This page has been archived and commenting is disabled.

Guest Post: Heightened Expectations And The Collapse Of Credibility

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

Heightened Expectations and the Collapse of Credibility

As the Status Quo manages perceptions to maintain the illusion that lofty expectations can still be met, it widens the gap between reality and those expectations. The inevitable snapback to reality will destroy institutional credibility and fatally undermine the Status Quo.

Yesterday we outlined the interwined dynamics of credibility and expectations (The Keys To Understanding the Collapse of the Status Quo: Credibility and Expectations). To grasp the inevitability of this collapse, we need to explore the heights expectations have reached globally.

Let's begin with yesterday's observation that expectations are like debt-money claims on the real world: the claims can expand to near-infinity, but the real world remains stubbornly limited. In other words, expectations are inner states constructed by media and Central State imagery, propaganda and promises, both implicit and explicit. As such, these expectations are claims on the real world.

If the claims exceed the resources of the real world, the expectations will be crushed, and the credibility of the institutions that issued the promises will also be crushed. Once the credibility of key institutions has been lost, the Status Quo is fatally impaired.

Let's take two American examples: housing and higher education. For at least three generations (roughly 60 years), the Federal government has subsidized home mortgages via guarantees issued by the Veterans Administration (VA), The Federal Housing Administration (FHA) and other agencies, and by offering an enormous tax deduction for mortgage interest--the single largest tax deduction for most households.

The expectation fostered by the real estate industry and this government policy was that buying a house and dutifully paying vast sums of interest for 30 years would yield the foundation of middle class wealth: home equity that could be passed on to future generations.

Before the real estate bubble transformed housing into a speculative pursuit of "easy money," buying a house was a form of forced savings incentivized by government subsidies. During the bubble, building home equity via decades of payments was fuddy-duddy: wealth could be acquired in a matter of months by leveraging modest incomes into multiple home purchases and "flipping" of properties.

When the debt/leverage bubble popped, this broke the back not just of the speculative expectation of easy, quick wealth but the old model of forced savings. Anyone who buys a house now will still get a tax deduction for mortgage interest, but there is no longer an implicit expectation that the house will retain its value or be worth more than the payments made.

The housing market is in a trap of its own making. Were prices to fall to levels that were comparable to the cost of rent and the opportunity cost lost by making an illiquid and risky investment in housing, lenders and owners who lent/bought in the bubble years will be wiped out once the market "discovers" their mortgages are backed by phantom assets.

If prices are manipulated to remain at today's high levels by massive government subsidies and the artificial reduction of distressed inventory, the banks, government mortgage agencies and buyers all remain at risk of the market overcoming the manipulation and "discovering" the value is far below the one set by Central Planning.

Once the market breaks through the dam of manipulation, the real estate Status Quo will lose all credibility. How many times do we have to read that "housing is recovering" before we catch on it's all self-serving artifice?

Interest rates can't drop any more, so that manipulation has run its course. As incomes continue declining and the number of full-time jobs drops, the number of people who truly qualify for mortgages also declines. As Baby Boomers seek to cash out home equity to live on, downsize or simply surrender their underwater homes, housing inventory will swell, never mind the millions of distressed properties being held off the market by lenders hoping for a reinflation of values.

The demographics and economy simply don't support rising demand, regardless of how many mortgage guarantees the now-impaired FHA issues and how many times the real estate industry issues "now is the time to buy" bulletins.

The expectation that buying a house is a low-risk pathway to middle class wealth has been fatally undermined, and the credibility of everyone who claims otherwise is increasingly at risk. Too many players depend on this expectation being kept alive for their own income, and so the self-serving calls of "turnaround" by vested interests will continue until their credibility has been reduced to zero.

Another implicit promise was that obtaining a college degree would guarantee a good-paying secure job. Once again, a vast self-serving industry depends on this claim being accepted by the citizenry as truth. And once again, global realities are undermining this expectation.

As I noted in Money Down a Rathole: College, Healthcare, Housing, the problem isn't higher education per se, it's the model of higher education that costs as much as a house for a degree with marginal returns in the real-world job market.

Newly minted college graduates are discovering that their lofty expectations of secure, high-paying jobs are completely unrealistic, and their reaction is naturally dismay and anger: the expectation was encouraged by every level of the Status Quo, and it turned out to be a self-serving fraud.

Around the globe, expectations in the era of manic financialization have been raised. In China, the same expectations that a college degree would lead to a good job were instilled and are now being broken; hundreds of millions of workers expected steady employment, an expectation that is now under pressure.

