• Sprott Money
    04/29/2016 - 05:58
    There is unfortunately no basis for renewed optimism that this current litigation will have any meaningful impact on precious metals manipulation – with respect to either silver or gold.

Guest Post: We've Dug A Pretty Damn Big Hole For Ourselves

Tyler Durden's picture




 

Submitted by James H. Kunstler via Peak Prosperity,

The diminishing returns of technology are insidious, and they are ever with us. By this I mean the slow erosion of the quality of life, despite the impression that technological wonders only make our lives better.

We've Become a Society of Self-Deluded Children

The most obvious example is what happened to the telephone over the past thirty years. We computerized every phone system in America to “improve communications.”  The net effect is that after all that time and expense (billions of capital investment), it is now nearly impossible to get a live human being on the phone, whether you are calling a Fortune 500 corporation, a non-profit charity, or your best friend. Has that improved communication? What you get instead are robots that waste big chunks of your time forcing you to listen to complex call-routing menus – often ending in futility.

Companies and institutions assume that they benefit from the “efficiency” of not having to pay gangs of human receptionists. But they only succeed in annoying their customers and clients, who are treated as pests to be avoided. In effect, phone systems became firewalls, not communication enhancers.

Add to that the more recent phenomenon of cell phones and smart phones, which, for all their charms, 1) don’t work in all locations, 2) drop calls frequently, 3) have lousy sound quality, 4) feature time delays that make people talk over each other constantly, 5) erode real-time social relations with distracting apps and web features, and 6) possibly harm people’s brains by constantly rinsing them in microwaves.

A larger issue of technology’s effect on culture is the erosion of a shared sense of what is going on in the world based on reality. Increasingly and insidiously, the consensus about how the world operates is based on things that constitute unreal cultural constructions, especially TV shows, the daily Web-flow, computer games, and pseudo-informational memes based on gossip, make-believe, and wishes. The self-referential nature of this process, by the way, is what generates the cultural mood of irony, especially among young people, who are the most thoroughly and immersively hostage to a cognitive field of rapidly degenerating show-biz artifacts that become more ridiculous with each iteration, self-reference, or mutation – until daily life seems like little more than a continuous Gong Show of implausible made-up spectacle. You might end up thinking that Federal Reserve Chair Khloe Kardashian is releasing a new cologne which can be used as an alternative fuel one hundred times more powerful than gasoline and exported worldwide to reduce the trade deficit, save Social Security, and make America energy-independent.

This is a time in history when it’s hard to take anything seriously, including our fate.

There remains, however, an age-old relationship between reality and truth, and societies that allow them to become divorced run the risk of collapse. That happens to be exactly the predicament of the USA these days, and hence it is not such a marginal view to anticipate a bug-on-the-windshield moment for a society that has made self-delusion its baseline normal zeitgeist.

It’s especially remarkable that a nation with fairly deep traditions of free thought and speech, with durable institutions for purveying them (a free press), should sleepwalk into a captivity of pervasive, systematic, institutionalized lying and fraud. The people of Nazi Germany and Stalinist Russia suffered under such regimes at gunpoint, with boots on their necks, but in the USA of Bush and now Obama, we have conveyed ourselves to very similar circumstances willingly, like little children skipping through the gates of Disney World, with gleeful disregard for the consequences.

The Hard Truth of the Hole We Dug

For instance there is the current story of our collective financial situation, what the reality-based (and hence widely ridiculed) commentator David Stockman refers to as “the leveraged buyout of America.” The story we get is that the wise hands at the Federal Reserve are engineering an “economic recovery” from some kind of mystifying banking accident that occurred in 2008. The exact nature of the “mess” (as President Obama and others term it) cannot be explained, but it had something to do with rising and then falling house prices, and banks that lent money (i.e., gave mortgages) to unfortunate people who paid too much. The banks then got bailed out by the government in order to “save” the country from a re-run of the 1930s Great Depression.

