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When Does the Story Break?

Tyler Durden's picture


Submitted by Ben Hunt of Salient Partners' Epsilon Theory blog,

Until an hour before the Devil fell, God thought him beautiful in Heaven.
Arthur Miller, “The Crucible”

It’s always about timing. If it’s too soon, no one understands. If it’s too late, everyone’s forgotten.
Anna Wintour

Saint Laurent has excellent taste. The more he copies me, the better taste he displays.
Coco Chanel

Beauty, to me, is about being comfortable in your own skin. That, or a kick-ass red lipstick.
Gwyneth Paltrow

For, dear me, why abandon a belief Merely because it ceases to be true? Cling to it long enough, and not a doubt It will turn true again, for so it goes. Most of the change we think we see in life Is due to truths being in and out of favor.
Robert Frost, “The Black Cottage”

Lord I am so tired How long can this go on?
Devo, “Working in a Coal Mine”

He can’t think without his hat.
Samuel Beckett, “Waiting for Godot”

Perhaps the most irrational fashion act of all was the male habit for 150 years of wearing wigs. Samuel Pepys, as with so many things, was in the vanguard, noting with some apprehension the purchase of a wig in 1663 when wigs were not yet common. It was such a novelty that he feared people would laugh at him in church; he was greatly relieved, and a little proud, to find that they did not. He also worried, not unreasonably, that the hair of wigs might come from plague victims. Perhaps nothing says more about the power of fashion than that Pepys continued wearing wigs even while wondering if they might kill him.
Bill Bryson, “At Home: A Short History of Private Life”

The most common question I get from Epsilon Theory readers is when. When does the market break? When will the Narrative of Central Bank Omnipotence fail? To quote the immortal words of Devo, how long can this go on? Implicit (and sometimes explicit) in these questions is the belief that this – whatever this is – simply can’t go on much longer, that there is some natural law being violated in today’s markets that in the not-so-distant future will visit some terrible retribution on those who continue to flout it. There has never been a more unloved bull market or a more mistrusted stock market high.

It’s a lack of love and a lack of trust that I share. I believe that public markets today are essentially hollow, as what passes for volume and liquidity is primarily machines talking to other machines for portfolio “positioning” or ephemeral arbitrage rather than the human expression of a desire to own a fractional ownership share of a real-world company. I believe that today’s public market price levels primarily reflect the greatest monetary policy accommodation in human history rather than the real-world prospects of real-world companies. I believe that the political risks to both capital market structure and international trade (which are the twin engines of global growth, period, end of story) have not been this great since the 1930’s. Simply put, I believe we are being played like fiddles. That does NOT mean, however, that I think anything has to change next week … or next month … or next year … or next decade. The human animal is a social animal in the biological sense, and as such we are cognitively evolved to maintain our beliefs and behaviors far beyond what is “true” in an objective sense. This is, in fact, the core argument of Epsilon Theory, that there is no such thing as Truth with a capital T when it comes to the institutions and the social organizations that we create. There’s nothing more “natural” about our market behaviors than there is around, say, our fashion behaviors … the way we wear our clothes or the way we cut our hair. For 150 years everyone knew that everyone knew that gentlemen wore wigs. This was the dominant common knowledge of its day in the fashion world, absolutely no different in any way, shape or form than the dominant common knowledge of today in the investing world … everyone knows that everyone knows that it’s central bank policy that determines market outcomes. And this market common knowledge could last for 150 years, too.

I’m not saying that a precipitous change in market beliefs and behaviors is impossible. I’m saying that it’s not inevitable. I’m saying that it’s NOT just a matter of when. I’m saying that understanding the timing of change in market behaviors is very similar to understanding the timing of change in fashion behaviors, because both are social constructions based on the Common Knowledge Game. It’s no accident that the most popular way to relate that game is the story of the Emperor’s New Clothes.

Here’s a photograph Margaret Bourke-White took of the Garment District in 1930. Every single person on the street is wearing a hat. How did THAT behavior change over time? How did the common knowledge that All Men Wear Hats, or wigs or whatever, change? Does it happen all at once? Smoothly over time? In fits and starts? Who or what sparks this sort of change and how do we know? To use a five dollar phrase, what is the dynamic process that underpins the timing of change in socially-constructed behaviors, whether that behavior is in the investing world or the fashion world?

Fortunately for us, game theory provides exactly the right tool kit to unpack socially driven dynamic processes. To start this exploration, we need to return to the classic thought experiment of the Common Knowledge Game – The Island of the Green-Eyed Tribe.

On the Island of the Green-Eyed Tribe, blue eyes are taboo. If you have blue eyes you must get in your canoe and leave the island the next morning. But there are no mirrors or reflective surfaces on the island, so you don’t know the color of your own eyes. It is also taboo to talk or otherwise communicate with each other about blue eyes, so when you see a fellow tribesman with blue eyes, you say nothing. As a result, even though everyone knows there are blue-eyed tribesmen, no one has ever left the island for this taboo. A Missionary comes to the island and announces to everyone, “At least one of you has blue eyes.” What happens?

Let’s take the trivial case of only one tribesman having blue eyes. He has seen everyone else’s eyes, and he knows that everyone else has green eyes. Immediately after the Missionary’s statement this poor fellow realizes, “Oh, no! I must be the one with blue eyes.” So the next morning he gets in his canoe and leaves the island.

