Guest Post: The Positive Power Of Crisis

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Only in crisis do human beings actually change anything.

If there is any demarcation with profound implications going forward, it isn't the line between the 1% and the 99% or the line dividing the Status Quo into two safely complicit ideological camps: it is the divide between those who squarely face the burden of knowing the present is unsustainable and those who flee into the comforts of denial. Those who accept the burden of knowing are part of the solution, those who cling to denial are part of the problem.

Those who accept the burden of knowing do not necessarily have answers, but they are alert to alternatives and potential solutions. Those in denial can only hope that reality can be buried for a while longer.

Thus we have pronouncements that "the euro is irreversible," that progress is being made, and so on. Nothing has been fixed, but those clinging to denial are comforted that crisis has been pushed forward once again.


Pushing problems under the rug doesn't solve them; they only get worse. This is the positive power of crisis: only in crisis do human beings actually change.

As long as "enablers" are around to protect them from the consequences of their actions and choices, addicts are free to pursue their destructive (to themselves and others) ways. The addicts can be sociopaths or they can be "normal;" the unifying characteristic is their terror in facing the end of the Status Quo, even when the Status Quo is patently destructive and unsustainable.

In the Status Quo, the "enablers" include everyone who gains if the Status Quo continues unchanged, as they are hoping to collect their share of the unpayable promises that have been issued to buy political support or silence, i.e. complicity.

The "handlers and enforcers" of the neofeudal Status Quo--the political and financial Elites and their Upper Caste of managers and apparatchiks--are consciously shoving problems under the rug, in the hopes that some sort of unknown magic will restore the elixir of "growth" that has reliably bailed out the corrupt, increasingly fragile skimming operation (the Status Quo).

The Internet boom bailed it out in the 1990s, and the global housing bubble bailed it out in the 2000s. Now the skimming operation has run out of miracles, and its true nature--it is fundamentally a cargo-cult--has been revealed. Central bankers and their political toadies are in effect praying for a miraculous return of prosperity by painting radio dials on rocks and dancing around the campfire late at night.

The process of shoving structural problems under the rug takes two forms: one is to manipulate data and news flow to "manage perceptions" that all is well, that the Elites have the will and power to force the system back to "set point." The Machine's visible failure to do so after four years of ceaseless "fixes," stopgaps, reassurances, pronouncements and increases in complexity suggests not that it has the power to do so, but that it has lost the ability to repair the boilers with policy/intervention duct-tape.

The other is propaganda: announcing that the latest "fix" will do the trick, or more perniciously, that the present crisis is not an "unrecognized Depression" but merely another "business cycle" recession. Human habituate rather quickly to a range of "normal," and so the substitution of manipulation for accountability becomes "normal" over time.

The "new normal" isn't just a decline in purchasing power and employment; it is the slow loss of institutional legitimacy as the lies and obfuscations pile up.

But since the underlying dynamics are continuing to expand, masking the problems only increases the fragility and vulnerability of the system as the extremes are pushed ever farther out the curve.

For example: if too much leverage is the problem, the Status Quo solution is to increase leverage and hide the increase in opaque derivatives, offshore banking accounts and "dark pool" trading.
Now that collateral has vanished, the leverage in the system is near-infinite. The Status Quo "solution" is to issue new phantom assets to replace the assets which have become recognized as illusory.

How many iterations of the game can be run before some non-linear second-order effect causes the sandpile to collapse?

Rather than fear the crisis, we should embrace it, for it is only in crisis, when all the lies, half-measures, excuses and backstops have broken down, is positive transformation possible.

This essay was drawn from Musings Report 36. The Reports are sent weekly to subscribers and major contributors.

Comment viewing options

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

"Now the skimming operation has run out of miracles,"


Did central banks stop printing?  I don't fucking think so - FAIL.

redpill's picture

"Rather than fear the crisis, we should embrace it, for it is only in crisis, when all the lies, half-measures, excuses and backstops have broken down, is positive transformation possible."


Uh, except that in the last self-identified "crisis" the lies and bailouts only got bigger.  One could argue that when central planners are panicked and terrified of losing their power, that is the last time to expect "positive transformation" -instead, that's when we can expect them to again double down, tighten their grip, speed up the printing press, and send out the riot police.

I think you could ask a lot of Greeks whether they've seen a positive transformation and get nothing but a knuckle sandwich in return.

donsluck's picture

To embrace crises is to seek death. Death will come, you do not have to "embrace" until you HAVE to. I think ZHers (most of them) know that we will end up in the arms of gold and silver. However, their prices do not reflect this anticipation. Why? It dawned on me that the fiscal authorities will tax/confiscate these assets when they reach their final convulsions. There will be dark days when your cunning and preparation are the only things left to save you and yours. Shhh, don't tell ANYONE about your preparations, especially your wife. Women cannot keep secrets.

