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Guest Post: Snatching Tiger Cubs And Cherished Delusions

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Submitted by Charles Hugh Smith from Of Two Minds

Snatching Tiger Cubs and Cherished Delusions

"There is danger for him who taketh the tiger cub, and danger also for whoso snatches a delusion from one who trusted false promises."

My longtime friend and fellow iconoclast G.F.B. recently observed that the U.S. is in the throes of a historically unprecedented loss of faith in the implicit promise that life will be better and easier for future generations. G.F.B. cited Arthur Conan Doyle's conclusion to his Sherlock Holmes' story, A Case of Identity, as the encapsulation of the dynamic we will collectively experience.

In the story, a young woman's secretive lover, Hosmer Angel, fails to appear on their wedding day. Mr. Angels turns out to be a fictitious character, a duplicitous ploy designed to access the young lady's substantial income. Holmes declines to reveal this sordid truth to the youjng lady, and offers this explanation to Dr. Watson:

"If I tell her she will not believe me. You may remember the old Persian saying, "'There is danger for him who taketh the tiger cub, and danger also for whoso snatches a delusion from a woman.'"

I am rewriting the line slightly to apply to a nation drunk not on love but on financial promises which cannot be kept: "There is danger for him who taketh the tiger cub, and danger also for whoso snatches a delusion from one who trusted false promises."

The promises Americans cling to so adamantly and naively are many, both explicit and implicit. That the public employee pension will be paid in full. That Social Security will pay out "what I was promised." That Medicare will be able to fund $1 million+ for the last year of life interventions for ecah of the 65 million Baby Boomers.

Then there are the implicit promises. That the dollar will not go to zero. That there will always be gasoline at every gas station. That the gasoline won't cost $10/gallon (in today's dollars). That the government will remain in control of its own institutions (hahahahahaha). That the Central State, a.k.a. the Savior State will somehow "fix" whatever problems arise in the U.S. economy and society.

This list of promises, and thus the list of delusions about to be snatched, is long indeed. The key promise may well be the one identified by G.F.B.: that life will always get better and better in every way and every day for Americans.

The idea that life in the coming years will be more like an endless camping trip for tens of millions of people is not just anathema, it is not in the realm of possibility.

And so the tiger will lash out at those who snatched her cub. Americans are as naive and desperate as a young jilted lover: they've been stood up, but don't want to know that they have put their cherished faith in impossible promises. They cling with frantic energy to their delusions, and are ready to uncork anger to express their fear of a future stripped of quasi-religious promises. By that I mean Americans' faith in their Savior State is near-religious: most cannot grasp that the Savior State itself is not Too Big To Fail, but rather Too Big To Survive.

In Public Pension and Healthcare Costs and Financial Common Sense (February 28, 2011) I explained why the Savior State's promises to public employees--and by extension, all citizens--cannot be met: the cost of the promises is growing by 11% a year, year after year, regardless of which flavor of political parasite is nominally "in power," while the underlying economy is growing by 2% a year at best. In the past three years, it has not grown at all, but has been kept afloat by $6 trillion in Federal borrowing and spending.

That Federal spending has leaped 60% in a mere 6 years and 35% in a mere 3 years. Compare those growth rates with 2%, and you have to conclude the promises cannot be met, unless the Federal government prints dollar signs on toilet paper and ships everyone a roll as "payment for what you were promised."

Hence the popularity of the hyper-inflation meme.

But getting a roll of toilet paper in place of the $2,000 a month you were promised is still breaking the promise.

Here is the central delusion that will be snatched: that the U.S. is a wealthy nation capable of paying all its proimises. In fact, the U.S. has been spending beyond its means for at least a decade. Here is what nobody wants to hear: The U.S. consumes more than it produces.

It's balance sheet and income statement are both negative.

The most readily accessible metric for this bleeding is the current account--the trade deficit or surplus. The U.S. has been running trade deficits that would have crushed any other nation.

