State Of Denial: The Economy No Longer Works As It Did In The Past

Tyler Durden's picture

Authored by Charles Hugh-Smith via OfTwoMinds blog,

There's no Plan B for a state-corporate form of central-planning capitalism that is no longer functioning.

If there is one reality that is denied or obscured by the Status Quo, it is that the economy no longer works as it did in the past. This is the fundamental economic context of our current slide into political-social disintegration.

The Status Quo narrative is: the policies that worked for the past 70 years are still working today. Boiled down to its Keynesian state-corporate essence, the Status Quo economic narrative is simple:

All we need to do to escape a "soft patch" (recession) is for governments to borrow and spend more money to temporarily boost incomes and demand until the private sector gets back on its feet and starts borrowing and spending more.

To help the private sector, central banks lower interest rates so it's cheaper to borrow and spend.

As soon as the private-sector borrowing and spending rises, we can raise interest rates and trim state fiscal stimulus (i.e. governments borrowing and spending trillions more than they did before the recession).

But the inconvenient reality is these Keynesian policies no longer work. Fiscal stimulus (governments borrowing and spending trillions more than they did before the recession) has continued for a decade--or in Japan's case, almost three decades.

The Keynesian gods have failed, but the worshippers of these false idols have no other form of black magic to turn to.

Why is fiscal stimulus now a permanent policy? The answer is uncomfortable: if fiscal stimulus is withdrawn (or even trimmed), the economy immediately goes into a self-reinforcing contraction.

As for near-zero interest rates: after 10 years of supposed "recovery," central banks are terrified of pushing rates higher by quarter-point baby-steps, for the same reason that fiscal stimulus cannot be withdrawn: raising interest rates to historic norms would immediately send the economy into contraction.

So "emergency" temporary measures are now permanent life-support, lest the comatose patient expire once life support is removed. If unprecedented "emergency" measures are now permanent props required to keep stagnation from imploding into depression, then what policies are left to deal with the next (inevitable) downturn?

The problem with zero-interest rate policy (ZIRP) and fiscal stimulus is neither are remotely connected to real wealth creation, i.e. increased productivity. Printing /borrowing more money into existence does not create wealth; all the new money only increases future claims on existing productive assets.

Real wealth is generated by increasing the output of goods and services with fewer assets, less energy and less labor.

Corporations have foregone investment in favor of stock buy-backs. Much of the borrowed money has gone into unproductive housing and other asset bubbles.

As Gail Tverberg has explained, there is a collar on oil prices: if they're too low, producers lose money and shut down higher-cost wells, crimping supply; if they're too high, low and moderate-income households can no longer support the consumption the economy needs to keep expanding: Why We Should Be Concerned About Low Oil Prices (Our Finite World).

Cheap, abundant energy is required for expansion of borrowing, consumption and payrolls; as energy costs notch up, wages and consumption stagnate.

In effect, the conventional state/central bank policies reduce down to one simple directive: borrow from the future until "organic" (i.e. not dependent on state stimulus, self-sustaining) growth of the private sector returns.

But since productivity and average wages have declined, self-sustaining expansion is no longer the norm. Instead, every sector is borrowing from the future just to maintain the illusion of solvency and expansion. Corporations, states, central banks and households are all living off money borrowed from future earnings and taxes, or spending the gains from unsustainable asset bubbles.

The economy no longer works, and the Status Quo has no Plan B. All the Status Quo has is policies that no longer work: lowering interest rates (10 years and counting), fiscal stimulus (10 years and counting) and monetary easing/stimulus (10 years and counting).

We sense the economy is no longer working as it did in the past, but we're too terrified to even admit this. Since there's no conventional fix, our "leadership" acts as if everything is just fine, and authorities "adjust" measures of stagnation to appear healthy to support the illusion of solvency and expansion.

Productivity: stagnating, declining:

Personal income: stagnating, declining:

Federal debt (borrow and spend from future taxpayers)--through the roof:

Private-sector bank credit--through the roof:

Wealth inequality--through the roof:

There's no Plan B for a state-corporate form of central-planning capitalism that is no longer functioning. The only policies available are the "emergency" ones that are now permanent life-support systems of our failed global economies.

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fortune114's picture

Welcome new ZH readers.  Please stock up on gold, silver, dry goods, weapons, ammunition.  Report back in a few years once everything is settled.  Thank you.