But now let’s take the case of two tribesmen having blue eyes. The two blue-eyed tribesmen have seen each other, so each thinks, “Whew! That guy has blue eyes, so he must be the one that the Missionary is talking about.” But because neither blue-eyed tribesman believes that he has blue eyes himself, neither gets in his canoe the next morning and leaves the island. The next day, then, each is very surprised to see the other fellow still on the island, at which point each thinks, “Wait a second … if he didn’t leave the island, it must mean that he saw someone else with blue eyes. And since I know that everyone else has green eyes, that means … oh, no! I must have blue eyes, too.” So on the morning of the second day, both blue-eyed tribesmen get in their canoes and leave the island.

The generalized answer to the question of “what happens?” is that for any n tribesmen with blue eyes, they all leave simultaneously on the nth morning after the Missionary’s statement. Note that no one forces the blue-eyed tribesmen to leave the island. They leave voluntarily once public knowledge is inserted into the informational structure of the tribal taboo system, which is the hallmark of an equilibrium shift in any game. Given the tribal taboo system (the rules of the game) and its pre-Missionary informational structure, new information from the Missionary causes the players to update their assessments of where they stand within the informational structure and choose to move to a new equilibrium outcome.

Before the Missionary arrives, the Island is a pristine example of perfect private information. Everyone knows the eye color of everyone else, but that knowledge is locked up inside each tribesman’s own head, never to be made public. The Missionary does NOT turn private information into public information. He does not say, for example, that Tribesman Jones and Tribesman Smith have blue eyes. But he nonetheless transforms everyone’s private information into common knowledge. Common knowledge is not the same thing as public information. Common knowledge is simply information, public or private, that everyone believes is shared by everyone else. It’s the crowd of tribesmen looking around and seeing that the entire crowd heard the Missionary that unlocks the private information in their heads and turns it into common knowledge. This is the power of the crowd watching the crowd, and for my money it’s the most potent behavioral force in human society.

Prior Epsilon Theory notes have focused on the role of the Missionary, and I’ll return to that aspect of the game in a moment. But today my primary focus is on the role of time in this game, and here’s the key: no one thinks he’s on the wrong side of common knowledge at the outset of the game. It takes time for individual tribesmen to observe other tribesmen and process the fact that the other tribesmen have not changed their behavior. I know this sounds really weird, that it’s the LACK of behavioral change in other tribesmen who you believe should be changing their behavior that eventually gets you to realize that they are wondering the same thing about you and your lack of behavioral change, which ultimately gets ALL of you blue-eyed tribesmen to change your behavior in a sudden flurry of activity. But that’s exactly the dynamic here. Even though there is zero behavioral change by any individual tribesman for perhaps a long period of time, such that an external observer might think that the Missionary’s statement had no impact at all, the truth is that an enormous amount of mental calculations and changes are taking place within each and every tribesman’s head as soon as the common knowledge is created.

I’ve written at length about the portfolio construction corollary to phenotype, or the physical expression of a genetic code, and genotype, or the genetic code itself. The former gets all of the attention because it’s visible, even though the latter is where all the action really is, and that’s a problem. In modern society it means that we place an enormous emphasis on skin color as a signifier of otherness or differentiation, when really it deserves almost no attention at all. In portfolio management it means that we place an enormous emphasis on style boxes and asset classes as a signifier of diversification, when really there are far more telling manifestations. The dynamic of the Common Knowledge Game is another variation on this theme. For almost the entire duration of the game, the activity is internal and invisible, not external and visible, but it’s there all the same, bubbling beneath the behavioral surface until it finally erupts. The more tribesmen with blue eyes, the longer the game simmers. And the longer the game simmers the more everyone – blue-eyed or not – questions whether or not he has blue eyes. It’s a horribly draining game to play from a mental or emotional perspective, even if nothing much is happening externally and regardless of which side of the common knowledge you are “truly” on.

If you haven’t observed exactly this sort of dynamic taking place in markets over the past five years, with nothing, nothing, nothing despite what seems like lots of relevant news, and then – boom! – a big move up or down as if out of nowhere – I just don’t know what to say. And I don’t know a single market participant, no matter how successful, who’s not bone-tired from all the mental anguish involved with trying to navigate these unfamiliar waters. These punctuated moves don’t come out of nowhere. They are part and parcel of the Common Knowledge Game, no more and no less, and understandable as such.

What starts the clock ticking on the “simmering stage” of the Common Knowledge Game? The Missionary’s public statement that everyone hears, creating the new common knowledge that everyone believes that everyone believes. How long does the simmering stage last? That depends on a couple of factors. First, as described above, the more game players who are on the wrong side of the new common knowledge, the longer the game simmers. Second, the dynamic depends critically on the fame or public acclaim of the Missionary, as well as the power of his or her microphone. A system with a few dominant Missionaries and only a few big microphones will create a clearer common knowledge more quickly, reducing the simmering time. Whether it’s Anna Wintour and Vogue or Janet Yellen and the Wall Street Journal, the scope and pace of game-playing depends directly on who is creating the common knowledge and how that message is amplified by mass media. Fashion changes much more quickly today than in, say, the 1930’s, because the “arbiters of taste” – what I’m calling Missionaries – are fewer, more famous, and have stronger media microphones at their disposal. Ditto with the investment world.