Dalago's picture

We KNOW shit will hit the fan.  The real concern is what will fill the power vacuum.  The People's control over themselves or something removed from those direct powers ie elected officials.  The Individual needs to regain their power.

CH1's picture

The Individual needs to regain their power.

Yes, and the only way to do that is to TAKE IT. We will never, ever, be given permission to take our freedom.

We have to get up and start taking it NOW, not waiting for something to happen in the future. We have to ACT, and NOW.

Tango in the Blight's picture

Can't do that. Dancing with the Stars is on tonight.

Spastica Rex's picture

The Kingdom of ABC is within you.

LawsofPhysics's picture

LOL, good advice.  History is very clear on how well confiscation worked out last time.

DeadFred's picture

So far they have never confiscated silver.

RockyRacoon's picture

Section 6 exemptions were all the rage and could be had for a smile:

Section 6. Licenses..–The Secretary of the Treasury, subject to such regulations as he may prescribe, acting directly or through such agency or agencies as he may designate, shall issue licenses authorizing the withholding of silver which the Secretary of the Treasury, or such agency as he may designate, is satisfied

BigJim's picture

What a dreadful, dreadful man FDR was. 

RockyRacoon's picture

The gov't was after the stocks of gold held by banks, not really the personally held gold.  Of course, a large number of regular folk turned in their gold because it was "the law", but the bulk of the rationale was gaining control over vaulted gold.  I read someplace that the amount of gold that was turned in by individuals actually stunned the gov't.  It worked better than they thought it would.  I'd question that methodology today since it's the rare citizen who holds gold outside of jewelry, and that was not on the radar screen.  Numismatic holdings and coin dealers were also exempted.   Since there is not even the semblance of a gold standard now, about the only tool available would be a transaction tax rather than "confiscation".   That could be onerous enough!

LawsofPhysics's picture

Correct.  All eCONomies are local and investing in a global eCONomy where fraud is the staus quo is dangerous because if you can't physical touch and defend your "asset".  You don't own it.  Can't wait to see the look on all those foreign investors faces when they attempt to check on their assets in America.  Anyone really think things will turn out well when say a chinese firm moves into an american farming community to fire all the locals and take possession of their land assets?

Yeah, good luck with that.

Unprepared's picture

I think what you are describing is what he referred to as Second Phase in the chart.


The timing of crises is unpredictable, but one can gauge how "far" off we are from it. When ever increasing interventions are having rapidly shrinking half-lives, I might conclude the following:

"In a short enough timeline, the half-life of interventions to save the status-quo would drop to zero."

Shizzmoney's picture

People won't wake up until the dollar, or the DOW (401Ks), crashes.  Until then, people (especially baby boomers) are going to keep regurgitating MSM talking points that have no impact on improving owrking conditions and pay, keeping the middle class intact, and rpoviding opporunity and upward mobility to the next generations.

On top of that, b/c of inflationary and job pressures, people are having less kids.  That means less future tax reciepts for our corporate and government plantation owners to collect to pay down the debts THEY created, not us.

I can't wait for this thing to burn down in a fantastic wave of fire, just to prove to all of these assholes who think that Congress or voting can change things who poo-poo my logic due to unproductive apathy.


redpill's picture

Wait until they mandate a percentage of all 401k plans must be in US Treasury bonds to "protect" people.

fonzannoon's picture

Many variable annuities already mandate that a certain percentage of your assets must be in a bond fund to "minimize volatility" in your portfolio.

Skateboarder's picture

Do you really think people will "wake up" when the dollar falls? The place is rife with brainwashing and apathy. At least at the moment, it doesn't look like a public ready to take responsibility for itself.

donsluck's picture

People will wake up when they are hungry. Then the bullets will fly.

duo's picture

The only people having less kids are those that expect to have to pay for their upbringing.  The "Obama Phone" crowd is breeding away, exponentially, as we sit here at our keyboards.

gaoptimize's picture

+1 from the bottom of my heart. Thanks for saving me the typing, as I couldn't have said it better myself.  I want a better, sustainable, life for my children.  I want grand children

odatruf's picture

You have it right, in my view. Things will wind down and become ever more sludgy over time. There will be no apocalyptic moment or immediate crisis that will spur action. We are being frozen catatonic slowly, not warmed.

