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Guest Post: Travesty of a Mockery of a Sham, Phase II

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Submitted by Charles Hugh Smith from Of Two Minds

Travesty of a Mockery of a Sham, Phase II  

The facsimile of U.S. "growth" now depends entirely on Central State manipulation and stimulus of risk trades and financial slight-of-hand.

The U.S. economy has become increasingly dependent on asset bubbles, financial legerdemain, credit expansion, Federal borrowing and the manipulation of risk trades to maintain the illusion of "growth."
Compared to an economy based on organic demand and productive growth, the current U.S. economy is a travesty of a mockery of a sham, and has been since 2001.

There are a number of factors at work, but let's start with two: the ratchet effect, and the Keynesian Project.

In the ratchet effect, increases are easy and resistance-free: it's incredibly easy to hire more employees in bureaucracies, for example. But once the ratchet has advanced, it is nearly impossible to return to the previous tooth in the gear.

So for a city government to expand payroll from 10,000 to 20,000 employees was effortless, to reduce a 20,000 person payroll back to 10,000 is exceedingly painful.

The ratchet effect is a key feature of addiction. When one beer no longer creates a "buzz," then the consumer drinks two, and so on, until a six-pack is the new baseline. Below that level of consumption, the addict gets panicky, for the entire necessity of creating a buzz is at risk of catastrophic failure.

The U.S. economy is now addicted via the ratchet effect to unprecedented levels of Federal borrowing and Federal Reserve credit creation and manipulation. Let's set aside the fact that America's Central State has by some calculations guaranteed some $13 trillion in private financial assets via TARP, AIG's backstop, the takeover of Fannie Mae and Freddie Mac, etc.--roughly the size of the entire GDP of the nation.

Let's focus instead on the fact that the Federal government must borrow and spend 11% of GDP ($1.5+ trillion) every year, and the Fed must buy $1 trillion in impaired private assets or new Treasury debt annually (another 7% of GDP) just to create an illusory GDP growth of 2.5% a year. So we're spending/injecting 18% of the GDP to conjure a "growth" of 2.5%.

That means we're spending/injecting $7 to create $1 of "growth" in GDP. And thanks to the ratchet effect, there's no going back now without systemic disruption. Does anyone seriously believe spending $7 to birth $1 of "growth" is sustainable? If so, then let's eliminate that $1.5 trillion deficit spending and the Fed's $1 trillion-a-year purchases of impaired debt and Treasury bonds, and see if GDP "grows" via organic demand and production.

Everybody knows what would happen: the wheels would fall off the illusory "recovery." The "recovery" is precisely analogous to an alcoholic who claims to be sobering up but who is actually drinking seven beers a day to get a buzz when a few years ago he only quaffed two or three a day.

Here is the Keynesian Project in a nutshell. Unfettered Capitalism works in straightforward cycles: the organic business cycle of expansion, overcapacity and overleverege inevitably leads to a credit bust in which those whose borrowing exceeds their ability to service their debt go broke, and the dominoes of overcapacity and credit expansion topple as losses mount and consumption based on increasing debt falls.

Bad debt gets wiped out, along with "pyramid-scheme" type assets (mortgaged assets are leveraged to buy more mortgaged assets) and excess capacity. As production declines, workers are laid off and consumption declines, further pressuring impaired financial assets.

As Marx had foreseen, these cycles increase in depth and severity.
Though Marx invoked dialectical theory and history rather than the ratchet effect, the basic idea is the same: Capitalism becomes increasingly dependent on financial capital, and the resultant crises eventually become severe enough to take down Capitalism as a sustainable productive system.

Keynes' proposed to counter these worsening business cycle implosions with massive injections of Central State borrowing and spending. The atmosphere of fear as assets, credit and consumption all contracted would be replaced by a revival of "animal spirits" (the magical elixir of Capitalism), consumption would be stimulated by direct government spending on capital projects and welfare (fiscal stimulus), and banking credit would be restored via stimulative Central Bank credit expansion (monetary stimulus).

But Keynes failed to grasp what Marx had intuited: the ratchet effect.
Once the Central State ramped up deficit spending and expansive credit, then the organic economy became dependent on that new level of Central State spending and credit expansion.

As I described in the Survival+ analysis, in effect the central State rescued Monopoly Capital by partnering with it. This results in a financial/State Plutocracy which "saves" the organic economy by taking control of its income streams, credit creation and financial assets.

That is the U.S. economy in a nutshell: a travesty of a mockery of a sham. The consumer became dependent on easy, cheap credit and home equity extraction to maintain his/her consumption. The student became dependent on easy, cheap credit to fund his/her increasingly costly college education. Monopoly capital became dependent on financial slight-of-hand, the debauchery of credit, fraudulent mispricing/masking of risk, stupendously leveraged bets on risk assets, etc. for its swollen profits. Politicans became dependent on unlimited borrowing and spending to keep the illusions of competence, sustainability and "growth" alive.

State and local governments became casinos, dependent on skimming the profits from asset bubbles and financial fraud. Where did New York City's and New York State's rising revenues come from? By playing dealer on Wall Street's scam tables, skimming a steady share of the profits.

Where did California's bloated state revenues come from? The skimming of capital gains from the Ponzi-scheme real estate bubble.

The stock market rally circa 2003-2008 was merely Travesty of a Mockery of a Sham Phase I. In those glory years of the Central State/Cartel-Capital manipulation, it only required $2 of stimulus and credit expansion to blow $1 in asset bubble "growth."

But alas, the growth was bogus, illusory, a simulacrum of organic growth, a house of credit cards and fraud that toppled when one card's overleveraged precariousness was inadvertently exposed.

