Is This A Self-Sustaining Recovery Or As Good As It Gets?

Tyler Durden's picture

Submitted by Charles Hugh-Smith of ofTwoMinds blog,

The reality is that nothing has been done to address the structural rot at the heart of the U.S. economy.

Opinions about the U.S. economy boil down to two views: 1) the recovery is now self-sustaining, meaning that the Federal Reserve can taper and end its unprecedented interventions without hurting growth, or 2) the current uptick in auto sales, new jobs, housing sales, etc. is as good as it gets, and the weak recovery unravels from here.

Believers in the self-sustaining recovery have multiple data they can point to: the aforementioned auto and housing sales, and a number of other upticks in fundamentals such as jobs, household income, industrial production and so on.

The basic dynamic in this story is the Federal Reserve had to shoot the patient full of monetary heroin (free money to financiers, zero interest rates, quantitative easing, unlimited liquidity not just to financiers but foreign banks, etc.) to stabilize the patient (the U.S. economy), but now that the patient has been restored to health via the monetary heroin addiction, the heroin can now be slowly tapered and the patient will not experience cold turkey withdrawal symptoms.

Though it is never stated openly, this is a precise replay of Japan's monetary policies, only on a grander scale. The Fed's leadership (Ben Bernanke, Janet Yellen et al.) concluded that the Japanese had failed to revive their dysfunctional economy because the monetary heroin doses they injected weren't large enough.

So the Fed upped the ante and injected unlimited quantities of monetary heroin into the U.S. (and thus the global) financial system.

The problem with this "cure" is that it leaves all the fundamental causes of the economy's dysfunction untouched. This is precisely what Japan has done for 20+ years: put aside the difficult task of structural reform that necessarily disrupts the vested interests profiting handsomely from the bloated, corrupt, crony-capitalist Status Quo and instead did the easy fix of flooding the dysfunctional economy with monetary heroin.

Giving a patient riddled with structural cancer heroin eases the pain but does not cure the disease. Addicting the patient to monetary heroin only makes the problem worse, as now the patient is suffering from both addiction to monetary heroin and a host of structural diseases.

The U.S. has done essentially nothing to address the structural issues that are crippling its economy:

-- Higher education funded by $1.2 trillion in student loans continues to be unaffordable and disconnected from the emerging economy, that is, the parts of the economy that don't need monetary heroin to prosper;

-- Sickcare (a.k.a. healthcare) continues to squander almost 20% of the nation's GDP while performing poorly when compared to other developed-nation healthcare systems;

-- Concentrated wealth continues to set the agenda and pull the strings in Washington D.C. and state/local governments;

-- The foundations of a free and flexible economy such as Net Neutrality continue to erode under the ceaseless assault of wealthy corporate vested interests;

-- Failed programs such as the F-35 Lightning fighter aircraft continue consuming hundreds of billions of tax dollars due to crony-capitalist lobbying and bureaucratic worship of sunk costs;

-- Banking "reforms" did nothing to restructure a fragile, parasitic financial sector--all they did was add costs while maintaining the sources of fragility such as mark to fantasy methods of calculating asset values;

This is only a partial list of the structural problems that are begging for deep, systemic reforms. But since each real reform would step on the toes of powerful vested interests, the "fixes" are cosmetic public-relations ploys or new layers of central-state bureaucracy that add costs but do nothing to change the sources of dysfunction.

The true believers in the self-sustaining recovery naively believe that the only problem was a lack of monetary heroin. They naively assume all the structural illnesses of the U.S. economy will heal themselves once the monetary heroin has generated more subprime auto loans, more shadow banking skimming, more margin debt, more junk bonds, more corporate buy-backs of stocks and more private-equity fund buying of homes-to-rent--all the "good stuff" enabled by monetary heroin.

Those of us in the this is as good as it gets camp recognize all these results of monetary heroin are self-liquidating: the subprime auto loans supporting vehicle sales will default; the shadow banking system will trigger another credit crisis caused by risky overleveraged bets; the private-equity rentier skim that has boosted housing will find renting houses in a recession is a money-losing proposition; margin debt will fund risky purchases of stocks at the top of the cycle; corporate buy-backs will gut the finances of companies that pursued buy-backs as a means of boosting the value of their stock; junk bonds will default and so on down the line.

The reality is that nothing has been done to address the structural rot at the heart of the U.S. economy. Pumping the economy full of monetary heroin hasn't generated a self-sustaining recovery--all it has done, and indeed, all it could ever have done, is enable the exact same risk-laden malinvestments that triggered the global financial meltdown in 2008.

You keep shoving in the same inputs, and you guarantee the same output: another crash of credit bubbles and all the malinvestments enabled by monetary heroin.

