The Shape of Things To Come

The Shape of Things To Come   (July 8, 2011)

http://www.oftwominds.com/blog.html#jump

By Charles Hugh Smith
The Great Reset could take many forms. The only certain thing is that today’s profound political disunity and our destabilizing financial Plutocracy will force a crisis.

Yesterday I laid out why the U.S. will inevitably experience The Great Reset. What comes after that systemic devolution/crisis is unknown, but we can speculate on the shape of things to come.

Though we cannot know the outcome, we can certainbly discern the outlines of the crisis itself. These destabilizing conditions will force a crisis at some point and will be resolved one way or another:

1. Profound political disunity. As I noted in Survival+, this was a key feature of the Roman Empire in its final slide to collapse. The shared values and consensus which had held the Empire’s core together dissolved, leaving petty fiefdoms to war among themselves for what power and swag remained.

Today we have several types of political disunity. Superficially, the two “political theater” wings of the Demopublicans stage a bitter partisan war over whose vision of the U.S. as a “Plutocracy, but with benefits” holds an increasingly enfeebled political power.

But this is all theater and artifice. Neither wing has any vision or values of substance; each slavshly serves their masters, the corporate cartels and financial Oligarchy, while feeding their vast constituencies in the Savior State great gobs of borrowed treasure to maintain the “Plutocracy, but with benefits.”

The real disunity is between a doomed Status Quo and those willing to deal with reality. Right now those willing to deal with reality are few, but they have the distinct advantage of reality on their side, while the Status Quo has only propaganda, artifice, phony political theater and empty promises.

The disunity stems from the public’s innate desire to hold onto the empty promises and cling to the hope offered by the Status Quo that these grandiose, impossible promises will be met, despite the abundant factual evidence to the contrary.

Every attempt to lead the public toward the realization that the present is unsustainable will be crushed by a frantic assault of the fiefdoms, cartels and players who will lose power and profits when the Status Quo crumbles under its own weight.

Promises always sound better than reality until a crisis punctures the promises. But the anger generated by this deflation of “too good to be true” promises threatens both rationality and stability.

2. A dearth of leadership. The weakness of what passes for “leadership” today is not just a matter of bad luck but of the corruption of politics to the point that it only attracts sycophants, moral midgets and sociopaths. It’s easy to blame those attracted to the game for this, but the real cause is the American people, who reject honesty in favor of artifice and promises. The American public is child-like, self-centered, myopic, ill-informed and ultimately uncaring about anything but getting their share of the swag.

Thus anyone who promises that their share of the swag will remain untouched wins, and anyone who suggests the swag is unsustainable is rejected as “judgmental” or “negative.” To the degree a nation gets the leadership it demands, then the U.S. is in trouble. We’re now a nation of spoiled teens who get to elect their parents. No surprise, the ‘rents who never enforce any rules, never challenge their own bosses (the kleptocrats) and who dole out the most allowance win every time.

Thus we get leaders who refuse to challenge the Financial Power Elites, cartels and fiefdoms because the Status Quo would devote all its stupendous wealth and influence to defeating a challenger, and we get leaders who refuse to be honest with the American people because that honesty is rejected as unwelcome.

Ideally, a leader persuades the public to grow up rather than pander to their basest desires, but such a leader would only have one term of office.

3. The unstable double-bind of rule by Financial Plutocracy. A funny thing happens when a nation allows itself to be ruled by kleptocrats: such rule is intrinsically destabilizing, as there is no longer any center to bind the nation together. The public sees the value system at the top is “I, Me, Mine” greed fed by complicity/corruption, and they follow suit by pursuing whatever petty frauds and corruptions are within reach: tax avoidance, cheating on entrance exams, gaming disability, lying on mortgage and job applications, and so on.

