Dylan Grice: "There Is A Widespread Perception That Something Is Very Wrong"

Tyler Durden's picture

Dylan Grice lets loose with his latest piece "The Language Of Inflation":

We’ve recently come to the conclusion that there seems to be a widespread misunderstanding of what "capital" is. We happened to stumble across a fabulous book called Talent is Overrated (no sarcastic emails on why we were so attracted to such a title, please) written by the well-regarded Forbes journalist Geoff Colvin. To be clear upfront, is an excellent book which we learned a lot from. But consider the following extract (our emphasis):


For roughly five hundred years—from the explosion of commerce and wealth that accompanied the Renaissance until the late twentieth century— the scarce resource in business was financial capital. If you had it, you had the means to create more wealth, and if you didn’t, you didn’t. That world is now gone. Today, in a change that is historically quite sudden, financial capital is abundant. The scarce resource is no longer money...


“Financial capital” indeed. We found it striking that Mr. Colvin, a distinguished journalist of a distinguished business magazine should use the  concepts of capital and credit completely interchangeably. Yet this is a fundamental error of thought. Capital is not money. One is scarce, the other is in infinite. And we might not have thought anything of this sloppy language had we not been talking to an economist a few days earlier who feared for the future of euro. The situation remained grave, he said, and there was surely no alternative than for the ECB eventually to “print more capital”…


What he meant, we think, was printing more money. But it’s not what he said. He had confused money with capital as Mr. Colvin did in his book.


Like the Zuni tribes struggling to deal with the difference between yellow and orange without sufficient linguistic precision, we face the same problem in our financial system. As stock markets blink green on more QE supposedly making us all more wealthy, the developed world is saving less than it has at any time since WWII. And as central banks are conjuring up ever more liquidity, more thoughtful observers scratch their heads over the lack of collateral in the system. Of course, the problem is solvency, not liquidity. Capital comes from savings, and the policy of cheap credit with its inflation of time preference has encouraged spending, not saving. Scarce capital is growing ever scarcer.


One day, the price of capital will reflect its underlying scarcity, because one day it must. But in the meantime we think very carefully about the capital requirements of the businesses we own, growing increasingly wary of those which depend on artificially cheap “financial capital” for their survival. We note in passing that physical gold bullion is the oldest and purest capital there is…


What is the moral of this story for the steward of capital? Success in the long run requires that thought and action be fully independent from the false ideas of the herd. Yet today’s language of inflation embeds so many of these false ideas that the full rottenness of what passes for financial thinking today is obscured. One increasingly reads of capital stewards complaining that things seem more difficult today. We think it’s because they are. We are also increasingly mindful of conversations with friends, family and colleagues that reveal a widespread perception that  something is very wrong, though people can’t quite put their finger on what it is. As we have just argued, we think the answer is that the inflation of credit has driven an inflation of asset prices, which has driven an inflation of future expectations, which has driven an inflation of time preference… and that while the consequences of these various inflations are profound, the new language of ininflation which it has spawned is shallow. Therefore, not only is there insufficient capital to ensure future prosperity and insufficient realism to deal with the future this implies, there is insufficient linguistic precision for most people to articulate the problem let alone understand it. And when language itself becomes so grotesquely distorted, how does one go about substituting the customers’ unattainable hopes and expectations of never-ending growth with the need for principled and honest action?

Read the full note by Dylan Grice, no longer at SocGen but at Edelweiss Holdings, below:

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LawsofPhysics's picture

Damn your "lying eyes" Dylan!!!

camaro68ss's picture

Spreading damming lies! I’m reporting you to the minister of truth. Off to a FEMA camp for you where you will be reeducated.

Stackers's picture

Capital is not money. One is scarce, the other is in infinite.


Better way to say that is "Money is not currency or credit. One is scare, the other is infinite"

spine001's picture

The correlation between the weekly (end Wed) values of the S&P500 and the total balance sheet of the Federal Reserve went from -0.66 to +0.93 for the periods pre and post QE, starting in January 2007, when I first have accurate balance sheet data.