Now we are in Travesty of a Mockery of a Sham Phase II. As Marx had foreseen, the crises are ratcheting up: now it's taking $7 of State/Plutocracy intervention to conjure up a pathetic $1 in "growth." Both are now totally dependent on the substitution of bubbles and fraud for real productive growth.

#404040;">

What Marx failed to foresee was the Central State's rescue of Cartel-Capital via a partnership: the Central State is now as dependent on financial capital's maximization of fraud and credit expansion as the Financial Plutocracy is dependent on the Central State to mask and enable its expansion of income and control.

The problem is, of course, that the system cannot support borrowing and spending $7 to create $1 of "growth" for long: eventually, as in all business cycles, the cost of borrowing will exceed the ability of the borrower to service that debt. That's what Keynes failed to foresee: the way in which the partnership of Central State and Cartel-Capital requires ever greater credit and State debt expansion just to keep the system afloat, never mind growing.

If I loan you $1 trillion at zero interest, with no principal payments, then the cost of servicing that $1 trillion loan is zero. Pretty easy to service zero, isn't it? That's the core strategy of the Federal Reserve and the U.S. Treasury.

That's been Japan's "secret" for 20 years: as long as the lenders (the Japanese citizenry and life insurance companies, etc.) accepted near-zero interest, then the cost of borrowing additional trillions has been bearable.

But as soon as that $1 trillion requires a serious interest payment, then the ratchet-effect game ends. We are not there yet, but the endgame is no longer over the horizon.

What will TMS Phase III require? $10 in Central State stimulus for $1 in nominal GDP "growth"? Or will it be $20 for every $1 of bogus "growth"?

The stock market is a reflection of this ratcheting up of Central State/Monopoly Capital intervention and manipulation. The stock market took off in the mid-1990s in the "easy money" era, and that led to the Phase I bust of 2000-2001.

That required TMS Phase II, which led to the next asset bubble in 2007-08, and that orgy of fraud and credit/leverage expansion led to an even more severe Phase II bust 2008-09.

#404040;">




If the partnership attempts Travesty of a Mockery of a Sham Phase III, then the consequent bust should return the stock market to pre-Phase I levels: The Dow around 4,000 and the SPX around 400.

Neither the public nor the Standard-Issue Punditry (SIP) understand the addiction-like dynamics of the Central State/Cartel-Capital partnership's increasingly ineffective interventions on behalf of a facsimile of normalcy and "growth." Like the addicted junkie, the Central State/Cartel-Capital partnership is approaching the point where their "high" requires ever higher doses of smack.

Nobody knows when the higher doses finally become lethal, but we do know there is such a point.

 


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Fri, 02/11/2011 - 02:51 | Link to Comment Diogenes
Diogenes's picture

It's worse than you think. With an addiction you not only have to keep increasing the dose to get the same buzz. When you go beyond a certain point you have to take the poison just to keep from getting sick.

If they ever try to get the economy off the "hopium" there will be a hell of a hangover. But the economy will recover in a couple of years. The way they are going now they will never get off the juice and the economy will never recover.

Fri, 02/11/2011 - 02:56 | Link to Comment Sheepneck
Sheepneck's picture

Don't worry, Ben has an exit strategy.  He's told us that about 100 times now.

In early 2010 I attended a lecture by the former St. Louis Fed chief at my university.  During the course of his presentation, he admitted that the fed had created "enough money to increase prices by 100%, should the money ever leak into the real economy." He then went on to say that it would not ever do so, of course, because the fed has an exit strategy.  This was before QE2, mind you.

Chopper Ben is not only a monetary drug addict, he is beginning to look like a real drug addict when he shows his face before congress or the press these days.  Naught but a shell full of empty theories.

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

I could not have said everything in this article better myself. It's the illusion of wealth.

I believe we have reached the point of no return. This is all going to end very badly.

Senator Dr.Rand Paul mentions Japan's point of no return in his CPAC speach. I think you will like it.

Rand Paul Speech CPAC 2011

http://www.youtube.com/watch?v=WwnDdEm3xRg

 

Fri, 02/11/2011 - 04:03 | Link to Comment Sheepneck
Sheepneck's picture

I'll check it out when I get home, thanks!

Fri, 02/11/2011 - 07:51 | Link to Comment Devout Republican
Devout Republican's picture

YIKES!

I see now why I feel so uncomfortable here.  You people agree with Karl Marx!

You're all a bunch of left winger fanatics!

I'm outta here!

 

Fri, 02/11/2011 - 08:42 | Link to Comment blindfaith
blindfaith's picture

It always helps to read the article before you judge it.  You didn't read it, but that is a normal FOX viewership position.

According to your logic here, the right wind fanatics are responsible for the mess (and that is good thing), and to critize the mess makes 'one' a left wing fanatic.

Fri, 02/11/2011 - 09:38 | Link to Comment robobbob
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chill out. deep breath.

even satan speaks the truth occasionally

the question is do you try to fix things, or exploit them.

"never let a crisis go to waste"

Fri, 02/11/2011 - 09:43 | Link to Comment Dapper Dan
Dapper Dan's picture

I do not think any one on this board has wings, left or right you need to go over to ornithology.com.

Read the 10 Planks of The Communist Manifesto to discover the truth and learn how to know your enemy...

Karl Marx describes in his communist manifesto, the ten steps necessary to destroy a free enterprise system and replace it with a system of omnipotent government power, so as to effect a communist socialist state. Those ten steps are known as the Ten Planks of The Communist Manifesto… The following brief presents the original ten planks within the Communist Manifesto written by Karl Marx in 1848, along with the American adopted counterpart for each of the planks. From comparison it's clear MOST Americans have by myths, fraud and deception under the color of law by their own politicians in both the Republican and Democratic and parties, been transformed into Communists.

