Guest Post: Things Are Spinning Out Of Control

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Things Are Spinning Out of Control

The pretense of centralized control of history is wearing thin.

The single greatest conceit of the Status Quo in the U.S., China and Euroland is that systems and trends can be tightly controlled. That conceit is slowly being revealed as hubris, as all sorts of things are spinning out of the control of the centralized authorities and financial elites in each geopolitical power center.

Does anyone really think the people of Greece will stand idly by while the state treasures of their nation are transferred to the banks which foolishly lent billions to a visibly risky enterprise? The banks, of course, lent freely to insolvent governments throughout the European Union, confident in the backstop of the E.U. itself.

The analogy to subprime mortgages in the U.S. is near-perfect: banks lent freely to extremely risky borrowers, breezily confident that their worker-bees in the Federal Reserve, Fannie Mae and Freddie Mac, the Treasury and Congress would all toil feverishly to transfer the risk to the U.S. taxpayers, by whatever means were necessary.

Does anyone really think the uprisings against this transfer of national wealth to the "too big to fail" banks in Europe will fade as unemployment rises and the true costs of the transfer become apparent to all?

Does anyone really think there is no chance that the citizens of one of the nations lined up to be stripmined by the E.U. will openly rebel against the stripmining, throwing out their government until they find some politicians who are not spineless lackeys and factotums of the financial Status Quo?

Does anyone really think the banks are really that precious to the people they are stripmining? Just how awful would it be if all the big banks with exposure to sovereign debt in the E.U. went belly up and were declared insolvent? A handful of very wealthy managers would lose their jobs, a handful of very wealthy owners would lose their stake, and all the pension funds and mutual funds which bet on the infinite passivity of the citizenry and the infinite checkbook of the E.U. would lose, too.

It's called Capitalistic risk and return, baby, and return can be negative. All the big players assumed the citizenry would quietly line up to have the clothing ripped from their backs and their flesh flayed to extract the pound of flesh "owed" the banks. But as the citizenry of Europe wake up to costs of the stripmining, which extends now to the taxpayers of Germany, Finland and beyond, they are withdrawing their support of the financial Status Quo.

Here is my plea: Ireland, Please Do the World a Favor and Default (November 29, 2010).

Things are spinning out of the control of the centralized mandarins in the E.U. They seem to have borrowed the Federal Reserve's playbook to keep the stripmining proceeding as planned: lie, frequently (practice helps); obscure systemic risks by printing money; and issue a foul sewage of propaganda about how nicely the economy is "recovering" to mask the real game, which is diverting the national income stream to the banking cartel.

The levers of interest rates, credit and money supply do not control larger trends; the appearance of control is illusory. The E.U. and the Fed are both busily applying the duct tape of various monetary machinations to the overheating boilers of the global economy, and presenting their frantic improvisations as "finely tuned, guaranteed to work" policies. As things spin out of their control, reality is poking through their rice-paper facade of "normalcy" and control.

Here in the U.S., the Fed's game plan of stripmining the nation to "save" the banking cartel is based on a cruel deceit I explained yesterday in The 'Baseball' Economy: The Fed Strikes Out (May 24, 2011): while the Fed maintains incentives for financial speculation and backstops any cartel losses in those speculations, it claims its policies are designed to "boost employment" in the real economy.

That is the world's most dangerous joke: if you believe it, you die from extreme irony. What the Fed is actually doing is starving the real economy and thus precluding any gains in employment as it diverts the national income to fatten the insolvent banking cartel.

Does anyone seriously believe their scam can endure? As I described in Your Pick, Ben, But One Goes Off the Cliff (April 22, 2011), the Fed's policies are setting up multiple double-binds. The Fed cannot finesse the unraveling of the entire financialization project.

There is currently a "great debate" over QE3, the next round of Fed "stimulus" (read stripmining). As things spin out of control, it no longer matters what the Fed does. That is, after all, their central conceit and the basis of their power: that the Fed actually controls anything. This quote, attributed to Napoleon Bonaparte, is increasingly relevant: "Do you know what amazes me more than anything else? The impotence of force to organize anything."

The Fed claims it can force the real economy to "grow" by forcefeeding it credit. But all the Fed is really doing is fattening the banking cartel with guaranteed profits (borrow from the Fed for free and then deposit the funds at the Fed for interest) and enabling another speculative frenzy which generates fees and profits for the banking cartel while the U.S. taxpayers play bagholder.