If anybody says anything even close to: "the market increase has not been caused by the FED QE", they are lying their butts off.

Correlation is not causation, but when a change in behaviour creates a clear change in correlation, like changing the slope sign!!!! and magnitude with a p value of less than 0.0000001. The proof of lack of causation is on the other side of the table. Meaning that those who say it is not the cause, must prove it, and not the reverse! If anybody interested in the data sources or the math, send me a personal request and I will mail the spreadsheet with the links to the data sources (more than what we get in ZH).

Edit: Note:
I didn't delve into the meaning of the causal association between the FED balance sheet and the changes in the stock market, but it is clear from the historical graph that when the FED balance sheet stops growing the market subsequently crashes. So, the point is, if the FED balance sheet is not going to keep on growing at the same rate, meaning QE is an extraordinary policy, an exception, then the market is in a huge and clear bubble, if the FED balance sheet is here to stay and its growth rate is maintained and/or increased (read hyperinflation at the end of the tunnel, with deflation on the way), then the market will continue on its current trajectory, but there is NO evidence in the data that even suggests there is an intermediate stability point.

Shocker's picture

Something is very wrong for sure.

Layoff / Closing List - http://www.dailyjobcuts.com


Race Car Driver's picture

> Something is very wrong for sure.

Every month, the packages at the grocery store shrink in size and the price goes up.

This trend should reverse soon. I mean, how much smaller and more expensive can things get before folks start to notice?


kurzdump's picture

Money is whatever the government forces us to pay the taxes with. Everything else is either irrelevant nature or (real/virtual) property / legal claim / human workforce that can be traded for money.

Today we pay taxes with green paper or the computer generated equivalents of those slips of paper.

If the government forces us to pay taxes with shit, then shit will be money.

redpill's picture

I'd slightly disagree.  What you are calling money is actually currency.  Money is any third-party form of exchange broadly recognized as having value.  That may apply to currency, and it may not.

alangreedspank's picture

In before his retort: "typical neo-liberal thinking!"

chumbawamba's picture

Money is the source of energy; currency conducts its flow.

I am Chumbawamba.

dontgoforit's picture

Rhetoric.  Just remember that however you define, currency, money, credit or whatever else, microwaves cook from the inside out and we are getting nuked.

graspAU's picture

“The value of goods are expressed in money, while the value of money is expressed in goods. Money and goods are clearly not the same things, but are exactly opposite things. Goods are wealth which you have, while money is a claim on wealth which you do not have. Goods are an asset; Money is a debt. If goods are wealth; money is clearly not wealth, it is negative wealth, maybe even anti-wealth.”
– Quigley, Tragedy and Hope, pg. 44

bagehot99's picture

Isn't capital more like collateral? An asset? Something with real value?

Printed or electronically-created dollar bills are just sheets of paper. We're passing them around and treating them as though they have real value, but in reality they have much less value every day. Some would argue they have zero value. I might too.

It's going to be tough once this reality bites. 

Trimmed Hedge's picture


Cliff Notes?

Stackers's picture

People no longer understand or confuse the difference between - money (what they are are calling capital), currency, and credit.

Running On Bingo Fuel's picture

Same. Buy gold, sell equities, buy bitcoin, love israel. Whatever, too many mixed messaged.


y3maxx's picture

Once and for all, Gerald Celente Calls Out TPTB. Lets hope no harm comes to this fine Spokesperson on American Political Corruption. Go get'em Gerald... https://www.youtube.com/watch?v=aEroBD7fE78&list=PLB1A898E94A412326

Seize Mars's picture

Dylan Grice is hot. HOTtt!!!!

Herd Redirection Committee's picture

Are we thinking of the same Ginger?

Bearwagon's picture

Yeah! Of course this is right. But we can ignore it. And not only that, we are even able to ignore the real consequences for some time longer. My supply lines still hold, i am just about to open another bottle of beer, there's gas and oil to warm my ass, and water for the grog. Fear not. All is well. Still ...

GetZeeGold's picture



In case you're wondering...red is bad.