Another thing to remember, Karl Marx in creating the Communist Manifesto designed these planks AS A TEST to determine whether a society has become communist or not. If they are all in effect and in force, then the people ARE practicing communists.

Communism, by any other name is still communism, and is VERY VERY destructive to the individual and to the society!!

http://www.libertyzone.com/Communist-Manifesto-Planks.html

Fri, 02/11/2011 - 10:38 | Link to Comment stollcri
stollcri's picture

Is the abolition of children's factory labor destructive to the individual and to the society?

Maybe you should just read the actual Communist Manifesto (and maybe also Capital) and make your own interpretation. Don't be scared, your underwear won't turn pink. At their core these works are just criticisms of capitalism.

Fri, 02/11/2011 - 11:21 | Link to Comment LowProfile
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And exactly WTF does that have to do with his post, asshole?

Fri, 02/11/2011 - 04:40 | Link to Comment Sudden Debt
Sudden Debt's picture

OF COURSE BEN HAS A EXIT STRATEGY!!!

 

HIS SUITCASES ARE ALREADY PACKED AND A JET IS STANDING ON STANDBY TO GET HIM OUT IF NEEDED 24/7!!

 

 

Fri, 02/11/2011 - 09:30 | Link to Comment eddiebe
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And I will bet 1 silver dollar to 1 greenback that his trunk is filled with gold, not paper.

Fri, 02/11/2011 - 02:51 | Link to Comment LostWages
LostWages's picture

Counties that saw real estate values climbing into 2006 got used to spending all that tax revenue.  Now with values back to 2000 levels, they are having a hard time giving it back in my area.

One has to jump through many hoops to get property tax rates lowered, but it can be done, although most I know have to compromise with the county and take a lower rate than the neighbor who just bought the foreclosure next door.

A perfect example of the ratchet effect.

Now for the clowns in DC, that's another story, and they are the addicts that can't give up the spending. 

Term limits anyone?  While it won't fix the problems, it removes the incentive to do whatever has to be done to get re-elected.  It's a start.

Fri, 02/11/2011 - 07:54 | Link to Comment Moe Howard
Moe Howard's picture

My congresscritter is Brett Guthrie, Senator Rand Paul. I don't claim Mitch the beeeatch.

Last night there was a telephone townhall with Guthrie. The people asking questions, from all over the district, asked only questions about why are we in the UN, why is the EPA trying to shut down the country, why borrowing money from China to give to Egypt and Israel, why why why about the insanity. He is not a bad person, but by his answers he thinks he can fix this and tweek that and everything will be fine. Many callers tried to stress how on 'the wrong track the Federal Government' is. He is out of his depth I think. BTW, he voted for the Patriot Act the other day, as did every one of the Kentucky Congressmen. We have only Rand Paul with a brain. As for myself, I am giving up on government. Nothing but heavy metals for me Au Ag Pb, and canned and dry goods. It's too late to turn the ship around.

Fri, 02/11/2011 - 12:10 | Link to Comment Mad Mad Woman
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Sounds like the masses in your district are spouting all the talking points of Faux News & Glenn Beck. So much for informed citizenry. Or should I say mis-informed citizenry.

The masses there not worried about jobs, or the economy?

Fri, 02/11/2011 - 13:10 | Link to Comment AsIseeIt
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"Term limits anyone? "  Absolutely, congress needs to join the legislative branch in this regard.  In addition, we have to devise a campaign finance mechanism that will allow the politicals to act in the interest of everyone, not just the miniscule power elite that currently fund their campaigns.

Fri, 02/11/2011 - 02:56 | Link to Comment Yen Cross
Yen Cross's picture

Like the charts. But what about the neck lines? Yes weak shoulders. What about cross overs.  Get with the game before I ass slap you. Waaaa Waaa!

Fri, 02/11/2011 - 02:57 | Link to Comment Bob
Bob's picture

What Marx failed to foresee was the Central State's rescue of Cartel-Capital via a partnership: the Central State is now as dependent on financial capital's maximization of fraud and credit expansion as the Financial Plutocracy is dependent on the Central State to mask and enable its expansion of income and control.

It's ironic that although Marx saw the truly destructive potential of predatory capitalism, even he did not foresee a day when "the masses" would allow themselves to be enslaved by government serving a financial master.  What a hopeless optimist he was. 

Fri, 02/11/2011 - 07:53 | Link to Comment nmewn
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The thing is, "capitalism" (as we know it) is not allowed to work fully.

Malinvestment should be destroyed not protected. This is a key feature of capitalism as I know it.

In the years of wine & roses (the bubble) where employment is high, there is no doubt that there is speculation and malinvestment going on. This is when the bear is said to be in hibernation. I've never agreed with the term, I believe he is stalking and waiting for his chance to take out the weak (the malinvestment).

Enter a Fabian socialist (Keynes). His idea (theory) was to insert a force between the bear and it's intended victim, malinvestment, toward the end of the natural business cycle. This force, not surprisingly for a socialist, is the state which is granted the power by the people to coin it's money.

The state, disdaining it's mandate to coin the peoples money and needing infintely more capital to protect malinvestment under the socialist model, created the Fed.

To me, it's not happenstance that in the span of a normal lifetime we see the creation of social compacts/models founded on the idea of a workers salary (their labor) going to the state to be redistributed (Marxism) and a socialist/fascist model take root here. Because that is exactly what was going on in the world at that time.

This is what prompted me to say the above; 

"As Marx had foreseen, these cycles increase in depth and severity. Though Marx invoked dialectical theory and history rather than the ratchet effect, the basic idea is the same: Capitalism becomes increasingly dependent on financial capital, and the resultant crises eventually become severe enough to take down Capitalism as a sustainable productive system."

Marx did not know of Keynes. But Keynes knew of Marx.

