Guest Post: When Things Fall Apart

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

When Things Fall Apart   

Financialization and centrally planned speculative credit bubbles have undermined the real economy: that's why things are falling apart.

There is no pleasure in "I told you so" when things fall apart. Many of us recognized the artifice and folly of the credit-housing bubble "Bull market" as early as 2004, but few cared to listen because they were deeply complicit in the Status Quo's legerdemaine: their home was rising in value, their pension fund was being fattened, their sales were rising on the onrushing tide of abundant, cheap credit, their tax revenues were soaring, and their benefits/perquisites were notching higher with every tick up of the stock and housing markets.

Faith in a centrally planned economy operating under the flimsy guise of cartel-State "capitalism" was supreme, as were greed, self-absorption and an overweening sense of entitlement to consumerist "prosperity."

Both corrupt political parties enthusiastically embraced the bubble-culture of fraud and speculative excess, for they too benefited from the illusory glow of "permanent economic growth" and the ever-richer contributions from the fiefdoms, cartels and Financial Elites who gained the most from the credit-based frenzy.

The "prosperity," "growth" and "wealth" were all illusory, but the pain is real. Hardworking, dedicated, smart, experienced people are being laid off into an economy with few prospects. Young people are graduating from university into the same bleak atmosphere of a paper-thin facade of magical thinking and propaganda finally crumbling.

Things are falling apart because the economy has been undermined by financialization and the extreme concentrations of capital and State power. I think these charts tell the story rather well:

Here we see the Federal Reserve-engineered credit-based speculative financialization bubbles and busts reflected in the stock market. All that cheap credit sloshing around created asset bubbles which sucked in capital and borrowed funds seeking extraordinary returns. Then when the bubble inevitably popped, the players were left with the debt, which remained real, while their illusory wealth vanished.

Here is the dynamic: cheap abundant credit fuels malinvestments and speculation, the acme of financialization. Real production can't match the enormous profits generated by financial leverage and legerdemaine, so real production atrophies as capital and talent migrate to financialization.

Financialization rewards concentrations of capital that can off-load speculative risks onto the Central State while keeping profits private. Thus financial capital comes to dominate the entire economy and mechanisms of governance.

Empoyees no longer share in the gains from rising productivity: those gains flow to capital/global corporations who influence or control the political machinery.

Corporate profits have skyrocketed as Cartel/Monopoly Capital captures an ever larger share of thenational income and buys political power with that cash flow that enables Capital to offload risk on the State and insure a steady supply of cheap/free credit from the central bank (the Fed) to fund its speculations.

This concentration of wealth leads to extremes of income inequality. The gini coefficient for the U.S. is .47; researchers have identified .4 as the triggering threshold for social unrest. (0 is perfect equality, 1 is total inequality.)

The substitution of money-printing/credit creation for actual wealth creation has led to an explosion of debt across private and public sectors. This debt will soon require crushing interest payments; once again, Capital that owns the debt will profit at the expense of real production.

The cost structure of the real economy has exploded higher as the tide of cheap abundant credit has created vast imbalances. As long as the Sovereign State can borrow trillions of dollars every year to paper over inefficiencies and fraud that could not otherwise endure, then costs can rise forever. Sickcare (operated by cartel-State partnerships) is a prime example:

With tax revenues climbing along with the speculative gains, government costs also lack any limiting factors. Now that the speculative cycle of ever-greater imbalances and financialization is reaching the endgame, tax revenues are plummeting even as costs ("we were promised," etc.) continue rising.

I have often addressed the theme of things falling apart:

The Unique Benefits of When Things Fall Apart (March 15, 2010)

Things Fall Apart: But Not Just Yet (July 26, 2010)

China's Towers and U.S. McMansions: When Things Fall Apart (Literally) (April 14, 2010)

It is a phrase drawn from THE SECOND COMING by William Butler Yeats (1865-1939)

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Though the poem was penned in 1919, just after the Great War destroyed all the illusions that trade and interdependent prosperity spelled the end of war, it speaks presciently to our era. The falconer circling ever farther away from the voice of its master could be interpreted as a spiritual metaphor for a culture lost in self-absorption, complicity, Empire, greed and resentful entitlement, or politically as a metaphor for a populace slipping away from the Founding Fathers' principles of liberty and limited government and their distrust of central banks' potential for financial destruction.

In a nation increasingly diverging into hackneyed, hardened ideological camps whose sole goal behind their soaring rhetoric is defense of their own preferred cartel-State fiefdoms, clearly the center (common ground, common sense) is not holding.

Things are falling apart because artifice, fraud and facsimiles have purchased complicity, and engineered concentrations of financial power that inevitably over-reach and implode.