So when does the ACA pep rally start?

Dr. Engali's picture

Welcome to fight club. The 8th rule of fight club is: If this is your first night at FIGHT CLUB, you HAVE to fight.....bitch!

Dr. Engali's picture

A wide spreadperception that something is very wrong? Could it be the fact that debt is not money? Or could it be the fact that infinite growth on an finite planet is not a good plan for success? How about the growing police state that threatens what little freedoms we have left? These are just the tip of the iceburg. Yes Dylan, something is very wrong.

GeorgeHayduke's picture

You're right on the money Dr.

My only question is why has it taken so long for people to just now start perceiving that something is wrong. I perceived that something was wrong in the early 1990's while studying earth sciences, economic and complex systems in my undergrad college days and concluding back then that endless economic growth was a myth. That myth has been exposed and they now use financial accounting tricks to keep the mathematically challenged (a large segment of the population) from perceiving that reality.

Your comment about the growing police state is right on the money too. The perplexing part of that reality is how much the general public praises and worships the police/military these days. Sure, they have a crappy, tough job but it's not the only crappy, tough job. Also, it's one of those jobs where the leaders/owners create situations that again and again emphasize the "need" for an ever growing military/police force.

Dr. Engali's picture

The thing that amazes me is how easily the isheeple on both sides of the political spectrum readily accepts the police state. It's become obvious that the majority of people just don't want to think or take care of themselves.

LetThemEatRand's picture

It's disgusting.  I'd say 80% of the American population has no fundamental problem with it even as they wave flags and talk about freedom.  

Induced Coma's picture

I have a genuine interest in understanding how people on social assistance see themselves and their personal accountability and responsibility. Has anyone seen honest, unbiased interviews or documentaries on this kind of thing? 



LetThemEatRand's picture

Here's one:  http://www.youtube.com/watch?v=o64Fz-KW1Dk

In all seriousness, though, I don't think you can generalize.  A large percentage on assistance are just moochers who see it as an entitlement.  How large?  I don't think anyone really knows.  The ones who are moochers tend to stand out more than the people who really need the help. 

TwoHoot's picture

Assuming you are serious, I can tell you how they see themselves from personal observation.

There ae two views depending on the individual:

1) The "social assistance" is a legitimate paycheck for being poor or "disabled". They even call the day the money comes "payday" just like they actually had a job. They actually work at being pitiful and brag about their advancment in the strange world of being poor and disabled. The attitude is almost like it is dirty work but somebody has to do it.

As a humorous aside, one of this class was complaining to me that his disability (drug addiction) did not pay enough to live. I suggested he gouge out his eyes with a spoon since blindness paid a lot better. He seriously considered it as a possible way to "get a raise" but thought the spoon deal might be too painful and permanent. He started researching ways to induce temporary blindness to get signed up but never followed through. He still lives in Sect 8 housing, has a SS Electric Chariot to get around town, has "home health" service to clean his apartment, do his laundry and cook for him at no cost. All he does is smoke dope and watch TV or Netflix.

2) They are giving away money and I'd be a fool not to take it. This class is pretty sharp and ambitious in that they know how to game the system, work off the books and qualify for every possible source of income available. They are definitely not lazy or stupid. Their trick is to lie to the government about everything which they see as a fair response to the fact that the government lies to them about everything. They may have stable homes in fact but divorce or never marry so they can claim hardship as single parents. Their attitude is if the government is stupid enough to offer it, they are smart enough to take it. Their basic living is paid for by the government and they accumulate capital and property on the side. They dress well, live in nice homes and drive expensive cars.

There is actually a third class that is simply stupid and consistently makes bad life decisions. The usually just fall into the "social assistance" system throught the court or health care system since they keep turning up at the jail and the ER. They wind up on "welfare" because nobody knows what to do with them. They can't just live in jail or the hospital and it takes a really hard heart to just watch them starve on the street. Even with social assistance, they usually get ripped off by the street predators and go back to jail or the ER. I'd say they amount to less than 2% of the "social assistance".

How do I know? I am retired and do a lot of volunteer work.

