Guest Post: The Final Countdown

Tyler Durden's picture




 

Authored by Alasdair Macleod via GoldMoney.com,

Governments have refused to accept the necessity of a period of economic re-adjustment following the credit-bubble. The bubble burst about five years ago and economic progress has been effectively suspended ever since. The consequences of this refusal to accept reality are at a minimum to make this adjustment unnecessarily drawn out and needlessly painful, without offering a better eventual outcome.

Reduced to its bare bones, the choice has been either to accept that unviable businesses and over-extended banks must go bust, or to ignore the problem and hope it goes away. We are familiar with this dilemma as investors: a business that refuses to adapt to new realities will eventually fail. Before it does, its investors have the chance either to sell their shares and perhaps reinvest their money more profitably, or to refuse to accept an early loss on their investment. Most of us, being human, take the latter course and usually regret it.

The lesson, if we care to learn it, is that the product of time and money is more valuable than the desire to avoid a book loss. In economic terms, it is better for resources to be deployed efficiently than to tie them up in inefficient or unwanted activity. This is a decision for markets, not governments, which brings us back to the necessity for economic re-adjustment. Governments have simply not faced up to the reality that we are in a post-credit-bubble mess: they still hope the problem will be resolved by time.

At this point we must dismiss objections that you cannot compare national accounts with those of a business. Such platitudes display wishful thinking more than a grasp of reality. However, wishful thinkers have a minor point in that governments have the wherewithal to put off the inevitable for longer than failing businesses; but the result is the zombie-like economy we face today.

Governments are refusing to let markets clear: prices have not been permitted to fall to a clearing level. They put it off because the American economist Irving Fisher came up with a plausible theory about financial deflation in the 1930s, and they don’t want to face the bankruptcies of the over-indebted, the businesses that rely on the state for their survival, and the banks that have foolishly lent them too much money.

Reality is now catching up with western governments. Their underlying financial position is rapidly deteriorating, with welfare costs spiralling out of control and governments already heavily in debt. They cannot realistically underwrite the global banking system, which is insolvent and considerably larger than the governments themselves. The economic recovery which is the governments’ get-out-of-jail card will not occur without that economic readjustment.

We are long past the point of no return: that was probably when the Federal Reserve Board under Greenspan decided to rescue the stock market by cutting interest rates to 1% in 2003/04. It has been crisis management by the state ever since. We have progressed to the point where governments have chosen to protect themselves, in preference to looking after the true interests of their electorates.

Governments are now reduced to screwing their electorates for their own survival, which is their last refuge from reality.

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Tue, 02/19/2013 - 14:56 | 3256884 ZippyBananaPants
ZippyBananaPants's picture

My money is on the monkey on the right

Tue, 02/19/2013 - 15:08 | 3256924 MillionDollarBonus_
MillionDollarBonus_'s picture

While ZHers consider a "tail risk" to be something akin to a Lehman type invent with the stock market crashing to the ground, but with equities making all time highs week after week many professional investors believe that the real tail risk is being under-invested and missing a huge rally. When you consider the oportunity cost of not owning stocks, cash doesn't look that attractive any more. Who wants to be sitting in cash while stocks are rocketing toward all time highs? If you're really afraid of drawdown in Equity prices, then top investment professionals would recommend US treasuries as a safe-haven alternative. With treasuries, you get a steady semi-annually compounded cash flow, but with the added advantage of zero risk. If you want to get clever, then you can also use 'modern portfolio theory' like the proffesionals, to hedge away all risk in your portfolio using historical correlations.

Tue, 02/19/2013 - 15:09 | 3256927 redpill
redpill's picture

'Governments are now reduced to screwing their electorates for their own survival, which is their last refuge from reality.'

 

Last refuge?  Please, screwing the electorate is the DEFINITION of government.


Tue, 02/19/2013 - 15:33 | 3256988 sunaJ
sunaJ's picture

Well, it is not necessarily the definition of "government," but it is the only real example we seem to have right now.  The screwing is just getting more obvious as bits of the facade continue to break away.  Once the avalanche commences, it will begin to get weird (sound familiar, Red Pill? :) fast.  Hmmm, "avalanche" and "facade" are French words.  Perhaps that's where I believe it's going to begin in earnest, IMO, because the French citizenry will be much more willing to pay their bankers'-and-their-cronies' a visit for impromtu "house-warming parties."  But there I go using French words again.

