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.

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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
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...

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.

A Lunatic's picture

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

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...

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.

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...


Azannoth's picture

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

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...

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 ;)

falak pema's picture

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

Abraxas's picture

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

mrktwtch2's picture

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

ATG's picture

We have the Memory Hole already.

It's called cybersecurity...

i_call_you_my_base's picture

24 hour news channels are basically 2 minutes hate.

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! 

DosZap's picture


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).

ATG's picture

Whatever government touches it destroys Dept~

Overnight Options currently long SPY Puts:

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.

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.

ali-ali-al-qomfri's picture

Dio sooooo close


Dr. Gonzo's picture

That's why TPTP are giving us Paul 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. 

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.

jimmytorpedo's picture

and his name sounds like,....


in case any of the sheep were half paying attention

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

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?

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?

surf0766's picture

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

Winston Churchill's picture


We have the ACA for that.

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.

tenpanhandle's picture

only the unborn are innocent.

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.

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..

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


These people are truly disgusting pigs.

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.

jimmytorpedo's picture

J Jonah Jameson?

Did he leave the Daily Bugle?

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.

pazmaker's picture

one day soon...

blindman's picture

Secrets of the Federal Reserve: U.S. Economy, Finance and Wealth
Money, Banking and the Federal Reserve (Full Length Documentary)
Eustace Mullins - The New World Order (Full Length)
etc.. crazy world ....

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.

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. .

resurger's picture

The last paragraph is so true OTM