But has the clock started ticking on new common knowledge to change the dominant investment game? Has there been a perception-changing public statement from a powerful Missionary to make us question Central Bank Omnipotence, to make us question the color of our eyes? No, there hasn’t. There are clearly new CK games being played in subsidiary common knowledge structures – what I call Narratives – but not in this core Narrative of the Fed’s control over market outcomes. So for example, the market can go down, and more than a little, as the common knowledge around the subsidiary Narrative of The Fed Has Got Your Back comes undone with a second derivative shift from easing to tightening. The Fed itself is the Missionary on this new common knowledge. But the market can’t break so long as the common knowledge of Central Bank Omnipotence remains intact. So long as everyone knows that everyone knows that market outcomes ultimately depend on Fed policy, then the Yellen put is firmly in place. If things get really bad, then the Fed can save us. We might argue about timing and reaction functions and the like, but everyone believes that everyone believes that the Fed has this ability. And because it’s such strong common knowledge, this ability will never be tested and the market will never break. A nice trick if you can pull it off, and until a Missionary with the clout of the Fed comes out and challenges this core common knowledge it’s a fait accompli within the structure of the game. Who has this sort of clout? Only two people – Mario Draghi and Angela Merkel. That’s who I watch and who I listen to for any signs of a crack in the Omnipotence Narrative, and so far … nothing. On the contrary, Draghi and Merkel have been totally on board with the program. We’re all going to be wearing hats for a long time so long as all the investment arbiters of taste stick with their story.

There is, of course, a fly in this glorious ointment, and it’s the single most important difference between the dynamic of fashion markets and financial markets: political shocks and political dislocations can trump common knowledge and precipitate an economic and market dislocation. Wars and coups and revolutions certainly influence fashion, but obviously in a far less immediate and pervasive manner than they influence financial markets. The fashion world is an almost purely self-contained Common Knowledge Game, and the investment world is not. Where am I looking for a political shock that would be big enough to challenge the common knowledge that Central Banks are large and in charge, capable of bailing us out no matter what? It’s not the Ukraine. On the contrary, events there are public enough to give Draghi an excuse to move forward with negative deposit rates or however he intends to implement greater monetary policy accommodation, but peripheral enough to any real economic impact so that the ECB’s competence to manufacture an outcome is not questioned. It’s China. If you don’t think that the territorial tussles with Vietnam and Japan matter, if you don’t think that the mutual accusations and arrests of American and Chinese citizens matter, if you don’t think that the HUGE natural gas deal between Russia and China matters, if you don’t think that the sea change in Chinese monetary policy matters … well, you’re just not paying attention. A political shock here is absolutely large enough to challenge the dominant market game, and that’s what I’ll be exploring in the next few Epsilon Theory notes.


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Sun, 05/25/2014 - 11:59 | 4793312 Doña K
Doña K's picture

But... There are so many intelectually blind and so many intelectually deaf investors that it will take longer than we think.

"Monetary policy: It may seem strange to return to monetary policy as an option. After all, haven't we just seen that it is ineffective?.............. as a result, it seems to indicate that a liquidity trap is something that can last indefinitely."

Krugman 1998


Sun, 05/25/2014 - 12:05 | 4793341 disabledvet
disabledvet's picture

You're such a hottie.

Sun, 05/25/2014 - 13:27 | 4793492 THX 1178
THX 1178's picture

Well, the fed began tapering months ago and so it is now committed. There is no way out of this hole. If they continue to taper, the markets collapse and TBTF banks go bankrupt. If they untaper, faith in the US and its debt is lost and the dollar dies. So this is the case. The very fact that the fed decided to taper in the first place is that they were losing control.

Sun, 05/25/2014 - 13:47 | 4793539 loveyajimbo
loveyajimbo's picture

Nah, the Fed SAID they would taper... if you believe THAT... I have some 2008 BathHouse Barry Obongo campaign promises to sell ya... you might notice the strange coincidence of Belgium starting to buy massive amounts of US Bond trash at the same time the "taper" went into effect??  Just another part of the BIG CON... there can be no true taper... unless a default is part of the plan...

Sun, 05/25/2014 - 18:54 | 4794115 Doña K
Doña K's picture

"The way to make monetary policy effective, then, is for the central bank to credibly promise to be irresponsible - to make a persuasive case that it will permit inflation to occur, thereby producing the negative real interest rates the economy needs. This sounds funny as well as perverse."

Not only perverse Mr Krugman but also evil 

Also Krugman 1998



Sun, 05/25/2014 - 19:29 | 4794187 RiverRoad
RiverRoad's picture

And in reality the Fed continues to loose control.  The American retail investor has been checking out of the equity market for quite a while now.  The volume speaks volumes. 

Sun, 05/25/2014 - 12:19 | 4793367 Millivanilli
Millivanilli's picture

Calm down and be a good debt slave.  You can't make this shit up.


From Experian Credit rating



Finally, you can’t assume that having no balances is always a good thing. If you stop using credit altogether you are no longer demonstrating whether or not you can manage credit. Scoring models will not score a report that has had no recent activity. The time frames vary by model, but can be as short six months with no balance updates.




Sun, 05/25/2014 - 12:27 | 4793383 WmMcK
WmMcK's picture

At least once during each 6 month period  I take a cash advance (2% for 15 to 18 month) and promptly

go to my LCS and trade the FRN for 90% Ag.

Credit rating has not been negatively impacted yet.

When it is, so what?

Sun, 05/25/2014 - 12:35 | 4793399 Oracle of Kypseli
Oracle of Kypseli's picture

Why should anyone care about credit score?