The Fed has lost control of the reaction to QE3. There is no "surprise" in QE3, so the potential positive is lost. Whatever the limitations the Fed imposes on QE3, they will be recognized as limiting the "high" of the credit-cocaine injected by the Fed.

If the Fed chooses an open-ended, essentially infinite QE3, then it will be recognized by the market that the Fed has lost all control and the pretense of "growth" is truly threadbare. No matter what the Fed does with QE3, the results will be negative. If they try to finesse a limited QE3, the markets will recognize the policy is unable to force-feed more speculative bubbles. If the Fed unleashes the printing press, then inflation will wrench free of the last rotten ropes restraining it, and the market will recognize that the current stock and bond bubbles are so tenuous that only unlimited money printing can keep them inflated.

Simply put, things are spinning out of the Fed's control. The Fed has been transferring the wealth of the nation to the banking cartel and the financial Power Elite for three long years, and the fraud at the heart of their claim to be "stimulating" the real economy is now in plain view.

Does anyone really believe Japan's economy is under control? The tragedy at the out-of-control Daiichi Fukushima reactors might well be an analogy for the entire Japanese economy. Does anyone seriously believe Japan's over-indebted experiment in endless quantitative easing will sustain a demographic sea change and yet another explosion of debt to support rebuilding and more "stimulus," i.e. bailing out Japan's insolvent banking cartel, which has been insolvent for 20 years?

As for China: inflation is now out of control. Party authorities are frantically pulling the same levers of monetary policy, but the wires connecting the levers to the real economy have snapped. All their efforts to "cool" rampant speculative bubble-blowing and rampant inflation are failing. Taking their cue from the U.S., they are desperately trying to mask their loss of control with doctored statistics, but the conceit cannot endure for much longer: rents are rising even as housing sales decline. Local governments are still borrowing and speculating wildly, in a last-ditch effort to prop up their own income streams, which are dependent on real estate speculation and land grabs from peasants.

Things are spinning out of control. Trends are beyond the feeble grasp of central financial authorities. Power is based not just on controlling events in the real world but on the perception of having some control over the real world. Once the central banks' control over large-scale trends and systems is revealed as illusory, then the unraveling of the Status Quo's powers will gain momentum.

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mynhair's picture

What goes up, must come down.

Spinning wheel goes round n round.

silberblick's picture

Fear is why the want to controll everything. This is what motivates the CFTC too. Read below why the CFTC has done nothing to prevent price suppression on the COMEX:

Miss Expectations's picture

What you gain on the round-about, you lose on the swings.

PulpCutter's picture

Smith is profoundly ignorant to assume that it's just a few "pension and mutual funds" that are exposed to GSE mortgage debt.  It is, instead, virtually every bank in the US - large and small. 

Check the books at the banks where you have your money.  You will typically find they have a substantial portion of their assets held as GSE bonds (that portion was about 1/3rd at my banks). 

We must let the banks bear the consequences of their risky bets; until we do, things will simply get worse.  But don't be lulled into some false sense of security as to what this means in terms of your assets - it's virtually certain that your bank will either 1) go under or 2) be bailed out with what will by that time be fairly worthless US dollars.

the rookie cynic's picture

Of course more bailouts are in the offing, but don't forget to factor in the inertia of the "petrodollar" and the hegemony of the U.S. military.  People viewing the dollar just through the lens of government debt and deficits sometimes forget this.  The dollar is backed by oil and if anyone tries to sell oil for something other than dollars (Sadam Hussein-Euros, and now Gaddafi-Gold Dinars) , the CIA jackals and the U.S. military will go in for the jugular.  Without the "petrodollar/CIA/MIC put" the dollar would have been toast long ago, but it still has legs, therefore a sudden death spiral collapse to zero over a few months is much less likely than a slow steady decline in the dollar.

ibjamming's picture

Agree...and let me add...war baby!  War is coming...war in the ME...for the ultimate control over the oil.  The next WW is on it's way.  WWIII will be for control of the ME oil.  We'll use the same excuse the Palestinans are using about USED to be our land...and we're taking it back.  I'd say $50 oil...not paying all the ME middlemen...will be cheap enough to get the global economy going again.  If China decides to be on the wrong will be a nice gift to the world when a pen stroke eliminates all the debt owed to China.  China would be fucked in a REAL war...they don't have nor can they control enough resources.  The US has Canada and Mexico to supply us with everything we need.