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LawsofPhysics's picture

There is no political or monetary solution to resource scarcity.  Never has been.

Same as it ever was.

XAU XAG's picture

No self sustaining recovery for average Jo


And it only gets worse for the average Jo



Save_America1st's picture

Opinions about the U.S. economy boil down to two views: 1) the recovery is now self-sustaining, meaning that the Federal Reserve can taper and end its unprecedented interventions without hurting growth, or 2) the current uptick in auto sales, new jobs, housing sales, etc. is as good as it gets, and the weak recovery unravels from here.


***WOW...there's so much fucked up with those two "opinions" I don't even know where to start...

gh0atrider's picture

This is going to get worse and very soon.  The power elite need to make their move and soon, if they wait they will lose control of the situation altogether.

drendebe10's picture worries mate as the corrupt, arrogant, incompetent, narcissistic, illegal indonesian kenyan alien muslim sociopathic liar in chief gets to continue to live its celebrity grand imperial golf life style on the backs of hard working US citizen tax paying serfs and peasants.... 

insanelysane's picture

As far as the sheeple are concerned there is no resource scarcity.  Every other day the Prez announces $500 million to Iraq, $1b to Ukraine, $2b for 4 year olds that were kicked out of their country, $1b to educate Amerikans to embrace the culture of countries that kick 4 year olds out, free phones, endless bailouts, etc.

centerline's picture


Resource scaricty means nothing to the masses because they are too far removed from the physical reality of it.  Not to mention normalcy bias.  It will only be an issue on the back of economic failure.

LetThemEatRand's picture

There is actually one political and monetary solution to resource scarcity, which is to funnel all remaining wealth to a tiny percentage of the world's population who will continue to be able to afford food and energy at any price, and let the rest of us go fuck ourselves.  I think that's the one they opted for a few years ago.  

centerline's picture

It also works wonders to reduce the number of mouthbreathers who are burning up all the resources so quickly.  Just need the necessary tools to keep them contained.

If only they could miltarize the police, bifurcate society along numerous lines, establish extensive monitoring systems, etc...  (Oh wait.)

LawsofPhysics's picture

We have already seen the outcome of a "let them eat cake" approach.  It will be no different this time around.

pods's picture

Yep, those impenetrable compounds become their cemetary when the"help" decides they aren't being treated fairly.


shovelhead's picture

You keep repeating ad nauseum "resource scarcity".

Like, no shit. The entire market place is based on resource scarcity. This is like saying water is wet and acting like this is a revelation. If something is not scarce, it has no cost.

Find a new schtick.

LawsofPhysics's picture

For you and I it's "obvious", for the 99%, it's not.  Keep looking for resource-related trades, sometimes I get insightful information, sometimes not (much like your post).

NoDebt's picture

"The entire market place is based on resource scarcity"

If we had a market, I might agree with you.

centerline's picture

SH, read one of my posts above.  Resource scarcity does not mean shit to J6P.

We know it is at the core of everything.  And we try our best to "add it all up" into a bigger picture of where this shit storm is going to hit next, how hard, etc.

Most people though (many of my family included) do not add it up.  They don't have time, don't care, don't have the capacity, whatever.  They really do take what they hear in the MSM and run with it.  Social circles reinforce it.

SofaPapa's picture

I was talking with my sister about this recently.  She is a very highly educated, intelligent, and successful professional.  She recognizes the resource issues, but her response is an explicit: "I don't like to think about that.  It's too depressing.  Let's change the subject."  We're burying our heads in the sand here...

WhoIsJohnGaltCoin's picture

I see this too often. Lawyers, engineers, CFO's, and other people youd think have half a brain. They would rather burry their head in the sand though.

centerline's picture

Yup.  Life gets harder every day.  More pressure.  Less time.   People really are so busy just running the rat race.  Same as my wife.  No capacity left to think about the world that exists beyond her sphere of influence.  My father in law on the other hand thinks a little bigger, but has a terminal case of cognative dissonance caused by chronic normalcy bias.

I personally compare our world to a hamster wheel that keeps getting faster and faster.  Jump off to what appears to be certain death - or stay on and see how fast you can run before exploding.

You know what is sad?  My only real strategy here as regular family guy is to run like a motherfucker hoping that enough other hamsters explode before I do... enough to bring the machinery to a halt.  Then deal with whatever happens when the wheel has stopped (which could be a hamster zombie apocalypse). lol.

drendebe10's picture

..... well there you have it folks.... sheeple rearranging the deck chairs on the Titanic....  some will make it to life boats... others, not so much... meh.....

IANAE's picture

This is not sustainable...repeatable, perhaps, but not sustainable. 