Sun, 05/25/2014 - 13:03 | 4793446 WmMcK
WmMcK's picture

ZipIt writes: Credit is the oil that keeps the machine running.  Ever see what happens to an engine when you take away the oll?  That's why.

Sun, 05/25/2014 - 13:20 | 4793477 Oracle of Kypseli
Oracle of Kypseli's picture

I agree that that's what the banks and .gov wants. On an individual basis credit entices you to spend on things you cannot afford. 

Sun, 05/25/2014 - 13:50 | 4793545 CH1
CH1's picture

Debt sucks!

Sun, 05/25/2014 - 14:09 | 4793595 prains
prains's picture

Debt is the easiest form of subjugation to enter into and the most difficult to get out of

Sun, 05/25/2014 - 14:17 | 4793614 darkpool2
darkpool2's picture

When you have no NEED for credit, YOU are in control, and then by definition, credit score has little to no meaning. Credit score is akin to your mark of the beast !

Mon, 05/26/2014 - 14:27 | 4796010 messymerry
messymerry's picture

Alethia koritsi, an excellent observation on your part.  The 20th century model of economics and finance is broken beyoond repair.  When life support fails (...and it will...soon) a whole new paradigm will have to be developed.  The entire nature of money will be examined. 

Emai apo tn Kerkyra, apo poo esai?  To horio mou enai Pagous.

Sun, 05/25/2014 - 18:13 | 4793508 OC Sure
OC Sure's picture



Let's be clear on the terms we use.

Central banks do not have a monetary policy.

Central banks have a counterfeiting policy. The purpose is theft.

Henry Ford had a monetary policy. The purpose was wealth.

We are ruled by authority because of counterfeiting not money.


It is not a liquidity trap.

It is the simultaneous increase of counterfeit and decrease of money.

Sun, 05/25/2014 - 14:38 | 4793642 Imminent Collapse
Imminent Collapse's picture

Devo? Working in a coal mine was written by Alan Touisant. Maybe a better song is "How Long Can at his Keep a going On" made famous by Ace.

Sun, 05/25/2014 - 17:40 | 4793959 what's that smell
what's that smell's picture

game theory is for suckers. 

statistically, if you play by the rules, you will not win (many losers, few winners)

if you cheat, you either win big or get killed.

game theory is for suckers and weaklings.

Sun, 05/25/2014 - 11:52 | 4793315 Intelligence_In...
Intelligence_Insulter's picture

Socialism has failed, the liberals have ran out of other people's money.  Minimal government that protects property rights is what we need to get back to.

Sun, 05/25/2014 - 12:07 | 4793345 Omegaman2211
Omegaman2211's picture

Zero government is what we need to get back to.

Sun, 05/25/2014 - 12:32 | 4793389 Keyser
Keyser's picture

And what will all those ex-government employees do for a living, besides suck the public's teet? 

Sun, 05/25/2014 - 12:37 | 4793404 DaddyO
DaddyO's picture

Isn't it high time we find out?


Sun, 05/25/2014 - 12:45 | 4793421 damicol
damicol's picture

You send them to Detroit, put an electric fence and a minefield around the city and leave them to it.


We can all watch on all the millions of street cameras they set as first order of business when they have formed the teeming committees and focus groups and  rewritten the local bylaws. I am sure they can all show us a thing or two about they get on surviving.


Mon, 05/26/2014 - 00:06 | 4794656 Gavrikon
Gavrikon's picture

They will employ Hannibal Lector as the Secretary of Nutrition.

Sun, 05/25/2014 - 13:14 | 4793464 lunaticfringe
lunaticfringe's picture

Did you see that excellent piece on the Freedom Index where legislators are graded according to how well they hold to constitutional virtues. That is a fucking eye opener although it won't shock anyone here. The Freedom Index.

Sun, 05/25/2014 - 13:23 | 4793481 Shad_ow
Shad_ow's picture

AS a whole, it is pathetic. Isn't it?

Sun, 05/25/2014 - 13:51 | 4793549 thamnosma
thamnosma's picture

And the winners are:

Sen. Elizabeth Warren (D) Massachusetts

Sen Tim Kaine (D) Virginia.

Both received a rating of ZERO.  These will be your Democrat presidential nominees in the future.

Sun, 05/25/2014 - 14:07 | 4793592 CH1
CH1's picture

Minimal government...

Is a deadly illusion. Once you give one group the power to tax and punish everyone else, slavery is inevitable.

Sun, 05/25/2014 - 16:43 | 4793857 Eyeroller
Eyeroller's picture

Socialism is thriving.  It doesn't matter that they ran out of other people's money.  The Ponzi Munchkin just prints money out of thin air.

Mon, 05/26/2014 - 07:41 | 4795000 falak pema
falak pema's picture

So Carlyle and all those Prvate Equity funds of Qatar and Saud that run western world are part of the "socialist" Oligarchy?

Printing is to feed the oligarchy matrix and starve the people, what socialisim has to do with western made NWO is beyond me. 

Sun, 05/25/2014 - 17:36 | 4793325 djsmps
djsmps's picture

This reminds me of the Seinfeld episode about a coffee table book about coffee tables.

Pay $5.00 to watch someone else play a video game.

"It's become the largest live-streaming site on the Web. During peak viewing times, it sometimes accounts for the fourth-highest traffic on the Internet, behind only Netflix, Google and Apple, according to statistics by Sandvine, a networking equipment company."

Sun, 05/25/2014 - 12:04 | 4793337 Oh regional Indian
Oh regional Indian's picture

Save your country.

