Guest Post: Our Peculiar State Of Suspended Animation

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Our Peculiar State of Suspended Animation

Three long years of extend and pretend have left the nation in a state of suspended animation, frozen in a moment of crisis.

The U.S. is in a peculiar state of suspended animation: nothing is actually moving, we're all frozen in an extended moment of disbelief, denial and crisis, waiting for something to finally break loose.

We know the present isn't sustainable, but we go through the motions of phony "reforms" and "trimming the deficit" as if another 1,000 pages of "reforms" will fix what's broken in the economy or that trimming $50 billion from $1.7 trillion annual deficits will actually matter.

The wheels visibly fell off the bubble-debt-fraud economy four years ago in mid-2007. It's worth recalling that the U.S. won a global war (World War II) in less than four years, yet now we are pleased to borrow and and squander an extra $1 trillion a year just to keep our fragile state of suspended animation from being disrupted by unpleaseant reality.

In a nutshell, here's the reality: the entire "prosperity" of the past decade was a false prosperity, constructed entirely of money borrowed by the private sector based on the rising value of McMansions and strip-malls that made no sense except as speculations based on the Federal Reserve's credit-bubble policies and Wall Street's systemic financialization of that debt based on fraud and misrepresentation of risk.

The private sector borrowed and spent an extra $1 trillion a year in the "boom years" of the bubble decade. This debt-based stimulus vanished with the implosion of Wall Street's fraud machine (CDOs, mortgage-backed securities, etc.) and the collapse of bubble-era housing valuations.

As overleveraged households and businesses found they could no longer borrow $1 trillion extra a year to spend, then the Federal government stepped in and borrowed and spent $1 trillion a year to replace the private borrowing which had dried up.

This $1 trillion is incredibly obvious. Federal spending rose by exactly $1 trillion from 2007 to 2010, while revenues fell by $400 billion:

Spending:
2007 $2.72 trillion
2010 $3.72 trillion

Revenues:
2007 $2.56 trillion
2010 $2.16 trillion

Deficit:
2007 –$160 billion
2010 –$1.56 trillion

This is how you get an annual structural deficit of $1.5 trillion. This sum will never go down, it will only go up, as the estimated deficits for 2011 and 2012 show:

2011: $1.5 trillion (est.)

2012: $1.6 trillion (est.)

This doesn't even count off-budget borrowing for bailing out our Moral Hazard Twins Fannie Mae and Freddie Mac and for additional war expenses.

Add off-budget borrowing and the structural deficit is 12.5% of GDP. This is only one comparable period of Federal borrowing and deficit spending: World War II, which ended in less than 4 years (December 1941 to August 1945).

Here we are, borrowing 12% of GDP every year for four years, with no end in sight. All we're doing is propping up the Status Quo.

The private economy cannot support an additional $1 trillion in borrowing and spending every year. Housing assets and household earnings continue to decline even as basic household expenses for energy, food education and healthcare continue to rise.

Housing is still overvalued, ( Housing Losses Are a Financial Disaster) a reality that will become abundantly clear once interest rates begin their inevitable rise. Household earnings will continue to stagnate or decline ( Capital Exploits Labor: the U.S.-China Trade and Beyond).

Households cannot borrow an extra $1 trillion a year, and that will not change in the foreseeable future. This is not the warm and fuzzy stagflation of the 1970s, when wages and interest income rose along with prices: in this Fed-engineered stagflation, wages remain flat-to-down and savers earn nothing for their capital, while taxes and costs for essentials steadily rise. The primary asset for 2/3 of the nation's households, housing, continues to fall. The rising stock market increases the wealth of the top 10% of households, but does little to nothing for the bottom 90%.

The Fed's policy of a top-down "wealth effect" is widening an already unprecedented gap between the "haves" and the "have-nots" in the nation. This widening divide is no secret; it is simply another feature of our suspended animation.

Simply put: the present set of policies is a recipe for household and national insolvency.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Ahmeexnal's picture

Would you want Freedom fries with your order?

TheTmfreak's picture

I forgot all about that.... hah. (The whole freedom instead of French)

Vergeltung's picture

nice link/story. thanks!