 

And they are way too obvious in their eagerness in these African campaigns...

 

 

Tue, 02/19/2013 - 15:53 | 3257105 Hippocratic Oaf
Hippocratic Oaf's picture

The 'govt's' don't care. 

This can will be kicked near and far until it's someone elses problem.

After that, why would they give a fuck with the money they made off our backs?

What does inflation mean to 'them' when they have fuck you money?

Tue, 02/19/2013 - 15:54 | 3257110 francis_sawyer
francis_sawyer's picture

Been hittin' those HerbalLife pills hard there MDB?

Tue, 02/19/2013 - 18:01 | 3257564 Poor Grogman
Poor Grogman's picture

Sarcasm with a tinge of wit, that's more like it MDB.
I liked the hat tip to portfolio theory.

Hysterical..

Tue, 02/19/2013 - 18:09 | 3257586 CH1
CH1's picture

screwing the electorate is the DEFINITION of government... Well, it is not necessarily the definition of "government"

Of course it is. Taxation is nothing but taking money from people via force or intimidation.

All arguments to the contrary are rank deception.

Tue, 02/19/2013 - 21:44 | 3258075 Buck Johnson
Buck Johnson's picture

It's falling apart and the only thing they have left is bilking there own people who they think won't fight back or are dumbed down.

Tue, 02/19/2013 - 18:51 | 3257690 GeezerGeek
GeezerGeek's picture

When it comes to survival, I have to think about the words sung by Jefferson Airplane, in a slightly different context. "I'd rather have my country die for me."

Tue, 02/19/2013 - 18:52 | 3257692 Diogenes
Diogenes's picture

Government is the enemy of every decent honest hard working person and the friend of every  mooch, pimp, four flusher ,  chiseler and grafter.

Tue, 02/19/2013 - 15:11 | 3256932 LawsofPhysics
LawsofPhysics's picture

Gold, pure gold.  Tell me MDB, what is the "price" of something you need for survival, but that I refuse to sell?  One of your better satirical posts.

Tue, 02/19/2013 - 15:49 | 3257088 Overfed
Overfed's picture

I can never decide to give MDB an uptick to show that I get it, or a down tick to go with the irony of his posts.

Tue, 02/19/2013 - 18:04 | 3257574 Kirk2NCC1701
Kirk2NCC1701's picture

That's easy:  We haggle and barter for real assets/equities we both need to survive.  E.g. swap you two 0.223's for three 9 mm's.  Q.E.D.

Tue, 02/19/2013 - 18:16 | 3257606 LawsofPhysics
LawsofPhysics's picture

Not if one of us is dropped at 300 yards with an IR scope.  Please, you don't think that these elite families have there security details already worked out.  Several plantations in places like barbados where this is already the case.

Tue, 02/19/2013 - 15:14 | 3256940 Yen Cross
Yen Cross's picture

 I realized what an idiot you were when you used ($) as an emoticon!  ( Two Dollar Douche)

Tue, 02/19/2013 - 15:16 | 3256953 Jack Sheet
Jack Sheet's picture

"proffesionals"
love that one, straight out of the Ivy League?

Tue, 02/19/2013 - 15:16 | 3256954 Doode
Doode's picture

I actually agree with that statement. End of the worlders are digging their own graves - and say they are right and I invest while the end does happen. No gold investment would save them either. As they say Treasuries are riskless not because there is 0% of a default, but because if they do you won't have to worry about any kind of finance, but rather your own physical survival. And these crisis events happen all the time - nothing but long term tremendous opportunities.

Tue, 02/19/2013 - 15:30 | 3257004 LawsofPhysics
LawsofPhysics's picture

so supply lines never break huh?  I think that there is some history that you have missed.  Good luck.

Tue, 02/19/2013 - 15:19 | 3256961 HaroldWang
HaroldWang's picture

I've felt for some time that there was no reason to sit on the sideline and complain about the the market. Yes, it's a joke. Yes, the Fed is a joke, etc. but the market continues to move higher. As much as I've come up with every reason and argument to the contrary, I held my nose and bought stocks. And while I hate all of this nonsense, at least I'm making money while it continues its lunacy.

Tue, 02/19/2013 - 15:50 | 3257092 adr
adr's picture

If you have enough cash to invest in the market to actually matter, you really don't have anything to complain about because you are in the top 15% buying luxury cars and speculating on real estate. You have money and most likely don't have a productive job.

