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Guest Post: Economic Prosperity Ahead Or A Train A Comin'

Tyler Durden's picture




 

Originally posted at Monty Pelerin's World blog,

Whether the light at the end of the economic tunnel represents sunshine or an on-coming train depends on whom you ask. I am of the opinion that it is a train a comin’. Economic matters cannot get better until we hit bottom and rebuild from the ashes. That need not be except government policies drive us there.

Government, especially the current one, has incented people to not work by providing overly long and generous benefits. Society has an obligation to take care of its less fortunate, but it does not have an obligation to encourage people to join that group and then make it comfortable enough that they have little incentive or ability to leave. The dole should not be a safety net, not a career choice!

One political party in particular has interest in seeing dependency grow. It forms a substantial part of their support and power. The creation of more dependents is the creation of more voters and more electoral success. No society can grow or recover when government deliberately undermines the need to work. That path leads to poverty and destruction.

Printing money is no substitute for effort. It does not create things or wealth. The myth of Keynesian economics is not the answer to a society that declines in labor force participation and has fewer productive people supporting more dependents. Incentives at the individual level must be changed in order to make work more desirable and attractive than welfare.

A society whose workforce is in decline is one that can pretend to live at former levels only by consuming the wealth and capital created by previous generations. This behavior is equivalent to the man who used to make $250,000 per year in a job and now is unemployed. To save face, he continues to live as if he is still earning at his previous rate. He achieves this short-run living style only by consuming the capital that he built up from years of hard work. At some point, he runs out of capital and must live as a pauper (or the modern equivalent of one).

Our economy and government both behave like this formerly rich man. Both are consuming the seed corn in order to maintain the appearance of well-being. Politicians will continue this behavior until the music stops. Hopefully when that happens there is enough left of society and freedom to allow a rejuvenation.

Many believe that government and its partner the Federal Reserve are wise and strong enough to avoid this crash. If printing money and spending money were a solution, there would be no poverty anywhere in the world. Even the poorest country has a government and can afford a printing press.

Thus far there has been no collapse. However, that is equivalent to the man who jumps off the Empire State building and is heard to say as he flashes by the fortieth floor: “So far, so good.” His fate was sealed when he jumped. Similarly, so is our economy’s. Economics has its own gravity. It is as powerful and immutable as that of physics.

“So far so good” is not acceptable for an economy. There has been no economic recovery since one was falsely declared in June of 2009. The distortions and mis-allocations imposed on the economy for the last several decades are cumulative and have finally reached that stage where they can no longer be covered up. The myth of a recovery is getting harder to maintain.

A complete cleansing of the mal-investments, distorted incentives and regulatory burdens must occur before a true recovery can take place.

Can the economy flutter around is some kind of air pocket at the fortieth floor for a year or even several before resuming its destiny with terra firma? Perhaps, but it cannot fly without wings and these have been removed by regulatory interference and economic interventions over the course of decades. They can re-grow, but not before a complete and total cleansing.

A major crash is coming. The dot.com bubble and the housing bubble were not crashes, at least as I imagine a crash. They were the beginnings of corrections that were aborted by government economic intervention. The country survived these two major bubbles, but only at the cost of making the next one bigger. Government did not save us from these two events. They created them and by deferring their correction assured the next one would be bigger and more painful.

The video below shows a train moving down a track. It struck me as a reasonable metaphor for our economy. The train represents market forces, slow but powerful. The train does not appear threatening. But, like markets, it represents a massive force. That the video is in slow motion exaggerates the surprise and the force.

Government may believe it is in control of the economy, but it is not. It may think it is influencing and controlling outcomes. To some degree it is and has. However the forces that have built up over decades of these interventions cannot, at some point, be controlled. The mismatch between Ben Bernanke, Barack Obama, the Federal establishment and all their dollars and regulations is about to be run over by the train that represents decades of suppressed market forces.

No government is a match for hundreds of millions of citizens who are represented by markets. Suppressing markets is suppressing the will of citizens. At some point markets dig in their heals and say enough. Then government is helpless.

