The New Normal: Making Up Your Mind For You

Tyler Durden's picture

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

Increasingly over the past year or so, when people ask me what I do, and that happens a lot on a trip like the one I’m currently on in the world of down under, I find myself not just stating the usual ‘I write about finance and energy’, but adding: ‘it seems to become more and more about geopolitics too’. And it’s by no means just me: a large part of the ‘alternative finance blogosphere’, or whatever you wish to call it, is shifting towards that same orientation.

Not that no-one ever wrote about geopolitics before, but it used to be far less prevalent. Much of that, I think, has to do with a growing feeling of discontent with the manner in which a number of topics are handled by the major media and the political world. Moreover, as would seem obvious, certain topics lay bare in very transparent ways how finance and geopolitics are intertwined.

In the past year, we’ve seen the crash of the oil price, which will have – financial and political – effects in the future that dwarf what we’ve seen thus far. We’ve seen Europe and its banks stepping up their efforts to wrestle Greece into – financial and political – submission. And then there’s the nigh unparalleled propaganda machine that envelops the Ukraine-Crimea-Russia issue, which has bankrupted the economy of the first and imposed heavy economic sanctions on the latter, for political reasons.

And while there are plenty people out there all across the west who may feel convinced that Greece had it coming, that waging wars in far away lands is the only way to keep the west safe, and that Putin is the biggest and meanest bogeyman this side of Stalin, if not worse, many also have come to question the official version(s) of events. Something that, if you ask me, is always good, even if it doesn’t mean the conclusions arrived at are always top notch.

For that matter, even Société Générale does geopolitical commentary, as evidenced in a note published by Tyler Durden:

Western sanctions have exerted a broad-based negative impact on Russian businesses. The cost of borrowing has climbed considerably not just for sanctioned institutions, but also for other Russian entities. Risk management departments across global enterprises are likely to continue erring on the side of caution, continually assessing the risk of sanctions materializing for counterparties in Russia. Normalization of business practices may only reemerge long after the removal of sanctions. Although this does not mean completely avoiding interactions with Russian entities, businesses and investors are increasingly cautious and selective in their participation…

 

Western sanctions against Russia may persist indefinitely. Some locals believe in the likelihood of de-escalation later this year, pointing to the lack of political cohesion and unanimity among Europe’s political leaders, and increasing calls for easing of sanctions. Russian businesses believe that escalation of sanctions may be hard to implement, given that they will also hurt European counterparties.

 

Some local asset managers are optimistic on the performance of Russian assets later this year, based on a perceived high likelihood of improvement in geopolitics. Although locals differ in their assessment of the timeline when sanctions may be lifted, they appear united in their support and admiration of President Putin. Few care to speculate on President Putin’s ultimate game plan, or whether one exists, citing the opacity of the situation. With that said, locals broadly concur that Russia would never (again) relinquish Crimea. In this light, Western sanctions against Russia based on its annexation of Crimea may persist indefinitely…

While in my opinion the conclusions in the note leave to be desired, which may be an indication that the boys are somewhat new to the topic, the very fact that SocGen issues notes about geopolitics, and uses the term itself, is interesting and – to an extent – solidifies the link about finance and geopolitics I noted before.

Still, I’d be inclined to think that when it comes to Greece, the bank’s analysts are capable of leaving their narrow finance perch behind for a broader vista that allows for a view that makes Greece a political instead of a financial issue. Because that’s what is has become, whether the parties involved wish to acknowledge it or not.

Greece, like Ukraine, is about power politics, executed at about the same level of intelligence and sophistication that you and I had when we are still playing in a sandbox. And finance, economics, is one of the very favorite weapons to try and get the side perceived as weaker to say Uncle.

And that in and of itself is still far from the worst thing. The worst is that what reaches the general public about these power games – which are far from innocent, they kill, maim, hurt real people – is a distorted and simplified precooked storyline, so hardly anyone can make up their own mind about what happens. That is why the ‘alternative finance blogosphere’ feels increasingly compelled to cover that part of the story as well.

This is also a major problem in the more domestic issue of economic recovery. Unless we would agree, which we really shouldn’t, that making a small group of the population richer while the much larger rest is made poorer, is how we define ‘recovery’, we have no recovery. But it is still accepted and proclaimed like a gospel: our economies are in recovery.

If you take a step back and watch things from a distance, it’s truly too silly to be true, but endless repetition of the same lines, be they true or not, has them accepted as being cast in stone. It’s like selling detergent. It’s exactly like that: say something often enough and people start to believe it, connect to it. Of course it doesn’t hurt that people very much want to believe a recovery is here. Just as they want to believe product X will turn them into shiny happy people dressed in ultra white shirts.