 

oogs66's picture

It finally feels like its all catching up with us...maybe we kick that proverbial can down the road one more time, but the web of debt and bailouts is starting to unravel

john39's picture

the can is a rigged IED this time.

Mad Max's picture

Isn't the main question just who's going to be left holding the bag?

Will it be China, Japan and other creditors?  J6P and Main Street?  Or, in a bizarroworld where there is justice, could it actually be the TBTF banks and other guilty parties?

Only the first of those options would let us keep some portion of our false prosperity, of course, and then only if it somehow doesn't lead to war.

john39's picture

how about everyone outside the banker class criminal power cult?

Holodomor2012's picture

The Merchant of Venice will have his pound of flesh. 

goldfish1's picture

Might be suspended animation this week, but people are feeling the pinch. I am. Increasing gas prices from 2.58 to 4.00, a 35% increase - a 2 car family spending $328 per month is now spending $508, a decrease to disposable income of $180. Increasing food prices...have you seen the price per pound of ground chuck lately? Many items are very expensive...a package of Lorna Doones, the small package is now 4.59. The cereal boxes are substantially smaller for higher prices, same with laundry detergent.

Clothing prices are higher. Money is getting less available for the poor and the middle class.

RobotTrader's picture

So far, buying of U.S. Treasuries remains voracious.

TLT at HOD.

Bill Gross continues to get "Waterboarded".....

Only a matter of time before he has to close that trade.

And then he'll have to use his $90 billion in cash to "catch up" by chasing equities...

LOL....

Boston's picture

He might have to use some of those billions to chase Treasuries......after he reaches max pain, of course.

 

rocker's picture

The reason they are buying treasuries is because they are bailing on the stock market. Plain and simple. 

lieutenantjohnchard's picture

care to update us on your jcp call of the day? or tzoo? or zlc? stick to utility stocks. you'll save yourself money.

suldog's picture

Careful with your mocking of Bill Gross.  

In 2007, he dumped his subprime holdings saying something to the effect that they were "dressed up in red lipstick, wearing pump shoes, hanging in the red-light district".

He was content to have TRF in the middle of the pack for a quarter or two.  After that, he was #1 versus his peer universe, and finished near the top for the year.

He is not often wrong with big bets, and he cares not about being early.  Which is a good thing, because with a fund that size, he has to be early.  So he might as well talk his book.

 

LawsofPhysics's picture

Suspended animation?  Look, possession has always been nine tenths of the law.  Once all the fiat burns, it will be 100% of the law.  Got physical?  "Mark to unicorn" accounting is fantasy and will die when people demand their unicorns back.  None of this ends well, so hedge accordingly and by that I really mean prepare accordingly.  Every choice you make is technically a "hedge" in one form or another.

rocker's picture

Apmex introducing fractional silver coins that memic old liberty head dimes.  What do they see in the future.

RockyRacoon's picture

The premiums over spot are obscene on this APMEX project.  Also, what is the difference from what they are doing with these and what Von NotHaus is probably going to jail for?

http://www.apmex.com/Category/1229/apmexsilver.aspx?utm_source=ConstantC...

aphlaque_duck's picture

Seriously. Buy a sack of 90% silver quarters.

Silver Bug's picture

The system is unsustainable, and no matter how much extend and pretend they do. It will implode in on itself. We are moving back to a more stable system. Come Hell or High water.

 

http://silverliberationarmy.blogspot.com/

chistletoe's picture

Here's the whole history, starting with WWII:

 

http://www.youtube.com/watch?v=vR7DCFCkqao

honestann's picture

Oh, that is so funny... and true.

JustPrintMoreDuh's picture

Lets just have a worldwide happy all debts are forgiven day.  That or WW3.

rosiescenario's picture

"This is not the warm and fuzzy stagflation of the 1970s..."

 

Using the term 'stagflation' to describe our current situation glosses over the present situation. We had 'stagflation' in the 70's and having lived through that, what we have now is far more onerous.

 

We need to come up with a new name that reflects where we really are.