 

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Sat, 11/30/2013 - 17:33 | 4202420 JustPrintMoreDuh
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Train.

Sat, 11/30/2013 - 18:02 | 4202462 James_Cole
James_Cole's picture

A whole lot of claims and not one single fact cited, excellent writing as usual Monty!

Sat, 11/30/2013 - 18:20 | 4202482 Millivanilli
Millivanilli's picture

Well great, jimmy.  And you've just double douched yourself.  Where are your substantiated facts, huh?

Sat, 11/30/2013 - 18:49 | 4202530 James_Cole
James_Cole's picture

Here's a fact, while talking out of his ass for over 900 words Monty cited zero facts to back up any one of his numerous claims.

Which I'm sure is lapped up by people with no interest in reality-based argument / reasoning, but there are also those of us on zh who possess brains and would prefer to see a modicum of effort put into an article.

Sat, 11/30/2013 - 20:40 | 4202671 artless
artless's picture

Here you go Jimmy. Swallow this:

$17 trillion.

Now go find a mathmatical way that ever gets paid back.

Now go find a way that the outstanding obligations that are anywhere from $100-$200 trillion get paid.

Simple arithmetic. They don't. Go jack off over all your .gov charts and graphs that are based on completely unrealistic growth estimates and lined with outright fraud and data manipulation and then go stick your head in the sand and, click your heals and hope everything will be alright. But it won't. It hasn't unless you haven't noticed.

Let's look at labor participation rates. IF the rate at which the BLS has eliminated people from "the workforce" continues at the same pace we should have an "official" un employment rate of 0% right about the time the next fuhror is immaculated in January 2016.

Got that? That's the kind of math your benevolent government uses.

But go ahead, load up on APPL, TWTR, and FAceplant. It will all be good. Really it will.

 

Sat, 11/30/2013 - 21:13 | 4202718 NoDebt
NoDebt's picture

Could this all please just happen while Obama is in office?  I ain't gettin' any younger and I'd like to be part of the rebuild while I'm still able.  Plus, putting the last BIG nail in this guy's record of unmitigated lies, incompetence and failure would be entirely fitting.  He doesn't just need to fail, he and everything he stands for needs to be completely humiliated, as he has done to millions of Americans the last 6 years.

Sun, 12/01/2013 - 06:57 | 4203199 zipit
zipit's picture

That's the spirit.... that sums up what is wrong with Amerika, the divided ship of fools, rooting against each other, sacraficing everything they can sacrafice to prove they are right (even if they may be wrong).  So sure of themselves.  Yet so clueless.

Sun, 12/01/2013 - 07:14 | 4203207 macbone
macbone's picture

Come June or July of 2016 there will be an "event" when the banks realize that they are "technically insolvent". Yeah, I know. Obama will give them anything they want to avoid the crash on his watch. The man has a bit of an ego I am sure you have noticed.

It will also serve to inform whatever clowns are running for President what could happen to their administration if they don't toe the line.

Among other problems we are all being held hostage by the sociopaths on Wall street. They'll get their bailouts and bonuses, the taxpayers will get the bill. And we'll all get to spend the next four years looking over our shoulders for the next "event".

Until the vampire squids are dismantled and neutralized we are not really citizens, we are hostages.

Sun, 12/01/2013 - 21:11 | 4204934 Papasmurf
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The banks are not insolvent until no one will accept their currency. 

Mon, 12/02/2013 - 03:48 | 4205837 thestarl
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And all those innocent people killed and maimed in drone attacks.

Sat, 11/30/2013 - 22:53 | 4202882 James_Cole
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Here you go stupid bitchez, uk debt to GDP

http://fisher-investments.typepad.com/.a/6a00e551bbc63a883401676121ce759...

A miracle!! And it ain't math, it's called killing people / winning wars. Same playbook every empire operates out of.

Riddle me this, why have people been so keen to buy up US debt for the past 5 years? Or are you geniuses just way smarter than them?

Sun, 12/01/2013 - 07:45 | 4203219 pondview28
pondview28's picture

By "people" you must mean the Fed. Yes, almost all the ZH readers are smarter than the Fed.