Arnold's picture

And bitch slap Krugman at every opportunity.
.
When he falls to his knees, crying, then you can kick him in the head.

BuddyEffed's picture

"would immediately send the economy into contraction " ... even on paper in the fudged up statistics is my guess, and that gets noticed too easily and gets people out of their comfort zones

 

Erek's picture

My backup plan is actually my original plan but with more alcohol.

PitBullsRule's picture

This is very true.  When we lost manufacturing, all there was left was advertising.  Facebook, Netflix, Amazon, and Google, its all about advertising.  Were not producing anything anymore, just advertising.  

Those of us still working should hang on as long as possible, because once those jobs are gone... thats all she wrote, good night Irene.

 

Give Me Some Truth's picture

Who is purchasing the advertising? My newspaper has about four ads per edition. The sports talk radio show I listen to in the afternoon runs only free PSA (Public Service Announcements) provided by United Way and  the "Ad Council" to fill air time. The "tells" are everywhere if you look around (or listen in this case).

NAV's picture

State controlled media needs no sponsors. It just needs a willing, propagandized populace, There is no free speech in the gray pages of America’s monopoly-controlled media.  Nor was there free speech in Lenin’s cold-blooded Communist revolutionary state. Said Lenin: “The press should be not only a collective propagandist and a collective agitator, but also a collective organizer of the masses.” He added, “He who now talks about the ‘freedom of the press’ goes backward, and halts our headlong course towards Socialism.”

Newspapers Collapsing? THREE Papers to Share ONE Editor

May 15, 2017 By Stephen Frank

"Visalia [CA] is in the Central Valley.  Salinas is near the bay Area, in a Coastal region.  Redding is in the far North of the State of California.  They have two things in common.  First, all three have newspaper owned by Gannett.  The second thing is the Redding based Silas Lyons will be the editor of all three newspapers.  The next step is to stop publishing dead tree versions of these papers, and inconvenience electrons instead—with a system that could be run from New York."

slimycorporatedickhead's picture

I heard a story of a radio company in my town, desperate for revenue they cold called 250 local businesses to try to sell some radio ads.. guess how many they sold out of the 250? 0!!!! All businesses said they were cutting costs and didn't have it in their budget, or just didn't see the value in radio I guess. GO FIGURE

Atam Gits's picture

Not true. We're still producing porn and autistic kids.

asteroids's picture

The FED in printing up TRILLIONS has royally fucked things up. People just can't wrap their heads around how much a trillion really is much less multiples. I predict Main Street will suffer badly but the banksters will live pretty well for a while. Damn the Chairsatan.

MickV's picture

hEY, THAT'S MY AVATAR!!

 

Able Ape's picture

NO factories, NO future.... addressing this is the first step, however there are many others....

swmnguy's picture

The really inconvenient reality is that we're no longer following the policies that more or less worked for 70 years.  Indeed, that's a large part of the problem.

Glass-Steagall was part of the "Keynesian" policies that functioned.  Allowing utterly insolvent businesses to fail was part of the plan that worked.  

The issues are an order of magnitude worse than CHS suggests.  Firstly, the whole idea of using debt as money requires infinite inputs and infinite growth, which isn't possible on a finite planet.  Secondly, the hodgepodge of policies we had in place, and adjusted as necessary, got thrown out the window when Wall Street took over the Executive and Legislative branches of government for good, with the election of Bill Clinton in 1992.

Real wealth is created by real productive activity.  Except real productive activity is far less profitable than paper-shuffling.  So the paper-shufflers used some of their money to buy control of policy, so they can make sure nobody interferes with the paper-shuffling.  At some point a critical mass of people will realize, "Hey, they're not doing anything real, they're just shuffling papers!"  And then it will all come crashing down.  Unfortunately, a critical mass won't have that moment of realization until it's way, way too late to avert catastrophe.

Al Bondiga's picture

Seems about right.
I would also like to mention that I appreciate your thoughts, espcailly in the midst of this legion of mostly hateful racists and fascists that haunt the comment section here.

gregga777's picture

The economy is working just fine.  The banking gangsters who own the Goldman Sachs Feral Reserve System are getting rich.  The CON Street Swindlers are getting rich.  It goes without saying that the Oligarchs are getting even richer.  The Dimmo-Marxist and Repussican Party political parasites are getting from big, fat bribes delivered to them by their bagpersons.  The American 90% who are debt serfs are getting poorer.  So, what's the problem?  /sarc

 

The motto of the criminals who run the Goldman Sachs Feral Reserve System is:

 

"We steal from those who can least afford it and give to those who least deserve it."

