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Today's Wealth Destruction Is Hidden By Government Debt

Tyler Durden's picture




 

Submitted by Philipp Bagus via the Ludwig von Mises Institute,

Still unnoticed by a large part of the population is that we have been living through a period of relative impoverishment. Money has been squandered in welfare spending, bailing out banks or even — as in Europe — of fellow governments. But many people still do not feel the pain.

However, malinvestments have destroyed an immense amount of real wealth. Government spending for welfare programs and military ventures has caused increasing public debts and deficits in the Western world. These debts will never be paid back in real terms.

The welfare-warfare state is the biggest malinvestment today. It does not satisfy the preferences of freely interacting individuals and would be liquidated immediately if it were not continuously propped up by taxpayer money collected under the threat of violence.

Another source of malinvestment has been the business cycle triggered by the credit expansion of the semi-public fractional reserve banking system. After the financial crisis of 2008, malinvestments were only partially liquidated. The investors that had financed the malinvestments such as overextended car producers and mortgage lenders were bailed out by governments; be it directly through capital infusions or indirectly through subsidies and public works. The bursting of the housing bubble caused losses for the banking system, but the banking system did not assume these losses in full because it was bailed out by governments worldwide. Consequently, bad debts were shifted from the private to the public sector, but they did not disappear. In time, new bad debts were created through an increase in public welfare spending such as unemployment benefits and a myriad of “stimulus” programs. Government debt exploded.

In other words, the losses resulting from the malinvestments of the past cycle have been shifted to an important degree onto the balance sheets of governments and their central banks. Neither the original investors, nor bank shareholders, nor bank creditors, nor holders of public debt have assumed these losses. Shifting bad debts around cannot recreate the lost wealth, however, and the debt remains.

To illustrate, let us consider Robinson Crusoe and the younger Friday on their island. Robinson works hard for decades and saves for retirement. He invests in bonds issued by Friday. Friday invests in a project. He starts constructing a fishing boat that will produce enough fish to feed both of them when Robinson retires and stops working.

At retirement Robinson wants to start consuming his capital. He wants to sell his bonds and buy goods (the fish) that Friday produces. But the plan will not work if the capital has been squandered in malinvestments. Friday may be unable to pay back the bonds in real terms, because he simply has consumed Robinson’s savings without working or because the investment project financed with Robinson’s savings has failed.

For instance, imagine that the boat is constructed badly and sinks; or that Friday never builds the boat because he prefers partying. The wealth that Robinson thought to own is simply not there. Of course, for some time Robinson may maintain the illusion that he is wealthy. In fact, he still owns the bonds.

Let us imagine that there is a government with its central bank on the island. To “fix” the situation, the island’s government buys and nationalizes Friday’s failed company (and the sunken boat). Or the government could bail Friday out by transferring money to him through the issuance of new government debt that is bought by the central bank. Friday may then pay back Robinson with newly printed money. Alternatively the central banks may also just print paper money to buy the bonds directly from Robinson. The bad assets (represented by the bonds) are shifted onto the balance sheet of the central bank or the government.

As a consequence, Robinson Crusoe may have the illusion that he is still rich because he owns government bonds, paper money, or the bonds issued by a nationalized or subsidized company. In a similar way, people feel rich today because they own savings accounts, government bonds, mutual funds, or a life insurance policy (with the banks, the funds, and the life insurance companies being heavily invested in government bonds). However, the wealth destruction (the sinking of the boat) cannot be undone. At the end of the day, Robinson cannot eat the bonds, paper, or other entitlements he owns. There is simply no real wealth backing them. No one is actually catching fish, so there will simply not be enough fishes to feed both Robinson and Friday.

Something similar is true today. Many people believe they own real wealth that does not exist. Their capital has been squandered by government malinvestments directly and indirectly. Governments have spent resources in welfare programs and have issued promises for public pension schemes; they have bailed out companies by creating artificial markets, through subsidies or capital injections. Government debt has exploded.

Many people believe the paper wealth they own in the form of government bonds, investment funds, insurance policies, bank deposits, and entitlements will provide them with nice sunset years. However, at retirement they will only be able to consume what is produced by the real economy. But the economy’s real production capacity has been severely distorted and reduced by government intervention. The paper wealth is backed to a great extent by hot air. The ongoing transfer of bad debts onto the balance sheets of governments and central banks cannot undo the destruction of wealth. Savers and pensioners will at some point find out that the real value of their wealth is much less than they expected. In which way, exactly, the illusion will be destroyed remains to be seen.

 

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Sat, 11/23/2013 - 13:34 | 4183614 RSloane
RSloane's picture

Its not hidden at all. Drive down any Main Street in the midWest and tell me wealth destruction is hidden.

Sat, 11/23/2013 - 13:36 | 4183621 Motorhead
Motorhead's picture

Enjoy the weekend, bitchez! 

Sat, 11/23/2013 - 13:38 | 4183627 DoChenRollingBearing
DoChenRollingBearing's picture

You too, Motorized Fish Head!

Sat, 11/23/2013 - 14:50 | 4183702 King_of_simpletons
King_of_simpletons's picture

Wealth is neither created nor destroyed. It is merely transfered.

OT: Kim Kardashian's charity auction (90% for her, 10% for Typhoon victims) pretty much sums up the way charity operates in this country. Red Cross, United Way all have extremely high overheads with their CEOs making millions.

Sat, 11/23/2013 - 15:13 | 4183765 SilverIsKing
SilverIsKing's picture

I tell people this all the time. Why would I ever give to a charity so I can help support the CEO's lavish lifestyle?

I only give to charities where most of the workers are volunteers and 90% or more of my money will go directly to the primary cause.

When confronted with my argument, most will just say, "oh well, still better than nothing."

Idiots.

Sat, 11/23/2013 - 15:57 | 4183802 flacon
flacon's picture

I actually disagree with the statement: "Wealth is neither created nor destroyed. It is merely transfered."

Communists/Socialists/Statists DO have the ability to DESTROY WEALTH OUT OF THIN AIR in the same way that laissez-faire Capitalitsts have the abilty to CREATE WEALTH OUT OF THIN AIR.

 

As Ayn Rand said: "Wealth is the product of man's capacity to THINK." and the crony communists have destroyed the capacity to THINK. Real honest THINKERS understand that this market is overvalued but the Central Planners PUNISH the ones who calculate correctly and reward those who leech off of them. Look at Hugh Hendry, he was right in being bearish but even he threw in the towel because the wealth destruction caused to the THINKERS who correctly calculated that "a crash is coming" is just too painful. 


Sat, 11/23/2013 - 15:59 | 4183824 RockyRacoon
RockyRacoon's picture

Too many folks confuse wealth with money.  They are not synonymous. 

Oh, BTW, all us gold-bugs are saved!  Get this headline from the FT:

Gold traders plan benchmark code of conduct

“At some point the authorities are going to be turning their attention to some of our benchmarks under the umbrella of looking at all benchmarks,” said one person close to the LBMA. “We want to make sure we’re prepared when they do that.”

Yeah.    I really needed a good belly-laugh to end the week.

Need I add the /sarc?  ...or isn't it obvious?

Sat, 11/23/2013 - 16:08 | 4183838 flacon
flacon's picture

The problem with central planning is that they have the magical ability to skew the UNIVERSAL pricing mechanism (to the point of cognitive dissonance). Nobody knows what anything is worth any more.