Sun, 12/01/2013 - 18:03 | 4204336 TheRedScourge
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The official figure currently is 88.7% for end of 2012, not the roughly 60% this chart seems to indicate. However, note the steepness of the recent uptrend, and the lack of good explanation to justify this rapid accumulation of debt, and also note the lack of reason that anyone would have to start lending them a bunch of money. Is there some sort of industrial comeback being made, or some world war that must be paid for? No, the only significant army movements going on right now in the UK that might represent that debt spike would be those of the UK branch of the Free Shit Army.

 

To answer your question regarding US debt, I'd have to point out that in a few short years, the Fed has come into possession of almost a third of that debt, so it's rather clear that people aren't exactly clamoring for it as your question would suggest, and the Fed wouldn't be doing that in the first place if the markets were buying it at a rate they were satisfied with in the first place.

Mon, 12/02/2013 - 11:24 | 4206429 starfcker
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i think this line of thinking starts with a false premise. that the people calling the shots care about the american economy. they are trying to build a global one. they are also operating under a really bad delusion. that at the end of the day, all people are the same, and can be controlled in the same ways. the mothers milk of the project is a massive trade deficit, remittances, narco dollars and any other outflow of money from america and western europe. unfortunately, the 'developing world' are simply larger versions of the same experiment here, think detroit, chicago, oakland, los angeles, miami. cut the flow, and those places dry up and blow away economically. so they have bought five years. what now? i'm not sure they know.

Sun, 12/01/2013 - 04:57 | 4203169 TheRideNeverEnds
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Woa now hold up there!  Who said anything about paying it back?  

 

D.C. is not part of the United states and the FED is a private organization.  

 

I think the plan is to let them both fail and go to something else, some sort of new world order if you will....

 

 

Sun, 12/01/2013 - 10:38 | 4203331 ghostzapper
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I concur completely.

They will jawbone taper and maybe even tweek it but they simply will not deliberately do anything to facilitate rates rising.  I see QE until it all blows up.  When?  Fuck if i know.

Meanwhile, whether it is BTC or something else or whatever the humans on this planet will somehow move forward and there will be a new financial "system" of some sort. 

Sun, 12/01/2013 - 10:41 | 4203337 ghostzapper
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2 billion peeps on Earth that will have (some already do) wireless internet access before they can even sniff "financial services".  they ain't waiting with baited breath for permission from Schumer and Dimon to live their life.  this debt based system is gonna go away . . . . . . . eventually. 

Sat, 11/30/2013 - 21:24 | 4202728 OneTinSoldier66
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"If printing money and spending money were a solution, there would be no poverty anywhere in the world."

 

That's a fact, Jack. Err, James.

Sat, 11/30/2013 - 22:59 | 4202902 James_Cole
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Nope that's not a fact, that's a hypothesis. I know words can be confusing, but check out a dictionary - would be helpful to you.

Sun, 12/01/2013 - 00:56 | 4203048 TheMeatTrapper
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No that is a fact. There is no evidence whatsoever that printing money leads to prosperity. I can cite numerous examples to the contrary. Can you cite one single example that it does? 

It's a simple question, are you man enough to answer it?

Sun, 12/01/2013 - 07:51 | 4203220 pondview28
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Hypothesis? LOL. It Is an in extremis type argument to easily show that the premise, written small or large, is faulty.

Sun, 12/01/2013 - 07:56 | 4203223 pondview28
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Hypothesis? LOL. It Is an in extremis type argument to easily show that the premise, written small or large, is faulty.

Sun, 12/01/2013 - 18:16 | 4204387 TheRedScourge
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My hypothesis is that at the time that a country earns its way onto the list at the following website, it is extremely unpleasant for a few years for the citizens of that country.

 

http://econographic.com/hyperinflation/

 

 

Sat, 11/30/2013 - 18:55 | 4202539 zerozulu
zerozulu's picture

May not be a big bang but a slow death. Depends on what the ultimate goal is in the minds of TPTB. Mad Max may be? 

