Guest Post: The Final Countdown

Tyler Durden's picture

Authored by Alasdair Macleod via,

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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ZippyBananaPants's picture

My money is on the monkey on the right

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.

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.

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...



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?

francis_sawyer's picture

Been hittin' those HerbalLife pills hard there MDB?

Poor Grogman's picture

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


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.

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.

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."

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.

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.

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.

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.

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.

Yen Cross's picture

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

Jack Sheet's picture

love that one, straight out of the Ivy League?

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.

LawsofPhysics's picture

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

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.

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.

Variance Doc's picture

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

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.  

new game's picture

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

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...

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?

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?

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 !

McMolotov's picture

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

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?

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 :)

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.

Atlasshruggedme's picture

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

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. 

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!

CH1's picture

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

CH1's picture

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

Zwelgje's picture

"paid antisemite troll"? hahaha

who's paying and where can I join?

Yen Cross's picture

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

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.  

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.

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?

aerojet's picture

Funny, but the pendulum does eventually swing back.

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.

Yen Cross's picture

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

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.

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.