Guest Post: What's Supposed To Happen, And What Might Happen: 3 Baseline Scenarios

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

What might happen: printing money and issuing propaganda lose their effectiveness.

We all know what's supposed to happen in the global economy: we get more of everything: more stuff manufactured, more coal dug up and burned, more "aggregate demand" i.e. insatiable desire for more of everything, more innovation, more wealth, more money printed, more debt taken on to buy more stuff and more education, more tourists occupying more beaches sipping more drinks, more strip malls built, more airports expanded, more jobs created, more taxes collected-- more "growth" of everything, in every way and every day.
Beneath this expansive more-of-everything splendor, the power structure is supposed to remain unchanged: a small political-financial Elite holds all the reins of power, a manufacturing-consent propaganda machine (a.k.a. mainstream media) persuades the masses all is well, wealth continues to accumulate in the top 1/10th of 1%, money is printed/created and distributed to the State-financial partnership's fiefdoms and cartels, moderate inflation eats away at the value of wages but makes debt cheaper to service, and the Upper Caste of technocrats continue their well-paid enabling of the Aristocracy's dominance.
The dream of tens of millions of young people is to join the Upper Caste of lackeys, factotums, toadies and apparatchiks serving the Aristocracy's cartels and fiefdoms.
In sum, the pie of wealth is supposed to expand so fast that the 10% left for the bottom 90% will be enough to satisfy their high expectations of endlessly rising prosperity.
That is Baseline Scenario #1: the Status Quo remains as it is, unchanged. This is what's supposed to happen as a result of central bank money-printing and central government borrowing and spending: the Status Quo of endless growth ruled by an Elite will continue on the same trendline it has traced since 1946: more growth, more financialization, more concentration of wealth and political power, more technological innovation, and so on.
Baseline Scenario #2 is the center cannot hold, and the Status Quo devolves.Those living through Scenario #2 will not notice any sudden changes; financial, political and geopolitical crises become the background noise to daily life.
The changes will be gradual and incremental: things will stop working as well, the homeless population will increase, stores will close, government offices will shorten their hours of operation, streets will remain unrepaired, hours will be cut, benefits will be trimmed, stadiums will no longer be filled during sporting events or musical extravaganzas.
There will be less of everything, not more, and a gradual but steady erosion of all "growth" baselines: fewer jobs, lower wages, fewer taxes collected, less profits, fewer retail outlets.
Faced with a shrinking pie to plunder and skim, the Aristocracy and its Upper Caste of technocrats will be forced to increase their share of the dwindling national surplus. Taxes and junk fees will rise, squeezing legitimate small enterprises into the informal economy, and the gulf between the Aristocracy/technocrat Upper Caste and the bottom 90% will widen: this can be characterized as the "third-worldization" of developed economies.
The disposable income of the top 10% will continue to rise, enabling them to retreat to the security of gated communities and luxury urban highrises, just like in Third-World megalopolises, while the gradual impoverishment of the bottom 90% erodes life outside the protected circles of the Elites and their well-paid worker-bees.
Anger and frustration rise, but food stamps, unemployment and transfer payments privatize the social mood: people are paid to stay home and watch TV or otherwise amuse themselves in political isolation. Nothing is sharp enough or drastic enough to spark a politically meaningful response. As long as the bread and circuses are ample, the masses are content to "get the best of what's still around" and go about their business without threatening the top 10%'s dominance of the national surplus.
Baseline Scenario #3 is something breaks: perhaps the trigger is a global credit event or a war, or perhaps it is the price of oil spiking on some disruption. The basic dynamic is this: increasingly fragile systems are increasingly vulnerable to sudden disruption and breakdown. On the surface, everything looks secure, until some event unleashes a cascade of unintended consequences.
The ultimate driver of Baseline Scenario #3 is diminishing returns: the political-financial Elite will respond as it did in 2008, by printing money to bail out banks and private cartels, by reassuring the masses via the propaganda mills, and so on, but these responses will have lost their initial effectiveness: the saturation of debt and propaganda will have reached 100%.
Printing more money and spewing more reassuring propaganda will no longer tamp down the crisis. Rather, the failure of these Status Quo responses will unleash an even more destabilizing crisis.
Baseline Scenario #3 will result when one of a network of highly interconnected systems breaks down, and all the other systems fall in a domino-like cascade of instability.
The key dynamic in Baseline Scenario #3 is the standard-issue official responses (print more money and issue more reassuring propaganda) will fail to stem the destabilization, and this failure will unleash an even larger wave of instability and breakdown.
Order will eventually be restored, but at a much lower level of wealth and prosperity. Baseline Scenario #3 will be replaced by Baseline Scenario #2--another period of erosion--until structural changes are allowed to reshape the political and financial landscape of power and wealth.