 

That old analogy of a one ounce gold coin could buy you a fine toga in the Roman days and could buy you a fine suit today does not hold true. I bought a fine locally made (ie, NOT CHINA) suit for $200, including a belt and a tie and a shirt. Is the fair value for one ounce of gold $200? 

 

The only way to get an honest price of anything is by millions of itterations of actual transactions without a third party weighing down or pushing up the price. We call that free market laissez-faire capitalism -which hasn't existed in a least 100 years. 

Sat, 11/23/2013 - 16:36 | 4183882 RockyRacoon
RockyRacoon's picture

You got a U. S. bespoke suit for $200?  Where was that... I could use a new one.

Sat, 11/23/2013 - 20:56 | 4184362 FredFlintstone
FredFlintstone's picture

A guy that buys a $200 suite has to google bespoke.

Sat, 11/23/2013 - 23:40 | 4184695 vanityvanity
vanityvanity's picture

Amen! There's no substitute for free market price discovery. American medicine has been on government-set fee schedules for decades, and the demand for physicians sky-rockets while the supply dwindles. You can now get better care for a fraction of the cost in Thailand. Central planning is death.

Sat, 11/23/2013 - 15:59 | 4183830 Cursive
Cursive's picture

@flacon

Or, more simply, a broken window is not useful as a window anymore.  And then there's horse buggy whips....

Sat, 11/23/2013 - 16:13 | 4183845 flacon
flacon's picture

I'm trying to understand your comment but I'm afraid I don't get what you are saying. I read Henry Hazlitt and know the Broken Window Fallacy, I haven't heard the horse/buggy one, but could you be a bit more verbose in your thought process so that I can understand you?

 

Sat, 11/23/2013 - 21:58 | 4184474 Cursive
Cursive's picture

@flacon

It's probably too late for you to see my response, but here goes.  Whenever change or innovation is discussed, it is common for one party to mention that makers of horse buggy whips were adversely affected by the rise of the internal combustion engine.  But that's the point of change or innovation, there will always be winners and losers.  Imagine if you had an inventory of horse buggy whips and they were all worthless within a year.  Would that be wealth destruction or wealth transfer?  I'd say the former.  

Sat, 11/23/2013 - 15:32 | 4183791 BooMushroom
BooMushroom's picture

If you have an automobile, and I put half a pound of thermite on the hood and light it, it will destroy the hood, the engine, and some of the blacktop under the car.

The wealth (the car) was not transferred, it was destroyed.

Sat, 11/23/2013 - 15:37 | 4183797 Son of Loki
Son of Loki's picture

I've seen more houses fall out in the last three months then my entire life. Most families are living paycheck to paycheck...forget  about trying to qualify for a loan, even a zero-down, never pay back loan. Unless Ben hands houses out for FREE with the NINJA mortgages like Mozillo did, I don't see imporvement.

 

Add to that the dozens of Used Homes on the market and the picture is dismal.

Sat, 11/23/2013 - 18:45 | 4184088 indygo55
indygo55's picture

Same with Goodwill. The "goodwill" is to the CEO not the rest of the herd. 

http://urbanlegends.about.com/library/bl_charities_salaries.htm

 

 

Sat, 11/23/2013 - 20:45 | 4184338 StychoKiller
StychoKiller's picture

Check out www.worldvision.org

 

Sat, 11/23/2013 - 18:59 | 4184112 Nassim
Nassim's picture

Funny that. I am also a roller bearings man: http://wheelbearingkits.com.au

 

Sat, 11/23/2013 - 19:42 | 4184213 TheMerryPrankster
TheMerryPrankster's picture

Funny that, I feel I've lost my bearings. This is not the world i was told of as a child or the one I knew in my youth.

Its a thin pretense, a veneer of luxury atop a great big chewy center of pure chaos. Independent domains of commerce, thought and production were merged into a globalocracy, that weakened everything, destroyed backup up systems and made everything easily manipulated and unstable.

When the US economy collapses how will Europe pull us out if they are connected to our banking and commerce systems, China as well.

The whole concept of globalization is retarded and for fools and bankers only. It has produced little of merit, other than a 7-11 on every corner in Tokyo and a castle of empty cargo containers stacked to the sky in every still functional US port, due to one way trade.

the average american knows he's been fucked but he's convinced it was the other parties fault, dems blaming reps and vice a versa. The real fucking was done by those who own the .gov that the duoply inhabit, they are but renters in the house of bankers.

THe bankers like it like that, let the peons charge each others throats while the hidden hand throws chunks of beef to the piranha politicians to ensure the madness continues.

But the bankers have secretly fucked themselves by building a system on a currency of despair which cannot but fail. there is no turning around a sinking ship, it doesn't matter which direction you are heading if you're ship is sinking.

How now Dow Jones? a tower to the sky built of infinite invisble bricks which cannot support their own weight, let alone the weight of those stacked upon it. It all falls down when the boy stops beleiving in fairies, can we all keep Tinkerbelle alive one more day?

Isn't everything hunky dory if the media says so and the dow keeps climbing. Welcome to Wonderland, watch out for pirates.

 

Sat, 11/23/2013 - 13:49 | 4183655 Running On Bing...
Running On Bingo Fuel's picture

What the fuck is there to enjoy? Were in the final stage of a crack-up-boom, there is massive inflation, massive dollar deflation, and were controlled by a government that has gone completely ape shit crazy.

You can't even watch a good show anymore, there all brought to you by and created by sick perverted Lizards.

Good weekend, BAH!

Over.

Sat, 11/23/2013 - 13:51 | 4183660 Dre4dwolf
Dre4dwolf's picture

Fuck the world.

Grab a pack, smoke um all and sit back and enjoy the fucking show.

This shit is burning down nice and slow.

Sat, 11/23/2013 - 14:29 | 4183705 Headbanger
Headbanger's picture

I literally was on Main Street this morning getting a few things at the hardware store and saw hardly any traffic for a Saturday morning.

It's getting spooky seeing this along with the all the for sale signs and closed restaurants and small hotels left abandoned.

And then there's all the boats for sale everywhere! 

It all makes me feel more appreciative I grew up in more modest times with parents who went through the Great Depression in their 20's

so I can take these times in better stride perhaps and try to help others have a more enduring perspective.

Sat, 11/23/2013 - 14:45 | 4183730 Skateboarder
Skateboarder's picture

Things are slowly falling apart, but no one wants to recognize it, no one wants to talk about it.

People are especially oblivious in college bubble towns. I was in one last weekend, totally banana.

Sat, 11/23/2013 - 16:10 | 4183844 natty light
natty light's picture

Floating on top of student loan debt.

Sat, 11/23/2013 - 16:17 | 4183850 flacon
flacon's picture

Educated pHDee types arrogantly think they "can change the world through education" little realizing that they are the least educated people on the face of this planet. 

 

High School Dropout knows more about his rights than the 4 armed to the teeth gorilla-cops who are threatening him:
http://www.youtube.com/watch?v=yi6scLZLrMw

 

 

Sat, 11/23/2013 - 17:38 | 4183977 pashley1411
pashley1411's picture

I was walking down the 16th Street Mall in Denver last night, thinking the same thing.   One university/college after another, on a 1/2 mile long retail strip. (!?!)

Pure student loan bubble.