 

 

Herman Strandschnecke's picture

'Bankrupt'. (Pre-post Banksubservience)

Dr. Richard Head's picture

Fuckedflation

Ohshitflation

Bankruptflation

Insolvenflation

Ponziflation

Bernankflation

Geithnerflation

Crisisflation

Asspoundflation

Cuntpunchflation

Ballkickflation

Scrotumstretchflation

Balltortureflation

 

rocker's picture

+1           LMFAO

blindman's picture


very nice, i would add
fascisticufflation.

ctlaltDEL's picture

Indeed, inflation everywhere in everything ..... except for copious amounts of DSK deflation, and no printing press in the world can help that prick.

tip e. canoe's picture

rot-flation

speaking of which, a video just popped up on my screen :  "you know that when you use Lysol at home, you'll know you're a part of something bigger..."

don't watch any tv, so guess i'm not used to this, but wow, they're really starting to pile it on.

LFMayor's picture

Masturflation.  It's the only gratification we'll be getting.

TwoShortPlanks's picture

Bentoverabarrel-n-fuckinreemd!

Just use the abreviated term, Bob-n-Fred.

Congress: "Oh God, we've been Bob-n-Fred'd by the Crentral Banks!"

The Bernank: "This is not the Bob-n-Fred-er you're looking for".

DaddyO's picture

 

It's only a matter of TIME!!!!

DaddyO

lieutenantjohnchard's picture

i agree with his thinking. it ought to be obvious to most everybody.

carbonmutant's picture

This is what it's like in the center of a singularity...

tip e. canoe's picture

...mirrors reflecting mirrors reflecting mirrors...

lincolnsteffens's picture

I've had a feeling of suspeded animation too for a couple of years. It is like I'm watching a movie of a tidal wave of disasters heading for shore in slow motion. For the last 6 months though it seems like the movie is speeding up. When it reaches full speed the wave will be upon us.

Citxmech's picture

Kinda reminds me of this:  http://www.youtube.com/watch?v=9ryPUJyQf6g  [Monty Python - Lancelot running]

It just seems to take forever - until. . . .

newworldorder's picture

Excellent post Tyler - but it does not matter.

The great majority do not know of what you speak, nor understand the powerful words you have written.

We are in the eye of the hurricane. Everything is calm until it is not. The tipping point has not been hit. The masses especially those who have not been affected by unemployment in the last 4 years do not understand any of this.

Like an attempt to jump the Grand Canyon, we have left solid ground and are presently temporarily suspended in mid air, looking at a clear blue sky. What awaits us below is not visible nor measurable in speed of descent nor final outcome.

Ferrari's picture

As far as the "great majority" is concerned, I work in a company of 34 people in New England. With our accountant today I used the word "austerity" to describe the belt tightening we've been doing here and she stopped me to say she didn't know the term.

I find the ignorance of our fellow Americans guarantees our political & economic doom. Nothing else. Our true bogie man is not the banker, or imam, ChiCom, Frenchman, liberal or conservative; it is the boobus Americanus, the great majority you speak of.

RichardENixon's picture

Sounds like you need a new accountant.

Ferrari's picture

She's very good at what she does, and like so many others around me, has no idea of what is happening beyond her two screens.

RichardENixon's picture

I know what you mean. I was in a continuing education class with a bunch of CPAs back when AIG was bailed out, and when I started talking about how outrageous is was that Geithner was in the room during the "negotiations" they had no idea what I was talking about, nor did they care.

Ned Zeppelin's picture

Geitherner was simply doing his job: making sure TPTB got their way. He works for them, not us. 

ghostfaceinvestah's picture

"In a way, the world-view of the Party imposed itself most successfully on people incapable of understanding it. They could be made to accept the most flagrant violations of reality, because they never fully grasped the enormity of what was demanded of them, and were not sufficiently interested in public events to notice what was happening. By lack of understanding they remained sane. They simply swallowed everything, and what they swallowed did them no harm, because it left no residue behind, just as a grain of corn will pass undigested through the body of a bird."

George Orwell, 1984

Screwball's picture

Excellent.

Daily I am reminded how little our population understands about what's going on.  It amazes me how little the same population understands even simple math.  It's hard to be optomistic going forward.  That quote says it all.