It's a great leap to say small bubbles (malinvestment) not being allowed to be destroyed because of their protection by the state is a failure of capitalism and or free markets.

Keynes was a socialist/fascist so it is not suprising at all that the state and finance/corporations would find each other as roomates in the same lunatic asylum.

That's how I see it.

Now, I have to go to voork, I have many little socialists depending on me ;-)

Fri, 02/11/2011 - 09:29 | Link to Comment Bob
Bob's picture

It's a great leap to say small bubbles (malinvestment) not being allowed to be destroyed because of their protection by the state is a failure of capitalism and or free markets.

For those of us who've lived through the post-WWII financial hegemony of the US, it is not a great leap to conclude that this is an inevitable outcome of a competition-based system in which capital invariably becomes ever more concentrated in the hands of the "winners" over time.  When they build sufficient capital, they will of course buy social institutions such as government and the media, as we have seen.  It may at that point no longer fit any sane definition of "capitalism," but that doesn't change the reality of the process which destroyed it.  As Marx posited, capitalism ultimately destroys itself. 

The theory of Marxist economics maintains that capitalism eventually destroys itself as it exploits more and more people until everyone has been reduced to worker status. 

http://www.allaboutworldview.org/marxist-economics.htm

I don't celebrate this as vindication of Marx or socialism, btw.  I'm indifferent except to the extent that I've lived through the destruction of systems based upon both ideologies.  While I've seen the adherents of both screaming "Not fair, the real thing never got a chance!," neither camp is inclined to take the other's excuses seriously.  It seems especially bizarre, however, to hear distressed minor capitalists screaming that it is the socialists who did them in.  As unrealistic as it may be, I expect them to take honest lessons from the experience, rather than falling back upon redefining reality by means of a wholesale reworking of the language, e.g., government becoming a synonym for socialism.

In my opinion, neither ideological extreme does justice to either the messyness of the real world or their own inherent and fatal flaws, regardless of the beauty of the Utopian fantasies that are their foundations. 

Having seen both "socialism" and "capitalism" run their course, I'm inclined to think that a humane and just system will necessarily be a synthesis of the two.  Sure, we could start with a blank canvas and a whole lot of imagination, but we've been there before.  Twice.  I'd rather we take a conservative approach. 

From my perspective, the corporate beast, which allows legally immune pirates full license to wreak havoc upon society by means of massive accumulations of other peoples' money, has been the primary cause of our fall.  It is the great Frankenstein of capitalism. 

Of course, regulation is obviously necessary, although that's a tough one to pull off when the corporations own the legal apparatus, from lawmakers to regulators.

At this point, however, America seems strapped onto a rocket that just did not manage to achieve escape velocity.  I'll be encouraged when I see the people who pay the bills take back ownership of the currency by which their debts are created. 

Fat chance of that.  I don't know if Marx foresaw capitalists stealing the currency itself, but he should have. 

 

Fri, 02/11/2011 - 12:14 | Link to Comment Mad Mad Woman
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Spot on Bob. Kudos.

Fri, 02/11/2011 - 19:28 | Link to Comment nmewn
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Bob,

"For those of us who've lived through the post-WWII financial hegemony of the US, it is not a great leap to conclude that this is an inevitable outcome of a competition-based system in which capital invariably becomes ever more concentrated in the hands of the "winners" over time.  When they build sufficient capital, they will of course buy social institutions such as government and the media, as we have seen."

I think we are saying sorta the same thing.

Except for the competition part. We want competition...competition brings the best products or services to the people.

The fascist movement began around the start WWI as a hybrid of collectivism, the state and corporate interests wrapped in nationalism. This is when the big ball of shit started rolling toward us.

We see it all right here today...all over us.

We also see that it's still not perfected...no matter how bad the oligarchs or pols or power elites (or whatever one wants to call them) want it...today came the news that FNM & FRE...the very definition of socialist/fascism will be wound down...much to their chagrin no doubt.

The simple fact remains...unless you go full on communism (which has considerable downside to the individual...LOL) the debt must be repaid or defaulted on.

Fri, 02/11/2011 - 20:38 | Link to Comment Bob
Bob's picture

I'm all for a hybrid model: Default on those so-called "capitalist" mother fuckers, I say.

Fri, 02/11/2011 - 21:21 | Link to Comment nmewn
nmewn's picture

That's what I'm talkin bout.

That's the real deal...not a hybrid...you put your money at risk, you win or lose.

The gubmint should not be in the business of picking winners & losers because we always lose when they lose...which is usually.

Backstopping FNM & FRE are the latest example.

Fri, 02/11/2011 - 21:39 | Link to Comment Bob
Bob's picture

Completely agreed.  It would be nice to enjoy the strengths and social good of capitalism.  I have to add that the system supporting it should find a way to take care of the causualties, and it is the beneficiaries of that system who should pay, but I'll go with you on that. 

Fri, 02/11/2011 - 21:59 | Link to Comment nmewn
nmewn's picture

Don't get me wrong...I'm not heartless...we as a people (our society) are not heartless.

A way will always be found to help those truly in need...but the parasites will have to be gotten rid of at all levels...the ones that can work must work, not just for the good of all but for themselves & their children as well, the ones that can't and have no recourse, we as society will take care of...the thing, the evil, that is Wall Street/DC cronyism will take an exorcism (like restoring Glass-Steagall)...there will be pea soup everywhere when this happens, so plan accordingly, they are some vicious SOB's ;-)

Fri, 02/11/2011 - 22:08 | Link to Comment Bob
Bob's picture

Definitely all should work, just as you say.  The problem in America is that private enterprise refuses to hire all . . . yet will not allow the public to compete.  All money belongs in capitalist hands it seems. 