RockyRacoon's picture

When the next liquidity crisis hits, and it will, the response will be the kicking in of the myriad of "guarantees" of deposits, etc. that have been implemented.  That will require a HUGE money printing effort.   That will reach the "real economy" and that's when TSHTF.  The sun will set on the shadow banking sector -- no shadows in the dark.

Mercury's picture

The problem is - no one knows what kind of scale to put on that x axis.

What we do know (besides the conviction that it's when not if) is that someone is going to have to take it in the neck.

Unprepared's picture

You don't need to. The only thing you need to know is that in the midst of the fog, cliffs are somewhere out there.


Hedge accordingly.

CPL's picture

X and Y axis are well known, the Z axis is when black swans and "boons" pop up.  Z intersects and places the varible change?

Mercury's picture

Well if you can extrapolate x and y with any kind of accuracy I'd like to suggest the options market.

CPL's picture

The unicorn ranch?  Good lord no.

Things that go bump's picture

"...if you don't know who the patsy is, you're the patsy."

rosiescenario's picture

"The Internet boom bailed it out in the 1990s, and the global housing bubble bailed it out in the 2000s. Now the skimming operation has run out of miracles, and its true nature--it is fundamentally a cargo-cult--has been revealed. Central bankers and their political toadies are in effect praying for a miraculous return of prosperity by painting radio dials on rocks and dancing around the campfire late at night."


....The Sky Above, The Mud Below comes to mind....perhaps what we also have at work here is a shared human genetic predisposition to resist change by denying reality????


Great article.

Pseudo Anonym's picture

re this:

...Upper Caste of managers and apparatchiks

names and addresses would be nice for future reference

fourchan's picture

gold never ends up like that chart

newworldorder's picture

Great article, but the problem is the human heart. We do not want crisis, pain, difficulty, etc. The preferred human traits are ignorance and avoidance of that which does not give us pleasure. Kick the can is the prefered method of coping - when you know what hits the fan.

icanhasbailout's picture

I fucking love graphs with no measurement units on the axes

michael_engineer's picture

"The Status Quo "solution" is to issue new phantom assets to replace the assets which have become recognized as illusory."

A lot of the mechanizations and manipulations would appear to be just the rolling over of bad paper while trying to change the stuckee to either the government, someone else's government or to the taxpayer and trying to hide the insertion of the hook until it's "fish on".

JustObserving's picture

Every crisis in America has been used to take away our freedoms and liberties.  Or manipulate markets and print money. Or start wars. And, usually,  all of them.

So there is no upside yet in any crisis so far.

Lost Wages's picture

When crisis is manufactured in order to force change, there is nothing positive about it.

WarPony's picture

.. "never let a serious crisis go to waste"

Rahm Emanuel (dual - Israeli/US Citizen, son of Mossad agent)

Urban Redneck's picture

Rahm Emanuel - Spawn of Satan (Mossad isn't anywhere as creepy, intelligent, and unscrupulous as Rahm, which makes me wonder just who he pissed off bad enough to clip his wings when he left the inner ring 9th Circle of Hell for the Chicago Loop).


shovelhead's picture

"Don't pet that dog...he bites."

"Nonsense, I pet him all the time."


"That dog can't tell time."

My son gets it, but my daughter, who is working overtime like crazy thinks everything couldn't be better financially. I tell her to save to buy PM's and stock up on food and necessities but she thinks I'm going a bit dotty.

She called me from her new iPhone...(facepalm) to tell me when Obama gets re elected that everything will be fine.

The university did it's work well with this one. She brilliant and capable but lacks situational awareness to the extreme and doesn't want to hear Dads 'doom and gloom'.

She lives 2 blocks from the capital house of a major metro city.

I worry.


TuPhat's picture

Give her PMs for Christmas.  I plan to give my kids PMs for Christmas and birthdays, started doing that last year.

earleflorida's picture

'the fulcrum in which all leverage enabler's depend... has morphed into a spongeable, submersible baring [a ship sailng without a hull?] load, flattened by gravity... hence, but a perpetually compressed linear skulling-oar lays flattened and time warp'd... where once a flacian`handler belied at the axis of a celestial stonekeeper... a time-stamped ticket where the gated-game has long played-out?-- never to question the subterranean's lucid foundation?-- the temerity of it all, as the flaccid fulcrum slowly and methodically collapses upon it's own weightlessness into obscurity in the nadir of thoughtlessness?-- a vacuum of despair is all that awaits!'

nice read C H-S per usual

just musing :-)) 

W10321303's picture

'To Hoard or not to Hoard, that is the question?' (variation on a theme)

Perhaps the only way out IS for the ghosts to pay you all a visit!