In Europe, millions of residents expect a generous retirement and full healthcare benefits for life, explicit promises that cannot be met as the surpluses generated by the E.U. economies decline. The demographics and financial realities cannot possibly meet these long-standing expectations.

The same collision of financial reality and lofty expectations is occurring in the U.S., where State promises made on the absurd projection that financialization-fueled booms would never end are being undermined: you can issue as many claims on the national surplus as you want, but that won't increase the surplus.

If expectations, promises and guarantees had aligned with unfinancialized reality, the disconnect between inner states and financial realities would not be so great. This is the consequence of issuing promises and guarantees based on permanent exponential growth of debt and leverage and the speculative bubbles they inflate.

The Status Quo around the globe is trying to manage perceptions to foster the illusion that all the high expectations can be met; but the reassurances are increasingly hollow, and the promises increasingly threadbare. People are waking up, one at a time, to the reality that all the promises and guarantees are fantasy, and their emotional response is deeply negative: they feel betrayed by the Status Quo and its institutions, and they feel a volatile mixture of rage, distrust and resignation.

Studies have found that people (usually those in the lower social and financial tiers) with low expectations tend to be happier than those with high (and unmet) expectations. The Status Quo bought the support of the masses by raising expectations of permanently rising prosperity and security for all. Now that these near-infinite claims cannot be fulfilled, the Status Quo has no institutional ability to lower expectations to more realistic levels. It only knows how to spin artifice and fantasy, in the vain hope that managing perceptions will substitute for managing reality.

This is how credibility is lost. Managing perceptions is a dangerous game, as the perceptions are pushed ever-farther from reality, increasing the shockwave when the two snap together: it won't be reality rising to meet lofty perceptions, it will be perceptions and expectations plummeting to meet reality. This is how the Status Quo will collapse: it will lose the faith of its people, and become the target of their wrath.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 08/14/2012 - 13:29 | 2704294 Nothing To See Here
Nothing To See Here's picture

Nice pic !

Tue, 08/14/2012 - 14:21 | 2704362 Daily Bail
Daily Bail's picture

Despite the calm headline, there's a lot in this story.

A court ruling last week is going to help Corzine.

Special Prosecutor, goddamnit.

Letter From Satan: Dear Brother Corzine
Tue, 08/14/2012 - 14:44 | 2704574 mick68
mick68's picture

Matter of time until one heavily armed and suicidal guy sprays a dozen bankers with bullets as they enter or leave work. He will ignite thousands...

Tue, 08/14/2012 - 16:36 | 2704782 Dr Benway
Dr Benway's picture

What pic? Anyhoos.

 

Absolutely superb article from CHS, as usual. Regarding unrealistic expectations, I think the share market should be mentioned, although perhaps that's coming up.

 

A share's value is net present value of all future dividends. All increase in share value is due to an expectation of future increased dividends. The last thirty years have seen share price appreciation that implies future dividends that most assuredly will not come.

Tue, 08/14/2012 - 13:33 | 2704304 A Lunatic
A Lunatic's picture

my insides feel all vomity.................

Tue, 08/14/2012 - 13:34 | 2704308 francis_sawyer
francis_sawyer's picture

  "People are waking up, one at a time, to the reality that all the promises and guarantees are fantasy, and their emotional response is deeply negative: they feel betrayed by the Status Quo and its institutions, and they feel a volatile mixture of rage, distrust and resignation"

~~~

emphasis on the "resignation" if you ask me... They're scared shitless so they block it out of their minds, entertain themselves with the boob tube, and pray that their shitty job & shitty paycheck will still be around tomorrow...

Tue, 08/14/2012 - 13:50 | 2704366 aint no fortuna...
aint no fortunate son's picture

agreed... altho I don't see any rage, distrust or resignation amongst my peers, just total apathy and denial, a 50" LED TV, and the opinion that in less than 3 months all their problems will be solved when THEIR political crime syndicate takes the national elections and immediately liquidates every member of the other political crime syndicate. I think they have an app for that on iPhones now.

Tue, 08/14/2012 - 13:59 | 2704395 francis_sawyer
francis_sawyer's picture

It's hard to see shit when your face is buried in a little hand held device pretending to exercise your FREEDOMS... While TPTB are using the technology imbedded in those devices to perform 24/7 surveillance of your every movement, thought, & behavior pattern...

~~~

http://www.youtube.com/watch?v=rooPPLtK9pg&feature=fvwrel

Tue, 08/14/2012 - 14:24 | 2704500 PiratePawpaw
PiratePawpaw's picture

You, my friend, need new peers.