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nasdaq99's picture

scroll back a few pages on


baseline breakdown in the making.

Sudden Debt's picture

that a pretty depressing site :)
who the fuck makes sites like this?

Landotfree's picture

It's a stupid article.  

The system is credit, the system must expanding at an exponential rate or start to collapse.   Eventually, the system will be unable to exponentially growth and the collapse will resume.   After hitting it's peak the system will have to hit it's max potential on the downside, the walking unfunded liabilities will have to be liquidated... eventually rinse and repeat.  

My guess 1-2 billion walking unfunded liabilities will have to go.  

TruthInSunshine's picture

<Trumpets blare>

Here comes Hilsenrath, Here comes Hilsenrath, right down Fed Dove "Jawbone" Lane (or is it Maiden Lane?)...

03-19 17:42: Fed watcher Hilsenrath says I think Fed will be waving the green flag to markets at FOMC Meeting tomorrow

News Headline Summary Fed watcher Hilsenrath says I think Fed will be waving the green flag to markets at FOMC meeting tomorrow, Fed wont try to tamp things down, havn't seen enough positive data yet


Buy Zynga, Buy LULU, Buy Facebook & Groupon...

But did you know, the most famous Bernank'd stock of all?

CRM the v2.0 "stawk" had a very high P/E

And if you ever saw it, you'd note the irrationality

francis_sawyer's picture

The answer to EVERY conundrum is... as always...



[junk away ~ & as you do, kindly drop a comment as to why that assessment isn't 100% true]...

Meat Hammer's picture

Stereotypes don't arise from nothing.  Just ask the Goldbergs, Goldsmiths, Silversteins, and Blankfeins.

strannick's picture

More shadow banking (repos, reverse repos), more derivatives (CDSs, interest rate swaps), more mark to fantasy bank assets, more bank bailouts, more quantative easing.

More captured regulatory agencies, more talking head regulators and more MSM rationalizations.

More depository confiscations, more curtailment of Constitutions and the rule of law, and more misery.

Esso's picture

Well, I like you Francis. You seem to always tell it like it is. Doubtful you'll ever get a junk out of me.

Say What Again's picture

Baseline 4:  The EU Zone blows up

stinkhammer's picture

fuck it dude, let's go bowling

Ghordius's picture

no such thing - EU, 27 - eurozone, 17
Like NAFTA, 3 - dollarzone, 87

McMolotov's picture

Krugman's Scenario: Aliens invade Earth, humanity unites to defeat them, peace in our time, blah blah blah...

Sudden Debt's picture

aliens like in the movies aliens?
or aliens like in Martians attack?

Big Slick's picture

I, for one, welcome our new alien overlords.

MayIMommaDogFace2theBananaPatch's picture

aliens that would like to invest in some BONDS...Be nice to them...Smile when they look at you!

Sudden Debt's picture

the older we get...
There will be less of everything, not more, and a gradual but steady erosion of all "growth"

squid virtuous's picture

Don't worry, my uncle Shalom has this ultimate set of tools , he'll fix it...

lolmao500's picture

Baseline 4 : black swan destroys everything.

Poor Grogman's picture

Pecking and flapping is that dangerous huh?

I always thought kangaroos were more dangerous than swans

Dre4dwolf's picture

All that stuff doesnt happen in high tax environments.

High Tax Environment = More than 12% net taxation per individual.


Because anything over 12~13% does not allow for the creation of savings.


Right now, In New York atleast , the average worker is taxed over 80% of their income if you count things like sales tax.

How can anyone save anything if they are taxed 80%? 


If you earn 65$ an hour and you are in a union.