Sat, 11/23/2013 - 17:34 | 4183970 max2205
max2205's picture

I need a boat...where do you live? 

Sat, 11/23/2013 - 14:49 | 4183732 MrButtoMcFarty
MrButtoMcFarty's picture

Jesus Christ.....Ya'll are some seriously whiny bitches sometimes....

Sat, 11/23/2013 - 17:54 | 4184008 Bioscale
Bioscale's picture

Fuck you.

Sat, 11/23/2013 - 16:53 | 4183907 booboo
booboo's picture

The writer has obviously been influenced by Hans Hermann Hoppe, I would that you all would be as well. The virus is democracy and as much as you neophytes want to believe that you can vote your way out of this through a democratic process I am hear to tell you that the definition of insanity is doing the same thing over and over and expecting different results. Democracy was foisted on the world as a means of letting the proles enslave their own ass. Goddamn, it's like watching people fight over two piles of shit come election time.

Start here

http://www.amazon.com/dp/0765808684/?tag=mh0b-20&hvadid=3525319740&ref=pd_sl_1kq3o37uzk_b

Sat, 11/23/2013 - 17:35 | 4183973 max2205
max2205's picture

My ass feels like it's been Caruso'd

Sat, 11/23/2013 - 13:54 | 4183664 0b1knob
0b1knob's picture
Today's Wealth THEFT Is Hidden By Government Debt

There, fixed the headline for you.

Sat, 11/23/2013 - 15:34 | 4183795 StillSilence
StillSilence's picture

Exactly, it's really not wealth destruction, but more the destrcution of the perception that debt currency represents wealth. If our money still represented real production of goods or services, then it could be labeled as wealth, but we are clearly far from that.

 

 

Sat, 11/23/2013 - 13:37 | 4183615 DoChenRollingBearing
DoChenRollingBearing's picture

There is a real case to be made for having a large percentage of your assets in hard assets, my favorite being gold.  But, I believe, perhaps even more, in diversification.

Diversification (if you have money) even includes having some assets in stocks & bonds.

No one knows what is going to happen, Black Swans and all.  Best to be prepared for a hard landing, and it could get very ugly.

Sat, 11/23/2013 - 13:40 | 4183633 cossack55
cossack55's picture

I used to think so.  I am now totally into consumables, not anticipating coming out the other side.  I'm pretty sure I won't not be coming out alone.  (gotta lub dem double negatives)

Sat, 11/23/2013 - 13:42 | 4183635 Cursive
Cursive's picture

@DoChenRollingBearing

Agree with all you wrote, but I always wonder how the "smart people" (i.e. the little red hens of the world) will fair against the so-called "golden horde" of the free shit army.  We are testing Jon Dunne's "no man is island" hypothesis and any prepping may be all for naught.  Contrary to the "rugged individualism" of American folklore, our fates are all tied together and the figurative clean shirts will be bloodied by the masses anyhow.

Sat, 11/23/2013 - 13:59 | 4183672 fonzannoon
fonzannoon's picture

I am attempting to book a 2 day ski trip in January. I am trying to do it during the week to save money. Every ski resort I look at is booked up. This with everyone knowiing that if you fall and break your leg you are probably paying several thousnd dollars in healtcare costs now.

Yet as I drive around I see more and more "space available" signs. 

So weird.

Sat, 11/23/2013 - 14:09 | 4183681 Cursive
Cursive's picture

@fonz

Maybe there are less ski resorts open?

Or maybe there are less slopes open b/c the facility purposely decided to short staff?

Or maybe fuck all that and it's the the 1% have booked the place up through 2020.

As for a broken leg, that's somebody else's problem.  I mean, if I break my leg, Obama will make sure some rich ass doctor fixes it.  And he better fix it or its his ass.  I mean, maybe I've got a broken leg and all, but life will be much harsher on someone else if they don't do their damn job and fix my leg like it was new or better than new!

Sat, 11/23/2013 - 21:14 | 4184397 StormShadow
StormShadow's picture

I run a private jet charter company in the southeast US. I've been in the business for 13 years through several business cycles. Our business has never been better. The demand is unreal. Why? Because we cater to the .5% and they are doing exceedingly well while everyone else struggles.

What is really interesting though is that as part of my job I travel throughout the country to both high end locations and "middle America". I see firsthand just how enormous the wealth inequality is. I've looked behind the facade and it is not pretty. I fly a lot of finance guys who are generally really nice, smart folks but are TOTALLY clueless about the markets and why they are at the levels they are. Almost universally they believe that the "real" economy is recovering and the market is a reflection of that. Before I became a professional pilot I graduated Wharton undergrad. What they taught me there helps me understand the delusion of such folks, and it is a reason I got out of that world early on.

Eventually this will all unravel, but it will take FAR, FAR longer than any of us can imagine. I am constantly amazed at how far they can stretch this bubble. It's heart wrenching and depressing to watch. We live in interesting times.

Sat, 11/23/2013 - 22:02 | 4184484 Cursive
Cursive's picture

@StormShadow

I'm in Louisiana and, although I hate "little" plans, but it's really the only way to fly.  No TSA up your ass....

Sat, 11/23/2013 - 14:12 | 4183683 Professorlocknload
Professorlocknload's picture

Missallocation at work there, fonz. Wealth is not being created, credit is.

Sat, 11/23/2013 - 14:49 | 4183735 Skateboarder
Skateboarder's picture

Today's pleasure driven by the promise of tomorrow's work.

Sat, 11/23/2013 - 15:07 | 4183759 Al Huxley
Al Huxley's picture

Skiing is for the relatively well-off, of which there are still a fairly large number, in absolute terms (less in percentage of the overall population).  And the relatively well off are getting more well off (except for those being whittled off the bottom end) so this doesn't surprise me.  I see it everywhere.  What you'll see WAY less of is middle-class or lower middle-class families making a 'special ocassion' ski trip (or name some other comparable) as these activities are priced way beyond their means now.

 

High and increasing pain for the growing lower and lower middle classes, increasing wealth and privilege for the gradually shrinking number who are still 'winning' in this game.

Sat, 11/23/2013 - 16:27 | 4183868 Seeking Aphids
Seeking Aphids's picture

Excellent post Al. Looks like we are running out of customers........deflation anyone?

Sat, 11/23/2013 - 14:32 | 4183709 Professorlocknload
Professorlocknload's picture

  Might have something there, Cursive. All the more reason to save in portable/real assets. Old adage; of all the ways to avoid trouble, the best is to leave.

  Beside, the dollar being a credit instrument, why save debt in a world of falling productivity? It most likely (certainly?) won't retain value.

  On diversification, I've always looked at it as a refuge of the uninformed or unsure. Better to be all in something one understands, than fractionally into several entities one knows little about. That can get like herding cats.

 

Sat, 11/23/2013 - 13:48 | 4183652 uncle.bigs
uncle.bigs's picture

Diversification is for pussies.  You love gold and you might be right.  What happens when the stocks and bond you own crater and offset the gains you made in gold?  You made nothing.  LOL

Sat, 11/23/2013 - 14:09 | 4183670 Petrus Romanus
Petrus Romanus's picture

I believe this gentleman has the answers you seek:

http://www.youtube.com/watch?v=F8IokpDRzcI

 

ETA- Synergy really is for faggots!