Bring back the hat.

Baseball caps don't cut it.

Sun, 05/25/2014 - 13:51 | 4793551 thamnosma
thamnosma's picture

Speaking of Devo, they helped bring hats back for awhile in the 80's.  I was wearing them then as well along with thin ties.

Sun, 05/25/2014 - 12:08 | 4793347 A Lunatic
A Lunatic's picture

It's just like musical chairs......

Sun, 05/25/2014 - 12:09 | 4793350 nevadan
nevadan's picture

Only two people – Mario Draghi and Angela Merkel. That’s who I watch and who I listen to for any signs of a crack in the Omnipotence Narrative,

My money is on a collapse in the Petrodollar and the rejection of USD in international trade settlement ala Jim Willie.

Sun, 05/25/2014 - 12:11 | 4793353 CHX
CHX's picture

When? When the Austrian (aka gold) is needed to bail out (cover) the Keyensians (debt), that's when. So when's when? I have no idea, but every day when's a day closer.

Sun, 05/25/2014 - 12:20 | 4793371 Seasmoke
Seasmoke's picture

Unfortunately, so is death. 

Sun, 05/25/2014 - 13:53 | 4793556 thamnosma
thamnosma's picture

I figure gold and silver will skyrocket the day I die.

Sun, 05/25/2014 - 12:15 | 4793362 oklaboy
oklaboy's picture

bread and circuses usually end badly, as so will this one 

Sun, 05/25/2014 - 12:21 | 4793370 NoDebt
NoDebt's picture

When, when, when.  Back in '09 the Fed and Treasury stated very clearly their policies were intended to be "temporary", until the market basically could stand on it's own legs.  So, we've again got a government program touted as "temporary" that has become permanent.

At this point, I'd say it's not going to break until every federal agency has their own private police/para-military force and another 5-6 billion bullets have been bought.  Then they'll let it break because they'll be prepared for what happens next.

Sun, 05/25/2014 - 12:22 | 4793375 Seasmoke
Seasmoke's picture

The time has allowed the monster to grow and get stronger. Stupid sheep. 

Sun, 05/25/2014 - 12:23 | 4793377 Winston Churchill
Winston Churchill's picture

I just wonder where they will get those bullets with the EPA closing the only US lead smelter last month.

Sun, 05/25/2014 - 13:36 | 4793515 DanDaley
DanDaley's picture

Gotta love that word temporary...remember that Nixon said closing the gold window in '71 was temporary.


As for the armed-to-the-teeth agencies, they will eventually end up killing each other, but by that time most of us will be long gone and this place will look like Germany in '45.

Sun, 05/25/2014 - 13:54 | 4793560 thamnosma
thamnosma's picture

Nothing more temporary in life than military coups.

Sun, 05/25/2014 - 12:20 | 4793373 knotjammin2
knotjammin2's picture

I can't believe you quoted Gwyneth Paltrow.  

Sun, 05/25/2014 - 14:04 | 4793585 tdogg
tdogg's picture

I have blue eyes. Bye bye.

Sun, 05/25/2014 - 12:25 | 4793380 Atomizer
Atomizer's picture

As soon as the internet is regulated, food prices increase for Federal Reserve exponential growth, and you need to reconsider pink slime as an alternative meal. The new world ideology is at wits end. They thought enough mouth breathers would flood the lemming to accept the agenda.


Quite the contrary. 

Sun, 05/25/2014 - 12:42 | 4793384 Theta_Burn
Theta_Burn's picture

What does it matter..

Hillary "Rodram" Clinton

This is a big fucking deal...

Joe "Ginbloom Biden

We have to pass it to see whats in it...

Nancy "whatwasthequestion" Pelosi

This will be the most transparent adminisration ever..

Barrack "Obscene" Obama

I'm to busy for the truth

John "on all forbes" Kerry

Imagine what will be by next yrs. Memorial day..

 I'd say the story already broke, and nobody fucking read it


Sun, 05/25/2014 - 13:25 | 4793487 lunaticfringe
lunaticfringe's picture

Nice. But the story ain't here yet. You'll know it when it hits every last mf'er like a 2x4 over the head. That crazy shit in Belgium (buying treasuries by proxy) is just the beginning. They've screwed the pooch alright, but nobody is feeling any pain. Not yet.


Sun, 05/25/2014 - 12:31 | 4793387 falak pema
falak pema's picture

Cheap money printing only seems to work if it generates growth G not R. 

During the cheap oil period of the post war 30 year Keynesian ramp up of real economy where military destruction had to be replaced by the auto/home appliance boom; all fed on cheap oil/petrochemicals; Lord Keynes's legacy reigned SUPREME with a marginal tax rate >80% in USA and it NEVER stopped the word economy or world trade from growing. (remember that you tea drinkers and neo cons)

But when PEAK OIL hit USA and it became a war mongering and fiat disseminating dominant economy; aka from 1964 onwards; the Keynesian model failed as BW did not function anymore under Milton Friedman's floating rate $ protection and salary inflation. 

Today the fiat pump feeds illusory R and no real G; so whats the point of throwing cheap money at the financial oligarchy world which makes the people destitute...? 

MOAR fake R and less true G and then...the great splits! 

Sun, 05/25/2014 - 12:36 | 4793403 smacker
smacker's picture

Trying to predict what or who will cause the system to break is not easy. ex-British PM Harold McMillan said in answer to a question about what he fears most: "events, dear boy, events." He referred to unexpected and unpredictable events that arise and cannot be planned for.