51% ends up "taxed" or taken from you and shoved into vaporizing "investment funds".


someone earning  65$ an hour in the working class (the class that actually produces things, not govt), will only see about 28~ 32$ dollars an hour.

Factor in that they comute to work, pay tolls, have to eat.

Really that only saves them about 10~ 12$ a day in "disposable income".

Thats about enough for a working man to take his wife out to dinner twice a month at a medium class resteraunt.


Throw in 2 kids, school.


Now the worker has to borrow just to live.



THE GOVT NEEDS TO MAKE BUSINESS INVESTMENTS AND ACTUALLY PRODUCE WEALTH (NOT JUST ROADS) so that the "losses" from running society (keeping bridges painted, roads paved street lights working) can be covered.

Govt needs to promote industry and take a portion of large industry profits.

Things Govt should participate in.

Mining, and Extraction of resources

Energy Production.





Ghordius's picture

yes, BUT you forgot the Inflation Tax

otto skorzeny's picture

they know this fucker is going down so they are making sure that they and their buddies are taken care of and are implementing draconian measures and laws  to delay the inevitable

LawsofPhysics's picture

Things the government is participating in;

Bailouts for the central banking cartel and endless wars.

By the way, who's choice was it to have those two kids?  I really hate it when people bring that up.  Wah, wah, life is hard, I can't support my children.  Gee, don't have them you ignorant fucking shit.

MayIMommaDogFace2theBananaPatch's picture

While you're dispensing simple-minded advice that no one asked for, why not suggest that the person disown or even elminate his expensive children...There problem solved.

I am childless btw...

Darksky's picture

+1000. So forking tired of listening to people say "we gotta do this or that for the children". Just got back from a Colorado ski trip with four buddies from high school. All are federal govt employees bitching about not having enough money to raise their kids, and how with the sequester furlough this was going to be the last vaction they would ever be able to afford. I just sat back with my blount in my left hand and Woodford in my right, smiling. Zero kids, happy as shit, and have enough fiat to do whatever i want BITCHEZ!

Whiner's picture

You are the kind of self seeking creep that signal the end of a society. Keep on partying and accumulating. Die an empty death to launch youself into eternity. What you are you will be forever. Very lonely and totally isolated. Go for the gusto, Bitchez.

Dre4dwolf's picture

The point is not about the kids though, its about the fact that if taxes and such were lower, having those kids would be no problem.

Also these things sneak up on people, you have kids, for say the first 5~8 years its affordable, then all of the sudden taxes go up, wages go down , inflation keeps up and wala your looking at taking on debt to pay for your dinner table.



Proofreder's picture

... and wala your ...

WTF - ignorance abounds !

Oh, right - Voila' - sounds nearly the same - but from the French, not a back alley in the Battery.


Encroaching Darkness's picture

"Things Govt should participate in.

Mining, and Extraction of resources

Energy Production."

This is a deliriously bad suggestion. Even the oil & gas majors hit a clunker sometimes - look up "Mukluk", a project north of Alaska, for info. See "" (way down page), for a more modern analysis of what can go wrong:

"Debate persists over the reasons for failure of the Mukluk wildcat well. At the time of drilling, the Mukluk prospect was estimated to contain 1.5 billion bbl of recoverable oil in a Prudhoe Bay look-alike structural-stratigraphic trap, although subsurface imaging was uncertain due to difficulty in assessing seismic velocities through permafrost. Drill cuttings and core data showed extensive oil stain in the target formation. It was referred to at the time as the most expensive dry hole in the world. The Mukluk rocks indicated that oil had once been in the structure, but had migrated away. A crucial element or process of the petroleum system was missing. The 3D model shows that initially petroleum accumulated, but later spilled to the southeast toward the Kuparuk River field through a thin sandstone overlying the break-up unconformity during Tertiary tilting."

Billions spent for zero return, and the government wasn't even actively involved, Want to hextuple that loss, at least? Put the Feds on the case, they can waste, lose and destroy much faster than people who have to make a payroll.

Dre4dwolf's picture

No matter what you do, the public services are going to cost more than the tax revenue coming in, its just the way it works.... when you have 20 million people demanding public services (busses, trains, water, mail delivery, health care) the govt right now only has two ways to fun all that.