Sat, 11/23/2013 - 13:35 | 4183620 cossack55
cossack55's picture

What if it were Robinson and Black Friday? What outcome then, eh?

Sat, 11/23/2013 - 13:37 | 4183623 Cursive
Cursive's picture

So, heed Eisenhower's advice about the military-industrial complex and acquire hard/productive assets at the expense of fiat.  Got it.

Sat, 11/23/2013 - 13:43 | 4183637 Make_Mine_A_Double
Make_Mine_A_Double's picture

Most Merikans stay and live in the same place much of their lives so their impressions of what is happening in the rest of country are colored by the local circumstances.

I live in Seattle where the economy is relatively healthy and diversified. Locals here are pretty much fat, dumb and happy and assume the rest of the country is as well.

However, this is surface. Kick the rock and you'll find an economy being hollowed out by the unusal suspects - unions, regulation, taxation, endless welfare for a floating population of landless serfs and a left wing antipathy towards towards heavy industry.

Look further and you'll see just about every Mom and Pop business is being shut down and the only things left are the chain stores. Top end is doing well, mid and bottom are struggling mightily.

We are losing family wage jobs left and right to right to work states and the perfidious Kanadians whom seem to have a model of social capitalism that actually works up in BC.

But the ruling class of elites - the homosexual, REI faux outdoorsie, Range Rover driving, NPR listening, MickeySoft millionaires and billiionaires have the place locked up. I'd say Obozo probably still polls 75% here.

In short, they don't see or understand what is happening in the rest of the country. In fact they look South to Kalifornia and think things are swell.

 

 

 

Sat, 11/23/2013 - 14:59 | 4183749 TheMerryPrankster
TheMerryPrankster's picture

When I was in Washington state californians were always held in disdain.

Much of Washington is impoverished, especially the small towns.

People in Washington still have the pioneer spirit, though television is smothering it.

Until people realize corporate media is government propaganda and it is intellectual poision and that the actual act of sitting and watching tv is destroying their health, their minds and their bodies,  they will continue to fail to understand the world they live within and how to live within it.

On the upside it will be easy to wipe out the population via diabetes, heart attacks and strokes based on an electronic honey trap that they pay for themselves. Hoisted on their own petards.

Television an electronic treadmill of desire leading to an empty life and an early death, is not a symptom of the decline of our civilization it is a cause. It is the chain that binds you to the empty destructive corporate/government paragdigm.

No wonder the CIA owns ABC/Disney via capital cities acquisition in the 1950's

5 corporations own 99.5% of media and want you to watch tv all day and the alarm bells aren't ringing in your heads because the tv smothers all irelevant impertintent thoughts other than " I could really go for a beer and another bag of dorittos right now"

 

 

Sat, 11/23/2013 - 15:25 | 4183783 stacking12321
stacking12321's picture

silicon valley is the same way. feels like it's protected from the ravages of the outside world. go inland to the central valley, there's high unemployment, mass forclosures, etc.

no such thing as "social capitalism" as you put it; that's an oxymoron.

Sat, 11/23/2013 - 16:57 | 4183912 Skateboarder
Skateboarder's picture

SV is one of the most bubblicious places in the universe. Nothing can go wrong here... right?

Sat, 11/23/2013 - 19:16 | 4184142 stacking12321
stacking12321's picture

not sure about it being a bubble, in the sense of over hyped and over speculated, if a generalization can be made about the valley as a whole.

there actually is some innovation going on, and there is actual wealth being generated by the tech companies here, that sell real products and services (not all of them, of course).

it's not like it used to be 5 or 10 years ago, but i don't see many signs of poverty and depression here.

the market for commercial space seems to be getting tighter, too. i'm looking for warehouse space now, it's impossible to find anything under .70/sq ft, and most are in the .80-1.00 range, and it's slim pickings. my current lease that's expiring from 2 years ago was .60.

 

Sat, 11/23/2013 - 13:43 | 4183640 Running On Bing...
Running On Bingo Fuel's picture

Wealth destruction is most easily achieved by buying into unproven fads.

Yes, they will run it up Bernanke style, with assets that were created out of thin air. They will hire shills to talk it up making absurd claims about the future.

Then one day the buying will stop and the selling will begin, with NO buyers to be found.

Over.

Sat, 11/23/2013 - 14:17 | 4183689 Richard Head
Richard Head's picture

Can't see any unproven fads like that going around right now.

Sat, 11/23/2013 - 13:45 | 4183643 Peter Pan
Peter Pan's picture

Society has been making one bad choice after another in all aspects whether they be political, military, economic, moral, environmental or personal. We have become unstuck, rudderless and anchored in quicksand. Money is a measure but cannot be a measure of all things unless we are stupid enought to believe that money can measure happiness.

My personal view has always been that a society can measure its progress by how it nurtures its young and the future of its young. All other approaches are egocentric and dangerous.

We keep investing in the wrong things and as we fail to get a satisfying return we invest some more. Like heroin addicts we keep failing to achieve any sort of fulfillment.

We don't need to consume more or invest more. We just need to consume better and invest better. This will in turn vastly reduce waste and destruction.

Sat, 11/23/2013 - 13:49 | 4183654 Seize Mars
Seize Mars's picture

No, "we" didn't do anything wrong. "They" fed us fake paper money which caused malinvestments. "They" did this to "us."

Sat, 11/23/2013 - 13:53 | 4183665 Peter Pan
Peter Pan's picture

They didn't feed you anything you weren't willing to swallow. That includes fake paper money, credit cards, low doc loans, incompetent presidents, Kim Kardashian and big pharma's happy pills.

Sat, 11/23/2013 - 14:30 | 4183706 Sudden Debt
Sudden Debt's picture

yep, I'm with you 100%.
That are not the causes they're the result of a decade of "I DON'T GIVE A FUCK, I WANT MY SLURPEE!!"

Why does education in college suck for example?

Well: People saw those funny movies where college kids fucked like dogs and where drunk all day. Paaarrrttteeee!!!
So... they wanted the same and that's it. The courses and the diploma where a bonus. It's all about the fun.

People when to live the shallow movie lives and don't give a fuck about what they don't show you in the movies.

Generation X Y Z are shallow lazy generations. But who caused it? It was us! Because we didn't have any time for anything.

My biggest fear will be when I'll be 70 in 34 years from now when maybe I'll need help from that generation. Because than, I hope they don't just decide to put me to sleep because all the hastle.

In my country, there was a dispute about medical care for the 80+ people. Why should we pay for it when it's not a economical viable thing to do?
92% of all people found it normal not to waste money on them.

And than it will turn to 70
60
50
40
Everybody.

Sat, 11/23/2013 - 14:56 | 4183747 Skateboarder
Skateboarder's picture

Nice... age does bring a fuller perspective, doesn't it?

Starting around 1900, forces greater than the power of any kings before started to shape the future of man in ways irrecoverable. The way people raised their children was forever changed due to the explosion of easily available resources and entertainment, but morely due to the free time resulting from easily available resources, being spent on entertainment. For the first time, as a species, we didn't have time for our kids. That's it. End of species.

Sat, 11/23/2013 - 16:01 | 4183832 TheMerryPrankster
TheMerryPrankster's picture

Nearly all, if not all, "progress" or change that occurred since 1900 was a result of cheap petroleum.

It enable 2 world wars, and a long cold war.