Meanwhile, the diverting of national income into a few power centers is also destabilizing, as Central Planning and Market Manipulation (TM, Federal Reserve, all rights reserved worldwide) are intrinsically unstable as price can no longer be discovered by unfettered markets. As a result, imbalances grow until some seemingly tiny incident or disruption triggers a cascading collapse.

The double-bind is two-fold: the Power Elites can’t bear to part with any of their power or wealth, so their resistance guarantees systemic collapse. The political “leadership” cannot challenge the Power Elites’ grip on the nation’s throat because the entire Status Quo has been co-opted/sold out and is now wedded to the Oligarchy as their guarantor of financial security.

What this leads to is a Status Quo committed to a sinking ship. The very imbalances created by a Financial Elite and the enabling Central State Central Planning doom the system, but since everyone within the Status Quo depends on it for their own slice of wealth and power, then no one dares speak up in favor of reality. Complicity is the order of the day, but complicity can’t stop the ship from sinking.

4. The political corruption of religion. Jesus did not say, “Go forth and lobby the Roman Senate, to make laws which impose your interpretations on others.” Jesus said, “My kingdom is not of this world. If my kingdom were of this world, my servants would have been fighting, that I might not be delivered over to the Jews. But my kingdom is not from the world.” (John 18:36)

Although it is unpopular to say so, some aspects of religion in the U.S. have been corrupted by a desire for wealth and a focus on acquiring it, and by a desire for political power masquerading as morality.

Very few (I know of none) commentators, mainstream or independent, see the potential for a Great Awakening, a spiritual, non-denominational renewal of faith not as some political force in the greasy halls of power but as a motivator of personal responsibility and resolve. I may be alone in this, but American history is replete with examples not only of political upheaval but of broad-based spiritual renewals that reject the earthly excesses in favor of a renewed moral center.

Such movements need not be associated with any one religion or denomination; they tend to be cultural in nature, drawing inspiration from religious faith but extending beyond the confines of the church.

Complicity and dependence erode the soul; political or financial “fixes” alone can’t fix the rot. In a fundamentally corrupt, complicit society, rules and laws are routinely evaded, bypassed, undermined or simply ignored. Making more rules fixes nothing if the rules are merely for show, or only for the bottom 99%.

The resolution of these brewing instabilities could be orderly or disorderly. In an orderly scenario, a new Constitutional Convention is convened, and a leadership backed by an enlightened public hammers out a consensus to limit the political and financial dominance of Financial Power Elites and corporate cartels. The new consensus reorients the Central State to its original purpose of limiting predation of the citizenry by Elites and criminals, defending the nation and imposing the rule of law as defined by the Constitution. The Savior State would be dismantled in an orderly process.

In a disorderly resolution, the Status Quo and the public both refuse to deal with reality and instead cling to the Titanic, demanding magical solutions that will keep the doomed ship from sinking. There is no such magic, of course, and so the ship will go down, and disorder will reign.

It might take the shape of a financial crisis such as a devaluation or hyperinflation, or it might take a political crisis such as a “Quiet Coup” by Elites or an outbreak of resistance to the heavy-handed Central State.

At the outer boundaries of such disorder, then the nation could split apart, along the lines of the book The Nine Nations of North America, or into permutations of civil war as invisioned by author/blogger Chris Sullins in his novel series Operation SERF.

The salient feature of instability is its unpredictability. The longer the nation waits to deal with unwelcome realities, the greater the eventual destabilization. What happens as a result of that inevitable destabilization will be up to us.

The Great Reset   (July 7, 2011)

Since the Status Quo is unsustainable, there will be a Great Reset. The timing and nature of that Reset is up to us.

Yesterday I laid out why the Status Quo is financially unsustainable in The Promises That Cannot Be Kept. The unavoidable consequence of that is the nation will experience a Great Reset in which the promises of the Savior State are relinquished, either voluntarily or involuntarily.

As I discussed in July 4, 2011: The Cycle of Dependency and the Atrophy of Self-Reliance, our reliance on the Savior State has sapped our will and confidence, and hollowed out communities that have become dependent on the Savior State and its quasi-private partners, the corporate cartels of banking, defense, healthcare and so on.