How have we managed to take so much more than we produce? This is not an easy concept to grasp, but in effect the U.S. has arbitraged its currency to the detriment of its trading partners and those accepting dollars as mayment for real goods.

We can see this arbitrage at work in a 10-year chart of the DXY (dollar index):

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By lowering the value of the dollar by one-third since 2001, the U.S. has extracted trillions of dollars in wealth from those who sold tangible goods in exchange for dollars.

As you can see on the chart, this arbitrage appears to be ending. The dollar is in a long-term uptrend, and is forming a pennant or megaphone pattern, which suggests a narrowing of tradoing range and an eventual breakout up or down.

If the pattern breaks down, then the dollar will be destroyed, as many expect. If it breaks out to the upside, as I expect, then the dollar arbitrage which has enbled us to live far beyond our means will be destroyed.

Either way, the dollar will no longer be a "secret" source of living beyond our means, consuming far more than we actually produce in the real world.

There is another phenomenon at work, one described in the tremendously vital 3-volume history of Capitalism by Fernand Braudel:

The Structures of Everyday Life (Volume 1)

The Wheels of Commerce (Volume 2)
The Perspective of the World (Volume 3)

The specific tale I refer to is Venice, Italy, circa 1500-1700. Venice was once the dominant trading power in the European Mediterreanean. Its wealth flowed from its vast merchant fleet and its dominance as a trading center for goods and trading debts/credit and gold/silver.

But over time, competition from other trading centers and merchant fleets erode the immense profitability of the trading sector, and the financial Elites of the city moved their capital into the more profitable domain of farming on the Italian mainland.

At that point, Venice lost its position astride the commercial/trading world and began its long slow decline to a tourist haven.

The U.S. is now on a similiar trajectory to decline, as its financial Elites have abandoned investing in productive enterprises and trade for the more profitable trade in financial duplicity and fraud, a.k.a. "financial innovative instruments" which arbitrage risk to the immense gain by the financial houses originating the arbritrage.

The game is simple: create instruments which supposedly lower risk, but which really only mask risk behind complexity. Then, whent he trade blows up, the traders transfer the stupendous private losses to the taxpaying public via sovereign debt.

Once their debts and losses have been cleared, then they start the game over again. Why bother with risky productive assets when this financial gaming is so profitable and risk-free?

Indeed. And there you have the dynamics of decline: the immutable math of a slow-growing economy and fast-rising costs of promises, anda financial Elite which has abandoned productive enterprise in favor of financial manipulation and illusory "products."

You can't consumer more than you produce for long, and that's the "promise" that will be broken: that we can heedlessly consume more than we produce forever, with no consequences.


And so we're left with the tiger's response to its cub being snatched: a mob enraged by the snatching of its delusions.
Frequent contributor Harun I. neatly summed up this dynamic in a recent email, and it offers a sobering conclusion to this entry:

RE: Public Pension and Healthcare Costs and Financial Common Sense:

Outstanding post as usual. However, I found your request to check ideologies at the door quite amusing.

Forgive my cynicism, but these are the same people who would not run a spreadsheet or money management program (Quicken or such), or use a amortization calculator on the web to see if they could afford those exotic mortgages that are blowing up. These are the same people that while making the biggest financial decision of their lives would not spend the extra money to have an attorney examine and explain to them the documents they were signing. These are the same people who owned their homes but were easily convinced it was a strange sort of piggy bank that you had to borrow to pull the money out. These are the same people who found the SNL skit, If you Cannot Afford It, Don't Buy It, challenging.

Intellect and logic have left the building. These people are id driven. The suffer from the Copernican syndrome. No matter what proof you give -- no matter how mathematically irrefutable it may be, they will choose to believe that the earth is the center of the universe.

While they will all show up for a demonstration when their piece of the pie is on the line, if you were to sit them down with a state or municipal budget with the mandate to balance it, they would fail.