No doubt, even superficial consideration of this fable makes people’s heads hurt. It’s easier to tune into Here Comes Honey Boo Boo and kick back with a 40 oz. King Cobra malt liquor than puzzle through the latest minutes released by the Federal Open Markets Committee. (Indeed, a truly rational person might learn more from reading the spilled entrails of a Jersey Giant chicken.) Here’s what actually happened to this country leading up to the fiasco of 2008:

Highly paid banking lobbyists (including former federal regulators and elected officials) bought enough influence over lawmakers to get rid of the Glass-Steagall Act, a Great-Depression-vintage law that required the separation of commercial banking (checking and savings accounts plus mortgage and business lending) from speculative investment banking. That allowed large banks to combine their operations and, among other things, turn loans into “innovative financial products” (bonds constructed out of massive quantities of non-performing mortgages and other loans), which they pawned off far and wide on “muppet” clients, including big institutional investors such as pension funds.

The big banks retained pieces (tranches) of these innovative products (called collateralized debt obligations, or CDOs), which they bought insurance on (credit-default swaps, or CDSs), since they were guaranteed to fail and thus generate insurance payouts, covering the costs of the whole racket for the banks. However, the insurers (for instance, AIG) did not really expect to have to pay out, weren’t prepared, and didn’t have the scratch to cover their obligations when the payouts were triggered. These daisy-chained counterparty obligations between financial institutions threatened a systemic cascading bankruptcy of all of them (massive counterparty failure). The then-Treasury Secretary Henry Paulson (former CEO of Goldman Sachs) importuned the U.S. Congress to bail out these banks, which they reluctantly did. And ever since then, the Federal Reserve and its handmaiden “too big to fail” banks have been running an array of scams aimed at concealing the worsening bankruptcy of American society and its government.

Expensive Energy Complicates Things Further

These calamities of capital mis-management occurred in tandem with trouble in the energy sector of the economy. The shorthand for the trouble was encapsulated in the term “Peak Oil.” For practical purposes, it should have been called “Peak Cheap Oil,” because these years in the mid-2000s marked the end of oil that was affordable under the terms of how American society was set up to run.

At every level of American society – and for Europe and Japan as well – the end of cheap, affordable oil had rather dire implications for all the common operations of life in advanced societies: food production, transportation, commerce, and especially finance. Finance – the management of a society’s accumulated wealth – was the most abstract of these systems and the one most easily upset by the implications of Peak Cheap Oil. The reason was that oil happened to be the “master resource” for generating economic growth and Peak Cheap Oil provoked a particular problem with money: Without continued growth of 3 to 5 percent a year, not enough new wealth could be generated to cover the interest on loans in the financial system. In effect, the whole system of interest became impaired, and without interest you couldn’t have the normal operations of banking.

It was pretty elementary. But the American public was not disposed to understand it, because everything in the U.S. economy worked on revolving credit, including the issuance of money itself (which was loaned into existence by the banks), and the public was addicted to debt. Loaning money into existence, of course, implied the creation of ever more debt, which came burdened with interest payments. It was not a casual coincidence, by the way, that the greatest orgy of debt creation in human history occurred in the very years leading up to Peak Cheap Oil, roughly 1990 to 2005, when relatively cheap oil use reached its zenith. So, by the time Peak Cheap Oil actually hit, the debt burden in American society was crushing at every level: household, business, and government.

Additionally, the problem of Peak Cheap Oil suggested to anyone paying attention that the debt bust was a permanent predicament. It had no remedy other than writing off losses, and, pretty soon, vivid economic contraction. Sometimes the terms “depression” and “recession” were used to describe the evolving situation, but the word “contraction” was more accurate, because a permanent contraction of industrial technological civilization had commenced. The reality of it was too scary for most people to process, especially people with political power. Really, anybody running things in American society – businesses, news media, college economics departments – could not face the implications of a contracting industrial economy. The words “recession” and “depression” were reassuring in the sense that they depicted low phases of a cycle that was sure to turn up eventually in the form of “recovery.”