If not for the murderous screams of the private sector, I'd guess that the poor receiving government assistance would be out making something of their time to the benefit of all.  Even in government employ.

We could view it as a truly competitive system for labor. 

Sat, 02/12/2011 - 07:45 | Link to Comment nmewn
nmewn's picture

Jameson & Ginger Ale is what I was drinking last night and I did want to comment soberly to you here.

"Definitely all should work, just as you say.  The problem in America is that private enterprise refuses to hire all . . . yet will not allow the public to compete.  All money belongs in capitalist hands it seems."

It's not a question of refusing to hire...companies are in business to make a profit. My wife is a partner in a small business. One of her employees quit and told her point blank she was going to apply for SSI & unemployment...my wife stood there with her mouth hanging open as she walked out. This former employee actually thought that government is there to back stop a decision you make like that...she just got tired of working at 32yrs. old apparently. 

There is nothing preventing people from opening their own business instead of working for someone else...accept for the reams of red tape one has to go through for government compliance (see Tunisian fruit vendor) and start up costs (this requires one to save or borrow). My own mother started out as a cashier, saved...and bought an apartment building...for example. It's not like it's never been done.

"If not for the murderous screams of the private sector, I'd guess that the poor receiving government assistance would be out making something of their time to the benefit of all.  Even in government employ."

As I say, it is patently unfair to ask government to take care of you when you can take care of yourself...it requires taxation of your fellow man...your neighbor. We could just cut out the middle man and just have them go next door and take what they need, of course the neighbor might object ;-)

"We could view it as a truly competitive system for labor."

I don't think we have a labor shortage.

We founded a system where we said (more properly said forced) the government to accept the premise that it cannot interfere with life, liberty & the pursuit of happiness as long as you do not commit a crime against someone...we did not say the government (via taxation) must pay for it.

Sat, 02/12/2011 - 09:42 | Link to Comment Bob
Bob's picture

No, we don't have a labor shortage.  We have a surplus.  We have massive structural unemployment.  Over time money and power inevitably become concentrated in "capitalist" hands; over time an underclass will inevitably form, just as we have seen.  This serves the needs of the capitalists more than the needs of the underclass, to say the least. 

I see nothing inherently morally wrong about imposing the costs of keeping those people alive upon the beneficiaries of that system.  Damn right, that's a collectivist position, but from that perspective it is a legitimate cost of doing business.  Pay or don't play.  You're always free to join the underclass if you can't live with that deal. 

The problem with doctrinaire "capitalists" is that they can always manage to find a way to justify pushing off legitimate costs of doing business onto the "collective" or larger society while minimizing the share of resulting profits shared with the people whose labor makes it all possible.  Roads, trains, environmental clean-up, necessary regulation--it's all pushed off onto the public and that's hunky dory with the capitalists.  And you've got to include the military--we spend a trillion dollars a year to keep oil flowing at prices that business likes.  That too is okay for the "capitalists" because the costs are entirely pushed off onto the public.  One would have to admit, it seems to me, that--to use language popular with capitalist fundamentalists these days--business seems unwilling to live without being firmly locked to the public tit. 

Business has managed to implement and institutionalize this system, but in the larger perspective business is nonetheless a parasite upon the collective that costs the public thousands of times more than the minimal support provided to the poor within this "immoral" system of taxation.

One can argue that such a system is not "capitalist," but it sure as hell ain't socialist.  It's a hybrid system that is tipped far to the capitalist end of the continuum.  Look at the income and wealth distribution in this county--to claim that there's "socialism" is absurd on its face. 

Hey, I love the idea of noble men and women all living in the wonder of self-sufficient success, but in a competitive and largely capitalist system it ain't gonna happen.  Structural unemployment is an undeniable reality that this fantasy, however pleasing it might be, does not change.

I think, however, that requiring work in exchange for public support is perfectly fair.  Let them repair the infrastructure--imagine the billions the public would save.  Unfortunately, the private sector contractors would scream about the government putting them out of business and pull out that time-worn canard of "socialism."  Apparently, the only moral function of  government is pouring money into their pockets.  

Sat, 02/12/2011 - 11:48 | Link to Comment nmewn
nmewn's picture

"Over time money and power inevitably become concentrated in "capitalist" hands; over time an underclass will inevitably form, just as we have seen.  This serves the needs of the capitalists more than the needs of the underclass, to say the least."

Over time any societal structure will form into classes just by the nature of people. Some are highly motivated, some less so, some are not at all. It's not surprising that the highly motivated would be highly successful, the less motivated less successful, those not motivated not successful at all...in financial terms of course.

A collectivist/marxist/socialist structure guarantees those born at a certain strata stay there for life, no matter how much motivation they have, as the individual is subservient to the whims of the state.

What seems to be missing in your thought process (not a knock, just saying) is the reliance on the state to rectify inadequacies when it is the one largely responsible for them.

Corporations and banks are regulated...this is a function of the state.

My thought is to reform the tax code thus stripping the state of much of it's power to confer special tax treatment on some, but not all corporations which is unfair regulation. This can be done with what is called the Fair Tax...which has been completely demonized & mis-represented precisely because it strips them of power to give special tax treatment.

It is one of the most "progressive" taxes you can have...meaning, the more you spend the more you are taxed. The "rich" (whatever that is) would pay proportionally more than they pay now. Of course the income tax would go away as this would replace it...it is not in addition to an income tax.

Something to think about anyways.

Take care.

Fri, 02/11/2011 - 03:02 | Link to Comment johnQpublic
johnQpublic's picture

did keynes take into account that you cant have infinite growth on a finite planet?

seriously...a growth model has to eventually collapse

that seems a rather simple enuf idea that someone somewhere had to take it into account

Fri, 02/11/2011 - 03:20 | Link to Comment Michael
Michael's picture

Keynes did not understand the laws of exponential functions.

