The Global Economy Could Fall Farther and Faster Than Pundits Expect

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Systemic fragility doesn't respond to central bank jawboning or Keynesian claptrap; unlike those "policy tools," fragility is real.

The core narrative of central bank/cartel capitalism is centralized agencies have the power to limit downturns and extend credit-based "good times" almost indefinitely. The centralized power bag of tricks includes fiscal policies such as deficit spending to boost "aggregate demand" in downturns and monetary policies such as lowering interest rates to zero and buying assets, a.k.a. quantitative easing.

If we crawl under the barbed wire and escape the ideological Keynesian Concentration Camp, we find thinkers such as Ugo Bardi, John Michael Greer and Dimitry Orlov, whose work explores the dynamics of collapse, resilience and sustainability.

All three have added a great deal to my own (emerging) understanding of the many dynamics of collapse.

We can summarize the dynamics of collapse in many ways; here's one: collapse is latent fragility manifesting. A familiar (and tragic) health analogy offers an example: a middle-aged man doesn't appear ill, a bit thick around the middle perhaps, but neither he nor his intimates can see the fragility of his clogged arteries and blood-starved heart. Seemingly "out of the blue," the man has a massive heart attack and passes from this Earth, to the shock of everyone who knew him.

Financial collapse isn't "out of the blue," any more than a heart attack is "out of the blue." Actions and choices have consequences, and as resilience and redundancy are slowly stripped from complex systems, systemic fragility builds beneath the surface. At some difficult-to-predict point, a threshold is reached and the complex system fails.

In the financial realm, fragility builds as the system relies ever more heavily on marginal lenders, borrowers, buyers and investments for its "growth." The current "recovery" (smirk) is completely dependent on marginal lenders (China's shadow banking), borrowers (auto buyers taking subprime 7-year loans), buyers (corrupt Chinese officials buying $3 million homes in Vancouver B.C. with their ill-gotten gains) and investments (empty malls, empty factories, stock buy-backs, etc.).

The problem for "growth" based on the fragile margins is that the entire system becomes fragile as a direct result of this dependence on fragile margins. The current global real estate bubble is predicated on one condition: that the supply of corrupt Chinese officials fleeing China with ill-gotten millions to invest overseas is endless.

But no supply of corrupt officials, even in China, is truly endless, and markets based on this thin edge of corrupt capital will collapse once the corrupt capital dries up.

The same can be said of marginal oil production, marginal auto/truck buyers, marginal cafes, marginal malls, etc. When fragile (i.e. highly risky) shadow banking becomes a dominant force in credit, the system itself becomes fragile.

Conventional economists are entirely blind to system fragility. There is no ready Keynesian Cargo Cult econometric formula that measures systemic fragility, so it simply doesn't exist within conventional economics.

This is why financial panics and collapses always appear (like fatal heart attacks) to be "out of the blue" to conventional economics.

I propose that the Global Recession of 2016 will trace the Seneca Cliff as described by Ugo Bardi. This application may not align with Bardi's own work, and I want to make it clear this application is my own, not Bardi's. But I think a strong case can be made that the global financial/economic system is primed for a ride down the Seneca Cliff:

 

Recall that the global "recovery" 2009 - 2015 was entirely based on the expansion of debt taken on by marginal borrowers. Systemic fragility doesn't respond to central bank jawboning or Keynesian claptrap; unlike those "policy tools," fragility is real.

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Father Thyme's picture
Father Thyme (not verified) Feb 2, 2016 5:33 PM

Must see!

White Couple VS Black Muslim Migrants - You Have to See This!
https://www.youtube.com/watch?v=b-WpfgBF1-U

trader1's picture

only if we account for it ! 

db51's picture

Shit...that thing looks lie something from Six Flags over Mid America.  WhEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE!

just the tip's picture

...and the maps.

 

you are here.

gdiamond22's picture

Straight down like that, huh? Sounds fun

economessed's picture

Where are the claw marks that the entrenched interests are going to leave as the "wealth effect" disintegrates?  Nobody that got it easy is going to give it up without trying every trick in the book to hang onto it.

weburke's picture

the claw marks are the state of affairs of the people in the countries who dont have the reserve currency.

hunger, among other sufferings.

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Feb 2, 2016 5:43 PM

So basically, go 'long' black diamonds?

Fox-Scully's picture

Double-Diamond slope.

Rehab Willie's picture

Any wealth that's been "created" since 2009 is dog shit wrapped in cat shit, dipped in chocolate.

MASTER OF UNIVERSE's picture

...and with sprinkles, and a cherry on top, but you get the sunday, Rehab Willie, you get the ice cream, the chocolate sauce, the peanuts, and the banana. Yes, I am going to rip your face off and take the sprinkles, and cherry, but you get the sunday, Rehab Willie. You get the sunday.

