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.