Induced Coma's picture

I am serious, and would like to understand the "view of the world" from the perspective of a "taker". Now, its not as if I dont think there are legitimate cases where social assistance is warranted, but of those that might be gaming/taking a paycheck/etc - I'd like to know how they think they would move forward if the dole stopped. Would they just lay in their bed and wait for the end to come? Are they going to try and quickly retool themselves into self-sustaining farmers? Are they going to "take it to the streets"? Surely even the most dim-witted understand that if the government ain't paying, violence in the streets isn't likely to pay off.


Or is it strange of me to think that people "plan" for these kinds of life changes...



El Vaquero's picture

Desperate people tend to not be rational.  Even intelligent people will do some terribly stupid things when they are irrational.  Those who are not planning for these kinds of changes, or at least considering the possibility that they will occur, are going to become desperate when the changes come. 

TwoHoot's picture

My GUESS is that group 1) would relish the opportunity to become even more pitiful. It is the way they make a living. For the most part, I think they will do nothing and starve to death. They sure won't take to the streets are stay focused long enough to grow a crop.

My GUESS is that group 2) will adapt very quickly to any changing situation. They will "take to the streets" or become "subsistance farmers" or run a black market or sell protection or steal what they want in a heartbeat depending on what they see as their best self interest at the time.

The most dim-witted won't even know the dole has stopped. They will just keep going to jail and the ER where someone will take care of them - a little bit, sometimes, maybe.

All just my opinion based on observation.

dontgoforit's picture

Group 2 sounds like the typical politician.

GeorgeHayduke's picture

Just remember, to the owners of this world you are a useless eater. Maybe they sit and seriously try to understand your world view. Likely they don't as they don't care what any of the useless eaters think about.

Maybe your own perspective is skewed by the fact that you are so immersed in the system you cannot comprehend anything but the system and the way it should operate.

First off in any society there are people who are legitimately disabled or unable to work. I realize that the more dog-eat-dog free market types who view everyone and everything from a profit perspective see these folks as a burden on productivity and should live in squalor or be supported only by their families, charity, ect... However, even though greed is the sole emotional focus of so many economically minded folks, not everyone sees the world that way so those other human emotions kick in and people offer to help those in need.

From my observations over the years this system is set up create a certain number of unemployed, unemployable and throw away people. They are part of the outcome of a system based on winner takes all, screw everyone else. They have to be the examples for the herd to be afraid of becoming.

In a system of essentially all-encompassing private property there is no escape for the dropouts. Why do you think the US government had to kill off all of the native Americans? They couldn't have people living outside the system in a self supportive manner that provided an outlet for people who got tired of chasing their carrot on a stick.

Expand your research and understanding on the topic. Your head is stuck in one mode of thinking without much thought or consideration as to the system itself, alternatives to it, etc. Or, just keep questioning again and again and getting the same non-answers.


Induced Coma's picture

Appreciate the comments. My thirst for knowledge and perspective on this topic is actually moreso to understand how to predict how the crowds will behave when the time comes.  Also, how to motivate them to change their focus/agression if it serves to do so.  I personally like the idea of establishing a cohesive community where trade/barter of useful things is the normal economy, but everyone has their own personal responsibility for their survival.  No one is "owed" or feels a "right" to assistance from anyone else.


Unfortunately the idea of self reliance and responsibility is lost on most people it seems.



Herd Redirection Committee's picture

You are completely ignoring the corporate 'takers'.  The MIC, the 'defense' industry, Big Pharma, Big Ag, wtf does the Dept of Energy do?  The Dept of Education? 

People complain about how much SS costs, when we should be freaking out that SS is set up as a ponzi!  As a scam!  Of course people feel entitled to SS, they paid into it their entire working life (the majority, that is).  But that money was SPENT as soon as it was remitted.  That was the real crime, not 'how much SS costs'.