The Great Reset will thus be a great shock to everyone who has grown dependent on Big Government and global Corporate America.

An unprecedented array of interconnected trends are converging that will force a Reset not just in the economy but in the American society and culture.

1. Peak Government and Moral Hazard. When the Savior State promises to “fix” any and all problems in the nation, such as banks making bad bets and becoming insolvent, it introduces a pervasive moral hazard into the culture. The defining characteristic of moral hazard is that it insulates a person from risk. That person will behave much differently than someone who is not insulated from risk.

In the case of finance, the person insulated from the consequences of his gambles will have an insatiable appetite for risky bets that would be viewed as insanely foolhardy by a person exposed to the full, real risk.

In broad brush, the financial crisis was caused by the Savior State backstopping all “too big to fail” banks and Wall Street bets. These financial institutions are essentially free to make stupendously risky bets and keep the gains, if any, while passing the losses back to the Savior State’s taxpayers. Imagine being given a stake at the roulette table where you get to keep your winnings but Uncle Sam makes good your losses.

Closer to home, the Savior State’s promises to fund our retirement and healthcare via modest payroll deductions has introduced a moral hazard that is reflected in the nation’s anemic savings rate: there is no need to save, because the heavy lifting of our retirement and healthcare will be done by the Savior State.

The numbers are something like this: the average Medicare recipient pays in $10,000 and extracts $250,000 in benefits. This kind of system is only sustainable if there are 25 workers for every retiree. Right now, there are roughly 2.5 workers for every retiree in the U.S., and if you consider only private-sector workers, it’s more like 2 to 1.

We are at Peak Government and Peak Promises.

2. Demographics. “Pay as you go” systems like Social Security and Medicare only function sustainably if the retirees drawing benefits remain about 1/10th of the number of workers paying the taxes. Alternatively, the population must pyramid up every generation to maintain that 10-to-1 ratio.

The Baby Boom is roughly 76 million people, or about 25% of the population. There are about 139 million workers and about 310 million residents. The Baby Boom has started retiring en masse; all of my relatives and friends who work for state or local government are already retired well before the age of 60, and the first Boomers qualify for Medicare this year.

Once the Boomers are in the system, the worker-retiree ratio will be less than 2-to-1. This is completely unsustainable in a “pay as you go” system. Here are the charts:

3. The End of Work. The cheerleaders will claim the U.S. economy will generate 50 million new jobs in the next 20 years and thus stave off demographic collapse of entitlements, but there is scant evidence to support this claim and plentiful evidence to suggest we are also at Peak Employment in terms of civlian participation in the workforce.

I have addressed these issues many times:

End of Work, End of Affluence I: Cascading Job Losses (December 8, 2008)

End of Work, End of Affluence III: The Rise of Informal Businesses (December 10, 2008)

Endgame 3: The End of (Paying) Work (January 21, 2009)

The “End of Work” and the Coming Revolution in Education (June 7, 2011)

4. Peak Health. We’re past Peak Health and well into a level of chronic lifestyle and diet diseases that is unprecedented in our history.

(Check your own BMI with the National Institute of Health BMI calculator.)

I have covered sickcare and the decline of health many times, for example, The American Diet: Manufacturing Ill Health (April 25, 2007)

 

As expected, developing nations like Egypt and Asian nations with low-fat, low protein cuisines like Japan have few obese adults. The surprise is that European nations with high-fat diets rich in chocolate and cheeses like France are relatively low. (Switzerland, though not shown, was just above Japan despite a very high per capita intake of chocolate.)This suggests that fat alone (or sweets alone) cannot be singled out as the “cause” of obesity.

Now please don’t take this entry personally if you are overweight. By the NIH standards of what constitutes “normal weight,” some 2/3 of American adults are overweight or obese. Since this wasn’t the case 40 years ago, we have to ask what’s different now.