Everyone wants change so long as it doesn't effect them. Politicians who clearly understand that reducing spending to what is taken in as taxes would condemn to death many afflicted by conditions that are curable. They are not going to cut spending in any significant way.

And this is why it all must catastrophically fail.

History is very clear about ideologies and the legitimacy to rule. When governments could no longer feed them, even the most devout citizen was willing to drag their deified ruler from their palace and cut off their head. What god they may be offending at the moment was not even a fleeting thought.

In time, the legitimacy of the oligarchy to rule here in America will be questioned. It will be interesting to see how that plays out.

But as for any hope of rationality from the folks running around waving signs and like a belligerent Oliver demanding, MORE! because of the irrefutable facts you have given, I think you will be disappointed. In fact, were this a different time, they would be screaming heresy and demanding your Inquisition.

Thank you, Harun. I also received an email from a public employee proving Harun's point. This gentleman promised to "riot in the streets" if the promises made to him weren't kept.

If everyone who finds the promises made to them are being broken responds by "rioting in the streets," then we can anticipate roughly 300 million citizens all rioting in the streets at the same time, all seeking someone to blame for their loss, someone, anyone but themselves.

 


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Wed, 03/02/2011 - 14:27 | Link to Comment SpeakerFTD
SpeakerFTD's picture

I started to read this, but did you see?!?!   The new Ipad has 2 CAMERAS!  TWO!   OH JOY!

Wed, 03/02/2011 - 14:27 | Link to Comment props2009
props2009's picture

IPAD 2 Launched. 2 cameras, 33% thinners. 2x faster.

http://dawnwires.com/investment-news/ipad-2-has-two-cameras/

Wed, 03/02/2011 - 14:28 | Link to Comment HUGE_Gamma
HUGE_Gamma's picture

tungsten bitchz

Wed, 03/02/2011 - 14:33 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Hence, I maintain my stance.  Crash the system, crash it now.  The sooner we do, the sooner compensation finds its way to people and businesses that are actually worth a shit.  When greater than 15% of our GDP is tied to pushing paper assets around that are marked to fantasy and the rest is government spending, you know the jig is up.

 

Hedge accordingly.

Wed, 03/02/2011 - 15:42 | Link to Comment NotApplicable
NotApplicable's picture

The sooner we do, the sooner compensation finds its way to people and businesses that are actually worth a shit.

 

While I will agree that the current system prevents efficient capital allocation, that does not mean that destroying it will help. What comes after will probably be far, far worse, ala Hayek's "Road to Fascism."

Then again, to you "sooner" may still be a long time off, after the next Dark Ages end in a few centuries.

Wed, 03/02/2011 - 14:34 | Link to Comment Misean
Misean's picture

"that we can heedlessly consume more than we produce forever, with no consequences."

But there's still toner in the printer!

Wed, 03/02/2011 - 14:57 | Link to Comment Captain Kink
Captain Kink's picture

This reminds me of a story my sister (a bank employee) told me a few years back... It really puts into perspective how doomed we are.  The punchline is that bank customers who were overdrawn in their checking accounts would come to the bank complaining that there must be some mistake, they can't have done anything wrong...because, "I still have checks."

Wed, 03/02/2011 - 14:36 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Somehow, when readign the headline, Putin came to mind. Purrrrrresident Putin...again.

The end of delusion, has a nice ring to it. Only, it will be accompanied by such awesome cognitive dissonance that the sheep will line up for the shear. Anything to provide context to the new order of the world.

In another interesting and complementary aside, celebrity and celebrated icons are slowly but surely beginning to bit the dust. Tiger Woods teed off on that one. Sheen is another example. Oprah's got it coming.

Blinders, unfortunately, are really addictive.

ORI

http://aadivaahan.wordpress.com/2011/03/01/on-outsourcing-and-its-ills/

Wed, 03/02/2011 - 15:01 | Link to Comment pazmaker
pazmaker's picture

ORI,   The government is going to confiscate your blackberry, you need to stay off skype and google too.

http://www.zdnet.com/blog/igeneration/india-poised-to-ban-blackberrys-sk...