Fri, 02/11/2011 - 08:57 | Link to Comment blindfaith
blindfaith's picture

Show me ONE economist that has it down pat.  Not one ever, why? because it is a moving target with an infinite number of variables but they won't admit it.  Not even hard science has the facts down in stone, look at Physics...they are constantly tweaking the 'laws'.

But, you allow one politian to grab onto a philosphy that fits the agenda and you have a marrage made in heaven.  Couple that with people who don't read or think, and you have the current capitalism.

Capitalism is open, level playing field competition, this government has destroyed competition in favor of friends...that is not capitalism, that is Tunisia and Egypt.

They have destroyed self sufficiency in favor of 'one upsmanship' over the neighbor, and force fed 'next app" mentality.

Fri, 02/11/2011 - 12:19 | Link to Comment Mad Mad Woman
Mad Mad Woman's picture

Agreed. Economics, like every thing else, is constantly evolving, fluid. Yet the Fed and others think if you just keep doing what you did before in a crisis, that it will work and we're back to happy times. That is assinine thinking & look where it has gotten us. Morons are running govt. and the financial industry. Greedy morons.

Fri, 02/11/2011 - 03:45 | Link to Comment Huck T
Huck T's picture

Check out Ecology and the Politics of Scarcity by William Ophuls.  Not the first to make your observation, but maybe the best statement of it.

Both Ricardo and Malthus believed that land degredation would eventually render the system untenable.  However Marx believed that the resources of the New World were sufficient to prove them wrong - which it did, in the short run - thereby (ironically) falling into the same trap as Locke and the rest of the Social Contractors (and we, their inheritors). 

'Course most with a stake can't see it or won't admit it... just chafes the Randian smooth... they might have to actually grow up...

...or else they claim that "innovation" will somehow overcome both the laws of themodynamics and resource scarcity.

But as Cactus Ed would say:

"Growth for growth's sake is the ideology of the cancer cell."

 

Fri, 02/11/2011 - 04:13 | Link to Comment johnQpublic
johnQpublic's picture

just ordered it off of amazon....how could i say no

 

it was .05 dollars plus shipping

5 cents...can you believe it?

obviously not a book in great demand

thats gotta say something in and of itself

got an address for 'gentle' ben?

for five cents i'll buy him a copy too

Fri, 02/11/2011 - 07:59 | Link to Comment Cleve Meater
Cleve Meater's picture

Brother Huck,

"Chafes the Randian smooth?"  Poetic.

Fri, 02/11/2011 - 10:54 | Link to Comment DaveyJones
DaveyJones's picture

Ah, "the short run," the story of mankind

These guys had foresight as well. It was immediately attacked but over time, folks realized they were close to target. They also estimated the exhaustion clock would strike right about...now.

The Limits to Growth is a 1972 book modeling the consequences of a rapidly growing world population and finite resource supplies, commissioned by the Club of Rome. Its authors were Donella H. Meadows, Dennis L. Meadows, Jørgen Randers, and William W. Behrens III. The book used the World3 model to simulate[1] the consequence of interactions between the Earth's and human systems. The book echoes some of the concerns and predictions of the Reverend Thomas Robert Malthus in An Essay on the Principle of Population (1798).

Fri, 02/11/2011 - 03:41 | Link to Comment Sokhmate
Sokhmate's picture

U.S. economy is a travesty of a mockery of a sham, that is not a mystery, nor is it wrapped in an enigma

Fri, 02/11/2011 - 03:52 | Link to Comment JW n FL
JW n FL's picture

"Federal Reserve rule proposes that it will have discretion to determine whether nonbank financial firms come under Financial Stability Oversight Council’s watch on case-by-case basis."

The "Enabler"... Oops! I mean Junky... Oops I mean? Both!! will now decide who is a threat outside of the choosen few doing Gods work... so be part of the lie in all things of be sectioned off for good solid business practices and destroyed.

 

Got Food?

 

Got Power / Water?

 

Got Medicine?

 

Got Guns and Ammo?

 

Got PM's?

 

Get it now before this lie catches up with the lil people... food stamps and Jerry Springer are all that seperates us from Egypt... we have better population managers here in the States v. the rest of the world thusly it will be a more elongated fall.

 

or... the blue pill...

"This special edition of Wall Street & Technology takes an in-depth look at the new era of risk management on Wall Street. Chief executives, CIOs, risk managers and regulators have been searching for solutions to help solve the Street's risk management challenges before the next, inevitable crisis hits. But the answer may be right under their noses; it may be as simple as solid enterprise data management and business intelligence."

http://wallstreetandtech.com/digital-edition/sept2010/

 

Fri, 02/11/2011 - 04:13 | Link to Comment TDoS
TDoS's picture

Great piece, CHS is a treasure.

And these are some of the most well reasoned and rational responses I've seen here on Zerohedge in a while. Well done all.

And yes, time to buy that house in the country, and stock it with a few years worth of food, bullets, and bullion.

Fri, 02/11/2011 - 05:09 | Link to Comment mick
mick's picture

Read my blog!  Pretty girls!

http://micksfund.blogspot.com/

Fri, 02/11/2011 - 05:34 | Link to Comment ivars
ivars's picture

 

Estonia GDP Grows Most Since 2007 on Exports, Industry (Update2)

http://noir.bloomberg.com/apps/news?pid=20601095&sid=aO5xKCiXjeLs

“Estonia is a clear example of where the so-called non- Keynesian fiscal consolidation effect occurred,” said Violeta Klyviene, the senior Baltic analyst with Danske Bank A/S in Vilnius. “The positive effect from significant fiscal consolidation outweighed the negative effects on growth from the public spending cuts and tax increases.”