Tue, 08/14/2012 - 16:06 | 2704896 aint no fortuna...
aint no fortunate son's picture

no shit

Tue, 08/14/2012 - 14:04 | 2704421 Azannoth
Azannoth's picture

Nobody who lived a whole life of Bliss will ever let reality interfere with their Ignorance

Tue, 08/14/2012 - 15:45 | 2704828 francis_sawyer
francis_sawyer's picture

U need to chip that into some stone somewhere Azannoth (assuming it was your own)... That one should stand the test of time...

Thu, 08/16/2012 - 15:38 | 2711847 Azannoth
Azannoth's picture

I don't know if I was the 1st 1 to say this(probably not) but yes I said this on my own :) to be totally modest I thought it sounded good in my head ;)

Tue, 08/14/2012 - 16:31 | 2704961 falak pema
falak pema's picture

the stuff that legends of man's innocence are made off! 

Tue, 08/14/2012 - 13:35 | 2704313 Abraxas
Abraxas's picture

The status quo has been disturbed. Turmoil will be the only constant thing for years to come.

Tue, 08/14/2012 - 13:37 | 2704319 mrktwtch2
mrktwtch2's picture

just wondering how much longer till george orwells 1984 becoames a reality..maybe 4 to 6 more years??

Tue, 08/14/2012 - 13:38 | 2704325 ATG
ATG's picture

We have the Memory Hole already.

It's called cybersecurity...

Tue, 08/14/2012 - 13:46 | 2704350 i_call_you_my_base
i_call_you_my_base's picture

24 hour news channels are basically 2 minutes hate.

Tue, 08/14/2012 - 13:52 | 2704373 Sig Sauer
Sig Sauer's picture

i wonder how much longer until Soylent Green becomes reality

Det. Thorn: It's people. Soylent Green is made out of people. They're making our food out of people. Next thing they'll be breeding us like cattle for food. You've gotta tell them. You've gotta tell them! 

Tue, 08/14/2012 - 14:03 | 2704416 francis_sawyer
francis_sawyer's picture

Tastes like chicken...

Tue, 08/14/2012 - 17:56 | 2705108 DosZap
DosZap's picture

http://www.infowars.com/national-weather-service-follows-dhs-in-huge-ammo-purchase/

 

What are they in need of cloud formation protection?.

The longer this goes the more insane it gets.It's as if they driven to cause a massive panic.

Legislation is pending for Online ammo sales in quanity.( Thank you insane theater shooter).

Tue, 08/14/2012 - 13:37 | 2704321 ATG
ATG's picture

Whatever government touches it destroys Dept~

Overnight Options currently long SPY Puts:

http://richcash8tradeblog.blogspot.com/2012/07/rich-cash-overnight-options.html

Tue, 08/14/2012 - 13:38 | 2704324 disabledvet
disabledvet's picture

Managing perceptions is an EASY game. And no...I don't need one SHRED of credibility to do it. The problem for the highly sophisticated messenger is when what is said stands in direct and obvious contradiction to what is. "and so social media site constantly harps on what is" I might add.

Tue, 08/14/2012 - 13:40 | 2704333 mind_imminst
mind_imminst's picture

Come on now, the FED and central planners could care less about "reality" or anyone who claims the whole system is a fraud. Hardly anyone is "waking up". The FED/Gov will push the equity markets higher come hell or high water. The last 3 years have proven this in spades and over the dead bodies of many a bear.

Tue, 08/14/2012 - 13:40 | 2704334 diogeneslaertius
diogeneslaertius's picture

LIVIN ON THE HEDGE!

Tue, 08/14/2012 - 15:35 | 2704792 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

Dio sooooo close

LIVIN ON THE ZERO HEDGE

Tue, 08/14/2012 - 13:43 | 2704344 Dr. Gonzo
Dr. Gonzo's picture

That's why TPTP are giving us Paul Ryan...an established Washington politician who will keep everything exactly the same....minus of course all the benefits that have been promised to the people. It would be way too out of character for Obama to break the elites promises and the people need to believe in this dog and pony show. We demand the best character actors for our politicians.  If TPTP need the morbidly obese proles to go on a diet and need want their government checks slashed they don't hire the Hope guy to do it. 

Tue, 08/14/2012 - 14:48 | 2704579 Disenchanted
Disenchanted's picture

 

 

 

"Paul Ryan"

 

Speaking of the status quo and it's lack of credibility...

 

For all his calls for “consistency” and “morality,” Ryan is just another cynical self-aggrandizing opportunist, whose “principles” consist of appeasing the military industrial complex, the Israel lobby, and the neoconservatives, who have been “briefing” him on the Party Line. If he is the “intellectual leader” of the Republican party, then it is time for the GOP to declare intellectual bankruptcy.