What’s different? Lifestyle and diet. Boiled down, here is the situation: unprocessed foods are healthy and unprofitable, processed foods are unhealthy and immensely profitable.

 

Here is a long-term study which supports the connection between lowering salt intake and lowering the risk of heart disease:
Scientists prove that salty diet costs lives; “Eating less salt reduces the chances of suffering a heart attack or stroke, the first long-term study of salt’s impact on health confirms today.”

The usual image of a high-salt diet is someone shaking loads of salt on their steak or veggies. Too bad it’s not this simple. A careful study of standard American manufactured foods has led me to conclude that even if you don’t add a single grain of salt to a single morsel of food, you are eating far more salt than is healthy.

And by manufactured foods I don’t mean just frozen dinners; I mean canned beans, prepared salads, packaged noodles, sausage, snacks, etc. Everything which isn’t fresh produce, bread. dairy/soy or fresh meat/fish, i.e. foods which require some preparation.

The “recommended salt intake per day” is about 2300 mg (milligrams), which in terms of limiting your risk of dying prematurely should be viewed as a maximum best avoided–about half that would be a better target. So let’s “eat healthy”–low fat and low sugar–and see how we do:

Breakfast: Wheat Chex: 420 mg of salt and a low-fat Aidells sausage: 300 mg
Lunch: Trader Joe’s mushroom rice noodle soup bowl: 700 mg
one bag of low-fat chips: 600 mg
dinner: organic garbanzo beans, 390 mg, salad with blue-cheese dressing with bacon bits (500 mg), frozen low-fat enchiladas (750 mg.)

Total salt content of “low calorie, restricted fat” diet: 3660 mg. What can we say about this level of salt intake? It raises the risk of stroke and heart disease. Put simply: it will very likely take years off your life.

So next time you’re in a fast food outlet or a supermarket, try to find something you can eat that won’t kill you.It will be a challenge, I guarantee you.Here’s a short list of what I no longer eat:

  • chips: out, too much salt
  • fries: out, too much salt
  • sausage: out, too much salt
  • fast food in general: out, too much salt
  • salted nuts: out, too much salt
  • canned goods: out, too much salt
  • most cereals: out, too much salt
  • bottled salad dressings: out, too much salt
  • sports drinks: out, too much salt
  • pre-packaged salads: out, too much salt in the dressing
  • frozen meals: out, too much salt
  • packaged snacks: out, too much salt
  • packaged noodles: out, too much salt

In other words, literally everything in the supermarket except the fresh produce and the meat counter (with rare exceptions like frozen blueberries, which are essentially produce anyway).

If you want to locate the cause of American obesity and poor health, look no further than the label on virtually every item in the American supermarket.

Demographically, the Savior State programs of healthcare are unsustainable, even as the costs of treating chronic lifestyle diseases with expensive medications is skyrocketing along with the population at risk of these chronic lifestyle diseases.

5. Peak Cheap Oil. Cheerleaders assure us the world has 40 years of oil, no problem, but these cheerleaders inevitably avoid the consequences of EROEI. It now takes more capital to extract a barrel of oil or process shale into liquid oil, a dynamic measured by EROEI, energy returned on energy invested (or EROI, energy returned on investment, which to the degree that money is a measure of energy is the same thing).

In the good old days, oil gushed out of the ground and the total recovery cost was $1 per barrel, or perhaps $5 if the well was deep. So what happens as the recovery cost rises to $50 per barrel? That is the cost for deep offshore wells, tar sands, shale oil and all the other so-called “unconventional” sources of oil.

We should recall here that relatively modest (in the long view) increases in the cost of energy in the 1970s sent the U.S. economy into a decade-long stagflation. Cheerleaders reassure us that energy is a much smaller part of the economy now, but that reassurance is hollow, for oil leverages everything from air travel to plastics to fertilizer to the cheap frozen foods in the supermarket.