Lesson Not Learned

Hence “recovery” became the shibboleth constantly invoked by people running things after the crisis of 2008. Unfortunately, no such recovery was underway. It was papered over by the twin Federal Reserve policies of quantitative easing and financial repression – a combination of the nation’s central bank loaning vast new amounts of money into existence at ultra-low interest rates (hardly any interest to pay back) and creating steady monetary inflation to reduce the burden of existing debt by shrinking the dollar value of the debt. The program was a racket in the sense that it was fundamentally dishonest. And it enlisted its handmaiden too-big-to-fail banks (a.k.a. “primary dealers”) into several levels of the racket:

  1. as middlemen purveying U.S. Treasury bonds to the Fed for commissions and fees
  2. as recipients of a bottomless cascade of near-zero interest loans that could be rolled into securities paying a bit more interest, therefore providing a steady creaming-off of profit in what is known as a “carry trade”

Meanwhile, all kinds of games were being played by the government from the simple misreporting of basic economic statistics, to the misrepresentation of revenues and expenditures, and known-to-be-false projections of future indexes. The basic operating system in the USA had moved from the rule of law to pervasive accounting fraud. The U.S. congress was not only deadlocked between two extreme positions on the left-to-right gradient, but both major parties were wholly bought off by their sponsor-contributors, including the shadow army of lobbyists with no political stance other than service-for-pay from the officeholders they shoveled money to. Business played games to stoke the recovery myth, too, like the “channel stuffing” rampant in the car industry, in which new cars were jammed into the dealer lots (delivered on credit) beyond any reasonable expectation of actual sales, but were recorded on the balance sheets of the automakers as sales nonetheless. Voila! Car sales are up this month! After 2011, this was joined by a campaign to provide sub-prime auto loans on the same order as the trash mortgages that had gotten the banks in so much trouble a few years earlier. The practice continues today, along with securitization of trash car loans into asset-backed securities. A similar racket goes on with college loans, which have come to eclipse even credit-card debt in sheer volume.

Plan B? There's No Plan A!

Now, the presumed purpose of these shenanigans from the point of view of the Federal Reserve and the White House was to keep the financial system stable and afloat, and therefore to keep “normal” American daily life going. Unfortunately, it was based on the unreal assumption that the financial norms of, say, 2006 could be ginned back up again, and this premise was just inconsistent with the reality of a post-Peak-Cheap-Oil world. Unfortunately, there was no organized counter-view to this wishful thinking anywhere within the boundaries of the political establishment. Nobody in power or in charge of anything could present a road map of where to lead this society from here – “here” being a realm of hopeless futility. The nation has been mired in this quandary for years and has been hung out to dry with the very feeble guidance from mainstream opinion-makers and leaders that nothing else really matters as long as the stock markets are going up.

At this point, any sane person reading this is asking: How the heck do we get out of this mess?

In Part II: Fixing the Mess We've Made, we look at the largest trends society will need to comply with as the unsustainable economic, financial, and resource pursuits described above collide with reality. Yes, the impact will be painful, as will be the transition to a new, more maintainable way of life. But those who intelligently re-align their lifestyles today, in advance, will experience much less disruption – in fact, thriving is a real option.

So the smart move here is to understand these defining trends, determine where you can best position yourself to take advantage of them, and start taking steps to do so now. Of all your current assets, none is more valuable then time. Don't waste it waiting for direction from above. If it ever does arrive, it will be much too late to be of use. 

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Tue, 04/23/2013 - 15:09 | 3489650 Sudden Debt
Sudden Debt's picture

well... as Obama would say...

YOU DUG THAT HOLE YOURSELF!!!

Tue, 04/23/2013 - 15:10 | 3489655 fightthepower
fightthepower's picture

So we're fucking fucked?

Tue, 04/23/2013 - 15:13 | 3489660 SilverIsKing
SilverIsKing's picture

Yeah, we are.

Tue, 04/23/2013 - 15:15 | 3489668 flacon
flacon's picture

Keynes believed digging holes was stimulatory. 

Tue, 04/23/2013 - 15:17 | 3489675 krispkritter
krispkritter's picture

At least it was shovel-ready... How much shit could a shithead shovel if a shithead could shovel shit? Politician and shithead are interchangeable.