As idiotic as the Tesla Model S. If you can afford to buy the car, you can afford to be driving a V12 that gets 10mpg.

If you have $20k in savings and you invest in any number of momo nonsense stocks, then yes you may double your $20k to $40k in a year if you are lucky. If you go the ES or QQQ route, you may see a 12% return again. That $2400 might buy you a nice vacation. You would need to make extremely risky gambles to turn $20k into enough money to matter. In fact your chances are probably better in Vegas on a roulette wheel.

The point is, the money you make in the stock market won't mean shit if you lose your job or are forced to make $9 an hour at Home Depot.

Productive labor matters, not the stock market. The higher the stock market goes, the greater the loss of productive labor.

So forgive me if I wish the stock market and everything attached to it goes up in smoke. Every day gets harder and harder to actually make money in private industry. My company can't print stock to pay me my salary.

Tue, 02/19/2013 - 16:08 | 3257176 Variance Doc
Variance Doc's picture

He suffers from same affliction of most Amerikans - the inability to distinguish between real and nominal returns.

Tue, 02/19/2013 - 16:43 | 3257321 Panafrican Funk...
Panafrican Funktron Robot's picture

Related to this, it's worth noting that human civilization worked fine prior to the invention of stock markets.  People ate, drank, worked, fought, fucked, and died, 100% independent of a fucking stock market.  

Tue, 02/19/2013 - 16:52 | 3257364 new game
new game's picture

and held gold as a store of wealth-imagine that, the relic lives on...

Tue, 02/19/2013 - 19:30 | 3257775 Law97
Law97's picture

True.  But stock markets bring super-efficient allocation of capital to profitable enterprises as long as those markets are allowed to operate freely.  ...oh, wait...

Tue, 02/19/2013 - 15:27 | 3256987 alphamentalist
alphamentalist's picture

"top investment professionals"? would that be the same group of geniuses that failed to see the credit bubble and drove people's portfolios off the cliff for fear of being under invested? are you more of a Tropical Punch or a Lemon-Lime guy?

Tue, 02/19/2013 - 15:27 | 3256989 natronic
natronic's picture

What if the "professionals" are wrong?  How many of your "professionals" predicted 08?  How many of them now are saying housing is back?

Tue, 02/19/2013 - 15:36 | 3257032 Super Broccoli
Super Broccoli's picture

MDB you really don't get ZHer's point ! We're talking mid / long term here, not about daily trading. Face the truth, bonds are junks, derivatives are not even to be mentionned, shares are overvalued compared to commodities and, yes, i agree with you, cash is worth nothing !

Tue, 02/19/2013 - 15:42 | 3257064 McMolotov
McMolotov's picture

"Tail risk" is when a man finds himself alone in the men's room with Barney Frank.

Tue, 02/19/2013 - 15:47 | 3257077 in4mayshun
in4mayshun's picture

Missing a huge rally MBD??? Lets see...2007 S&P= 1,500/gold at $650
2013 S&P at 1,500/gold at $1,650

Hmmmm...what rally am I missing again?

Tue, 02/19/2013 - 17:00 | 3257397 viahj
viahj's picture

a sarcasm meter?

Tue, 02/19/2013 - 16:04 | 3257148 imbrbing
imbrbing's picture

This is perfect, I can always count on your expert advice. I just then let my dyslexia kick in and do the opposite. All is good! Keep the advice coming bud :)

Tue, 02/19/2013 - 16:08 | 3257174 DeadFred
DeadFred's picture

The market crashes this year.  There are many choices left to be made but some events are already set in stone. What will be the response after the crash?How will we work toward an improved economic syste? Those things are not set in stone. The world won't end with the crash unless it involves the use of nukes. Think about what comes after.

Tue, 02/19/2013 - 16:09 | 3257181 michael_engineer
michael_engineer's picture

Hey MDB, which commenters on ZH do you think represents this kind of thing?

http://www.zerohedge.com/contributed/2012-10-28/cointelpro-techniques-di...

Tue, 02/19/2013 - 16:09 | 3257184 Atlasshruggedme
Atlasshruggedme's picture

Come Match 1st... He might be yelling SELL! Keep playing - 8 Days and counting.

Tue, 02/19/2013 - 17:16 | 3257437 lasvegaspersona
lasvegaspersona's picture

how about physical gold as a major holding with a few hedge bets thrown in...just in case, by some miracle, this economy can shit out one more glorious 'business cycle'.