 

 

Give Me Some Truth's picture

'Tis good to be a crony of the Establishment Power in such an age.

gregga777's picture

Stock up on non-perishable food, water purifiers, gold, silver, guns and ammunition.  When the SHTF you will be glad that you did.

 

 

shizzledizzle's picture

When Mario said "Whatever it takes" he  was refering to mass slaughter of unruly serfs.

Cordeezy's picture

What is the cause of this change?  Did the people just lose faith in the system?  Has Bitcoin caused this? 

 

www.escapeamazon.com

small axe's picture

The purveyors of the Big Lie and those who took advantage while seeing through the falsehood are due for a reckoning with extreme prejudice

Give Me Some Truth's picture

They ARE overdue for a "reckoning." Alas, I think the "powers that be" have all their bases covered. The only "media source" who publishes documents from whistleblowers is now a target of the state that fears said whistle-blowing. The press isn't going to practice investigative journalism to give us some truth. Politicians aren't going to hold any hearings. Prosecutors aren't going to prosecute. Regulators don't regulate. Even litigation is settled and news of any settlements buried and forgotten. "1984" arrived around 2016. Absolute power corrupted absolutely about the same time.

Dilluminati's picture

The economy is not represented well by historical post Bretton Woods II metrics.  Ford stock as I typed this was up a penny and wages cut by 10%.  I'm looking at the markets and I don't see any indication that debt-deflation is checked, if anything I would say that that debt-deflation had been effectively transfered off of the balance books of banks and squarely onto consumers via health care cost increases, wage stagflation, and accomodating lending rates only banks could goto the counter for.

Naked retail pricing and oil sensitivity has decoupled past metrics.

The inflation calculations minus food and energy and COLA along with stagnant declining wages is a consumer debt trap represented in a world where the payment of a car is now more important than the cost of the car.  The consumer has been squeezed as the banks and the 1% goto the counter.  It is almost as if there needs to be a Bretton Woods III and that a fee be established on all forex trades similar to FDIC for bank bailout or.. those banks need to be made smaller and allowed to fail.  

WTF do you make of Puerto Rica? Greece? And the zombie pension funds?   You have to do a 2 part tax sender receiver of forex.  Because that addresses the issue most succinctly it also is the least viable, it is however the only solution that is consumption based.

 

Give Me Some Truth's picture

Spot on analysis. Where are we? For a while now, we have been at the point of "when things get serious, you lie." All of the economic stats are bogus. All of the once free markets are now manipulated and rigged. The "truth" can't break through because the "gatekeepers of the news" are accomplices in the charade. 

Give Me Some Truth's picture

Spot on analysis. Where are we? For a while now, we have been at the point of "when things get serious, you lie." All of the economic stats are bogus. All of the once free markets are now manipulated and rigged. The "truth" can't break through because the "gatekeepers of the news" are accomplices in the charade. 

Fake Trump's picture

No worries Trump can fix it with his bullshits.

Caveman93's picture

Malinvestments have consequences. Prepare accordingly.

wholy1's picture

DUH!  "Plan B" better include an "inland, UNaddress/UNencumbered, portion of arable, RURAL, county dirt AND . . . an income-generating "System D" op.

Birdbob's picture

Anarchy, guns ,pitchforks,bullets.......mmmmmmm.

Who will be sneering soon. Extreme predjudice.

gaoptimize's picture

Another way to look at the consequences of the above charts:  https://fred.stlouisfed.org/series/M2V

 

From 2005 to 2015, the velocity of moneys has declined .1 every two years on average.  We are now at ~1.4.  If you believe a velocity of 1 represents an economic event horizon, the maximum time we have left is 8 years at current trends.  I actually think this is becoming self-reinforcing and we will see a velocity of 1 in 4 years.  I suppose a shine on this turd is that Japan's M2 Velocity sits at about .55 now and they haven't started eating eachother yet.

If you imagine the US economy as a business, our free cash flow is crashing.  Freshly created currency is leaving the country at ~$45B a month.  Debt is being piled up at ~$60B a month.  I think DJT wants to do the right things, but no man can prevent the inevitable at this point, even if he was being supported by the other branches of Gov.

ipso_facto's picture

'I suppose a shine on this turd is that Japan's M2 Velocity sits at about .55 now and they haven't started eating eachother yet.'