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TruthInSunshine's picture

Does this mean there will not be a virtuous circle ala The Bernank?

The Deacon's picture

The more this cycle carries on the more I find myself interested in what people like CHM, Dmitry Orlov and other Big Picture thinkers have to say.

Their distance from wall street is a plus.

They provide original thought and Everyone else just talks their book.

impending doom's picture

Whatever happened to the happy little trees? Oh yeah, we chopped them down, Easter Island style.

Logans_Run's picture

No just an invertuous circle jerk by the bernanke of his elite buddies.

TruthInSunshine's picture

Junked for shredding Bernanke...gotta' love it.

Oh regional Indian's picture

i have two words, total oxymoron, that explain it all:

Financial Innovation!

Once that genie was out of the bag, we were lost, in this paradigm anyways. Race from reality...FTW!



reader2010's picture

everything's planned. don't you get it?

FreedomGuy's picture

It's funny how "planned" centrally managed economies never work out. I have read several articles now on how the financial sector grows and dwarfs all others in a planned inflationary economy. All of the economies of the world are primarily inflationary as it benefits net debtors. We are all net debtors because we support large welfare states, which includes not just your basic welfare recipient and anyone who can tap into the government teat. Government becomes a government of favors, i.e., subsidies, protection, fat contracts, favorable legislation, tariff protection, and so on. All of it is corrupt but the final accounting is that we actually don't want to pay the true cost of what we demand and the monster we create. That is called the deficit. The illusory financial system allows us to make it foggy and put off the true accounting. A friend of mine has a nice website: where he differentiates the "real" economy versus the "financial" economy. It is essentially the same thrust as this article and I have come to believe it over the years as it seems to accurately predict events.

I personally believe that we will show why democracies do not last. Somehow the treasury has to be separated from the populist process. A Constitution would be a wonderful idea...but only if people actually follow it.

RafterManFMJ's picture

Oh, I don't know...I think things are working out EXACTLY as planned.

fxrxexexdxoxmx's picture

Thanks for the link.  I will make some of the depression sugar cookies Carla shared

Azannoth's picture

Reality in your Face! Bitchez!

velobabe's picture

charts charts, every where. m e n love charts†

papaswamp's picture

I'm sorry velo did you type something...I was distracted by your avatar

impending doom's picture

Can I have some of your DMT while I ride my Cervelo?

Ricky Bobby's picture

If you want to guage the state of Modern Amerika, watch American Idol. It shows you all you need to know.

Cursive's picture

We should bring back a PSA like the crying Indian except this time George Washington would be sobbing.

MsCreant's picture

I like it. Or maybe the constitution being raped by a bunch of congress people while Uncle Sam cries, helpless? And then just when you think Obama is going to bust in and dispense justice, he unzips his fly and gets in line. Sam finally decides to bend over and take it for her. He screams out in agony as, oh never mind. Sorry to bother you. 


11b40's picture

Or visit your local Wal Mart about 11:00 on a Friday night.

Bad Asset's picture

So a bunch of 14 year old girls slobbering over musicians is a guage of modern America?  Give me a break.  I don't know why American Idol gets bashed on this site so much.  Take it at it's face value ... a music competition.  Youtube Casey Abrams, they do find unbelievable talent.

Ironmaan's picture

How bout Jersey Shore. Can we bash that?

InconvenientCounterParty's picture

Watch the global phenomenon of bald monkeys singing for fame and fortune. You will see people willing to take risks to achieve a personal goal or what not. You can see people from every region on Earth at play and take pleasure from it, like when you watch a puppy play with a toy.

Simple pleasure is not the evil you are looking for.

justtotaketheedgeoff's picture

Anybody hear Prince Whatshisface al Saud on CNBC?  He says the Day of Rage is really a Day of Allegiance to the King of Saudi Arabia and people are just getting out on the street and mingling among themselves. Like a block party, I guess.  He's talking so fast, he sounds absolutely terrified.

DosZap's picture

I thought my kids could lie when young, the Arabs, have the title hands down.

It's ALWAYS The Mother of ALL _ _ _ _ _ _

You fill in the blank.

It's like throwing rocks at M1A1's.

10kby2k's picture

Tax corporations, require them to hire domestically, cut entitlements and get tough with everyone. We need a benevolent dictator....democracy does not just feeds the ponzi.

Pladizow's picture

A democracy is two wolves and a sheep deciding what's for dinner.

A republic, which is what the USA is supposed to be, is when you give the sheep a gun!