Taxes & Debt

If govt had a business to run, IE: FOR PROFIT OF THE PUBLIC TO FUND PUBLIC SERVICES.... IE: Extract OIL sell it abroad -> Fund your public services................ you IMPROVE SOCIETY AND WEALTH LOCALLY.


If you dont fund it with a business, you endup either in debt, raising taxes to where everyone but the mega rich move out, and eventually the material wealth of the society you are governing will decline (roads will collapse, bridges will rust, trains will break down, busses will be cut) etc.

Im talking about a fusion of the public and private sector, without the socialism and despotism bit.


Encroaching Darkness's picture

The government has TRIED to run businesses before: several variants

(1) Nationalized industries - PEMEX, Soviet steel mills, Chinese steel mills, various British industries - Thatcher did not privatise (sell off) the British industries because they were making money. The Soviets did not shutter or sell their national industries because they were such roaring successes. The Chinese are watching a tremendous drain on their economy right now, in the form of nationalized industries -

(2) Solyndra, First Solar, LightSquared, etc. here in the U.S. - our bureaucrats TRIED to pick winners to subsidize with our tax money, they lost their asses -

(3) AmTrak - how NOT to run a railroad, losing money since it started - every state that has no AMTRAK service pays for it, and those which have it are poorly served

>> Im talking about a fusion of the public and private sector, without the socialism and despotism bit.<<

(A) We have that now, it's called "crony capitalism", and steals from all of us for campaign contributions

(B) I don't think you can have a fusion of public & private sectors WITHOUT either / both socialism and / or despotism.

Thanks for playing!

(The answer is for the government to shrink and do less, no matter what is DEMANDED of it; some statesmen used to do this, see "Crockett's speech".


rsnoble's picture

It might have all worked if it wasn't rushed thru and expected to be fully funtional in 3.5 seconds and have wars etc mixed in with it on top of everything.

ShrNfr's picture

Demographics that are in place in Europe (especially eastern Europe), the US, Japan and a lot of other places state that the population ponzi is over. Jeremy Grantham talks about it in some of his recent stuff. I have to concur with his conclusion that we are not going to grow our way out of things any more. Our politicians are of a different opinion, but they are just trying to ride it out till they can retire. The EU goes first, but the US and a lot of other places are on the same trajectory into the crap heap.

LawsofPhysics's picture

"we are not going to grow our way out of things any more"


From an eCONomic perspective, this may be true.  The reality is humanity is still growing.  The only outcome now being a diminised quality of life as everyone watches all paper promises burn and a global/local power shift as everyone demands something of real value in exchange for their labor or resources.  Some will do better than others, although being near a crowded city with numerous EBT recipients might not be such a good idea.  Look at history, supply lines always break and civilizations go extinct or go to war.  All kinds of good innovations typically come out the other side, to be enjoyed by those who survive.

slightlyskeptical's picture

Growth? What growth? All our growth is due to price hikes. We produce less and less as time goes on. If we ever got back to full production prices would drop as fast as my peter in front of Merkel.

LawsofPhysics's picture

The human population is still very much growing (it's called read comprehension by the way).  As far as producing things goes, that requires real inputs like energy and materials.  So let's say that the earth decides to start producing again.  Who is the earth selling to and what are they providing of real value in exchange?  See the problem yet?

slightlyskeptical's picture

It is actually reading comprehension.

As far as oil & gas, the earth is constantly renewing. We burn off more nat gas than we use.  Lumber is also renewable - we just have to replant. Same with food, etc. What is not renewable is the metals which we use to make machines, but we could be using idle human energy instead.



hardcleareye's picture

......rolling eyes and shaking head..........

Tinky's picture

I'll choose door number three, Chuck.

Brokenarrow's picture

burn, baby, burn! that's what i'm hoping for. i dont care if i have to eat snow. iwant the rule of law to come back. but, most of all, i want to round up the fucking bankers and their families and hang them. if i can do that, i'll eat rats for dinner

Alex Kintner's picture

Let's send their puppets (i mean politicians) to the gallows with them. Rope is cheap.

Brokenarrow's picture

btw: i know the pigs read this site.

Ourrulersknowbest's picture

If I was a piece of shit banker I would read this site and laugh like a loon.zh is a very small corner of the world.most people here are AWARE.the majority don't want to be.simples.