But Japan does not fill their cities with Dindu Nuffins.

GOLDMAN SACKS FED's picture

BANK INTEREST WAS A TYPE of INCOME used too yield up to 17% at times, manufacturing jobs used to be a type of income,

then came the robots and took income producing jobs, software came and took a world full of income producing jobs, 

then came GFC 1 and wiped out many peoples income, so govt reponded with a bailout of the the publics income and taxed our income more,

so next comes the bail in's to wipe out more income, governments have already made laws to do bail ins taking more income, GFC2 IS FERMENTING RIGHT NOW AS THE FINACIAL BATERIA IS EATING ALL THAT FINACIAL SUGAR AND CREATING FINACIAL ALCOHOL ON WHICH THE DRUNKEN ECONOMY IS DRINKING WHILE THE SHIP OF CAPITALISM IS SINKING, DEBT RIDEN SAILORS SING NINE GREEN DOLLAR HANGING ON THE WALL AND IF ONE GREEN DOLLAR SHOULD ACCIDENTLY FALL THERE WILL BE NO MORE GREEN DOLLARS HANGING ON THE WALL,

NO GREEN DOLLARS HANGING ON THE WALL AND IF JANET YELLEN RAISES INTEREST RATES!

NEXT IS INFLATION AFTER A LITTLE INFLATION DEFLATIONARY MOVEMENTS....REALLY STAGFLATION IS GOING TO BE KING!

 

GOLDMAN SACKS FED's picture

DONT UNDERESTIMATE THE SOFTWARE, MANY TRADERS MAKING A MILLION OR 2 A YEAR HAVE BEEN WIPED BY SOFTWARE,

SOFTWARE WILL REPLACE MORE INCOME PRODUCING JOBS,

AS THE CONSUMER HAS LESS HE WILL PURCHASE LESS AND LESS AND LESS AND LESS AND LESS AND LESS THEN EVEN LESS

GOVERNMENTS WILL RAISE TAXES MORE AND MORE AND MORE AND CORPORATIONS

WILL PUT UP PRICES MORE AND MORE AND MORE TO TRY AND GET PROFITS....

NAV's picture

Without representative government, the greedy State will impoverish us.

My monthly California American Water bill just increased 79% in March to a fixed rate of $100 before any water usage. This includes: a flat Water Service Charge of $58.55; Other Charges including a monthly Pre-2015 WRAM Surcharge of $30.23 to make up for lost water sales revenue due to encouraged water conservation; and Taxes, $2.47.

This does not include any water charges. Monthly water charges are based on five tiers; if you use more water than is allocated to a particular tier, you move to the next, higher priced tier. It now almost breaks a middle class family financially to use a washing machine or water outdoor plants during California’s rainless summers.Low income families, if the pay at all, receive a 30% discount.

Then yesterday, on the heels of this massive increase, comes a notice from California American Water that it has filed another application with California’s corrupt California Public Utilities Commission (CPUC) for another increase in water rates “to establish its cost of capital and rate of return for 2018-2020.”

As AE911Truth wrote yesterday on ZH: “As bad as you think it is, the theft (using a combination of overpriced energy and unsound money) is much worse than you think.”

Able Ape's picture

Look at our inner cities which are bombed out, cratered pieces of shit!  China can build completely NEW cities with no or few people living in them.  Who do you think will own and control the future.  HINT: it's not the USA...

Sonny Brakes's picture

While Mr. Big was engineering his survival with the help of his favorite politician he was counting on the rest of us to play along at home hoping for things to get better. Things did get better for Mr. Big so in the end, it was all worth the effort and things turned out as planned.

decentralisedscrutinizer's picture

 

Almost all the world’s economic and political problems revolve around the hegemony of a global corporate cartel, which is headquartered in the US because this is where their military force resides. The only way to regain our sovereignty as a constitutional republic is to severely curtail the privileges of any corporation doing business here. As a free nation, we really have to stop granting corporate charters to just any “suit” that comes along without fulfilling a defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't take the incorporation of private transnational banks for granted anymore. The government must be held responsible only to the electorate, not fictitious entities, if we are ever to restore sanity, much less prosperity, to the world.