10kby2k's picture

Stocks are going higher for 1 reason...they are making a ton of money.  Until Joe Schmoe gets a cut or the government takes a bigger cut or the profits evaporate again when Joe Schmoe can't buy anything.....the brainless money managers will push it higher (all the while denying their inner voice that tells them this is not sustainable).  NOT ONE literate person I have spoken to believes this 'recovery'. But its 4 o'clock in New York and do you know where your money is??

impending doom's picture

Once NGO's amassed more FRN's than the gov that prints them it was game over.

StychoKiller's picture

Corporate taxes ultimately come from their customers, meaning us!  Check your premises.

nobusiness's picture

We don't need no stinking POMO (or is it a stealth POMO day?).  This market is to the Moon Alice.  Break down of the 55 DMA my ass.  Start of a new 132 day run up.

repete's picture

I think that they have to let the air out of this thing so that the country (cramerica) will  insist on qe3.  Problem was the quake scared them so they had to take it up today.  The market will go lower to accomodate easing.

gwar5's picture

We know it's centrally planned. We know it's fraud. We know it's propaganda. We know it can't last.

Choir here. But thanks, I've been passing it along. Good luck getting it past the MSM and Ministry of Truth.

plocequ1's picture

Exactly. What the fuck can you do. Just live your life and think Thurman Munson.. " Im just happy to be here " .

PeterSchump's picture

Evil triumphs when good does nothing.

NidStyles's picture

That's the problem, People don't think they can do anything. It's really easy to simply remove yourself from the pyramid raping. That's all people have to do to end it, remove themselves from it.

sschu's picture

We (friends) have come to the conclusion that the "if" answer to the end game is decided, we will experience a catastrophic currency failure.  There is virtually no way to avoid this calamity.

So the questions have now moved into when, what form and how does one prepare. 

Those that believe the "if" question has been answered need to quickly move into the when and what questions.  For my money:

When - 12 - 24 months

What - currency collapse (take your pick), what your neighborhood/community will look like is anyone's guess, be ready for most eventualities.

What you do - food, PMs, guns, shelter, water, friends and your Bible.  And other items I am sure.




impending doom's picture

If history is any guide, catabolic collapse is more likely: austerity-collapse-more austerity-further collapse-etc

RafterManFMJ's picture

You'll also need those sunglasses that allow you to see the lizard people - but be careful as they will not reveal their human collaborators. Trust no one.

DosZap's picture

Question for all.


How much percentage wise of your total net CASH worth, do you still have in FRN's?.

We talk about how we're BTFD all the time,is it bluster, or bravado, or the real deal.?

dbradsha's picture

Not another one. Reggie mark 2. Look at the markets all these "Deep thoughts" are worth BA. BTFD nothing else works.

max2205's picture

The S&P 500 could not even dip 5% from the highs...with all the crap going on,,,ben is still fingering the major indexes...I think sector rotation is well underway.  Still need to watch the 50 EMA IMHO

baby_BLYTHE's picture

He's Got the WHOOOLE World... In his hands, he's got the whole wide world... IN HIS HANDS!

zaknick's picture

He's got you and me, brother, in His hands!

Motherfuckers, repent because the End is nigh!!!!


The US has destroyed so many lives and so many countries with its evil elites and their thievery (oops, imperialism i mean) that it is about time the dragons came home to roost! I know most of you don't know the dirty details of what Im talking about but .... oops, you gonna pay for it too, bitches!

The ones i most look forward too seeing eat some serious shit are the cocksuckers who always try to cover up for their evil masters with: why do you hate Amerika? rofl

bitches, God hates Amerika for this country is an abomination to humanity!

die, bitches...DIE


Calmyourself's picture

When this dragon goes down its thrashing will trash whatever shithole backwater your wasting oxygen in..

DosZap's picture

Certainly obvious you do not even know who HE is.

ft65's picture

baby_BLYTHE, please go back to the other place ;-)

plocequ1's picture

Hes got a terminal hooked up to his Yacht.

Kina's picture

Think Zimbabwe ...


DOW 360,000,000,000

USD - 0.00000000000001

Gold - infinity

TradingJoe's picture

Oh Well! More Charts! More Cheap Talk! No Action! We ALL Know Already About

Everything! When Are We Going To See Or Hear Someone(Many), Do Something

About It!

In the meantime "market" rallies, I have found no reason to, as I did not many times

it rallied, today maybe because it's Friday:)))!

So until we will fall apart please let us all at ZH KNOW about more short term things

intermediate things, things we can eventually use, we have gold and silver and 

guns and ammo and food and more ammo, etc!

No word about the "rage":))) or any other more "market" related stuff! Give (U)s 

something we don't know yet! :))) Happy Friday!