 

Thu, 03/03/2011 - 04:28 | Link to Comment Oh regional Indian
Oh regional Indian's picture

paz, the only black-berries around me are the kind I can eat. So no fear.

And for the web in general, I'll miss this forum, my blog, all the learning.... but practising detachment has been good. I'll take it as a sign that the lessons are now closer to home, si all.

No fear! ;-)

ORI

Wed, 03/02/2011 - 14:37 | Link to Comment Gene Parmesan
Gene Parmesan's picture

Will J-Lo have her hair up or down tonight? I bet she has it down.

Wed, 03/02/2011 - 15:11 | Link to Comment The_Euro_Sucks
The_Euro_Sucks's picture

I bet there is and ETF for that. If not, you made a great financial innovation and will earn millions.

Wed, 03/02/2011 - 14:47 | Link to Comment Bob
Bob's picture

"Riot in Wall Street." 

There, fixed it for ya. 

Wed, 03/02/2011 - 14:41 | Link to Comment Jason T
Jason T's picture

"The disintigration continued, and there seemed no power great enough to stop it.  The Treasury was empty, agriculture prostrate, industry demoralized, trade stagnent, and the only commercial activity was a maddened, consuming, parasitic speculation." as how Elgin Gluseclose described Rome in 301 a.d. in his book Money and Man. 

Wed, 03/02/2011 - 14:44 | Link to Comment Threeggg
Threeggg's picture

WTF is this ?

March 2 (Bloomberg) -- A JPMorgan Chase & Co. unit took delivery of almost 1 million metric tons of raw sugar, the most for the commodity since 2009, to settle the expiring March futures contract in New York.

So they administer the Sugar market too. !

Wholly 5hit !

http://www.bloomberg.com/news/2011-03-02/sugar-deliveries-for-new-york-march-futures-surge-to-jpmorgan.html

 

Wed, 03/02/2011 - 14:47 | Link to Comment mule65
mule65's picture

WFT is mayment?

How have we managed to take so much more than we produce? This is not an easy concept to grasp, but in effect the U.S. has arbitraged its currency to the detriment of its trading partners and those accepting dollars as mayment for real goods.

Wed, 03/02/2011 - 14:52 | Link to Comment Captain Kink
Captain Kink's picture

WFT is mayment?

WTF is WFT?

Wed, 03/02/2011 - 15:04 | Link to Comment pazmaker
pazmaker's picture

Captain Kink your funny!!!   thanks!

Wed, 03/02/2011 - 15:52 | Link to Comment NotApplicable
NotApplicable's picture

Your funny what?

Wed, 03/02/2011 - 15:02 | Link to Comment repete
repete's picture

mayment means may pay you back...may not!

Wed, 03/02/2011 - 15:09 | Link to Comment Captain Kink
Captain Kink's picture

Now that's funny.

Wed, 03/02/2011 - 16:04 | Link to Comment dejapfc
dejapfc's picture

Payment  or may(not pay)ment :),hahahahaha ....

Wed, 03/02/2011 - 14:56 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

I talk to my coworkers and friends about this. They just do not believe or do not WANT to believe that we are broke. They are all the chosen people. What is my problem?

Wed, 03/02/2011 - 15:11 | Link to Comment 10kby2k
10kby2k's picture

You need to watch more TV and do less thinking.

Wed, 03/02/2011 - 14:58 | Link to Comment Kranskee
Kranskee's picture

I didn't read the whole article, I just want to respond to the notion that you can't consume more than you can produce.  Of course you can! When you have the biggest, baddest military on Earth, you just eat everyone else's lunch.  No problem.

Wed, 03/02/2011 - 15:01 | Link to Comment 10kby2k
10kby2k's picture

I laughed at a picture of an old Libyian woman (who almost assuredly doesn't speak english) carrying a sign...."Game Over".  She was obviously referring to Kaddafi, but i was thinking she was speaking to me and the promises my country has implied to me and my children.