Stormdancer's picture

Be sure to include Cantarell in your calculations.  That Mexican "supply" is drying up remarkably fast.  Venezuela better be modernizing their defenses if Chavez expects to keep his place in a supply crunch.

Geoff-UK's picture

His ignorance coupled with his licensing to post his rants here is maddening.


Someone remove his posting privileges key-card.  Stat.

1inchRacker's picture

I'm always amazed to see some people slate well-written articles, with throwaway one one or two liners, just because of one point they disagree with: "Smith is profoundly ignorant" ??? C'mon PulpCutter, give us a lengthy article someone can toast if you're so knowledgable.

eatthebanksters's picture

"If the thunder don't get you then the lightning will'.  Jerry Garcia, 'The Wheel'.

Imminent Collapse's picture

Nice Garcia (actually, Robert Hunter) reference.  Here's another:

I don't know, but I've been told

That its hard to run with the weight of gold

Other hand, I have heard it said,

It's just as hard with the weight of lead

One way or another, this darkness has got to end.

JoeSexPack's picture

'One fist of iron, the other of steel.

If the left one don't get you then the right one will.'


Maybe Jerry got that from 16 Tons by Tennessee Ernie Ford.

Before my time, but a catchy tune.

Abiotic Oil's picture

That's actually a Bobby song but yeah...

The wheel is turning and you can't slow down,
You can't let go and you can't hold on,
You can't go back and you can't stand still,
If the thunder don't get you then the lightning will.

Sophist Economicus's picture

OK, I'm no longer hip -- what is a "Guest Pops"?   Please don't tell me Chuck adopted you....

Confucious 222's picture

Guest pops are the European version of otter pops. They have kind of a mayonaisse and Swiss Chard taste. Fairly popular among the unemployed and student crowd in Benelux side of town.

GetZeeGold's picture



 Is there a silver lease rate analyst in the house?


JW n FL's picture


do you have a contract in hand?

delivers when?


the costs of leasing.. or buying silver.. are more expensive than the backwardation / disconnect at the dealer(s).. becuase of the scope and scale of those larger orders!

you would think, or you here about the great bulk price which is still more than what we lil monster box buyers pay!

MarketTruth's picture

Buying physical silver IN BULK can be relatively cheap and easy through dealers like . Delivery is free, too. Silver at lowish over spot and gold AT SPOT pricing. Not sure where you are getting your information, yet obviously you may be dealing with bad dealers... or trusting COMEX/LBMA paper.

JW n FL's picture

I buy eagles.. maybe I should have been more clear.. the disconnect for eagles is ugly.. there are cheap garbage coins to be had at sub-par pricing.. or sub-spot pricing.. bars are cheap..


Given that those items are prone to be considered commercial and not collectable.. I will pay the premium and sleep well at night.


Monex and Mike's place seem to have good pricing for bulk silver / gold eagles.. I will check out Tulvig and see whats the deal there.. I remember more than one person waving me off of tulvig in the past.. here, that I trust.. thats why I never checked tulvig out. 

JW n FL's picture


I only buy from people who are U.S. Mint Direct.. as paying anyone in the middle does not appeal to me.. but to each their own.


So its not that my dealer is robbing me.. Rechant is a U.S. Mint Direct Dealer and they do NOT! do any on-line sales or phone sales for people they do NOT know very well.. so I am not advertising for them unless you are in Palm Beach or you want to drive to Palm Beach! so all you online guys can stop before you start. Brick and mortor people, like me.

zuuuueri's picture

your friends might have been turned off by tulving's minimum orders (which aren't all that big.. iirc 20oz au/ 500oz ag). the guy is 100% business, totally legit. i've bought from him maybe half a dozen times over a decade, always short and to the point and everything exactly according to the deal. 

JW n FL's picture

I have not heard anyone step up and say anyting bad.. thats just as good as a recomendation here! LOL!!


I will check his pricing.. v. Monex and Mike.. Mikey is just so cute in his video's though! its hard to not want to support the guy! traveling the world selling bars!


on that note the little guy wins! I always route for the little guy (route, drive to and / or map a way too) (on purpose, for the fun of it!)

JW n FL's picture

I am a coin (eagle) or bar guy.. but these look really kool!