And of the best pieces I’ve seen in a while on the illusionary recovery topic comes from Scott Minerd at Guggenheim Partners, writing in the FT:

QE Will Lower Living Standards Long Term

New monetary orthodoxy is likely to permanently impair living standards for generations to come, while creating a false perception of reviving prosperity. As economic growth returns again to Europe and Japan, the prospect of a synchronous global expansion is taking hold. Or, then again, maybe not. In a recent research piece published by Bank of America Merrill Lynch, global economic growth, as measured in nominal US dollars, is projected to decline in 2015 for the first time since 2009, the height of the financial crisis.

 

In fact, the prospect of improvement in economic growth is largely a monetary illusion. No one needs to explain how policy makers have made painfully little progress on the structural reforms necessary to increase global productive capacity and stimulate employment and demand. Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency. [..]

What I decidedly do not like about Minerd’s piece is the suggestion that if only policy makers had made more progress on ‘structural reforms necessary to increase global productive capacity’, things would have been fine, or better at least. Like if someone came up with a better way towards growth, that would solve our problems.

In my view, this is not about failing to find the right way towards more growth, it’s that more growth itself is not the right way to solve the issues. When he says policy makers and central bankers are ‘lacking the political will necessary to address the issues’, I can only hope he means the will needed to restructure the entire financial system, force bankrupt banks into bankruptcy and break up what’s left into pieces too small to ever again threaten an economy, let alone the entire financial system. But I don’t see him say it, so I’m left doubting that’s what he means.

Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order.

 

The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.

 

Despite ultra-loose monetary policies over the past several years, incomes adjusted for inflation have fallen for the median U.S. family. With the benefits of monetary expansion going to a small share of the population and wage growth stagnating, incomes have been essentially flat over the past 20 years.

That last bit is the same as saying there is no recovery. Which is a tad curious, because Minerd started out saying, in his first paragraph: ‘As economic growth returns again to Europe and Japan’. Pick one, I’d say.

In the long run, however, classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time.

 

In fact, although U.S. equity prices are setting record highs, real median household incomes are 9% lower than 1999 highs. The report from BoA Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output. The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

It’s by no means the first time I bring this up, but I’ll do it again until there’s no more need. The stories we are bombarded with 24/7 under the quite hilarious misnomer ‘News’ have been prepared, pre-cooked and pre-chewed for our smooth and painless digestion, and as such they contain only tiny little flakes of reality. They are designed to make us feel good, not understand the world around us.

It’s up to sites like this to expose these storylines and narratives for what they really are: tools to sell detergents. Their purpose is not to inform people, but to manipulate them into forming opinions about their world that serve the intentions of one or more groups of people hungry enough for power to occupy themselves with this sort of scheming.

Somewhere on the not so sharp edge between money and power, there are lots of people who devote their entire lives towards devising ways to make up your mind for you. And if you’re like most people, you like that, because it absolves you from having to think for yourself. But the price to pay doesn’t come with the commercials: if you let others think for you, you or your children may be called into war at any time of somebody else’s choosing.

And, as Scott Minerd says, the economic future for your entire families will look utterly bleak. Because that recovery they talk about? It’s not for you.

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Intelligence_Insulter's picture

We gotta wait for the trickle down.

junction's picture

The peasants have to accept that their overlords need the printing press fiat money more, money to pay for their whores and rent boys, their drugs (botox, cocaine, exotic pot), their transplants (getting to the head of the organ line is expensive), their corporate jets and also there is the heavy expense of paying off the police authorities for the infrequent deaths at the satanic rituals the overlords participate in.

cossack55's picture

Fuck growth. How about a little sustainability.

LawsofPhysics's picture

How novel, maybe slow or stop population growth so that everyone can enjoy a decent standard of living?   History and human nature are not on your side...

Gnostech's picture

Yes, we have to have massive population controls in place until we can start colonizing space - and even then they will be necessary. However the problem is that if you just put these controls on first world populations, made up of the most highly educated people and the most likely to actually accomplish our missions and get us into place then you end up with the third world taking over. Also you will have nothing but elderly people.

 

The problem is unfortunately quite multi-faceted and is not as simple as getting people to fuck less. You want, need, some sort of eugenics so that the stupid people breed less and the smart people breed more. Our western democratic society is completely dysgenic. Through subsidies and affirmative action we glorify the weak instead of the strong.

NotApplicable's picture

Eugenicists are about the stupidist fucking people, ever.

How's that fit into your theory?

BobPaulson's picture

Actually, zero population growth happens spontaneously when you educate women in a country. That is why our economic overlords don't like that and support guys like the Saudis.

Griphook's picture

Except that educated women generally then want air conditioners, clothes dryers, SUVs, and 24/7 internet.  To hell with the environment.