 

excerpt from: The Marketing of Paul Ryan

 

My name is Disenchanted and I approve that paragraph.

Tue, 08/14/2012 - 15:11 | 2704703 petolo
petolo's picture

HEIL RYAN !

Tue, 08/14/2012 - 15:14 | 2704712 petolo
petolo's picture

HEIL RYAN !

Tue, 08/14/2012 - 15:46 | 2704835 jimmytorpedo
jimmytorpedo's picture

and his name sounds like,....

RON PAUL

in case any of the sheep were half paying attention

They're so broke that's all they can afford to pay!

Tue, 08/14/2012 - 13:43 | 2704345 TrustWho
TrustWho's picture

...maybe why khmer rouge killed intellectuals first. Bolshevik slaughtered intellectuals. French revolution oft their heads.

Does this end differently. If not, globilization could make this interesting?

Tue, 08/14/2012 - 13:47 | 2704352 JohnKozac
JohnKozac's picture
<<Heightened Expectations And The Collapse Of Credibility>>

 

Mr. Smith, are you trying to break the news to me there is no Santa Clause?

Tue, 08/14/2012 - 13:48 | 2704359 Winston Churchill
Winston Churchill's picture

Say its not true ?

Tue, 08/14/2012 - 13:47 | 2704356 surf0766
surf0766's picture

Make the baby boomers pay for this mess. It was their "leadership" that has seen greed run to extremes.

Tue, 08/14/2012 - 13:50 | 2704364 Winston Churchill
Winston Churchill's picture

Patricide.

We have the ACA for that.

Tue, 08/14/2012 - 15:04 | 2704667 WillyGroper
WillyGroper's picture

Ahmmm, correct me if I'm wrong, but I don't think any boomers were born in 1913. Everyone has got to blame someone. What was ur part? Did you vote? Any difference between the 2 parties? Thot not.

Tue, 08/14/2012 - 16:33 | 2704967 tenpanhandle
tenpanhandle's picture

only the unborn are innocent.

Tue, 08/14/2012 - 22:31 | 2705713 HardAssets
HardAssets's picture

Read  some history. This game has been going on for a very long time - before America was even discovered by Europeans. The battle between power and Liberty. The actions of a relatively small group of people to live off of and control everyone else. 

It really got going in America about a 100 years ago when a small group gave themselves the power to print our money & their paid off politicians borrowed from them to bribe the public & create an empire. - - No, it all didnt start yesterday.

Read. . . economist/historian Murray Rothbard is very good.

Tue, 08/14/2012 - 13:51 | 2704372 MachuPicchu
MachuPicchu's picture

When collapse of credibility happens, then there will be any war in the world or catastrophic event that will bring back credibility in the government..

Tue, 08/14/2012 - 13:52 | 2704379 El
El's picture

"Jesse Jackson, Sr. told us not to worry about loading students up with too much college debt, because Nancy Pelosi and the Democrats will eventually forgive all student loan debt. On the promise of debt forgiveness, 'those people will continue to vote Democratic.'"

 

Whistle-blower, documents: Ill. state workers forced to attend Pelosi, Jesse Jackson Jr. event on taxpayer dime

http://dailycaller.com/2012/08/14/whistle-blower-documents-ill-state-wor...

 

These people are truly disgusting pigs.

Tue, 08/14/2012 - 14:25 | 2704504 Blankenstein
Blankenstein's picture

I wonder if this is why JJJ has been in hiding for the last 2 1/2 months with a constantly changing reason for his absence: exhaustion, stomach problems, depression, etc.

Tue, 08/14/2012 - 15:49 | 2704843 jimmytorpedo
jimmytorpedo's picture

J Jonah Jameson?

Did he leave the Daily Bugle?

Tue, 08/14/2012 - 13:53 | 2704381 cougar_w
cougar_w's picture

People get angry, but the target of their wrath is nowhere near, or long absconded with the loot. They will have to turn locally for heads to off, to local officials and neighbors, to anyone with a local business. Which is too bad because as a rule the local level is hardly where the problems lay. Sure there was petty theft all along but for the real plundering of a nation you have to go to the national and global levels.

Nobody will understand this. The Globalist set from their safe havens will laugh at our infant tantrums and little revenges against our neighbors, just as they have laughed for 1,500 years now. Nothing will change. And like before they will return with a promise to rebuild civilization for us, as a favor. If we will give them certain advantages.

Nothing changes. Nothing.