 

 

Fri, 02/11/2011 - 07:54 | Link to Comment reload
reload's picture

IIRC -70% of Estonian exports are Lumber & most of it comes to the UK. Some builders merchants restocking perhaps? not a lot of residential building going on nationwide.

Fri, 02/11/2011 - 06:33 | Link to Comment Sudden Debt
Sudden Debt's picture

It's so obviously true it's scary to say the least.

 

If this situation was compared to a living person instead of a state, the person would be "of the hook" if he died.

And like history has already shown us so many times, this is also possible with a country.

There have been hundreds of countries defaulting, and restarted the game.

The biggest so far was Russia, and with it, it took every small communist country with it down the drain.

 

 

But now it's the US... so will the US take with it every economy smaller then itself?

Russia wasn't the biggest economy in that day, and it didn't have a open market so the damage was very controllable.

But if you look at the US economic system, it is the backbone of almost every economy in the world!

 

It's like in the casino where you bet every time on red.

You win... you win and play along.

You lose... you double the bet.

1 = 2

2 = 4

4 = 8

8= 16

...

and without any rules and unlimited money, you'll always win!

BUT:

At a max level, you can't bet more. The table has a limit, and in the US case it's the reserve currency status.

 

Predictions are cool and fun, but where it all turns out to is this:

WHAT IS THE LIMIT OF THE BIGGEST GAMBLING TABLE ON EARTH!!!

 

Fri, 02/11/2011 - 07:02 | Link to Comment asdasmos
asdasmos's picture

I wonder what the dow top will be and how fast it will hit it.

Fri, 02/11/2011 - 07:22 | Link to Comment Sathington Willougby
Sathington Willougby's picture

Never trust a junkie.

Fri, 02/11/2011 - 09:30 | Link to Comment Jim in MN
Jim in MN's picture

++ This.

Fri, 02/11/2011 - 07:57 | Link to Comment Instant Karma
Instant Karma's picture

Nicely said, but a few disputations.

Need we invoke Marx into economic theory? It's pretty well documented that socialism/communism doesn't work. No incentive for the individual. The ex-Soviet Union gave it a real shot for 70 years. It ended with no food, no goods and services, no standard of living, and the saying "we pretend to work and they pretend to pay us."

I like the ratchet effect thing. Good metaphor.

Don't forget all the free money given away by the government: endless unemployment compensation, food debit cards (not stamps), social security checks, medicare payment for the soaring health care for the elderly, medicaid for the soaring health care costs of the poor, and all sorts of other stuff.

Just take away food debit cards and endless unemployment benefits and the economy goes back into recession. Rachet. 3

 

Fri, 02/11/2011 - 08:35 | Link to Comment Bitch Tits
Bitch Tits's picture

"Don't forget all the free money given away by the government"

 

Nothing in life is free. That money comes from somewhere.

 

Oh yeah, my pocket and yours.

Fri, 02/11/2011 - 12:36 | Link to Comment Mad Mad Woman
Mad Mad Woman's picture

Free money? Honey, it sure as hell ain't free money.

"Just take away food debit cards and endless unemployment benefits and the economy goes back into recession." - WRONG!  I guess you want rioting in the streets and all kinds of social unrest then.

What we need is strict regulations & to have everyone pay their fair share in taxes. The middle class has been supporting every one for too long. The vast majority of America's corporations pay little to no taxes at all. Same with the rich. And the deficit keeps soaring. Gee, I wonder why? Why do you want a 3rd world country? Like I said before, the financials & govt are run by morons. God help us.

Fri, 02/11/2011 - 08:50 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Is there a single person here who thinks entire departments of federal government can't and should't be eliminated, such as energy, education, transportation, agriculture or the FHA, for starters?

Does anyone think these cuts would even be noticed by 95% of Americans?

Does anyone think Medicare & Social Security can't or shouldn't be cut by 3% (in real terms) per year, for at least 10 consecutive years?

Does anyone think we could have a more robust, far more efficient, far more capable military even with a 30% reduction in budget, given that bacon politics and horse trading is driving procurement of useless weapon systems and maintaining of bases, both domestically and abroad?

Does anyone think that it's irrational to expect American taxpayers to demand that remaining goverment employees become as or nearly as efficient as private sector employees, whereby 25% of the current number of government employees could do whatever work is being done by 4x that many, and that American Taxpayers would be far better served by this?

Does anyone not believe similar reductions in government expenditures can't or shouldn't be made at the state and local levels of government (but I realize that this is not germain to a discussion of the national deficit and debt)?

I do realize that these reductions will never happen, because there are way too many hands in the cookie jar, but if this were to happen, we'd be at surplus in one year, and we'd eliminate our national debt within a decade.

Fri, 02/11/2011 - 09:52 | Link to Comment robobbob
robobbob's picture

2 little 2 late

both parties in bed with the big money

just rearranging deck chairs to keep the passengers distracted

no chance for real changes until the end really comes

and there are monsters in the shadows waiting to strike

Fri, 02/11/2011 - 09:35 | Link to Comment Jim in MN
Jim in MN's picture

In a nutshell, the country borrowed growth forward.  There are good things that we simply cannot afford for, say, 20 years while we work through the hangover. 

The more interesting and tricky bit is wage deflation vs. asset prices (eg deflationary spiral).  How low will it go?

We'll need to maintain a very basic safety net as the bottom rungs get brutalized during such cycles.  Thus, even less candy for the middle-upper rungs.  Unless....well, a moral debate usually ensues.  Let them eat wallpaper paste?

Fri, 02/11/2011 - 10:58 | Link to Comment Huck T
Huck T's picture

Yeah - I'm here and I think you're spinning your wheels.

If you eliminated Agriculture, you'd eliminate the Forest Service.  If you did that, there would be no one to put out the wildfires across, oh, about 150 mil acres of land in the west.  