It enable roads, and cars and all that entailed.

who said:"We live in what historians may some day call the Fossil Fuel Age. Today coal, oil, and natural gas supply 93% of the world's energy; water power accounts for only 1%; and the labor of men and domestic animals the remaining 6%. This is a startling reversal of corresponding figures for 1850 - only a century ago. Then fossil fuels supplied 5% of the world's energy, and men and animals 94%. Five sixths of all the coal, oil, and gas consumed since the beginning of the Fossil Fuel Age has been burned up in the last 55 years."

It was Admiral Hyman Rickover, the father of the nuclear navy. he also said:

"With high energy consumption goes a high standard of living. Thus the enormous fossil energy which we in this country control feeds machines which make each of us master of an army of mechanical slaves. Man's muscle power is rated at 35 watts continuously, or one-twentieth horsepower. Machines therefore furnish every American industrial worker with energy equivalent to that of 244 men, while at least 2,000 men push his automobile along the road, and his family is supplied with 33 faithful household helpers. Each locomotive engineer controls energy equivalent to that of 100,000 men; each jet pilot of 700,000 men. Truly, the humblest American enjoys the services of more slaves than were once owned by the richest nobles, and lives better than most ancient kings. In retrospect, and despite wars, revolutions, and disasters, the hundred years just gone by may well seem like a Golden Age."

http://www.theoildrum.com/node/4394

 

now what happens when oil isn't cheap? Its price is now 10 times higher than in the 1960's as measured in USD. society is experiencing the hunger pangs of the loss of the cheap oil it fed upon.  Labor may yet again  become more expensive, once again changing the way humans treat and deal with each other. Society and its rules and actions are merely responses to the physical realm they exist within. Politics is the technique by which non-equal resources are squandered on the wealthy and powerful, it is a mechanism of society to mollify the bottom stratium by hiding the theft. It works until it doesn't

Sat, 11/23/2013 - 17:08 | 4183925 Skateboarder
Skateboarder's picture

Great post, Pranksta. I hope I was implying oil in my post, but you finished off with a banger regardless.

The future obviously involves a lot less energy-entitled bipeds...

It's the entitlement that bothers me more than anything.

Sat, 11/23/2013 - 14:33 | 4183711 CH1
CH1's picture

I *think* Seize was being sarcastic.

Sat, 11/23/2013 - 15:05 | 4183755 Professorlocknload
Professorlocknload's picture

Right-o Seize. Heard that just the other day from a classic "victim."

My response; "Woa, wai, wait a minute...The elected did all this to the electorate?"

Sat, 11/23/2013 - 16:29 | 4183873 Zigs
Zigs's picture

We live in a society where few know how to define real value and many more are too ingrateful for it.

It's an issue of the spirit not the economy and its already collapsed.

Sat, 11/23/2013 - 17:12 | 4183934 Skateboarder
Skateboarder's picture

I will never have enough upvotes to give you.

Sat, 11/23/2013 - 13:48 | 4183651 Seize Mars
Seize Mars's picture

This is a great article. Phillip Bagus is a great thinker. I recommend his book, "The Tragedy of the Euro."

Note how he says at the end, "Savers and pensioners will at some point find out that the real value of their wealth is much less than they expected. In which way, exactly, the illusion will be destroyed remains to be seen."

Typically, TPTB reveal the paper money collapse cycle under the cover of war. "Oh well there was a war, so understandably your money is now worthless." But I think that the Syrian escalation was successfully thwarted by popular outcry (first of its kind).

So who knows what bullshit they will invent. But it will be something.

Sat, 11/23/2013 - 15:14 | 4183766 Pareto
Pareto's picture

+ 1 So who knows what bullshit they will invent. But it will be something........yep.  always has been, always will be.

Sat, 11/23/2013 - 15:27 | 4183787 Professorlocknload
Professorlocknload's picture

  ++ Can't argue with that. This all likely ends with the channeling, through rationing (austerity?) and war bonds, of the remaining wealth, to the MIC and it's enabling central power structure.

  Unless the rejection of the Syrian Deception is a sign. That's asking a lot though.

  Especially considering there are many other nation states in the same fix. Somebody's gonna throw a rock through a window for effect.

 

Sat, 11/23/2013 - 15:34 | 4183794 object_orient
object_orient's picture

The Syrian escalation was probably thwarted by the threat of mass resignations at the CIA in protest, not popular revolt. Ordinary Americans still have no political power or leverage on their government. I think when that changes the game will have been long over.

Sat, 11/23/2013 - 20:32 | 4184313 FredFlintstone
FredFlintstone's picture

I don't know about that. What I do know is that the first time I ever wrote to my congressman was thus past year telling him to keep us from attacking Syria.

Sat, 11/23/2013 - 13:51 | 4183657 ElvisDog
ElvisDog's picture

However, at retirement they will only be able to consume what is produced by the real economy

Yep, that's a key point that a lot of people don't understand and the MSM (of course) never reports on it. One of the devastating effects of QE is it starves real capital accumulation and investment. So, the paper claims on future production rise much faster than the actual, real, tangible production of goods. 

Classic real-world case is Detroit public worker pensions. They thought they had "mandated" claims to their pensions, but there was no money. Just because you have a claim on something doesn't mean that it will magically appear.

Sat, 11/23/2013 - 14:45 | 4183728 TheMerryPrankster
TheMerryPrankster's picture

500$ or 1000$ in silver coins will help you a lot more than a 500$ or 1000$ big screen TV.

People's priorities and possession have gotten out of synch with the times in which they live thanks to the propaganda dreams painted in the media.

 

I myself fully realize I would never be able to own what I own today if I had to buy it again.

Also much of what I purchased is worthless today. Computers, appliances, cables for technology that no longer exists or is itself worthless, but that silver i purchased is worth more not less than when i bought itl.

Still I am glad for my house and the tools to work on it, though it be labor, it is a joy to see what my hands can wrought with effort and the proper tools.

take solace in nature, when the world turns to madness it is a luxury to step away and plant a tomato and watch it grow. to know that nature goes on even when mankind goes mad.

It is always good to have an alternative to paper/electronic credits. gold, silver,cheap booze, quality booze, and opiates will be number one trade stuff. cigarette lighters, toilet paper and kerosene lamps, canned meat,batteries, solar chargers, these are the currency of our future.

Its not if the economy collapses further, its just when. there has been no recovery in 5 years for 99% of the USA - all the troubling symptoms remain, poverty rising, food stamps rising,businesses closing,or laying off.

The weatherman says its all sunshine and good times but its really a typhoon and tsunami sweeping the nation. Button down the hatches and wait for the storm to subside, it might take an awful long time.

The 1st part of fixing a problem is admitting you have a problem and the government and the press are doing everything to pretend there is no problem. The people on food stamps would disagree.

 

Sat, 11/23/2013 - 16:25 | 4183864 cossack55
cossack55's picture

Sadly I fear that whole solace in nature thingy is about to be all Fuku'd up.  Bad things happening in nature out west.  Say bye-bye to the moose and deer.

Sat, 11/23/2013 - 16:29 | 4183874 Poor Grogman
Poor Grogman's picture

"The 1st part of fixing a problem is admitting you have a problem and the government and the press are doing everything to pretend there is no problem"

If it wasn't for the internet, our problem caused by unbacked money and fractional reserve banking. Would still be impenetrable to the great majority of the population.