Tue, 08/14/2012 - 13:59 | 2704402 pazmaker
pazmaker's picture

one day.....one day soon...

Tue, 08/14/2012 - 13:56 | 2704389 Debt-Penitent
Debt-Penitent's picture

+1

Tue, 08/14/2012 - 14:09 | 2704435 blindman
blindman's picture

Secrets of the Federal Reserve: U.S. Economy, Finance and Wealth
http://www.youtube.com/watch?v=_WDKD-G7AiU
.
Money, Banking and the Federal Reserve (Full Length Documentary)
http://www.youtube.com/watch?v=pQGhfQnRzYk&feature=related
.
Eustace Mullins - The New World Order (Full Length)
http://www.youtube.com/watch?v=2h_V-ARe_nE&feature=related
.
etc.. crazy world ....

Tue, 08/14/2012 - 17:56 | 2705111 theTribster
theTribster's picture

Good post, many here on ZH should see these. I've noticed just lately that someone is putting a -1 on almost all posts - I suspect its all when they do it. The spam in posts has been pretty limited though. +1 good post.

Wed, 08/15/2012 - 06:42 | 2706107 blindman
blindman's picture

thanks, but i like to believe i'm special in the eyes of the down arrow kings. there is a very long history of people objecting to the integrity of the federal reserve and i think that is an important point some youngsters may have missed. right from the beggining, before the beggining of the fed, at the beggining of the federal government there was objection to a private central bank. check out the vanderlip plan. http://news.google.com/newspapers?nid=2249&dat=19131024&id=ARsnAAAAIBAJ&... .

Tue, 08/14/2012 - 14:15 | 2704463 resurger
resurger's picture

The last paragraph is so true OTM

Tue, 08/14/2012 - 14:24 | 2704503 jmcadg
jmcadg's picture

Damn right we're pissed. I want Dimon in a ring. Just me and him. I wipe that smarmy grin off his fat fuckin face.

I'm a fair man ... I'll leave Blankfein for any takers and Corzine for Ann Barnhardt. I'd watch that.

Tue, 08/14/2012 - 18:01 | 2705119 theTribster
theTribster's picture

With you, I'll take Blankfuck. Group piss on Dimon after your done, he's such an arrogran crimnial piece of shit. Blankfuck is worst from my point of view, so I'll enjoy kicking his teeth out out then smacking him with the aluminum folding chair! My heart is racing just thinking about it :) It should be expanded to include the top 7-10 banks CEOs (all C-level) as well as their BoDs - they are all criminals endorsed by the criminal politicians and lawmakers. Seeing a theme here?

If you sell tix I'm buying for me and all my friends and family, what a show seeing Dimon have his face beat off! Good post :) +1

Tue, 08/14/2012 - 14:43 | 2704564 Fields and meadows.
Fields and meadows.'s picture

I share Mr C.H. smith's analysis as far as it goes.

Though I would also agree with the poster above who emphasised 'apathy' as a response before 'anger'.

However, all this pre-suposes that TPTB do not actually have any sort of medium/long term plan. Perhaps they do not, but what if they do?

There is more evidence of design than chaos in the current social/economic situation.

Who can deny that your Republic is subject to a mass immigration programe? That's only one example if we look around there seems to be a...ahem...well a global conspiracy.

Sorry to use those words but that what it looks like.

Again, how come China can have a spy get data that allows them to track your nukes (CIRCA '97/98)? Yet still, TPTB move productive capacity to China using 'bailout' funds??

How can that NOT be an international conspiracy?

Anyway, an event or series of events similar to a world war would actually secure the current power elites; though it would destroy 'our' world.

That scenario seems to make more sense than, 'The elites don't know what they are doing.'

They usually do.  

 

 

Tue, 08/14/2012 - 14:46 | 2704585 TahoeBilly2012
TahoeBilly2012's picture

Anne Barnhart could whoop ass on every single Wall St. pussy out there.

Tue, 08/14/2012 - 16:03 | 2704886 jimmytorpedo
jimmytorpedo's picture

with half her brain tied behind her back

Tue, 08/14/2012 - 16:06 | 2704894 Batman11
Batman11's picture

The UK has had house price crashes before. The late 1980s - early 1990s crash being particularly bad, but I was amazed at how quickly everyone forgets a housing crash and the next boom starts, it was just a couple of years.

Freud was right and human beings are driven by primitive desires from their subconscious with rationality being a very thin veneer on the surface. The advertising industry uses this theory very successfully. The housing market is driven by the primitive need to find and provide shelter for yourself and your family, which is why it is totally irrational.

 

 

Do NOT follow this link or you will be banned from the site!