Wed, 03/02/2011 - 15:03 | Link to Comment Live_Free
Live_Free's picture

I gave up using the dollar as my secret source to consume more than I produce along time ago..........

The federally provided SNAP card is the wave of the future people.

Much more convenient- No need for more paper when an expanded balance of electronic digits is easily transfered from those that know far better then me such concepts as "production" and "consumption"

Maybe SNAP will replace the dollar as the world reserve currency?

 

 

 

Wed, 03/02/2011 - 15:14 | Link to Comment Azannoth
Wed, 03/02/2011 - 15:17 | Link to Comment Vacca
Vacca's picture

This is what happens every time the Mafia takes over a business enterprise.

Wed, 03/02/2011 - 15:57 | Link to Comment NotApplicable
NotApplicable's picture

And why we can't have nice things.

Wed, 03/02/2011 - 15:19 | Link to Comment buzzsaw99
buzzsaw99's picture

You can't consumer more than you produce for long...

Define "long". I've been "consumering" more than I produce all my life. That's a half a century bitchez!

Wed, 03/02/2011 - 15:56 | Link to Comment NotApplicable
NotApplicable's picture

The quote should've been "You people can't consumer...", but you know how that language affects some folks.

Or for the even more correct version: "You people can't consumer more than you producer for long...".

Wed, 03/02/2011 - 15:53 | Link to Comment Tense INDIAN
Tense INDIAN's picture

Apple TARGETS 250 area by May .???

 

http://markettechnicals-jonak.blogspot.com/

Wed, 03/02/2011 - 15:57 | Link to Comment dejapfc
dejapfc's picture

"most cannot grasp that the Savior State itself is not Too Big To Fail, but rather Too Big To Survive."Priceless .......

Wed, 03/02/2011 - 16:17 | Link to Comment PulauHantu29
PulauHantu29's picture

No wonder everyone is buying USO, SLV and GLD.

They don't want to wind up with lots of worthless toilet paper.

0.001% is now what The Bernank is giving to savers....

Wed, 03/02/2011 - 16:44 | Link to Comment Miles Kendig
Miles Kendig's picture

CHS channels his inner Flip Wilson playing the part of the Right Reverend Leroy at the Church of What's Happening Now.

Spit it brotherman!

http://www.youtube.com/watch?v=0SLifea3NHQ

As I hear echoes of THE Rock

http://www.youtube.com/watch?v=tArmHN4j3qQ

As the song remains the same.... For now

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

Wed, 03/02/2011 - 16:26 | Link to Comment the rookie cynic
the rookie cynic's picture

"If the pattern breaks down, then the dollar will be destroyed, as many expect. If it breaks out to the upside, as I expect, then the dollar arbitrage which has enbled us to live far beyond our means will be destroyed."

Can anyone explain to me what CHS means by this? It doesn't quite make sense to me. Also, he's pinning a lot on technical interpretation of the DXY.

Overall, however, I like reading his stuff.

Here's some of my thoughts:

Here are some reasons that favor a slow crumble as opposed to a quick crash.

  1. The U.S. dollar accounts for about 3/4 of world trade. It provides the liquidity for international commerce.  No dollar, no global trade.
  2. In order to export goods to the to the richest country on earth (at least until recently), exporting countries take dollars as payment. As a result, net exporters to the U.S. hold a large percentage of their national wealth as dollars. If the dollar loses value, they lose too.
  3. Even if the dollar was on its way to worthless (which it very well could be), no one dares divest too quickly and spark  a run on the dollar. If you’re holding lots wealth in dollars, a crashing dollar wipes out your own wealth.  If China, for example, wants to divest itself of dollars, it’s going to do it as stealthily as possible, not only to keep exports flowing to the U.S,  but also to safeguard its own wealth.
  4. Oil is bought and sold in dollars.  No industrial economy can run without oil and in almost every case, if you wanna buy gas, you gotta have dollars.
  5. The U.S. has the most powerful military in the world and is willing to use it, especially when oil is on the line.

http://therookiecynic.wordpress.com/2010/09/18/will-the-dollar-crash-or-...