Tue, 04/23/2013 - 15:22 | 3489692 Aguadulce
Aguadulce's picture

I'm appalled that the author chose King Cobra over O.E.

Tue, 04/23/2013 - 15:24 | 3489704 Joe Davola
Joe Davola's picture

What's your dirt doin' in Boss Kean's hole?

Tue, 04/23/2013 - 15:31 | 3489729 James_Cole
James_Cole's picture

The net effect is that after all that time and expense (billions of capital investment), it is now nearly impossible to get a live human being on the phone, whether you are calling a Fortune 500 corporation, a non-profit charity, or your best friend. Has that improved communication? 

Conflating so many issues. This has nothing to do with efficiency, it's about passing costs to the consumer. Instead of paying for extra operators a business has made the decision to have the consumer pay with their time.

Like in IKEA where instead of paying to have the furniture built, the consumer gets to spend their time ($) building it themselves. 

The ideal is to remove as much paid labour from the equation as possible and pass it on to the consumer as 'invisible' costs. 

Not efficient at all. 

 

Tue, 04/23/2013 - 15:56 | 3489886 Stack Trace
Stack Trace's picture

Thank you for your comment. Maybe the author didn't feel like doing all the work to explain this concept and hoped someone else like you would do the real work for him. ;-)

Tue, 04/23/2013 - 16:33 | 3490067 francis_sawyer
francis_sawyer's picture

Keep digging...

~~~

When you get to China, do what Forrest Gump would do & start digging backwards [for no particular reason]...

Tue, 04/23/2013 - 17:13 | 3490242 Manthong
Manthong's picture

Maybe some more digging would be helpful here..

http://www.ksl.com/?nid=148&sid=24748916

 

Wed, 04/24/2013 - 04:04 | 3491887 StychoKiller
StychoKiller's picture

I see what you did there.  :>D

Tue, 04/23/2013 - 16:14 | 3489973 Joe Davola
Joe Davola's picture

Then there's the part where you have to use your labor to pay them at the self-checkout.

Tue, 04/23/2013 - 16:25 | 3490023 aerojet
aerojet's picture

I'm not sure what IKEA sells is equivalent to furniture, it is more of a facsimile, perhaps an analogy would be how fast food is food, of a sort.  I still like IKEA, and have some stuff from there, and the knock-down aspect of it is a feature for a lot of people.  I think they serve a niche and do it pretty well. 

 

I do think you're on track with the removal of paid labor concept, I'm not sure IKEA is really a good example of that trend, however.  I simply blame it all on MBAs and their groupthink of "one less pickle in the jar" and the "you'll be gone, I'll be gone" type mentality. 

Tue, 04/23/2013 - 16:36 | 3490086 ATM
ATM's picture

He's not conflating issues at all. His point is that in the effort to improve communication many compainies have gone the route of adding confusing technological barriers to actual communication.

It's like saying I've added 600lbs of fuel saving devices to my car in the hopes of improving gas mileage. Yet, companies everyday make basically the same decisions.

BTW, my company has live operators. I tell potential customers that when they call us a miracle will happen. Somebody will answer the phone.

Tue, 04/23/2013 - 18:42 | 3490599 Stuck on Zero
Stuck on Zero's picture

401ks, IRAs, Keoghs, 1040s, W4s, HSAs...  It goes on an on. The government is making life impossibly difficult.  My wife and I spend 500 hours a year working with this crap.  A Tainter collapse is inevitable.

 

Tue, 04/23/2013 - 19:55 | 3490864 Matt
Matt's picture

The author is saying that the situation is the result of the diminishing returns of technology. The problem is not the technology, but the application of that technology.

The companies are choosing to transfer costs, in the form of time, to the consumer. While the technology enables this behavior, the technology does not cause this behavior.