And so it is. People who spend a lifetime analysing events and studying human psychology to predict future events are trumped by some event that appears out of nowhere and sweeps the board clean in an instant. The proverbial "herd instinct" suddenly comes into play, especially true of markets.

Short of WWIII or something as big, I'd bet we do not yet know what will be the tipping point to bring the house down. But everybody's looking out for it.

Sun, 05/25/2014 - 15:00 | 4793649 Radical Marijuana
Radical Marijuana's picture

LOL, smacker!

"Short of WWIII or something as big ..."

There is NOTHING in known human history to compare to "WWIII or something as big!" The astronomical SIZE of a global system of electronic frauds, backed by atomic bombs, is now TOO BIG to actually be able to comprehend. The economic system continues strip-mining the natural resources of the planet, while that is accounted for by "money" made out of nothing as debts ... HOW COULD THAT STORY NOT BREAK ???

There is nothing inside of the currently established systems' structures which would enable them to stop strip-mining the planet until diminishing returns exhaust that. The political economy is already a runaway debt engine, which has already generated numbers which are debt insanities. Countries are already running on treadmills of debt as fast as they can. It looks to me that the creation of "money" out of nothing as debts, to pay for strip-mining the planet will continue ... until the real problems of diminishing returns force that to finally decrease.

Predicting how and when that will happen is like predicting the behavior of an insane person. Since our civilization is already MADly lost in Money As Debt backed by Mutual Assured Destruction, it continues to deliberately ignore the nature of its problems. In my opinion we are only able to continue because we are already too crazy to be able to change.

I regard the future as being as unpredictable as psychotic breakdowns. Our civilization is almost totally based upon systems of legalized lies, backed by legalized violence, which are solely able to continue on that basis. Those systems require attitudes of evil deliberate ignorance towards almost all evidence and logical arguments, other than the faked versions of those, which operate within those systems of legalized lies, backed by legalized violence. What eventually happens to those runaway systems of enforced frauds, which are amplified by technologies which are trillions of times more powerful? Clearly, nobody knows, and probably nobody is able to even comprehend that fully enough to make any educated guesses.

It is actually that sheer insanity which keeps the established systems going. Of course, that is sublimely paradoxical. It is the almost inconceivably crazy corruption of civilization which provides the momentum to keep itself going. Every idiom & metaphor that can be thought of which applies to individuals who are nuts applies way more so to our civilization as a whole. The story of civilization is the story of backing up lies with violence, in order to control human behaviours. Asking when does that story break is asking about when will psychotic breakdowns happen? The problems were always there, since that civilization began thousands of years ago, but those problems have been on exponential growth curves, which started very slowly, but gradually picked up speed.

The more significant turning points were late in the 1960s and early 1970s when there were first enough atomic weapons built to destroy civilization. Also, around that time, the established systems doubled down on every one of their variety of crazinesses, in ways which more and more starkly ignored rational evidence and logical arguments across the board on every political topic.

For instance, as a symbolic example, in the early 1970s, both the government of the USA and Canada paid for thorough official research studies into cannabis consumption. Both concluded that pot prohibition was worse than the pot, and both were deliberately ignored, while the war against drugs (primarily against marijuana) was escalated for decade after decade, while the truth about hemp never mattered. Hemp Truth is only barely beginning to matter now, although, still, compromises with old lies have greater influence over the current "legalizing marijuana" than more Hemp Truth actually does.

Similarly, in the early 1970s, North Americans became pretty well totally controlled by the international banksters' monetary systems. The USA abandoned the last limits of its money being related to the phsyical world by gold, while Canada agreed to stop using the Bank of Canada in any way that the international bankers did not approve of. The results were that total North American debts followed an almost perfect match to the mathematics of an exponential growth curve. That "money" made out of nothing was used to power a debt engine to pay for strip-mining natural resources, through an economic system which was designed to turn natural resources into garbage and pollution as fast as possible. Meanwhile, all of the books which discussed the problems with that system were pretty well deliberately ignored by everyone, other than small groups of intellectuals.

Neolithic Civilization was always based on backing up lies with violence. The domestication of animals and plants actually had forms of human slavery at its core: human farming was the core of all other kinds of farming. Systems of legalized lies, backed by legalized violence, were always built on being able to deliberately ignore rational evidence and logical arguments, because the real world was actually controlled by lies backed up with violence, which systems did not care about any rational evidence or logical arguments, except to the degree that those may assist them to lie better, or back up their lies with violence better.

NOTHING IS CHANGING IN ANY SIGNIFICANT WAYS YET ... Civilization is automatically become crazier and crazier, since it is controlled by huge lies, which only work because they are backed by violence. The entire political economy became based on the enforced frauds of private banks making "money" out of nothing as debts, to pay to keep control over every aspect of civilization, in order to keep that corrupt system going ... despite that was driving irreconcilable social polarization and irreparable destruction of the natural world.

In my opinion, people who are too close to THAT STORY, and are actually living INSIDE THAT STORY, can not perceive the degree to which THAT STORY is stark raving MAD! The more successful that people were in making their living inside of the established political economy, the less able they tend to become to see the bigger picture. After all, for thousands of years, success in warfare was based on deceits, and for hundreds of years, success in finance was based on frauds. Hence, people are proportionately insane in ways which correspond to the degree that they were successfully living inside of insane systems, whose structures evolved to become successful on the basis of the maximum possible deceits and frauds.