More and more people are coming to see the correct nature of the problem each week, helped in their understanding by sites such as ZH.

Like a child growing up and realising that much of what you know about the world is a complete lie, it is too much for a lot of people and they lapse into denial. This awakening is a process and will take some time.

Sat, 11/23/2013 - 18:12 | 4184025 S.N.A.F.U.
S.N.A.F.U.'s picture

If you want to be storm-worthy, you might want to use battens over some tarp on those there hatches.  Buttons really aren't going to do the trick!

Sat, 11/23/2013 - 13:53 | 4183662 I am Jobe
I am Jobe's picture

Does this mean BLACK FRIDAY will be better sales then, is all Sheeples want to know? 

Enjoy the consumerism bitchezz and  inbred knowledge. 

 

Sat, 11/23/2013 - 14:08 | 4183680 Sufiy
Sufiy's picture


John Kennedy And Jekyll Island: The Truth About The Federal Reserve

 Bill Still has created the beautiful documentary about the Beast - Federal Reserve, which is as Federal as Federal Express. Not a lot of people know that one of the acts by John Kennedy was to return the real US Dollars - issued by the U.S. Treasury and not by the private FED. This year we are commemorating 50 years from the date of the assassination of John Kennedy. We would like to note that it was 22nd of November of 1910 when..

 

http://sufiy.blogspot.co.uk/2013/11/john-kennedy-and-jekyll-island-truth...

Sat, 11/23/2013 - 14:22 | 4183695 Sudden Debt
Sudden Debt's picture

Money helps a lot.
Resources, and I'm not talking about food because that's for a short term problem, resources like in machines, tools and the knowhow will bridge a lot.

But what's most important in a crisis where all assets turn into dust is the fact that the economy will restart and restart pretty fast.
And that's when you need to step in and take control and start a bizz because competition will be low and labor will be cheap.

A lot of the rich will fill those gaps pretty fast because they have the connections and the credentials but there will be oppurtunities.

Silver, gold, prepperstuff... all fine. But they're only a bandaid. They will help you bridge a problem, not solve a problem.

But one thing is for sure. I've seen a few economies up close myself that broke down and violence was the standard and only money got you out. And that's where the gold and silver will serve you. They'll help you start at new and have a heads start.
You can use it to start a trading company when all the others fail.

Sat, 11/23/2013 - 14:23 | 4183698 Kirk2NCC1701
Kirk2NCC1701's picture

The author lost me in his second sentence, when he said "Money" instead of Currency or Fiat, or Debt Notes.

Sat, 11/23/2013 - 16:26 | 4183866 HardlyZero
HardlyZero's picture

Money being capital.  Since the article is discussing wealth destruction the author is using physical measures.

Sat, 11/23/2013 - 14:23 | 4183699 vegas
vegas's picture

I so love this picture of Presiident Chalky Chavez Gobbels with his head in the sand; a perfect metaphor for the most clueless asshat in the world that makes Jimmy Carter feel good about himslef every single day that goes by.

 

http://vegasxau.blogspot.com

Sat, 11/23/2013 - 14:31 | 4183708 kevinearick
kevinearick's picture

Nation Building

How do you adjust demographic data for non-participating labor?

The Fed is hoping to hold the line on State government, while the private sector reboots itself, which depends upon local removal of regulatory dams. Last time I checked, yesterday, the local Nazis were still damming up access to what little water remains, through the normal municipal bankruptcy, eminent domain circle jerk, for development kickbacks and city revenue.

The function of real estate agency is? Who really owns Century 21, Coldwell Banker, the lot? What is the function of local government incorporation, in terms of the bankruptcy feed lot? What is the pecking order on county tax liens? What does the data tell you?

If six billion people are doing the wrong thing in the wrong place, at the wrong time, opportunity will seek you out, if you are capable of recognizing it, if you are unique, but that requires W-O-R-K, upstream against the currency gradient, which, as you can see, is a racket. You must be able to time the work of others to increase their standard of living, which is the point of family.

New family formation is the tip of the spear. You have to carve out an area free of Family Law. Farmers do it all the time. War always boils down to food, destroying your enemies supply. Develop your own seed. Monsanto isn’t evil; it’s a conspiracy of stupid, on a global scale.

Once upon a time, long, long ago, during WWII, the Pacific Fleet commanders told the Atlantic Fleet to go F itself, and ignored Family Law as well. The argument that Silicon Valley was disillusioned by the Vietnam War is bullsh-. SV was an extension of IBM, which at the time had an unhappy reputation associated with building the information network that hunted down and prosecuted the Jews, and any one else with wealth to steal, to prop up the dying union cartel.

Who do you think put Edmund and Jerry Brown in office? California has a surplus of credit debt, digital money from the Fed, not wealth, on its books, and it has been replicated globally. The spy network isn’t going to free anyone. The State seized my assets, destroyed my credit, fired me and took my kids in an attempt to stop me from working. So the F what?

You have the kernel, a transparent public system, and privacy, get you’re A to work. Create space. When you go into a supermarket, you are looking at the outcome of war. Americans have had the luxury of being stupid, like their predecessors, because they leased the war machine, with compliance, but that ship is sinking, and Twitter cannot begin to fill the void.

Silicon Valley, the spy education network and its politicians, is welcome to form its own nation. I look forward to destroying it, without doing a D thing, but looking at it from a distance, when I have nothing better to do.

Sat, 11/23/2013 - 14:33 | 4183713 NIHILIST CIPHER
NIHILIST CIPHER's picture

Does the stick skinny holy man dressed only in a loincloth in India feel wealthy? Yes...............it's all in how you perceive wealth in the matrix.

Sat, 11/23/2013 - 14:35 | 4183714 reader2010
reader2010's picture

After the industries of death brought about by the gas chambers and concentration camps, the industries of life now offer the possibility of a genetically modified human race, calling into question humans born of blood and sperm and therefore the wild, the natural part of humanity. The “naturals” would become the new savages with augmented people leading a new humanity shaped less by political totalitarianism than bioengineering. And now we have entered the question of hyper racism. The deadly consequences of the great ecological fear are extremely disturbing. We are at risk of seeing not military dissuasion established between powers, but civil dissuasion between people. What would be behind this civil dissuasion? The third bomb, which in truth has not yet exploded, already carries a name: the genetic bomb. It is the mutation of the human species by genetic engineering: the production of a human being with a smaller ecological footprint, consuming less air water and energy; the installation of a genetically modified organism to adapt to new environmental conditions, a new human being with a smaller ecological footprint because it uses less proteins water and oxygen, a creature made compatible with an Earth of dwindling resources…

Paul Virilio, French Philosopher

Sat, 11/23/2013 - 14:38 | 4183720 yofish
yofish's picture

Yep, frogs.

Sat, 11/23/2013 - 16:08 | 4183842 Cthonic
Cthonic's picture

 "a new human being with a smaller ecological footprint because it uses less proteins water and oxygen"

So that's what they're working on in N. Korea.

Sat, 11/23/2013 - 21:06 | 4184386 sablya
sablya's picture

This is an announcement from Genetic Control:
"It is my sad duty to inform you of a four foot restriction on
humanoid height."

...