Chief Kessler's picture

There is no scarcity of pork lined up for a crack at Ted Nuggets and Clive Bungholes back 40, no siree!

Metalredneck's picture



The Merovingian's picture

Pretend and extend.  Foarward!

Bill of Rights's picture

Here's how much pricier July 4th will be...

But as we read the piece lets remind ourselves that Yellen and Bernanke( were ) are still hoping for at least 2% inflation.

centerline's picture

Where to even begin?  I cant think of any realistic data point that outside of isolation supports that this is even a recovery.  Is just capital flows shifting as nations drown in debt and desperate sociopath leaders attempt to escape the inevitable.

orangegeek's picture

there is no recovery - never has been


central banks around the world are buying anything that moves in the markets


politicians are supporting this because they know social mood and markets are correlated


so the masses are starving and happy / not reported on - haven't heard from Greece or Ireland lately


it's a fucking disaster out there, but MSM, goobermint, central banks and hedges are keeping markets up - at the expense of everything else on this planet

centerline's picture

The path will be out of government debt and into private assets including "things" tangilble.

Governments are going down for the count, taking modern banking/finance with them - and most likely many currencies with them.

The math is simple... there is no way to make good on the promises that have been made.  Counterparty exposure to this is global.  

Wiemar or Zimbabwe or Argentina, or any other reference for that matter, is worthless as a comparison.  We are in uncharted waters.  Not even the fall of Ancient Rome can compare (although it is likely the best "loose" example).

In 20 years, probably much less, the world is going to be a very, very different place.

aquarian1's picture

All true stuff (aka monetary herion) but there is little point in we the plebs gabbing about it. You wont get a start at democracy until all who run for office must run as indepentants (-no political gangs aka parties) and all campaign funding is limited to 100K.



km4's picture

The basic dynamic in this story is the Federal Reserve had to shoot the patient full of monetary heroin

Steppenwolf The Pusher

SofaPapa's picture

Currency is supposed to represent wealth.  But what the central planners refuse to admit is that while wealth can generate currency, currency cannot generate wealth.  The Grand Canyon is the Grand Canyon.  From the Grand Canyon, we can get infinite pictures, sculptures, paintings, etc.  But no matter how many of those images you use, you cannot recreate the Grand Canyon.  A representation of reality will never create that reality.  Only true free enterprise, which has been thrown under the bus to protect vested interests, can create growth.

centerline's picture

Until the concept of "perpetual growth" is recognized as a massive ponzi scheme and reaches it's limit.



SofaPapa's picture

I agree with you, but I see these as two separate but related inputs to growth.  The one I focused on in my comment was free enterprise.  But as LawsofPhysics points out above, the other input is natural resources.  Even if there were free enterprise, and perhaps even more so (because growth might have continued rather than stalling out), the resource limit would be in effect.  Which of these two inputs is primary in creating our collapse right now is hard to know, because both are active.

centerline's picture

With ya.

There are all sorts of potential constraints.  One of them that I have been arguing for years is social complexity.  Not just civil type, but supply chains, specialization, etc.

Real free-enterprise would have allowed for defaults.  But, it would imply changes that affect TPTB negatively.  TPTB dont want this of course.  Therefore, free-markets are not permitted.  And in denying free-market behavior, they are pressing more and more constraints against the limits.  The net effect is overshoot.

But, free-market behavior isn't some sort of concept.  It is just the reality of math.  A mirror of how we are programmed as a species.



corporatewhore's picture




Seasmoke's picture

Nothing has been fixed since 2008. Just papered over. ...... and the seed corn is diminishing rapidly now...... BIG TROUBLE 

gorilla biscuit's picture

Buzz off, the stock market is going up cash in and live for today. 

EckJo's picture

Money is like a drug.  You always want more....when you have it, it feels sooo good....When you dont,you will do anything for more.

Is This A Self-Sustaining Recovery Or As Good As It Gets?   

Answer: YES!!!!!!!!!!!


"Higher education funded by $1.2 trillion in student loans continues to be unaffordable and disconnected from the emerging economy, that is, the parts of the economy that don't need monetary heroin to prosper;"

We are sweeping this problem under the rug.  

Sadly, there is nothing that can be done about this HUGE issue that has just begun to revel it's  ugly head.  This is a compounding issue that is going to drastically effect the economy long term.  This is the way that I look at it.  OK....whatever, took out some loans to pay for school  going to be paying it back for more than half my life basically there is nothing that student can do to avoid this. The domino effect is former students are so debt burden that they are going to stretch their dollar to meet the "American Dream" of owning a home and having a family.  Great...the bank will lend you money at a decent rate and amazingly you qualify for an amount of money that a outrageously irresponsible in an economy that is addicted to cheap money that only has seemed to benefit the individuals/corporations that complain about selling their vacation homes in Ski town USA.  