Since our whole civilization is based on backing up lies with violence, and the most important of those are the enforced frauds which are the foundation of the monetary system, BUT, the enforcement of frauds never stops them being false, and the violence backing up lies never makes them become true, our entire civilization is almost totally insane, in ways that the vast majority of people do not understand, and do not want to understand, while the ruling classes inside of those systems work hard to try to keep those crazy systems going.

THEREFORE, I REPEAT, ASKING "WHEN DOES THAT STORY END" IS ASKING ABOUT WHEN DOES AN INSANE SOCIETY GO THROUGH A SERIES OF PSYCHOTIC BREAKDOWNS. More tragically, there are no good reasons to expect people will breakthrough to more realistic truths about anything due to going through those psychotic breakdowns of the established systems, instead, of rather becoming even crazier than they already are now. After all, to breakthrough to better understanding, after some series of social storms and psychotic breakdowns of the established systems of legalized lies, backed by legalized violence, would require a much deeper understanding of how and why those were the systems which actually were selected to develop in the past. At the present time, the vast majority of people still believe in the bullshit social stories that the biggest bullies brainwashed them to believe in, while the few who begin to scratch the surface of those problems still tend to never dig any deeper.

Whatever the "truth" may be, the one thing that we can probably count on more than anything else is that the overwhelming vast majority of people will continue to deliberately ignore the "truth," especially since the ruling classes will continue to work hard to try to make sure that the people they rule over want to continue to ignore the "truth."

The more important META-TRUTH is that, whatever the "truth" may be, the human species is already committed to attempting to deliberately ignore that as much as possible, for a long as possible, which is why THAT STORY of civilization controlled by enforced frauds is able to continue, in ways which make its eventual psychotic breakdowns be so extremely unpredictable!

Sun, 05/25/2014 - 15:14 | 4793696 smacker
smacker's picture

Thanks for spotting my humour ;-)

And I agree with most of your comments. Mankind is on the road to self-destruction at an increasing rate, mainly because of the giant matrix of lies and corruption that's emerged in the past decades. Like yourself, I see no way to avoid the inevitable implosion & collapse. Few people can see it coming because they live insde the matrix and are deeply involved in keeping it going.

Sun, 05/25/2014 - 12:38 | 4793408 No Quarter
No Quarter's picture

Interesting read. While the China/Russia cooperative certainly has a strong liklyhood of taking out the dollar and the Common Knowledge game that is run here and wherever else people believe in the all mighty  fed  philosophy, i think there are other posibilities. Perhaps more organic. While most of the people in the US are unenlightened sheep, i think there are an awfull lot of those sheep that still know, have a little itch in the back of their head that "Something" isn't right. Might play more into the first part of the article above. Might just need a little nudge..  Few more sheep leaving the heard here and there.. My .02cents

Sun, 05/25/2014 - 12:39 | 4793410 ArmyofOne
ArmyofOne's picture

Its all a confidence game.  As long as people are dependent on the system then the system must survive. Eventually the defintion of what survival is changes to what and who can be saved.  Once people lose faith in the pricing structure then the ponzi scheme collapes and with it the politcial support.  Then its martial law , bread lines, barter. gold and silver.

Sun, 05/25/2014 - 13:58 | 4793422 Il Duce
Il Duce's picture


Sun, 05/25/2014 - 12:50 | 4793430 sunnyside
sunnyside's picture

He forgot (or I missed in my reading), the option where they just kill the missionary and go on with life living the lie.

Sun, 05/25/2014 - 12:54 | 4793433 Jack Burton
Jack Burton's picture

The Federal Reserve, the Bank of England and the ECB have proved me wrong so many times, that I have ceased to post any of my opnions on central bank manipulation of markets, liquidity dumps and support for bankrupt states by money printing. They always prove me wrong, they always out print my expectations.

Mr. Marc Faber, back in 2008 said it best when speaking of central banks and their governments. "They will print, and print and print, then they will go to war."  Asked who on earth they, i.e. America, would go to war with, he responded. "Never mind, they will always find someone to go to war with!"

So far, Marc is right. Over 6 years of steady printing, and now the USA has several wars in the pipeline. Syria, Iran and Russia. How is that for "finding someone to go to war with?"

Sun, 05/25/2014 - 14:08 | 4793593 prains
prains's picture

....and all the unemployed, indebted bullet stoppers are being softened up at home, when their anger and resentment has reached suitable levels that can be easily manipulated WE will all have Woar. 3.0

Sun, 05/25/2014 - 13:00 | 4793442 bbq on whitehou...
bbq on whitehouse lawn's picture

The economy can't inflate to match the market prices because all the savings and capital are gone. The people dont have any silver or gold to give up, like the last times.
This time the well is empty. hyper-inflation only works if someone in the world has money that everyone can trust. The US dollar has lost that endless trust of value because the US people have lost anything worth stealing.
Its over untill the panic starts.

Sun, 05/25/2014 - 17:24 | 4793933 messymerry
messymerry's picture

I agree with you, but the operative question is when will the panic start?  See my post above...   ;-D

Sun, 05/25/2014 - 13:11 | 4793457 slingshot
slingshot's picture

The massive liquidity has created a new breed mega billionaires who manage the markets.  It doesn't take much for them to continue the push up.  Only when their wealth is jeopardized and they panic will the market retreat.  