It's said now that people will be shorter in height,
they can fit twice as many in the same building site.
(they say it's alright),

Sat, 11/23/2013 - 14:37 | 4183718 yofish
yofish's picture

Another day and another version of the same story with the same recycled graphic. The same chickens come out clucking the same clucks under the same sky. Aren't you all getting tired? 

Sat, 11/23/2013 - 14:50 | 4183725 q99x2
q99x2's picture

We are all getting tired because the Central Banks took over free enterprise and sucked to life out of everything that would provide solutions and opportunities to a dynamically changing future. And they won't stop. They are like pedophiles. The central bankers have to be arrested and locked up.

But there is hope. Thanks to BitCoin and BitCoin Jesus everyone is a money-changer now.

Sat, 11/23/2013 - 15:02 | 4183745 Jack Burton
Jack Burton's picture

The Government bailouts of 2008 were the single greatest victory for the elite class in modern history. They had blown these speculative bubbles in a feeding frenzy of financial engineering, and the take was enormous. Wealth was flowing to the top in enormous sums, while the rest of America used credit, mortgage debt and refinancing of home equity to fuel a good lifestyle at a time when wages had begun to drop. Naturally this system reached peak credit and exploded. The problem is that the elite's bubbles were not allowed to effectively destroy their bad investments, NO, instead their loses were transfered via bailout and money printing onto public balance sheets. The elites were saved from themselves. Now we are in the era of super money printing, that is used to maintain this rescue of the financial engineers and their patrons, our elites.

Where is this going is what we all want to know. I suspect that yesterday gave us a huge hint as to where this is headed. Chinese press sources released information that officially China was moving to get out of the dollar. One story ran, China has no interest is accumulating any more dollar reserves. China is officially seeking to reduce it's holdings of dollars. The logic of this is that must mean they are pretty much through with buying US treasury debt. They have something like 3.5 trillion dollars in foreign currency reserves, mostly dollar and then Euro fiat. Now, some other press stories from China suggested that the official Chinese government is viewing the dollar fiat as an official ponzi scheme. Accepting that, it follows that China is going to exit their dollar holdings at a pace that will not collaspe the dollar, but allow CHina to exit slowly enough to still extract value from their dollars. The recent move to huge gold purchases is one sign of how they intend to do this I think. Russia has not officially announced this scheme of dollar dumping like CHina now has. But given US aggression against Russia in every sphere, it is obvious that Russia is exiting dollars too. They buy gold, and use dollar reserves to invest in energy extraction in Siberia and the Arctic, also in the Russian Far Eastern waters.

The recognition that the dollar is a ponzi scheme by both CHina and Russia sends a signal that the USA is headed for a crack up. I think it is fair to add Brazil and Iran to the anti dollar club too.

Official US government statements for years now have stated that the Dollar as world reserve currency is an issue of vital national security. Nobody even tries to hide this fact. The petro dollar, the reserve currency is, and I stand by this, the only agent left that allows our economy to function. We have no industry, our energy production is up, but at a huge cost of production, we still import vast energy quantities, private and public debt are unsustainable without the dollar printing presses. The stock market is in the biggest fake bubble is history.

All I can say is. China, Russia, Brazil, Iran and other smaller nations dumping dollar as a source of reserves, is a death blow to American money printing in the long run. We can see the end game now. Yesterday CHina sent a message that they will no longer produce America's consumer goods in return for green pieces of paper. This is the only sensible move, as Bernanke and Yellen vow to print to infinity!

Simple Question "Were you China, would you now want to add to your trillions of green slips of paper?" I think not. American military might rests on money printing, as the entire tax revenue of America only barley meets the sum we spend on military, spies and secret police. Homeland security and the drug wars. Employement in America is all summed up in Military, Spies, Police, Drug Warriors, Public School Teachers, Cops and government employees in the regulatory and tax arena. Health care is the engine that drives the private sector.

You add it all up, America is on death watch! I maintain that the small checks old people get in return for paying in for 40-50 years, $1,200 a month, is not the problem, nor will it ever be. Wake up, the real game is being played out. China has just made an epic move, announcing it will NOT seek to acquire any more dollars reserves. PERIOD!

Sat, 11/23/2013 - 15:07 | 4183758 lakecity55
lakecity55's picture

We're headed towards Weimar, Mr Jack.

On a fast train.

Sat, 11/23/2013 - 16:51 | 4183822 Cthonic
Cthonic's picture

Sad thing is that it doesn't have to get anywhere near as bad as the Weimar experience to totally wipe out all domestic savers.  Just a couple of years of 20%-30% inflation will (is) accomplish(ing) it just fine.  #eatingprincipal

Sat, 11/23/2013 - 15:10 | 4183764 Pareto
Pareto's picture

Always spot on Jack.  A dose of clarity this fine Saturday.

Sat, 11/23/2013 - 15:50 | 4183812 Skateboarder
Skateboarder's picture

Drug warriors who take drugs to prevent other drug warriors from taking drugs.

IT'S OUR WAY OF LYFE!

Sat, 11/23/2013 - 15:53 | 4183815 Winston Churchill
Winston Churchill's picture

We should all be very concerned by the public statements from China.

This sort of strategic move is only usually broadcast post ipso facto in my experience.

The Chinese have been working on this incrementaly for a full five years now.

The gauntlet has been thrown whilst the US leadership is in total dissaray on many fronts.

My major concern now is how the little half caste gay narcissist reacts , if he is even aware of

anything apart from himself .We may get lucky that such a weak leader will not resort

to WWIII, or coversely it will be his first thought.

We live in interesting times indeed.

Sat, 11/23/2013 - 23:17 | 4184649 yofish
yofish's picture

I knew Winnie, you sir are no Winston Churchill.

I have observed, over considerable time, that it takes a narcissist to know a narcissist. I think I already know but why do you have to ruin a statement by doubling down? Gay, half-caste? Why no just use the n word and be done with it?

When I was five years old (1953) my uncle Harry used to scare the shit out of me with WWIII stories. Get lost punk, you're way over your head.

Sun, 11/24/2013 - 09:48 | 4185233 Winston Churchill
Winston Churchill's picture

PC tar baby much ?

Sat, 11/23/2013 - 16:59 | 4183914 Wild tree
Wild tree's picture

Truth spoken Jack,

Clickety-clack, clicikety-clack the train is on the fast track,

Straight down as it's whistle wails; nothing can make it faillllllll,

Clickety-clack, clickety-clack the train careens on down the sraight track,

Where in the nighttime stillness, the mountain waits patlently to take up the slack.

Clickety-clack, clickety-clack, clickety-clack; time's up Jack.

Sat, 11/23/2013 - 15:01 | 4183753 moneybots
moneybots's picture

"Still unnoticed by a large part of the population is that we have been living through a period of relative impoverishment"

 

I think the 40% of people earning less than the inflation adjusted 1968 minimum wage, have caught on to the fact that we have been living through a period of relative impoverishment.

Sat, 11/23/2013 - 15:04 | 4183754 WillyGroper
WillyGroper's picture

Nekkid shorts of gold. This has got to be too truthy for TPTB. PCR addresses Boston. Wish he'd approach 911, but they'd off him for sure.

http://www.cashkurs.com/kategorie/wirtschaftsfacts/beitrag/ckwirtschafts...

Sat, 11/23/2013 - 15:31 | 4183789 Pareto
Pareto's picture

But the economy’s real production capacity has been severely distorted and reduced by government intervention.