The trick is how to educate people and have them subsequently accept living in a mud hut.  No children and no carbon footprint.

disgruntled housewife's picture

Educated women want a safe place to raise their children. How about getting rid of the war mongers in D.C. How about removing the power of bankers who feel it is their duty to open markets which homogenize lifestyles. Educated women are different than women who are subjected to nonstop advertisements as to what they must have and how they must live. Educated women can opt out of the system. They can stay home and raise their children and care for their family. They know a great deal but are discounted as either lazy or stupid or both. They are not listened to- their voices carry no authority. The voices that are listened to are those who are in power and we are right back where we started- the war mongers and bankers.

BobPaulson's picture

You guys, when I say "educated" I mean literate, not ivy league starbucks drinkers.

Griphook's picture

Heh...the Ivy-leaguers ARE the war mongers and bankers.

Mike Honcho's picture

Quit wishing for it because judging by the stupidity of your post, you don't make the cut.

DeadFred's picture

LOL they never seem to envision that they would be one of the ones to be downsized.

cossack55's picture

Thinkin' outside the box before I am inside the box.  

PS-Never let anyone know that you think Malthus may have been right.  

Gnostech's picture

I think both the laws of Malthus and of Moore are generally right but I don't think they're hard-coded laws of the universe.

LawsofPhysics's picture

In other news, Ben Bernanke admits to fucking the children...

infinite growth in a single biosphere with finite resources?   Not to mention many biological cycles that must keep turning (requiring energy) in order to maintain life as we know it...   Good luck with that. 

 

FSFT's picture

This whole world scene is like a bad acid trip

Budd aka Sidewinder's picture

Meanwhile, as I read this, my wife is sitting in front of Good Morning America and I can hear a story in the background about Tom Brady's Facebook page.......swear to God

NotApplicable's picture

Well, he did jump off of a cliff, ya know.

I take it he survived?

disgruntled housewife's picture

How can you stand to watch her waste her time on such drivel. My husbband refuses to entertain any idea that what he is watching on the "news" is nothing more than propaganda. His inability to think for himself has driven a wedge between us that I can barely endure. I have lost all respect for him. Sometimes I rue the day I woke up. It has made life more difficult and lonely. Zero Hedge is a nice respite.

buzzsaw99's picture

...the economic future for your entire families will look utterly bleak.

i'm guessing he didn't buy the facebook ipo. lulz.

Gnostech's picture

finance, energy, and geopolitics...the intersectionality of the alt-right.

yogibear's picture

"Because that recovery they talk about? It’s not for you."

"It's a big club and you ain't in it"

- George Carlin.

The only time the little people are important is when the big boys want to bailed out of their bad bets.

They were touting socialize loses and privatize profits.

 

LostandFound's picture

Great post by Raul, i like his pieces.

Needless to say he is spot on, what amazes me is how gullable the masses continue to be, how far can we go as a society before enough is enough? or do we get slaughtered by the continued slow burn of our freedoms and living standards.

Fun Facts's picture

Google[NSA] has put itself in charge of the truth.

What could possibly go wrong comrade?

thinkmoretalkless's picture

If you like Wall Street you are going to love Madison Ave. Advertisement has devolved from "This is why our product is valuable to you" to "We are such a socially conscious good corporate citizen and will take a tiny fraction of what we will charge you for our product and give it to some "qualified" charity as long as they agree to plaster our logo all over the place. So you hate "the environment" or "Women" or "Children" (insert your bogey man here) if you don't buy our product.

And on a side note , who drives their car like they do in the commercial, or live in a pure white clean kitchen or gets it on enough to buy all the meds....as if with Obamacare you can talk to your Doc about anything anymore or would since he has been turned into a snitch for.gov.

Just a rant while CNBC is on commercial.

teslaberry's picture

what pepole in geopolitical blogs DONT like to tackle with is revolutionary discussion. 

 

why? because if they admitted that the idea of 'recovery' is constantly in the propoganda news because when the next wall street crash occurs , there will be a huge collapse for the working poor into total starvation destitution dependence on government-------

 

that a phase shift in the u.s. system will necessarily result from said destruction of the bottom 50% of people, and that mass starvation would occur but for not-so-cheaper food welfare

 

then the  obvious discussion shifts from polite dissidence and critique of in your face 8 years of propogandizing casino news INTO ACTUAL DISCUSSION OF THE REVOLUTION OR DEVOLUTION FROM THE CURRENT FACADE TO THE NEXT ERA. 

and writing about stuff like that could get you in trouble one way or another.

papicek's picture

What you say about the "News" is spot-on of course, but seriously: whatever made anyone think that business and an economy somehow exists outside of culture, society and its politics? It's not as if most American politics hasn't always revolved around commercial concerns, now hasn't it?

America's very first overseas military adventure in 1801 was about what again? http://en.wikipedia.org/wiki/First_Barbary_War

Caleb Abell's picture

"I can only hope he means the will needed to restructure the entire financial system, force bankrupt banks into bankruptcy and break up what’s left into pieces too small to ever again threaten an economy, let alone the entire financial system."

 

That may be the best and possibly the only way to fix things ... and it will never happen.