MDB...and I know you are a bot of some kind, so I'm just pretending to address you as I would a person...the real tail risk is missing a currency collapse....but first you would have to believe that that was possible. Start with this phrase "America can never pay it's debts in money of current value" ...say that until you believe it and then go back and rethink your entire existence. 

Tue, 02/19/2013 - 14:57 | 3256890 l1b3rty
l1b3rty's picture

In this day and age, many don't need anything other than alternative currencies! Get some silver, gold, platinum palladium, get some bitcoin, and then call it a lifetime of drugs, rock and hennesey!

http://goldsilverbitcoin.com

Tue, 02/19/2013 - 15:16 | 3256952 CH1
CH1's picture

Gold, silver and Bitcoin... you're singing my song. :)

Tue, 02/19/2013 - 18:12 | 3257591 CH1
CH1's picture

LOL... did I get dinged for Bitcoin? Or by the paid antisemite trolls?

Tue, 02/19/2013 - 18:49 | 3257687 Zwelgje
Zwelgje's picture

"paid antisemite troll"? hahaha

who's paying and where can I join?

Tue, 02/19/2013 - 14:58 | 3256895 busternc333
busternc333's picture

No shit.

 

Tue, 02/19/2013 - 15:00 | 3256903 Yen Cross
Yen Cross's picture

Long " Animal Planet".  I wake up to Animals every morning!

Tue, 02/19/2013 - 15:01 | 3256909 Panafrican Funk...
Panafrican Funktron Robot's picture

I just wanted to note that referring to this charade as a "currency war" or "competitive devaluation" I think misses the big picture a little bit, particularly when you consider that, just like conventional war, there is always an entity (or small group of entities) that wins regardless of who the victorious party in the "war" is.  In this case, just like conventional war, it is the finance/industrial complex who will come out of this having won big time.  Keep in mind, the idea of the "military/industrial complex" misses that military/industry are one in the same, and the other party, the financiers, are somehow always able to avoid being mentioned, despite being the primary drivers for war activity of any type.  Keep always in mind that the guys in virtually every position to decide the fate of their respective currencies are all playing for the same team.  

Tue, 02/19/2013 - 15:02 | 3256910 davidsmith
davidsmith's picture

"they still hope the problem will be resolved by time."

 

And you still hope there is such a thing as a market. And you are wrong.  This simplistic idea that there is a nemesis out there waiting to take revenge for bad policy, is simply a sophomoric way of viewing the facts.  Or it is in bad faith--because you don't understand, or don't want to grant (the latter is much more likely), that there are human rights issues at the bottom of this social deterioration.

 

In any event, you are living in a fool's paradise if you think the market is going to "strike back" at the "evil empire."  You're just being silly and immature.

Tue, 02/19/2013 - 15:53 | 3257104 harami
harami's picture

Everyone keeps thinking we're about to enter epsidoe six "Return of the Jedi" but actually we're in about our 454th rerun of the Empire Strikes Back.  It'll be on loop for the rest of your natural life, please enjoy!

On a side note, people like episode 5 the most, so maybe it's not so bad?

Tue, 02/19/2013 - 16:24 | 3257248 aerojet
aerojet's picture

Funny, but the pendulum does eventually swing back.

Tue, 02/19/2013 - 15:06 | 3256915 q99x2
q99x2's picture

I'm voting everyone out on the next election except Sherman, Warren and Kucinich and a few others.

Feinstein. That bitch is outta there. Same with the rest of the banksters.

Heard the pharmacist complaining to a customer this week. He said one antibiotic went from $85 last week to $1,012 this week. He told the customer he can't carry it at the new price.

You're in good hands with ObamaCare. Traiter M'Fer.

Tue, 02/19/2013 - 15:07 | 3256923 Yen Cross
Yen Cross's picture

 If you evict Feinstank> I'll venture fund your needs for 5 years!

Tue, 02/19/2013 - 15:19 | 3256958 CH1
CH1's picture

I'm voting everyone out on the next election..

That has been tried a hundred times and never works. Worse, it keeps you right in the middle of their game, playing vigorously.

Drop out of the slave system and start living your own life.

Tue, 02/19/2013 - 15:19 | 3256959 Jason T
Jason T's picture

guy in my lions club, older retired guy, he's got a property he rents to a woman who works at home depot... she got her hours cut to just 29 per week.

HD pays crap to begin with.  disaster.  

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