and that what governments at all levels have signed up to provide is not mathematically possible without having made those obligations valueless. We have built – to a large extent – our society on government fulfilling these obligations. That we are racing down the trail of making these obligations valueless seems not to be on anyones agenda.
I think is the key word here is valueless. We are racing as a society to make all sorts things which should be of immense value – valueless. We will regret that.
I am not dogmatic about this – but it is truly the best explanation I know of for what is happening to us.
A few thoughts on trade and ‘globalism’ and all that –
Reality is that worldwide trade growth has been in decline. Why is this? That the world is awash in overproduction of commodities is the primary culprit. There is also talk of having reached peak oil consumption and such – but that is a different topic. Governments worldwide goosed their economies for eight years to enhance production and employment and tax revenue and on and on. This has created a surplus of almost everything. That supply and demand dynamic is attempting to return to equilibrium.
People around the world seem not to be cognizant that trade growth is declining globally and have acquired a belief that it is only ‘their’ trade that is declining – and the tangential belief that ‘someone’ has stolen their fair share of trade. Hence the popular remedy has become very nationalistic – not just in the United States but nearly everywhere.
Basic problem – trade is in decline because individual nations collectively produced more than there is a demand for which has resulted in prices dropping and some countries trying to ‘dump’ commodities and manufactured products on other countries. This has also caused all kinds of other issues in the attempt to dispose of products, i.e. subprime auto loans in the United States and so forth. Reality is that production has exceeded demand due to governments having distorted markets.
Most economist would diagnose the solution as needing to increase demand – and they would historically do that by lowering interest rates and loosening credit requirements. However we are already at ZIRP and NIRP and awash in subprime loans so it is difficult to see how doing more of that will increase demand or even arrest the slide in demand.
I would guess that these markets will rediscover equilibrium. That is unlikely to lead to peace and happiness. Remember, if goods do not cross borders then armies will. We already see Brazil and Russia and such being savaged by the markets attempt to return to equilibrium. Saudi Arabia is bleeding and Australia is wounded.
In many of these nations a return to equilibrium is likely to lead to social and political crisis. That is likely to lead to significant change in the world order. One leads to the other which leads to the other.
The ‘globalist’ are really interested in global political stability but their neo-Keynesian policies have created growing instability. Not only do they not know how to escape the problem they created, the people who populate these countries are growing increasingly – and sometimes violently – impatient with their inability to escape the problem.
Into this walks Donald Trump.
What will Trump do? I have not a clue. A lot of protectionist talk but how much of that is just staking out a negotiating position? He certainly understands that global trade is declining – and why. He also certainly understands that tariffs as a negotiating position is useless as an idle threat, you have to follow through for it to have any teeth or for other countries to take it seriously.
I also cannot but help think that he understands that tariffs will exacerbate the problem of declining world trade.
Hence I have not a clue where this all leads.
Buckle up, it is likely to be bumpy ride for a while.
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.
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.