JW n FL's picture

2006 buffalo proofs are cheaper than 2011 direct from the mint proof buffalos! $109 over spot of $15--.00 v. $18--.00 U.S. Mint.

JW n FL's picture

gold and silver.. and if you have lots of that.. the paldium / platinum / rhodium.. coins are kool too! just for shits and giggles!

Carbon Penguin's picture

Meh, I prefer mah Bitcoins...

LawsofPhysics's picture

And your solution is...  (cue crickets). 

Tyler Durden's picture

The right solution was a global debt to equity recapitalization - something that has worked forever in all corporate bankruptcies. Alas, that meant wiping out the status quo.

LawsofPhysics's picture

I agree.  Bring it.  Now the status quo gets wiped out in a way that is much less user friendly for everyone.

LawsofPhysics's picture

Yes, I saw that.  Does this mean that solution is no longer available?

MayIMommaDogFace2theBananaPatch's picture

Magic 8-ball says: Ask again later...

hedgeless_horseman's picture

Does this mean that solution is no longer available?

Yes, so now we must simply learn to do more with less.

RockyRacoon's picture

All well and good, but you can't do anything with nothing.

A rising tide lifts all boats, assuming you have a boat.

zero intelligence's picture

Bingo -- just convert the bank debt to equity.

LawsofPhysics's picture

Now how does one buy some of that equity if that turns out to be where we end up anyway?  

Ethics Gradient's picture

You'd end up banks being owned by banks that they own! The snake would eat itself.

Once it'll all netted out, you'd end up with nation states owning everything. You didn't blow up the credit card companies to achieve that, did you?

wombats's picture

So how could that be implemented today?  What would the impact be to the economy and to individuals if a recapitalization were to take place today?

FreeNewEnergy's picture

You are correct, sir. And what we now have is a rapidly-growing underground economy which is hastening the collapse.

Been oddly quiet in Washington, DC. Aren't they supposed to be working to fend off a default and planning the budget for 2012.

I am getting the distinct impression that our 9%-approval congress and out-of-touch president are planning to sit back and watch it all come undone in August, while they will be on "vacation," and still expect to have control and their jobs when SHTF.

I see dead people, shot by our own militias.

Ruffcut's picture

Not an IF, but a When.

No shit will hit the fan,unless they want it to.

The status quo is more of slow destruction and power grab.

illyia's picture

Ya, So BTFD?

Until you can't?

Cassandra Syndrome's picture

Creative Destruction. Let the crash happen, a new system will evolve, we still have our stock and knowledge, just need a proper medium of exchange.

bbq on whitehouse lawn's picture

They could have recapitalize debt in '07/08.
Of course that will happen anyway.
Its how that is done and with what money.

What combination of PMs and paper will it be done?
The market will choose if governments do not.

If capitalization is done with existing money you get deflation.
If capitalization is done with new money you get high inflation. Even hyper.

Revaluing gold works but at what prices will capitalization work?
Will everyone with a day job rush off with pans to the nearest stream because the cost/benefit is greater then their day jobs?

Of course this all will work its self out in time. Its just how much damage will be caused in the process.
If entrenched interests are unwilling to agree and set policy, markets will set policy for us all.

Fireman sometimes keep a burning house from spreading to others, instead of putting it out.

Whatta's picture

The right solution was a global debt to equity recapitalization

Not as long as there is a middle class left to pawn bailouts/taxes on.

Have chillun's bitchez, we needs the future slaves.

YHC-FTSE's picture

"The right solution was a global debt to equity recapitalization - something that has worked forever in all corporate bankruptcies. Alas, that meant wiping out the status quo."

I like this site, but WTF! Debt to Recapitalization. I am sure you don't mean changing the corporate structure of every publicly traded company but injecting capital into corporations by replacing one capital for another. Isn't that what Bernanke is doing right now, locally in the US? The nation's toxic debts were bought by the Fed (aka the great bailout), and the equity market is being recapitalized by the 18 odd (haven't checked recently) primary dealers in the POMO. That kept the status quo, not wiped it clean. That is just monetizing debt, isn't it? And even if it was desirable, how would you do it on a global scale? Sorry mate, but that's rubbish imo. (Plus did I mention I like your site? :))

Tyler Durden's picture

There is no capital injection in a debt for equity. You replace equityholders with debt holders.