The author, perhaps, does not understand, or for the sake of this article, chooses to ignore the pressures of globalization that push companies to constantly lower operating costs to try to compete with lower cost competitors. Better to blame technology.

The author also lements that people get information from the Internet and alternative sources, instead of the good old days before television, when people got their understanding of the world from their neighbours and the world around them. That his article is on the Internet makes this even more humoress.

Tue, 04/23/2013 - 15:29 | 3489724 Urban Redneck
Urban Redneck's picture

How about Mickey's Fine Malt Liquor, in honor of Boston's Finest Mick Thugs digging a deeper grave for American Civil Rights.  They sure as fuck don't deserve a real beer since they don't a real job of protecting and serving and the citizens.

Tue, 04/23/2013 - 16:39 | 3490097 ATM
ATM's picture

Their slogan has nothing to do with their eral job description. "Protect and Serve" is marketing at it's finest.

My favorite Malt Liquor is Schlitz. We used to drink it at the brewery when I was in high school.

Tue, 04/23/2013 - 16:50 | 3490151 Alpha Monkey
Alpha Monkey's picture

Now that's not fair.  They certainly do protect and serve.... the established power structure.  Bankster guard swine.

Tue, 04/23/2013 - 21:00 | 3491095 Buckaroo Banzai
Buckaroo Banzai's picture

Haffenreffer Private Stock. It's the malt liquor with the imported taste!

Tue, 04/23/2013 - 16:39 | 3490103 Panafrican Funk...
Panafrican Funktron Robot's picture

The function of the crash can be summarized as follows:

1.  Stock market crashed in 99/00.

2.  Fed funds slashed to near zero.

3.  In 2005-06, fed funds ramped to 5%

4.  Crash 2.0 

5.  Fed funds back to near zero, forever.

Tue, 04/23/2013 - 19:59 | 3490873 Matt
Matt's picture

Rising commodity prices, and the choice not to regulate derivatives or shield the commercial banking system from them, are pretty big contributors.

Tue, 04/23/2013 - 16:10 | 3489946 Jonas Parker
Jonas Parker's picture

The only "shovel-ready project" in the history of Obama's administration was Ted Kennedy...

Tue, 04/23/2013 - 15:17 | 3489676 Major Major Major
Major Major Major's picture

A guy stopped at a local gas station, and after filling his tank, paid the bill and bought a soft drink. He stood by his car to drink his cola and watched a couple of men working along the road.

One man would dig a hole two or three feet deep and then move on. Then the other man would come along behind him and fill in the hole. While one was digging a new hole, the other was 25 feet behind, filling in the hole. The men worked right past the guy with the soft drink and went on down the road.

"I can't stand this," said the man tossing the can into a trash container and heading down the road toward the men. "Hold it, hold it," he said to the men. "Can you tell me what's going on here, with all this digging and refilling?"

"Well, we work for the government and we're just doing our job," one of the men said.

"But one of you is digging a hole and the other fills it up. You're not accomplishing anything. Aren't you wasting the taxpayers' money?"

"You don't understand, mister," one of the men said, leaning on his shovel and wiping his brow. "Normally there are three of us: me, Elmer and Leroy. I dig the hole, Elmer sticks in the tree and Leroy, here, puts the dirt back. Now just because Elmer's sick, that doesn't mean that Leroy and me can't work!"

Tue, 04/23/2013 - 15:33 | 3489743 oldschool
oldschool's picture

Union work rules, doncha know?

Tue, 04/23/2013 - 15:34 | 3489752 RichardENixon
RichardENixon's picture

Elmer was furloughed due to the sequester.

Tue, 04/23/2013 - 16:47 | 3490143 Alpha Monkey
Alpha Monkey's picture

While banksters got $85 Bil.

Tue, 04/23/2013 - 16:00 | 3489898 lunaticfringe
lunaticfringe's picture

What asshole junked this comment? Oh yea, the tree planter. 

Tue, 04/23/2013 - 15:20 | 3489688 falak pema
