Guaranteed Financial Security Is A Fantasy

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds,

Guarantees based on extracting higher taxes, borrowing trillions of dollars and creating trillions more out of thin air only guarantee eventual systemic implosion.

It is difficult for those living through tectonic social and economic shifts to recognize the passing of one era and the emergence of a new era. We are clearly in such a tectonic shift, yet it is slow enough and uneven enough that those who hope the old era will somehow endure despite the erosion of its foundations can find evidence to support their beliefs.

One such cherished belief is the faith that financial security can be guaranteed. This faith has two components:
1. The faith that risk can be identified and managed to the point it cannot disrupt the payment of promised pensions, benefits, yields, etc.
2. The faith that the system can pay what has been promised by one means or another.
If tax revenues are inadequate, taxes can always be raised. If tax revenues fail to rise, then the money needed to pay the promised pensions, benefits, etc. can be borrowed. If the money cannot be borrowed, then it can simply be created out of thin air by central banks or printed by government treasuries.
Before the advent of high finance, lowering risk could only be achieved by spreading the risk over a large populace. To lower the risk to individuals that their house would burn down in an accidental fire, insurance was sold to 1,000 homes. If one or two of the 1,000 homes burned down each year, the insurance could pay the claims and still build up reserves for future claims.
But if a conflagration burns down all 1,000 homes, the insurance is overwhelmed; the guaranteed coverage is rendered worthless.
The creation of a volunteer (or tax-supported) fire brigade will also lower the risk that an accidental fire could spread. But once again, such a brigade can only mitigate very limited fires; a second fire or a windstorm would exceed the capacity of the brigade to extinguish multiple fires.
The faith in guaranteed security is actually a faith that there will be no consequences from borrowing or printing enormous sums of money, and no possible risk to the system that cannot be anticipated and mitigated with some fancy financial footwork.
Is this faith reality-based? We know that borrowing immense sums of money does have consequences: interest must be paid out of future income, reducing the income that can be consumed or invested, and dependence on borrowed money creates moral hazard: rather than make difficult trade-offs, the borrower just borrows more money.
Creating money out of thin air is also not consequence-free. Fancy financial footwork can mask the consequences of creating money to pay promised pensions, benefits, etc., but eventually the reality that creating money does not create wealth intrudes on the fantasy that if tax revenues are insufficient, and borrowing has limits, then we can guarantee incomes, pensions, benefits, etc. by creating money out of thin air.
Those dependent on the promises made in the previous era will support any policy that "extends and pretends" the illusion that financial security can be guaranteed, regardless of seismic shifts in the natural and financial economies.
The irony of "extend and pretend" is these policies only push the system to extremes that guarantee systemic collapse. The more we avoid facing the intrinsic insecurities generated by tectonic shifts, the more we hasten the sudden implosion of old systems pushed beyond their limits.
Real security arises from the constant volatility, friction and insecurity of experimentation, adaptation and dissent. Guarantees based on extracting higher taxes, borrowing trillions of dollars and creating trillions more out of thin air only guarantee eventual systemic implosion.

Put another way: spreading the risk of a house fire amongst the 1,000 homeowners does not actually lessen the risk of a conflagration burning down the entire town.

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SickDollar's picture

The Economic system as we know it, is very rusty and the world is fed up. We are seeing slowly a new system taking shape (think  AIIB ...etc) These things take time to hold root, but it is coming and the US is not part of it.

Latina Lover's picture

Our Fed Reserve Banking system is a fantasy, based on blind belief that a Fed Note is money, instead of debt.

GetZeeGold's picture



DANGER : Bail-in Zone


You can check out any time you like....but you can never leave.

silver_stacker's picture

You can check out any time you like....but you can never leave...

I agree...the link to the song is below...


Eagles - Hotel California (Lyrics)

greyghost's picture

let's be clear here. if i have $100,000 in savings at the bank and the bank goes belly up, creating another $100,000 out of thin air to make me whole again, is a wash. the bank can close it's doors and i will not care because i have been made whole and my money is still mine. by not alowing the banks to close their doors and having to create up to $30 trillion or more to float said corpses of banks is the crime of the last hundred years. what would it have cost to just made the depositors whole and close said banks and move on with our lives?

Serfs Up's picture

All I know is that the first official act of any Monday(tm) morning is futures buying by """somebody""" and that the more the futures are down the more this entity buys.

LawsofPhysics's picture

Duh.  That's life (and death).  In fact, your survival is not guaranteed...

Who was that masked man's picture

Your, and my, non-survival is fully guaranteed.

LawsofPhysics's picture

yes, but my children will do just fine.  The first society to recognize that we all live/benefit from a "surplus energy" economy and re-attach their monetary system to reality or something fucking real  will do just fine.  Long term versus short term thinking. IMO, it's about more than just me.

The first country to respect savings and capital again will do just fine.

NoWayJose's picture

There is a small 'fire brigade' currently stacking PMs and storing supplies - but their 'insurance' only covers themselves, close friends, and family.

Fun Facts's picture

There was a time in America when you could save, pay for your home, and live comfortably off of your US Treasury bond interest.

You could calculate to the penny how much you would have left in a decade, or two.

It was called financial security. It's now gone. By design.

Savers are the most hated group by the ZWO bankster cabal because they are not serfish they are being decimated.

Protocol #20 Replace sound investment with speculation

LawsofPhysics's picture

that which cannot be sustained, won't be...

same as it ever was...

p00k1e's picture

The elders have been too greedy and taken too much from the young.

Pensions based on the two highest consecutive years of membership service.  LOL – everyone works double shifts for the last two years.


FredFlintstone's picture

They "spike" it by cashing in their $30,000 in sick time the last year.

oudinot's picture

Good point.

The baby boomers are economically suffocating thier young; the greediest generation in history.

SillySalesmanQuestion's picture

But, but, soooo many have been saved or spared by the DOJ & the FED... AIG, Corzine and MF Global for example. But others were sacrificed....Lehman, Wachovia, and Madoff as an example of "this too could happen to you."

Niall Of The Nine Hostages's picture

Financial security, of course, is only ever really guaranteed for the 30,000 members of the master class. When the village burns down, only the arsonists' policies ever actually pay out.

rejected's picture

Spending money wildly, wasting it away on wars and the tools of war, printing it up and handing it to the non deserving who contribute nothing to the base, passing law to make business startups almost impossible, or shielding businesses by means of licensing, and registering almost everything, government intrusion into all aspects of life, taxes and fees for everything especially private property, citizenship a joke,  and money backed by fraud and a printing press is doomed for failure at some point even with all the lying and manipulating.

JRobby's picture

handing it to the non deserving who contribute nothing to the base

They buy shit from large corporations. So this practice will continue.

Bad GDP vs Good GDP huge problem

rsnoble's picture

Extend and pretend will be the death of us all.  That's reality.

Sages wife's picture

Greenspan said it years ago, " We can guarantee payments of any denomination as far into the future as you like; we just can't guarantee their purchasing power."

Who was that masked man's picture

Everything is a fantasy.  Get used to it.

a common man's picture

wrong thread...oops

El Hosel's picture

Reality is Fantasy... Fairy Dust is all we need Bitches.