Bottom line, more of our national income will be diverted to pay for higher energy costs, leaving less discretionary income for the consumer society that has become the foundation of the economy. As the Savior State promises are revealed as impossible, then people will respond by saving more as they are exposed to the real-world risks of having no savings. This will leave less discretionary income for consumption.

The Great Reset won’t just transform government, it will transform the economy and culture. Although it will be marketed as a great tragedy by those losing power and profits, the end of Savior State moral hazard will not be a tragedy, it will simply be a return to reality. Those exposed to risk behave differently than those insulated from risk. That is neither “good” nor “bad,” it is an observation any of us can make.

July 4, 2011: The Cycle of Dependency and the Atrophy of Self-Reliance   (July 2, 2011)

The 4th of July marks the birth of the nation, and as such is a good time to distinguish between the nation and its Central government, the Savior State.

The 4th of July is a fitting day to ponder the reality that we are at Peak Government, and the Savior State is unsustainable. This is a matter of accounting: no nation can spend more than it generates in surplus real output forever. What goes unremarked is the intrinsically destructive nature of our rising dependence on a Savior State.

In his book Collapse of Complex Societies, anthropologist Joseph Tainter identified two causes of economic collapse: investments in social complexity yield diminishing marginal returns, and energy subsidies, i.e. cheap, abundant energy, decline. In my terminology, the dynamic he describes is one in which the cost structure of a society continues rising due to “the ratchet effect” but the gains from the added expenses are increasingly marginal.

At some point the additional costs, usually justified as the “solution” to the marginal returns problem, become counterproductive and actually drain the system of resilience as dissent and adaptability (“variation is information”) are suppressed. This feeds systemic instability: on the surface, all seems stable, but beneath the surface, the potential for a stick/slip destabilization grows unnoticed.

Cheap, abundant energy offers a surplus of value that can be invested in social complexity and consumption. Once the cost and availability of energy declines, then that surplus shrinks and can no longer be used to support the high cost structure.

The U.S. economy has clearly been driven to the cliff edge of instability by both dynamics: the cheap, abundant energy which enabled fast growth of consumption and high cost social complexity is vanishing, and the cost structure of the economy has ballooned far beyond sustainability.

To recount two previously mentioned examples: the “best of the best” fighter aircraft that cost $56 million per plane only a few years ago is being replaced by a new aircraft that costs $300 million each. Medicare/Medicaid and other healthcare costs are growing at two to three times faster than the underlying economy, and now consume twice as much per capita as any other developed nation. The “solution” offered by the Status Quo is a horrendously costly layer of additional complexity which doesn’t even address the key issue that we spend twice as much as other developed nations for arguably poorer care.

Put another way, the institutions that were intended to solve society’s big problems slip into self-preservation, and thus end up adding to costs and problems alike.

Jared Diamond’s book Collapse: How Societies Choose to Fail or Succeed argues persuasively that environmental mismanagement plays a key role in social instability and collapse. Some of the key factors include the relative fragility of the ecosystem, the human population’s demands on the carrying capacity of the environment, and the ability of social institutions to effectively problem-solve ecological overshoot.

In my analysis, there is a third dynamic that causes societies to cycle through growth, stasis and decline: an unremarked cycle of rising dependency on the Central State for direction, distraction and the essentials of life.

One example of this is the Roman Empire, which experienced an atrophying of enterprise and innovation as the Empire increased taxation on its remaining productive enterprises to fund the Empire’s high cost structure. To quell dissent, the Empire pursued a dual strategy of increased political oppression and placating the increasingly dependent lower classes with “bread and circuses,” literally distributing free bread and free entertainment to roughly 40% of the population of Rome. Both of these strategies required additional expenditures of treasure, even as they suppressed the dissent and adaptation (i.e. the information in variation) that might have led to a successful “ratchet down” transition to a much less costly and sustainable decentralized structure.