The more worrying part is the stagnate to falling incomes that is compounding the large issue.


Solution: Remember, this is America, where you can eat a fried Oreo, enter into hot dog eating contest. So if things get bad enough I will just apply for another credit card and put my student loan in forbearance 

Money_for_Nothing's picture

The change will come when Walmart or McDonalds needs a bailout. I think we are close. You can't run a welfare state without reliable distributors. I'm thinking US is starting to have a business climate similar to India. If we get another Obama in the White house, which I think is likely, we will start seeing immigration from US to central and south America. 2020? Debt slave yearning to be free.

yogibear's picture

Yellen and the Fed have trillions to bailouit and buy everything.

Tjeff1's picture

Nothing will change until King Dollar is unseated as the reserve currency.

Even though the pace of non dollar denominated transactions are increasing at an exponential rate, the dollar is still going to be used for a long time now.

Most people with our view have been astounded that the “system” keeps afloat and has not imploded yet. Most would say it was the Fed, the banksters, or the various “dependent on unlimited fiat injections” world government is the reason it has stayed afloat.

I am realizing more lately that the ultimate strength of any complex system is the faith and belief the dependent participants have in that very same system. That faith comes from the common man, the guy down the street, not from the Fed, the governments or the banks. I think we can agree that these entities do not create our faith and belief, but rather are the recipients and abusers of this faith and belief.

To measure the fragility of any socioeconomic system we must actually measure the strength of those who support it. After several generations of conditioning and increasing dependence upon the very system that we feel will collapse quickly and completely, may I suggest that this faith and belief, and ultimately the false hope that it engenders, may very well die a long and hard death surviving long past it's perceived expiration date.

When looking at the masses, even the financial classes, they have a very limited view of the macroeconomic and historical political landscape and are blindly and easily duped into the stability of the system. This stability is all they know. Until this is broken the abusers will have the upper hand. Lately it seems the public is waking up from a long slumber, but still the numbers are small and therefore the end still seems far off.

Marco's picture

Saudi Arabia's dollar "peg" keeps the US afloat (crutch would be more apt).

corporatewhore's picture

Do we have anyone on this board who can point to what happened to the average joe in England and living standards when the pound lost its reserve status?  What investments prospered?  What got trashed?

LawsofPhysics's picture

Prices on staples (food and fuel) effectively doubled.  The number of people immigrating to Canada and the U.S. jumped as well.  Interestingly, physical cash became a commodity of sorts.  Remember, no internet back then.

Any investment priced in pounds lost half it's value.

Is a global eCONomy now.  Where are you going to go?  Mars?

JR's picture

Because of the period of severe national socialism following WW II, Britain was never able to recover its position in the world as a leading economic power. Her savers and pensioners were devastated by the inflation, most barely able to make ends meet throughout the rest of their lives.

The British financed World War I by taking out the biggest loan in banking history. After WWII, the soldiers returned to a labor government, a destroyed world power – the consequences of economic central planning by her international bankers whose control of the war shifted to control of the peace.

In England, from 1939-1945 prices rose by more than 50% during the war.

Following WW II, Britain moved heavily into socialism, nationalizing its main industries and establishing government healthcare. But, the changes quickly brought steep inflation rates, as high as 24% in 1975 and high unemployment rates.

Welfare costs were also draining the economy to the point where December 1978 through January 1979 became known as the “Winter of Discontent.” Eventually, that led to the conservative power election of Margaret Thatcher in 1979, but by that time, England had lost its prowess.

What happened to the common man?

Liberal economist James Galbraith wrote in 2004: “Inflation applies the law of the jungle to war finance. Prices and profits rise, wages and their purchasing power fall. Thugs, profiteers and the well connected get rich. Working people and the poor make out as they can. Savings erode, through the unseen mechanism of the “inflation tax” — meaning that the government runs a big deficit in nominal terms, but a smaller one when inflation is factored in.

In 1939 just before his death, V.C. Vickers, who had resigned in protest in 1919 as a Bank of England governor, wrote in Economic Tribulation to “the bankers of this country…who manage the machinery of money and credit”:

 “The free vote of the people no longer insures democratic government except in name, and the widespread influence of money, of finance, and of ‘big business,’ and, above all, of international finance with its impartial patriotism, not only dominates governmental policy, both national and international, and affects the lives and livelihood of the people, but has very nearly succeeded in converting our boasted democracy into what is virtually a financial dictatorship…”

Goldbugger's picture

"Believers in the self-sustaining recovery have multiple data they can point to"

Is a bunch of fabricated bullish lies. UN-SUSTAINABLE.