Why Breaking Up MegaBanks Would Help Investors

During the Microsoft antitrust case, some institutional investors were keen for Microsoft to lose, and not because they were short its stock. They felt that Microsoft being in both the operating systems business and the applications business had become a negative. They believed that separating the two businesses would not only produce higher multiples over time for each as “purer” plays, but having each new business more narrowly focused would be better for growth in the long term.

We have a similar discussion taking place regarding the big banks, and the pro-breakup case is even stronger there than for the software giant. Last weekend, the Harvard Law blog posted a piece by Peter Wallison of the American Enterprise Institute. For those who don’t know Wallison, both he and the AEI are fond of making strained at best, completely dishonest at worst, cases for large financial services industry players. I had wanted to shred his piece regardless and a comment in the Financial Times by Andrew Haldane, executive director of financial stability at the Bank of England and widely recognized as one of the savviest economists on this beat, happens to rebut one of Wallison’s main arguments, that of the “value” of these complex financial firms. Haldane’s article was prompted by an EU proposal to break up banks along risky trading businesses versus deposit-taking related activities. This overview comes from the Wall Street Journal:

Mind you, we think this focus is somewhat misplaced. While it would clearly be desirable to reduce the size and degree of integration of the “too big to fail” banks, the first order of business is to reduce interconnectedness. Even if the officialdom finally got the willpower to split up the behemoth firms, the authorities clearly regard the capital markets as too important to allow to fail. Although bank lending is important, in the US, more credit is ultimately provided through securities markets than on balance sheet bank lending. These markets are over the counter, meaning the big dealer banks buy and sell from end investors. The dealer banks are tightly interconnected via counterparty exposures (particularly in derivatives markets). As we saw with Lehman, if one goes down, it has serious ramifications for its peers. And because the dealers tend to pursue similar strategies, when one looks wobbly, providers of short-term funding for the entire industry start looking for the exits. So reining in over-the-counter derivatives, particularly credit default swaps, needs to be a top priority.



The Banster Syndicate will never surrender because it is best for investors. That isn't in the nature of a Narcissistic Sociopath.

Jack Burton's picture

For a skimming operation to keep working, there needs to be something produced to skim. This is America's problem, we produce less and less and that leaves skimming working off of a smaller and smaller wealth creation base. This holds true for wall-street and for government. They both hope to sqeeze and wealth creation by the real economy. And when I say real economy I am not talking about the financialized American economy. When industry vanished to China and Financials became the bulk of the economy, we sowed the seeds of the end of skimming as a way of life. Right now the Fed keeps the skimmers in business feeding off of free liqudity, that is the last resort of these fakes.

edifice's picture

Sort of looks like the M1 chart.

Towgunner's picture

Well, since the crisis is unavoidable all you can do is try to make the best of it. Frankly, part of me is welcoming it and the sooner this thing comes to pass the better. Who knows what the other side will be like, but I do know this - the present has become unbearable. I know we mostly talk about the economic implications, but this economics major with a minor in history of art can see the real effects of our perverse system...the utterly sick culture we all must live in. Today, everything is upside down, right is wrong, wrong is right, war is peace, black isn't white because its all become grey, success is meaningless, education is meaningless whether from a content point of view or just because via affirmative action harvard must graduate two headed gay female purple half monkey-bears. As we all know truth is nowhere to be found, but it’s concealed by making our culture as confusing as a tv station that can't come in. We're overwork, underpaid, treated like shit, everything costs more but we're told it doesn’t, we're all at fault for something i.e. being male, white, Asian or just being an american, the food we eat sucks and we get fatter because our stress levels are up and facing 12-14 hour days of literally banging our heads against a wall food isn't a welcomed escape but the only one. Of course, we can all see and feel this almost mechanical-like deterioration...that nagging voice that says run you slob but what can you do but let it sing in your head as you utterly collapse in bed...and this is one of many voices that feed your insomnia. The worst possible people are exalted as the absolute best people, putting all politicians aside, consider the sluts, the cheats, the liars, the sociopathic, the psychopathic...lady gaga, oprah, modonna etc. We're forced to listen to these people as if they had the authority of Greek or Roman gods and goddesses of old. They take the most reprehensible weak feeble and pathetic among us arbitrarily put them into position of "success" and then call it progress when those people call us inferior. And when they say you can get away from all this that too is a nasty joke, on your way to the mountains pull into an exxon station to cap it off and that weather-storm-nuclear war proof flat screen with another overrated bimbo is there to keep your world view in check. Is it any wonder that the US is by far the most depressed nation in the world?

Honestly, welcome to the new normal, it’s as every bit miserable as they said it was going to be. I say kill it, implode it, erase it from time…we can at least have a chance of starting over.