Sat, 11/30/2013 - 19:35 | 4202496 I am more equal...
I am more equal than others's picture

 

 

The dole should not be a a career choice!

There are career social service individuals making it so.

There are career politicians making it so.

Most people want to help those less fortunate not make them less fortunate.

When values become relative this is the unintended outcome.

Sat, 11/30/2013 - 18:18 | 4202481 Millivanilli
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Economic prosperity depends on 2 initial factors:   1.  Cheap energy  2.  New productive capacity, eg, the internet or internal combustion engine...   

 

I see neither.  Add in unparalled financial fraud- no one goes to jail either, and it is easy to see the global economy blowing up like a roman candle.   

Sat, 11/30/2013 - 22:50 | 4202884 oldschool
oldschool's picture

It also depends on private property and the rule of law, so we're doomed.

Sat, 11/30/2013 - 17:34 | 4202423 max2205
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They are in control if everybody believes they are in control until they don't believe they are in control when they show they are not in control because they aren't in control because they thought they were in control even thought they weren't in control.

Got it?

Sat, 11/30/2013 - 17:35 | 4202425 max2205
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Oh, and go tigers!

Sat, 11/30/2013 - 17:35 | 4202428 max2205
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Oh, and who wants to punch the head coach of Michigan in the face for being so fucking stupid to go for 2?

Mon, 12/02/2013 - 20:23 | 4208226 Not Goldman Sachs
Not Goldman Sachs's picture

Great call! Overtime at home? Naw, give the Bucks a chance.

Sat, 11/30/2013 - 17:36 | 4202429 Overfed
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I do see the light at the end of the tunnel, and I'm more than a little certain that it's a train.

Sat, 11/30/2013 - 17:41 | 4202432 falak pema
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the key to this PAx Americana reasoning is : they, the Third world sovereigns, are liable to IMF stringent rules that bleed them to death and make them debt addicts for ever; not us reserve currency monopoly hegemony; we are liable to NO ONE by definition of world monetary system.

As long as that hegemonial reasoning functions they can print and go to negative interests as Summers proposes and Draghi may just put into process. And today, they are walking away from Saudi Oil to wind down defence costs bigtime in the hope of shale bonanza at home. Sure that MIC clout will keep Saudi princes toeing the reserve line, as they have no other other replacement for the time being.

So ZH : If the whole world buys into a Command type Economy, as they are doing (apart from Putin and his Eurosian common market; but not China for the time being as they are $ hooked, whence the US threats in South China to remind them they are part of reserve system), they can still play the same tune on the Titanic and hope, hope and print, print...Yellen knows what she has to do. 

The ball is in the court of : Russia, China and Saudi oil; one day there will be consequence.

Sat, 11/30/2013 - 17:42 | 4202441 Colonel Klink
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Yep, Russia and China are working for payback.  Shady Arabia may jump ship once they see the US weakening.

Sat, 11/30/2013 - 18:10 | 4202473 Peter Pan
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It's actually Shoddy Arabia.

Sat, 11/30/2013 - 17:41 | 4202438 Colonel Klink
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Too bad most people are tied down to the debt track.  Train is headed straight for them and they don't even see it coming.

Sat, 11/30/2013 - 17:43 | 4202442 I am Jobe
I am Jobe's picture

And they are looking to blame someone else for this correct? Sarc

 

Sat, 11/30/2013 - 18:37 | 4202502 Uber Vandal
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@ Col Klink:

Refer to this political cartoon from 140 YEARS ago.

Many people are not tied down at all, but voluntarily enter indentured servitude to have the newest crap they don't even need.

In fact, I would bet that the people acting as ties would tell the farmer to shut up, (go away, Batin'!!) and the only difference is they would be looking at an iPad or texting instead of reading a newspaper.

(Note, at one time, railroad ties were called sleepers)

http://sophia.smith.edu/~maldrich/topics/farmers/1873graphicsept16.htm

Sun, 12/01/2013 - 02:57 | 4203124 Colonel Klink
Colonel Klink's picture

I say tied down because they've spent the money (debt) and have no way to pay it off.  They're tied to it, even if it's voluntary.