RadioFlyer's picture
RadioFlyer (not verified) MASTER OF UNIVERSE Feb 2, 2016 8:40 PM

Yum, liberals love treats!

brushhog's picture

Eh. IDK. Was the entire "recovery"  ( assuming we had one ) really based on Chinese shadow banking? The article just says so but offers no links or data to back up its premise.

Grandad Grumps's picture

I am not thinking that elitists will allow their powerbase (the economy) to just disintegrate.

Without the ability to parasitically suck off the corrupt and evil banking teit, elitists will be nothing.

Shad_ow's picture

Chart is bunk.  The recovery was fake so, things were just propped up a bit.  It will not last and then the fall will be deeper.

IMACOINNUT's picture

So having sat watching this shit for six years it occurred to me it was possible to build up the stack with some sort of move. S  Therefore, reading and weeding out some of the most resourceful information Q there was found to be a simple and clear cut method to beat them at their Q game. So having saved a chunk of fiat I decided to place it in a strategic area Q of the ETF system. But rather than giving away this info for free it seemed to be a good idea to make those who were interested work for it. So that's what I did. Good luck. 

Kukata Tamaa and Change's picture

It's all a delusion.........:)

lukasbasic's picture

apart from stocks crashing,  what are the indicators to look which will forecast bank failures? (when is a good point to convert excess cash into hard assets?)

honestann's picture

CENTRAL PLANNING IS GROSSLY INEFFICIENT.

-----

Once central planning invades a moderately healthy host, the central planners can "manipulate on demand" all sorts of statistics to obscure (as in "lie about") the ever-decreasing efficiency of their system.

As the aggregate efficiency continues to fall, the central planners increase the manipulation of statistics, increase the degree of their boldface lies, introduce more egregious controls to prevent any awake, alert, wise and sane individuals from avoiding, evading or insulating themselves and their operations from central planning.

During this time, the entire health and body of the economy are destroyed... the efficiency is lowered to the point of breakeven, then lower, then lower still, then even lower still, then ever lower still.

A largely invisible, slow version of "Atlas Shrugged" occurs.  THIS HAS HAPPENED... and continues.  Want proof?  That's easy!  Before 2~4 years ago, more small businesses were created than destroyed.  That reversed 2~4 years ago, which means more small businesses have been closing down than starting up.  That is precisely Atlas Shrugging... both the increased closings and hordes of new potential Atlases looking at the current situation and deciding "I won't put myself through that, or risk my savings on that".

The USSA and EU (and CA, AU, NZ)... and Japan and China too... have consumed most of their health, most of their bodies, most of their talents, most of the [real and metaphorical] seeds that were to become the next crop.

Finally, approximately NOW, all the "positive feedback loops" are starting to become irreversible and unstoppable.  Understand that the word "positive" in the term "positive feedback" does not mean "beneficial".  It means the consequences of the function of the system feed back into the system to make the system head more strongly and vigorously in the same direction it is already headed.

In other words, NO BALANCE, NO CONTROL.

In other words, STRAIGHT OVER THE CLIFF LIKE WILE E COYOTE.

Actions based upon bad ideas have bad consequences.  The actions taken by the predators-that-be AND THE VAST MAJORITY OF REGULAR FOLKS WHO OBEY THEM have been so outrageously bad, so outrageously corrupt, so outrageously destructive... that

COLLAPSE IS CERTAIN.

-----

Those of us with half a brain (or more) know actions have consequences.  Precisely because we understand "actions have consequences", we tend to "see harm, damage and destruction while too far away".

Actually, that's a positive trait.  In our personal lives, that lets us avoid stupid, wasteful, destructive behavior years if not decades before such behavior would destroy us.  That let's us avoid harm by enormous margins, and avoid wasting boatloads of our time on futile and self-destructive pursuits.

BUT... seeing so far ahead does tend to make us look like "chicken littles".  Because we know we do not benefit from stupid, self-destructive actions... we avoid or stop them years or decades before their consequences become significant, much less severe or self-destructive.

In contrast, the predators-that-be GREATLY BENEFIT from these inefficient and ultimately destructive actions.  However...

HUMAN PREDATORS ARE MASTER CONSEQUENCES SHIFTERS.

These human predators KNOW the actions they force and entice regular folks to take are destructive.

However, human predators also KNOW these actions are designed to shift substantial positive consequences to them, while dumping massively negative onto the great masses of their sheeple-sucker-prey.

And so, now these human predators and the 99% of humans who are their sheeple-sucker-prey have destroyed efficiency and structure so thoroughly that the system can only crash and burn.

The predators-that-be will be nowhere to be found when the widespread death occurs in spades.  They'll be sipping tropical drinks on private islands, or hiding in the Valhalla Sector under Mount Weather and NORAD.

Humans are a failed species.

At least 99% of them.