Induced Coma's picture

Not really ignoring them in this context, per say - but definitely not addressing.  These are all real issues.  But at the local level, when shit hits the fan, I'm concerned with how to deal with the most prevalent threats. All the groups you mention will probably put up a good fight going down with the titanic, but they are (in my opinion) a minority threat compared to the population at large.  Many of whom (whether they are on social assistance or not) are going to be up shit creek without a paddle.  How will this group proceed when their world paradigm comes crashing down.  How does anyone react when all the things they hold as truths are destroyed? Denial, Anger, Fear, etc... add those into the crowd (mob) mentality and you have a dangerous mix.

Of course, none of this is news to the clued in crowd on the 0hedge.

What I'm trying to understand is how to manage this threat. Can you appeal to a sense of personal responsibility to this group? Probably not, as a poster above said - these will not be rational people. Will this group be self-destroying after some time? If you could "hole-up" for 6 weeks and come out, how many would be left?



FredFlintstone's picture

I tend to think that the folks who are on the lower end of the socioeconomic scale will be less effected than the middle and upper middle classes. I have read that the people hardest hit from an emotional standpoint in places like Greece are middle aged men who have had some success in life. Once they lose what they have worked so hard for, they become lost.




kareninca's picture

If things get bad enough, there will be vanishingly little difference between the situation of former benefits receivers, and people who are presently highly functional.  THAT is scary.

Yes, you can plan on defending yourself against some moron who has decided to be a professional state-supported drug addict, but are you going to be able to defend yourself agasint the attorney/engineer/plumber next door?

People who presently are highly functional and high earning, are successful often because they are aggressive and selfish (for good or ill) and will get what they need.  A lot of them are pretty much psycholpaths, on a small scale.  Worry about what they will do; don't just assume that because they follow nicey-nicey social norms now, that it will suit them to do so if times get tough.

aerojet's picture

I think group #2 was explained quite well already.  There are people who will game any system and try to get more out of it than they have to put into it.  A free market system (LOL) can sustain a certain amount of free-riders.  The system fails when it gets too many.

TwoHoot's picture

" ...if the government ain't paying, violence in the streets isn't likely to pay off."

Mugging pays well but carries some risk of getting shot or beaten. Plus, jail time is long if you get caught. Breaking into cars and shoplifitng are safer and just as profitable with short suspended sentences for even repeat offenders. The second group knows that.

My plans if things go terribly wrong (SHTF), is to stay home and be watchful (defensive) for about a month. By then, the dangerous 2nd group should be starved or gone to greener pastures or relocated by the National Guard and police.

The second group doesn't plan, they react. If the first reaction doesn't work, then they will try something else immediately. Violence in the streets and looting stores would seem like a good plan to them. Stores closed? No money? No problem. Plus it might be a hell-raising good time with plenty of free booze and sex afterward.

Greater Fool Theory's picture

You suggested he gouge out his eyes and he considered it.  Wow.

I have heard stories of beggars in Thailand being controlled by organized criminals who cut off limbs of the beggars to make them more pitiable.  Hey, maybe some forward-thinking US thugs could make a business out of this idea.  Cut off one of your limbs for a share of your public assistance loot.  


Notarocketscientist's picture

You forgot to mention the 4th category - these are the bankers - they understand that the taxpayer is there to pay their multi-million dollar bonuses. 

They have learned that the way to do business is to take other peoples' money - bet HUGE on risky plays - when it all goes right they enrich themselves - when it all goes wrong they call up one of their boys in gov't (e.g. Hank Paulson) and tell him they need to be bailed out (to make sure they continue to get mega bonuses)

The government - which they own through campaign contributions - quickly responds with bail outs + hundreds of billions of new money at ZIRP - which they then take and 'invest' in more hugely risky plays ....  etc etc etc...

If I were some punk with a sprained ankle - and I saw this shit - I'd fucking well be milking this cow too - why the fuck should I be supporting these welfare banker cocksuckers?  Fuck them - I want my piece of the action too.

It starts at the top my friend



emersonreturn's picture

watched the first two versions of The Prisoner last night.  i was a kid when it first aired and sensed its brilliance but couldn't fully digest its accurate vision...the sheeple cheering waving their umbrellas, exactly so.