This “Savior State” also creates a third pernicious dynamic: as dependence on the Central State rises, self-confidence and self-reliance both decline, sapping the populace of the confidence and drive needed to meet the challenges of diminishing returns and higher energy costs.

We can visualize rising dependence on the Savior State and declining self-reliance on a see-saw: as dependence rises, self-confidence and self-reliance must fall.

What ensues is a classic destructive dynamic of co-dependence in which the supplicants demand ever more “bread and circuses” even as their resentment over their dependent status rises unabated. The Central State eventually taxes the productive citizenry into penury, as the poor are now completely dependent on the Savior State and the wealthy escape taxation via bribes and favoritism.

It seems clear to me that the U.S. is in the final stages of just such a dependency cycle that will end in the implosion of the Central Savior State as its obligations far exceed the economy’s ability to generate surpluses on that gigantic scale. Though the Central State can always print money, this artifice doesn’t “fool Mother Nature” for long; it doesn’t matter how many zeros are printed on the paper, the product will still cost the same in terms of energy consumed and hours of labor.

The end result of money-printing that is unsupported by actual surplus generated by the economy is the government sends out checks for $1,000 every month in accordance with its obligations but that sum only buys a single loaf of bread. You cannot fool Mother Nature by printing bits of paper and claiming they are a future claim on real goods and services unless the extra money is based on additional surplus being added to the system.

This dynamic leads to an environment in which citizens expect jobs, healthcare, housing, education, etc. from a Central State whose cost has already exceeded the carrying capacity of the economy. As cheap, abundant energy disappears, then the Central State loses a key subsidy of its bloated complexity. As the State’s fiefdoms devote their remaining energy to self-preservation at the expense of taxpayers or other government fiefdoms, the problem-solving potential of these institutions drops below zero: not only can they not solve any pressing problems, their “ratchet effect” efforts at self-preservation actively create new layers of problems and costs which push the State closer to insolvency.

Rather than wait for the Savior State to renege on its impossible promises, this site suggests pushing the see-saw in the other direction: boost self-reliance and self-confidence and lower dependence on a Savior State doomed by unfavorable demographics, high cost structure, failed institutions and rising energy costs.

Rome offers us a plausible model for the devolution of the Savior State. While a sudden collapse similar to the Soviet Union is always possible, I suspect the U.S. Central State will devolve in parallel with the ancient Roman Empire: as the Empire’s costs exceeded the surplus generated by its remaining taxpayers, it issued flurries of edicts to the far-flung provinces, demanding more treasure and imposing ever more regulations.

The edicts from Rome were simply ignored. In Yeats’ phrase, the falcon no longer heard the falconer. Enforcement is expensive, and if the gains reaped by costly enforcement are marginal or negative, then soon the issuers of the edicts ignore them, too.

On this 4th of July, the idea that the Savior State could slip into irrelevancy is far-fetched indeed, as the Central State is currently at Peak Government: intrusive, invasive, all-controlling, even as it plays the role of benign Sugar Daddy issuing trillion-dollar bailouts to banks, trillion-dollar props to the stock market, food stamps and Section 8 to the poor, Medicare and Medicaid to the sickcare cartels, Social Security to tens of millions of retirees, unlimited funding to the National Security State and its Global Empire, and all the other programs funded with its $4 trillion budget ($3.8 trillion officially, but don’t forget the hundreds of billions in off-budget “supplemental appropriations”) and its $1.6 trillion annual deficit, fully 11% of the nation’s GDP.

Perhaps it is time to think of the government not as our Savior but as the guarantor of the Constitution. Peak Government is like Peak Oil: most will deny it is even possible until it’s happening. We are probably a few years away from a true scarcity of oil and also a few years away from the realization that the Savior State’s $100 trillion in promises cannot be met by “fooling Mother Nature” with paper and promises. But that day is coming, and perhaps we will be more cognizant of this reality on July 4, 2015.

 

 

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