 

 

 

It was a loophole in our Constitution that allowed corporate charters to be so easily obtained it created a swamp of corruption around our capital. It is a swamp that can't be drained at this point because the Constitution  doesn’t provide a drain. This 28th amendment is intended to install that drain so Congress can pull the plug ASAP. As a matter of political practicality we must rely on the Article 5 Convention for which the electorate will need consensus beforehand. Seriously; an Article 5 Constitutional Convention could solve that problem in days. This is what I think it will take to save the world; and nobody gets hurt:

 

 

 

28th Amendment

 

Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to:

 

1, prohibitions against any corporation;

 

a, owning another corporation,

 

b, becoming economically indispensable or monopolistic, or

 

c, otherwise distorting the general economy;

 

2, prohibitions against any form of interference in the affairs of;

 

a, government,

 

b, education, or

 

c, news media, and

 

3, provisions for;

 

a, the auditing of standardized, current, and transparent account books, and

 

b, the establishment of a state and municipal-owned banking system

 

c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.

 

 

 

The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual States, smaller sovereign nations, and eventually to buy out the Federal government itself. Now that these fictitious entities own the USA and command its military infrastructure, by virtue of the Federal Reserve Corporation, and run it by virtue of regulatory capture, MSM propaganda, and Congressional lobbying they’ve set their sights on the creation of an all-inclusive global financial empire. The US Constitution is the “Kingpin” of the whole global Machine.

    

tlnzz's picture

"Corporations are not persons in any sense of the word"

Countrary to the 28th ammendment, the Supreme Court ruled that corporations have, "personhood".

The reason the economy no longer works is because all of the new money formed by the Federal Reserve went to prop up the failing banks all over the World. The mainstreet economy has been left to die a slow death.

CRM114's picture

To be picky, doesn't the increased wealth have to come from using MORE labor? Otherwise there is no increase in earnings to spend.

What you mean is less labour per item, but overall there must be an increase in labor, which comes from an increase in items produced greater than the labor savings per item.

Or in other words, more robots on their own doesn't help.

I think.

Rebel yell's picture

They had a plan B. It was World War 3, because they are tyrannical, criminal, psychopathic terrorists.

I have a plan B. It doesn't provide all of the answers but it does provide a base for a path forward. Rather than rewarding the evil elite establishment that got us into this mess, my plan B eliminates the evil establishment that created the mess. All that they are capable of is more of the same. Death, debt, and destruction. It's their 3 D plan. It works perfectly well for them. They being the banks, military industrial complex, and the government.

First we must eliminate the federal reserve immediately! Monetary policy must not be in the hands of those psychos!
Place it in the hands of either the treasury, or private banks may set their own lending rate. Remove Mnuchin from the treasury. He should have been in prison years ago. Replace him with Paul Craig Roberts.

Close the 700 permanent foreign military bases and 400 temporary foreign military bases and stop funneling money into the 190,000 corporations listed as defense contractors.end all wars immediately and from here on in the military should strictly be used for a foreign invasion on American soil by a foreign government! Have the military take over weapons production and take it out of the hands of the sickest people that ever existed! No more for profit defense contractors!

Government employees should receive a 15% pay cut and their insurance and pensions must be replaced with the same insurance market that everyone else is a VICTIM of and just let them rely on Social Security like everyone else!

Replace the entire congress and justice department.they are all conniving thieves! It's been a total free for all and it has to stop now!!!

Repeal every law that violates anything in the bill of rights including the Patriot Act, the American Freedom Act, the NDAA, HR6393, for starters!

Abolish the TSA and NSA. Right size the CIA to about 30 people.

End federal guarantees on student loans and mortgages. The banks take the interest and not the risk!

End Citizens United! Campaign donations must be limited solely to $27.00 from private individuals and end 501 and 503 cs!

aloha_snakbar's picture

Meybe we could start a GoFundMe to get Chuckles here his own doom porn channel...

atlasRocked's picture

"All we need to do to escape a "soft patch" (recession) is for governments to borrow and spend more money to temporarily boost incomes and demand until the private sector gets back on its feet and starts borrowing and spending more. "

For this to be true, you would have to believe the socialists want the capitalists - their enemy as Obama called them - to be back in power. 

You have to be insane - clinically, not jokingly - to believe socialists want money policy which empowers their ideological opponents.

Apeon's picture

It is like Socialism----one day you run out of OtherPeoples$$$

 

One day 'Tommorrow' runs out of money!

!