The other day Nassim Taleb spoke of how the debt burden becomes a yoke around the neck ofproductivity - that it is the undoing of a free and productive society.  For sure this is true.  But, I think there is a far more damaging result that is a less materialistic consequence.  While the capital dislocations are far and deep as a result of suppressed interest rates, QE, and so on, these dislocations (excessively bid up asset prices) are recoverable - in that the entire reset is a bit of a wash.  Commercial debt is liquidated and resources exchange hands between those that made mistakes and those that did not make mistakes.  The greater dislocation, in my opinion, is the almost permanent dislocation that arises from instilling a mindest (through education and what people clearly see as instant gratification) of moral hazard and the illusion that wealth comes, well, easy.  To me this is the greater damage, because it is inter temporal and because the government and easy money have made it so that initiative, innovation, stewardship and accountability for actions, are no longer required, but that in the event of a reset, are the most difficult to recover.  In other words, I think that the almost permanent intellectual dislocation will have far greater consequences than the dislocating effect social engineering has had on asset prices and the distortion of real exchange value.

Someone earlier mentioned about how confident they are that they can at least produce something of value with their own hands and tools.  I wonder if that same person realizes how valuable that skill will later become.  Pretty sure he does, because its the only thing that keeps it real for him within the economic malaise we find ourselves in.

Sat, 11/23/2013 - 16:20 | 4183852 HardlyZero
HardlyZero's picture

mindset (through education and what people clearly see as instant gratification) of moral hazard and the illusion that wealth comes, well, easy.

This illusion is only possible until the increased taxes are necessary because the real economy (80% consumer driven) did not improve.  Without increased consumption and tax revenue then taxes (VAT, income, sales) must increase to service the new debt.

The ACA Tax (heathcare) are getting inserted now, before the new taxes are implemented to pay/service the new debt.   When the debt interest rates go higher then increased taxes will be required.

The 10-year debt interest rates have been increasing for 6 months, so increased tax rates will follow (given the depressed economy).  France is having many issues implementing higher taxes...it will be educational for the rest of the world.

IMHO the best thing to do is reduce taxes and let the markets recover instead of the bailouts (which just increase the debt).

Sun, 11/24/2013 - 00:05 | 4184747 Pareto
Pareto's picture

+1 (but it doesnt work for some reason), and 100% agree.

Sun, 11/24/2013 - 03:54 | 4185000 geewhiz
geewhiz's picture

Sounds like you explained the Laffer curve.

Sun, 11/24/2013 - 03:51 | 4184997 geewhiz
geewhiz's picture

Barriers to entry in the real economy are manifold. There is the employees with the mindset you refer to although the few good ones can be filtered out by a small hands on businessperson. Then there is unavailability of capital. If you get past that there is the always broke consumer and high operating costs squeezing your margins. Then worst of all there is the inane and bewildering array of gubbermint regulations to introduce permanent despair into a working life. Finally if you get past all of that gubbermint is there to confiscate your rewards cause you didn't do that, society did it for you.

Sat, 11/23/2013 - 16:31 | 4183876 Fix It Again Timmy
Fix It Again Timmy's picture

In the recent past, the debt has nearly tripled...  What do we have for it?  Dunno, it beats me, I can't thing of anything remotely useful...

Sat, 11/23/2013 - 17:07 | 4183924 Goldilocks
Goldilocks's picture

Styx- The grand illusion + lyrics
http://www.youtube.com/watch?v=ZW8TlrYhBxk (4:38)

Sat, 11/23/2013 - 18:34 | 4184068 superdave
superdave's picture

Mr. Lahey says a Shit Blizzard is coming! Prepare accordingly!

 

Sat, 11/23/2013 - 21:35 | 4184426 Notarocketscientist
Notarocketscientist's picture

Scientists Wary of Shale Oil and Gas as U.S. Energy Salvation

Hughes sums up: "Tight oil is an important contributor to the U.S. energy supply, but its long-term sustainability is questionable. It should be not be viewed as a panacea for business as usual in future U.S. energy security planning."

http://www.sciencedaily.com/releases/2013/10/131028141516.htm

 

 

U.S. Shale-Oil Boom May Not Last as Fracking Wells Lack Staying Power

“I look at shale as more of a retirement party than a revolution,” says Art Berman, a petroleum geologist who spent 20 years with what was then Amoco and now runs his own firm, Labyrinth Consulting Services, in Sugar Land, Tex. “It’s the last gasp.”

http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power

 

THE FRACKING PONZI SCHEME

Robert Ayres, a scientist and professor at the Paris-based INSEAD business school, wrote recently that a "mini-bubble" is being inflated by shale gas enthusiasts. “Drilling for oil in the U.S. in 2012 was at the rate of 25,000 new wells per year, just to keep output at the same level as it was in the year 2000, when only 5,000 wells were drilled."  http://www.forbes.com/sites/insead/2013/05/08/shale-oil-and-gas-the-contrarian-view/

 

Why America's Shale Oil Boom Could End Sooner Than You Think

http://www.forbes.com/sites/christopherhelman/2013/06/13/why-americas-shale-oil-boom-could-end-sooner-than-you-think/

 

FRACKING WILL CREATE AN ECONOMIC CRISIS

Overinflated industry claims could pull the rug out from optimistic growth forecasts within just five years.  A report released in March by the Berlin-based Energy Watch Group (EWG) concluded that: "... world oil production has not increased anymore but has entered a plateau since about 2005."  Crude oil production was "already in slight decline since about 2008."   

http://www.guardian.co.uk/environment/earth-insight/2013/jun/21/shale-gas-peak-oil-economic-crisis 

Sat, 11/23/2013 - 22:04 | 4184479 PhatChow
PhatChow's picture

"However, at retirement they will only be able to consume what is produced by the real economy."

 

That's fine, that's the way it's supposed to be. We can't just have everyone holding assets and not doing anything... The other point involves deciding about whether it is better to consume now or later, will there be more production in the future or now? I believe there will be more production in the future due to the rise of machines and automated farming.

 

I think there is no mention of how to protect your assets because there isn't a way. If you hold assets and everyone cannot afford to buy your assets, then you lose your wealth anyway. The only solution is to prop up the real global economy. I guess this can work with machines doing everything for us.

Sun, 11/24/2013 - 02:40 | 4184953 dunce
dunce's picture

Many are already seeing how their dreams of retirement are playing out as they are forced to take early retirements, food stamps, disability retirements, and other government provided handouts making them little more than ghetto dwellers no matter where they live. The trend will not reverse while obama is still our president, and it will take at least a generation to repair the damage if it is at all possible.

Sun, 11/24/2013 - 07:30 | 4185134 Pathcoin
Pathcoin's picture

I don't think it is hidden at all.  Every working person knows they are being robbed; by taxation and just as important from the time value of money.  The wealth is being shifted to the 0.01%.  The problem is that in reality there is nothing that can be done.

Sun, 11/24/2013 - 14:39 | 4185820 Mareka
Mareka's picture

Travelling in Germany last week I brought six US$100 bills to exchange for Euros to cover meals & travel within the country.  In the immediate area where I was staying I could not exchange a $100 bill.  You could exchange several hundred $$ in smaller US bills but I had none.

Also had a credit card so it didn't cause any real problems but it was an eye opener to see how easily those notes became little more than green paper in my wallet.

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