That would mean an end to welfare logging and, due to silting, probably salmon, too.

If you think that the private sector would jump in, you're still back to paying them out of the public till. 

And if you think that contract crews are, by definition, more efficient than government crews, you probably don't know what a pulaski is.

Now, as far as the Farm Bill is concerned, I'm mostly with you.  But otherwise, I think you actually have to go through these departments agency by agency, program by program.  Otherwise you're just bloviating.

 

 

 

Fri, 02/11/2011 - 12:43 | Link to Comment Mad Mad Woman
Mad Mad Woman's picture

"I do realize that these reductions will never happen, because there are way too many hands in the cookie jar, but if this were to happen, we'd be at surplus in one year, and we'd eliminate our national debt within a decade." - Do you really believe that?  Why does everyone want to start with cutting off the elderly? That's not where to start. You start with DoD and Dept. of State. Why are we giving billions of dollars to foreign govts with the leaders of those govts skimming off the top? Why must we continue to fund dictators all over the world? Why should we keep enriching Karzai and his family?

All I have to say is this....with some of the posters here and their "solutions" we will be a 3rd world country in record time.

Fri, 02/11/2011 - 08:55 | Link to Comment spanish inquisition
spanish inquisition's picture

When it is over, do you think Iceland would agree to be our 12 step sponsor? I am pretty sure the interventionists are going to go nowhere.

The ownership of the Fed looking to survive and that is mandate number 1. I am also pretty sure if you look at the other central banks the same names will pop up.  They will need to use the mandate of controlling inflation to do that. They will control it to 50%, I believe they get to pick the target as none is stated.

My thinking on the 10 year sale that was taken down by central banks is that it was used to set a technical level and in the longer term who will remember in 6 months who was buying. (ie. "based on my numbers we need to set the 10 year at 3.xxx to normalize the 2s10s30s curve and set technical resistances in the next few months)

As far as what type of government is in control is irrelevant, the same people will be on top. I think I have a better understanding of what the Churchill quote really meant.

Fri, 02/11/2011 - 09:21 | Link to Comment Mr Poopra
Mr Poopra's picture

It's baffling to me that most people on ZH now understand the Fed and how it came to be, yet think for even a second that what is happening right now hasn't been planned to perfection for many years in advance.

Fri, 02/11/2011 - 09:22 | Link to Comment blindman
blindman's picture

http://michael-hudson.com/2011/01/why-america-had-a-90-income-tax/

Why America Had A 90% Income Tax January 4, 2011

By Admin

Fri, 02/11/2011 - 09:29 | Link to Comment Jim in MN
Jim in MN's picture

Marx introduced the concept of class in the modern sense, as Freud introduced the notion of the unconscious.  That is about the limit of either of their usefulness.  But it is a name that gets attention, to this day.

We normally see either Friedman or Hayak placed in opposition to Keynes by armchair theorists. 

Carry on.....

Fri, 02/11/2011 - 09:52 | Link to Comment topcallingtroll
topcallingtroll's picture

I was also hearing the ghost of hayek speaking through marx speaking through td speaking through?

Fri, 02/11/2011 - 09:57 | Link to Comment topcallingtroll
topcallingtroll's picture

Freud's ego defenses was also a valuable contribution. Those who ignore all the ways we deceive ourselves are condemned to repeat them.

Fri, 02/11/2011 - 09:46 | Link to Comment eddiebe
eddiebe's picture

Excellent!

Fri, 02/11/2011 - 09:53 | Link to Comment Lazane
Lazane's picture

The elitist are planning another war, and a really big war, Hegel's theory for guiding the thoughts of the sheeple is the only proven way to save their dynasty on this well worn path to economic destruction. 

Frontload retirement accounts, then lock and load for chaos not seen in 2 generations

http://www.youtube.com/watch?v=DOpErJWSIg0&feature=related

Fri, 02/11/2011 - 12:53 | Link to Comment Mad Mad Woman
Mad Mad Woman's picture

I'm afraid you're right. We've got morons guiding us into disaster & oblivion. God help us all.

Fri, 02/11/2011 - 10:26 | Link to Comment Henry Hub
Henry Hub's picture

This is a good article and a good introduction to Marx. However Keynes takes it in the neck again. No one seems to explain Keynes properly.

**Keynes' proposed to counter these worsening business cycle implosions with massive injections of Central State borrowing and spending.**

This is only half true. This other part of Keynes' theory is that in prosperous times, in the expansive part of the business cycle, you cut back on government spending and increase taxes. Of course all governments found it easy to embrace the first part of Keynes' theory, but conveniently ignored the second part. Keynes is now blamed for this failure, but this is a distortion of his theories.

Fri, 02/11/2011 - 12:54 | Link to Comment Mad Mad Woman
Mad Mad Woman's picture

Right you are. Excellent point. These are the people that obviously failed economics & history, and they still want to go full speed ahead to destruction. Idiots.

Fri, 02/11/2011 - 19:43 | Link to Comment Buck Johnson
Buck Johnson's picture

It won't recover in a couple of years, because just as long as it took to make this problem (almost 20 years) it will take at least that long to work out all the issues that will come about.  Like govt. checks cut or gone, Medicare cut or gone, unemployment cut severely or gone, pensions (both state and federal) cut or gone, dollar devauled etc. etc..  You will have to figure out how to fix these and many of the issues that we won't see coming.

Sun, 02/13/2011 - 15:15 | Link to Comment edwardscpa
edwardscpa's picture

This whole thing is a Travesty, a Sham, and a Mockery!  It's a Traveshamockery!

 

http://www.youtube.com/watch?v=jzes12YwaTA

Do NOT follow this link or you will be banned from the site!