falak pema's picture

it is provided you bury the dead bodies; the TBTF cabal, not the live ones the young and vibrant! 

Tue, 04/23/2013 - 17:15 | 3490249 InTheLandOfTheBlind
InTheLandOfTheBlind's picture

my girlfriend keeps asking this of me... sorry honey, i am bored

Tue, 04/23/2013 - 15:41 | 3489804 The Heart
The Heart's picture

"So we're fucking fucked?"

Like, living in the last days of Pompeii, fecked.

 

Tue, 04/23/2013 - 17:01 | 3490187 new guy
new guy's picture

I fucking fucked the fuck out of a fucking girl last night and she said it was the best fucking fucking she had  all fucking week.

There i've done it. I used it as a noun, a verb and an adjective all in the same sentence. I bet you guys wish you were as fucking cool as me!

Tue, 04/23/2013 - 15:20 | 3489687 Jekyll_n_Hyde_Island
Jekyll_n_Hyde_Island's picture

What's the matter? Why would no one want a 1.4% gain on 10 year t-bonds?

Tue, 04/23/2013 - 17:18 | 3489690 Urban Redneck
Urban Redneck's picture

Actually, I think that picture is of a hole that was dug by a number of gold bugs who did not have proper paperwork granting permission from the government of Ghana to dig a hole - so the military came in with bulldozers and other industrial equipment and buried them alive, which conveniently killed some of those gold bugs ...

an appropriate metaphor.

EDIT: searchable RSS archiving can be a wonderful thing...

http://www.modernghana.com/news/453803/1/national-security-destroys-illegal-mining-pits-in-.html

Tue, 04/23/2013 - 18:48 | 3490622 TuPhat
TuPhat's picture

It looks like a colonoscopy to me.

Tue, 04/23/2013 - 15:28 | 3489718 DoChenRollingBearing
DoChenRollingBearing's picture

Keeping too much money in the bank may not be a good answer either.  The Mercenary Geologist says that they are laughing at you...

 

http://tinyurl.com/cy6r85k

Tue, 04/23/2013 - 15:32 | 3489738 DosZap
DosZap's picture

well... as Obama would say...

YOU DUG THAT HOLE YOURSELF!!!

No he would say many others DUG THAT HOLE, YOU did not dig that hole.

Tue, 04/23/2013 - 16:09 | 3489941 DoChenRollingBearing
DoChenRollingBearing's picture

Speak for yourself!  I dug TFH!

LOL...  :)

Tue, 04/23/2013 - 17:33 | 3490287 Sudden Debt
Sudden Debt's picture

it was actually a sarc....

you didn't do the good things....
but whatever went wrong... you did it.

capeesh? :)

Tue, 04/23/2013 - 17:36 | 3490299 Tango in the Blight
Tango in the Blight's picture

YOU DIDN'T DIG THAT HOLE!

Tue, 04/23/2013 - 15:12 | 3489663 useless_fact
useless_fact's picture

Catfish have over 27,000 taste buds. Humans have around 7,000.

Tue, 04/23/2013 - 15:13 | 3489667 Bastiat
Bastiat's picture

Is that pic from a colonoscopy?

Tue, 04/23/2013 - 18:49 | 3490626 TuPhat
TuPhat's picture

Exactly.  sorry that I replied above before I saw your comment.

Tue, 04/23/2013 - 18:49 | 3490632 TuPhat
TuPhat's picture

Exactly.  sorry that I replied above before I saw your comment.

Tue, 04/23/2013 - 15:16 | 3489671 Turin Turambar
Turin Turambar's picture
We've Dug A Pretty Damn Big Hole For Ourselves

 

You can kiss my arse.  I haven't dug anything for anybody.  I am doing all that I can to limit the confiscation of my property by the mob.  I haven't obligated or stolen from anybody dumbarse.

Tue, 04/23/2013 - 15:18 | 3489681 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

So Barry O was right ... YOU didn't dig that HOLE !

Tue, 04/23/2013 - 15:22 | 3489691 NotApplicable
NotApplicable's picture

So... you're also a non-voter, right? Or do you choose to sanctify it by wearing a little sticker?

Tue, 04/23/2013 - 15:29 | 3489723 Turin Turambar
Turin Turambar's picture

Duh, I'm smart enough to not rubber stamp my own plundering.

Tue, 04/23/2013 - 15:21 | 3489695 Professorlocknload
Professorlocknload's picture

But, if you enroll, in part two you can find out the secret of the universe.

Do NOT follow this link or you will be banned from the site!