Wed, 03/02/2011 - 16:28 | Link to Comment AldoHux_IV
AldoHux_IV's picture

While there are many that have become fat on the promises and been living high on the hog, there are others that have been responsible all their lives as well and have attempted to live prudently and saved accordingly.  Unfortunately to place a blanket sorry for beleiving in a lie type statement over these manipulated people is the wrong thing to do at this time.  I know of people that have used whatever means available to plan for a better way-- a more independent way for themselves and their loved ones.  That said, many will have to suffer before their minds are changed as to the scam and their eyes open to the social class genocide that has been taking place so far by the top 2% of the world.  While total destruction of the world order is necessary, the hopes and dreams of those who have and are willing to work for their continued success and independence from the tyranny of the corrupt elite do not have to be collateral damage.

The dollars you refer to that will inevitably go to zero are federal reserve notes.  That is a key to how we can defeat the total destruction of the American dream while bringing those responsible to justice and really kick this notion of revolution into high gear.

Wed, 03/02/2011 - 18:06 | Link to Comment Moon Pie
Moon Pie's picture

Fraud has become the new industry and of who can stick it to who fastest and/or hold on to the hot potato shortest and most profitably.  The Goldman/AIG move still makes me reel when I think about it, but alas, I also see it as the new "normal".  One legal prerequisite or characteristic of fraud is "Condition of the Mind" at the time of the fraud.  There seems a cumulative "condition of the mind" that if not originates fraud, condones it in our Financial and Governmental institutions.

I find the most interesting result is that there is a growing group or class that are not marked as Dem or Repub or Conservative or Liberal that are finding common cause.  The MSM tries to abrogate or invalidate this notion, but its going to get to the irrepressible stage soon. 

I subscribe to Chris Whalen's view that there won't be another calamtious collapse, but rather a slow bleeding of the nation as it relates to its economic health.  Unless of course Kuwait goes kablooie or some other unforeseen occurs. 

We might as well be in Tiannemen Square with Tanks ordered by The Banks rolling towards us.

 

Wed, 03/02/2011 - 19:11 | Link to Comment jmc8888
jmc8888's picture

We can have the promises or we can have this monetary system.  We cannot have both.

I say fuck the monetary system, enact glass-steagall, and we can not only have the above, we can have much...much...more.

Charles Hugh Smith want the people to blame themselves? edit: ok maybe not

To now...pay for it...to who? The banksters.  Of course we have some blame, but only because we were (still are) fed lies.  If people actually knew the truth, no fucking way would we be in this monetary system.  No fucking way should the people 'pay' for letting the banksters take from them.  Talk about double jeopardy.  Sadly by now people should realize in the ponzi, it's infinity jeopardy.

Glass-Steagall, and the people can stop suffering, and those that created the mess, can (for a change) start.  CHS needs to focus abit more on how to get out of it, instead of laying blame on the sheeple.

Wed, 03/02/2011 - 19:53 | Link to Comment Bob
Bob's picture

Agreed.  Nice two card monte he was playing, though. 

Thu, 03/03/2011 - 23:18 | Link to Comment Rentier
Rentier's picture

If everyone who finds the promises made to them are being broken responds by "rioting in the streets,"

 

Won't be me...I knew long ago to rely I nobody but yourself for your future and retirement.  As, such count on getting nothing in SS or some ill promised pension be it private or public and nothing from the gov't or others to support my family and me.

Sun, 03/06/2011 - 03:10 | Link to Comment glenlloyd
glenlloyd's picture

OMG, I am so disappointed that this didn't get more comments, it cuts to the heart of American delusion...bravo

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