Sun, 05/25/2014 - 13:18 | 4793473 lunaticfringe
lunaticfringe's picture

I keep wondering how long the masters of the universe can keep up this charade as well.

I'll tell you this much- I have a whole new found respect for these pricks. They are not about to take any sort of haircut on behalf of us hoi polloi or country. In the end, they are just a bunch of savagely greedy cocksuckers with no view beyond that of self and their immediate needs. You gotta worry when a whole army of these like minded bastards take control of the asylum.

And so it is. And so it continues.

Sun, 05/25/2014 - 13:19 | 4793475 Testudo321
Testudo321's picture

In USSA the story doesen't break - the story breaks you.

Sun, 05/25/2014 - 13:29 | 4793495 DanDaley
DanDaley's picture

As Robert Frost might say, economic truth seems to be out of favor at the present time.

Sun, 05/25/2014 - 13:32 | 4793499 exartizo
exartizo's picture

From a real world perspective:

The flaw in this theory is that not everyone relies on or believes "common knowledge".

There are other sources of information besides common knowledge that lead many participants in the game to other conclusions independently.

The other variables (sources of information) render this theory invalid for being a reliable predictor of understanding the timing of change whether socially or from an investing standpoint.

Sun, 05/25/2014 - 13:31 | 4793503 MedicalQuack
MedicalQuack's picture

The credit scoring and other "scoring" of US citizens will serve to keep us in our place sadly as those who have the code rule.  The World Privacy Forum put out a good report on this "The Scoring of America" and the rest of world is watching the madness as little by little access is being removed for the average consumer.  It's a good report.  See the BS on how FICO does "medication adherence" scoring with only needing your name and address to use their propriety formulas to tell insurers or pharma on whether or not you will take your prescriptions..bunk I think for sure.  It's just FICO with one more way to make money with proprietary code that we should all believe is accurate, I don't as I don't know what goes into it.

Why should we celebrate and say "good job FICO" giving us some new intelligence...we should not as it's more of quantitated justifications for things that are just not true.

I'm in agreement with the Quants out there that wan to reverse engineer stuff like that and see what the dirty risk is that's built and and I can't think of any other wall to start calling folks like this on the carpet as they get away with it as we get duped with the Attack of the Killer Algorithms

It's a bunch of crap with numbers that are sometimes just a flat out guess.  Paul Wilmott in the Quant documentary comes right out and tell you that's what they do when they can't find a formula...correlation here...LIBOR anyone for a simple example. 


Sun, 05/25/2014 - 14:15 | 4793602 medium giraffe
medium giraffe's picture

One might wonder if this shit show was even supposed last quite so long as it has.

Sun, 05/25/2014 - 16:20 | 4793644 Conax
Conax's picture

Never underestimate the willful blindness of people that are lazy, spoiled and absolutely terrified of knowing the truth. 

The post war boom was driven by more than just cheap energy. Those people worked. Very hard. They built this place and all the trappings of a first world culture for piddling pay in the face of high taxes.

They weren't afraid of work, and they even taught their children (some of us) to do the same.

I broke my ass for 44 years and I'm sitting here with holes in my socks.  I can see the evil now.

Sun, 05/25/2014 - 14:52 | 4793668 eddiebe
eddiebe's picture

Ben Hunt sounds like just like a blow-hard academic. If it's worth saying, say it in a few salient points and spare me the diatribe. THAT would impress me.

Sun, 05/25/2014 - 15:06 | 4793687 Hannibal
Hannibal's picture

Been waiting since 1971.

Sun, 05/25/2014 - 15:26 | 4793710 messymerry
messymerry's picture

Well, it took him a damn long time to not answer the question, so I might as well go out on a limb here.  Please don't crucify me.  Thanks in advance. 

I will lay a 20% chance of it starting this year, a 60% chance in '15, and an 80% chance before the next prez election, but then some times I let the TP run out before I snag a fresh roll, so I may not be the best guesser on these matters,..


Sun, 05/25/2014 - 21:53 | 4794462 therevolutionwas
therevolutionwas's picture

We are all guessing.  But we all know the end.  It is definitly happening though!

Mon, 05/26/2014 - 14:32 | 4795427 messymerry
messymerry's picture

You are absolutely right, but we can take comfort in the fact that many people are awake and more are waking up every day.  My best guess is that at least 5% of U.S. Citizens are preparing.  That's almost 17 million people.  This Fascho-ccorporatist State knows this and is working 24/7 to prepare for "The Coming Insurrection". 

Nothing to see here, move on, move on,  

OBTW:  To all our Veterans:  HAPPY MEMORIAL DAY!  You are all in our hearts.

Mon, 05/26/2014 - 00:49 | 4794690 AdvancingTime
AdvancingTime's picture

We may soon be forced to face our economic Armageddon. The forces that have driven stock markets ever-higher and upward may be beginning to wane. Many markets became distorted years ago when QE and super low interest rates hit the economy in an effort to lessen many of the missteps of recent years.

This has been more helpful in holding up the underlying value of assets and derivatives it now appears than helping to repair a wounded economy. QE has up to now stopped an implosion of derivatives including the resulting contagion and shock that would have spread throughout the financial system. Unfortunately the economy has not fared as well as these asset prices and in many ways these policies have harmed Main Street. More on this subject in the article below.

Mon, 05/26/2014 - 08:39 | 4795096 blindman
blindman's picture

A Hard Rains Gonna Fall {Live at Town Hall 1963} - Elston Gunn

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