Perfect cartoon for what's headed their way.

Sat, 11/30/2013 - 17:51 | 4202445 debtor of last ...
debtor of last resort's picture

We left the foodchain and we built our own. That's rather stupid. And it will never work. Some will be able to jump on the train. But the train's a comin.

Sat, 11/30/2013 - 17:47 | 4202447 Peter Pan
Peter Pan's picture

Don't be fooled that economic matters can only get better once we have hit bottom and rebuild from the ashes.

If we hit ashes that is when things will become even uglier and when we as people will become uglier as well.

Or do we honestly believe that this rebuilding will occur in a short period of time. More like generations if it happens.

Or do we expect our present masters of the universe with the backing of army, courts and police to allow something better to rise up.

When the rhythm of the present order of things goes crazy we will come to understand the meaning of fear more so than what people experienced in world war II.

 

Sat, 11/30/2013 - 20:20 | 4202468 cossack55
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Well, I see our "ashes time" as about three months and then we will build the Galt Motor of the World and convert static electricity from the air into AC/DC currents and have light rail and highspeed trains in all neighborhoods.  Oh, and Tepco will have Fuku all fixed by Valentines Day. 

Sat, 11/30/2013 - 17:51 | 4202449 Goldilocks
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Funny Puppet Show
http://www.youtube.com/watch?v=Eg0ewfTuAO4 (10:48)

Sat, 11/30/2013 - 18:23 | 4202491 Long-John-Silver
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If you want to know what our country will be like after the collapse just study the collapse of the Soviet Union. We will suffer the same fate including the loss of States. The 50 State Union will cease to exist. Moreover the number of States leaving will be far higher than the number of States that will claim affiliation with the "United States".

Sat, 11/30/2013 - 18:42 | 4202516 BeagleOne
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You must be off your meds. That was a classic incoherent fascist rant.

Sat, 11/30/2013 - 19:01 | 4202548 StillSilence
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A complete cleansing of the mal-investments, distorted incentives and regulatory burdens must occur before a true recovery can take place.

 

Have a feeling we may need to abandon debt as money, also. If you wipe the slate clean and start over with money that is not based on real production of goods and services, you just start over and treat the great grandkids to something similar.

Sat, 11/30/2013 - 19:18 | 4202572 I am Jobe
Sat, 11/30/2013 - 19:22 | 4202582 disabledvet
disabledvet's picture

imagine if that cool thing you wanted could only be had in bitcoins...and you didn't have any. "welcome to your post dollar world."

Sat, 11/30/2013 - 19:22 | 4202581 AuEagleNest
AuEagleNest's picture

Monty Pelerin is a pseudonym derived from The Mont Pelerin Society.

And I'm sick of these elitist fucks saying the reason the train is coming at us head on is due to the fact that americans would rather get welfare and EBT than to work for an honest wage. If you're gonna place blame put it where it belongs ... on vampire squids, central banks the fed and politicians.

That train you see coming is loaded with the 99%, pitchfork in one hand and a pot of tar and feathers in the other hand. I eagerly await its arrival.

Sat, 11/30/2013 - 20:53 | 4202690 artless
artless's picture

You really are gonna give a pass to the "greatest genartion" and "baby boomers" you know the ones who allowed all this shit to go on, raked in all the loot and then are gonna leave the rest of us (first in line being Gen-X) with the fucking bill and a world that despises this fucking country?

No, no, no brother. You get a check from .gov you are just as much part of the problem. Soc Sec, Medicare, any and all gov employees, I don't care who the fuck you are you are ALL parasites.

Pitchforks my ass. All you assholes voted for all this shit and continue to do so. You continue to place your bets in the casinos run by The Fed, your vampire squids, and everyone else hopeing to get your share of the crumbs that they let fall from their table.

Your 99% is a myth. Complete astroturf bullshit. When push comes to shove 99% or your 99% will get in line, do what they are told, and remain the sheeple that they are.

 

Sat, 11/30/2013 - 21:28 | 4202749 AuEagleNest
AuEagleNest's picture

Get a fucking clue. It doesn't matter who voted for whom. Both major parties ... two faces of the same band of thieves. I quit voting a few years back. Doesn't make me any less fucked. I've paid in over half a million in taxes over my working career. So yeah, when I hit 65, you bet your ass I'm going to sign up for the little piss-ant check they're willing to throw my way. If that contributes to gov't debt then I say pile it on and I hope I can be the straw that breaks the back.

If it all falls apart before I get my checks, no worries. I'm mostly off the grid, well supplied and can grow most of my own food. I really don't give a rats ass. I just get tired of these rich fucks complaining about the working poor being "the takers" while they stuff their fat jowls from the public purse. If you're not in the 1% and you swallow their line of bullshit and stand on their side, then ewe are gonna have it baaaaahd. You know you're getting fucked, you're just wrong about who's dick it is.

Sun, 12/01/2013 - 02:37 | 4203117 Sparkey
Sparkey's picture

"Your 99% is a myth. Complete astroturf bullshit. When push comes to shove 99% or your 99% will get in line, do what they are told, and remain the sheeple that they are."

Get in line and do what I'm told? I sure will, and SO will you!

Mon, 12/02/2013 - 09:03 | 4206109 GardenWeasel
GardenWeasel's picture

@ artless, aka clueless, aka brainless, etc.  ---   words fail me to describe what a clueless jackass you are. My parents, the greatest generation, didn't allow or vote for this shit, and as a baby boomer divorced father I sure as hell didn't "rake in all the loot".   And as for the Social Security I expect to get?  I did the fucking math pea brain. Observe: If the money that my employers and I paid into SS had been put into an account and just invested in 10 yr. U.S treasury bonds it would now total $600,000. And I only paid in until I was 50!  At 5% I could draw $30k per year forever and leave $600,000 to my heirs.  The fucking gubment is going to give me $18k per year and I will have nothing for my heirs.  Do I think I am entitled to my money. Goddam right I am and I got your parasite for ya right here buddy.  

 

Sat, 11/30/2013 - 20:01 | 4202616 Notarocketscientist
Notarocketscientist's picture

Want to make a stand?  Stop voting

Sat, 11/30/2013 - 20:08 | 4202629 Peter Pan
Peter Pan's picture

They would love you to do that.

It's a good catchcry but on its own unfortunately it is meaningless.

Sat, 11/30/2013 - 20:31 | 4202656 Money_for_Nothing
Money_for_Nothing's picture

SNAP isn't enough. Medicaid is a POS that is unacceptable to the former middle class. Government workers either come-to-Jesus or retreat behind fences and hope their paramilitary protect them. The US becomes a nation of laws again or deteriorates into armed camps. Most likely we find out which next year. Merry Christmas.

Sat, 11/30/2013 - 21:11 | 4202713 ebworthen
ebworthen's picture

No bottom, no ashes in the central bank fueled kleptoligarchy.

Yes, central banks and money printing repress the markets, which should be a representation of individual choices of those who labor.

Instead we have non-markets, with individual savings held captive by levitated equity indices controlled by corrupt banks, investment houses, insurance companies, and shadow corporate monstrosities.

Sat, 11/30/2013 - 22:33 | 4202852 The Heart
Sat, 11/30/2013 - 22:46 | 4202874 gdpetti
gdpetti's picture

"a complete cleansing"... "a crash is coming"

Yes, but to make it complete will require the whole world participate in the cleansing, and if you know your history, you know such patterns repeat about every 3600 years, and will again next year, as foretold, and this 'cleansing' will affect the entire gene pool.

We are in control, but only of our choices within the environment delineated around us, in which fate and destiny come to play and make us dance like drunken fools at a party, and this party has been going on for a long time and as usual, the bill comes due just as we hope to escape paying it.

Sun, 12/01/2013 - 10:15 | 4203296 masterinchancery
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When the dollar is no longer a "reserve currency", it is over.

Sun, 12/01/2013 - 10:37 | 4203327 mendolover
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Anyone notice the Walmart $999 70 inch Vizios at 6pm on Thanksgiving? 

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