Guest Post: A Little Perspective On What Lies Ahead

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

A Little Perspective On What Lies Ahead

Eliminating Elites won't eliminate our structural problems or the reduction in phantom wealth we've all been relying on.

Many finance-oriented critiques start from the position that our problems largely stem from the financial/political dominance of Elitist cartels and cabals. Clearly, the malinvestment, exploitation, predation and disregard for the law that characterizes the rule of political-financial Elites in both developed and developing nations have wreaked havoc on societies and economies around the globe.

Implicit in this critique is a dangerously naive assumption: if all our problems can be traced back to Elitist cabals such as the Federal Reserve and the European Central Bank, then it follows that the subjugation or eradication of these concentrations of self-serving power would remove the cause of our problems.

Alas, that would be a welcome step in the right direction, but that alone would not resolve the structural causes of our devolution. Freeing ourselves of self-serving Elites would certainly create an opening for structural transformation that is currently impossible, but the transformation will require changing much of what the average citizen takes for granted as a "given" or even "right."

For a little perspective on what lies ahead, let's consider the structural problems that remain even if we were fortunate enough to throw off the yoke of the Fed, the corporate cartels, and the entire system of Elitist dominance.

1. We would still have mountains of debt that will never be paid and enormous losses to write off. It would be nice is we could place all the inevitable losses as phantom assets are exposed to price discovery on bankers and Elites, but the reality is that these assets are distributed throughout the economy: as these phantom assets vanish, pension funds, insurance companies and other bulwarks of non-Elite wealth/security will have to write off significant portions of their assets.

Citizens will ultimately find their wealth/financial security has been degraded, perhaps severely. It's tempting to think that a "debt jubiliee" on (for example) student loans would "solve the problem," but this is not a pain-free solution: the $1 trillion in student loans are someone's assets, and the "someone" is not necessarily a banker or billionaire: it might be the pension fund that is paying Mom or Dad's pension.

The unpayable debts are only symptoms of a deeply flawed system. To see the debt as the problem is to ignore the system which created the "need" for that debt: in the education cartel, that is the entire system of "higher education," which is fundamentally a "skimming operation" not unlike its partner in crime, the financial industry and central State that creates and enforces the debt.

In other words, simply writing off debt does not address the structural causes of the debt. That will require a massive revolution in our understanding and delivery of education, and a wholesale elimination of tens of thousands of "skimming" positions within the education complex.

That means tens of thousands of people will lose their high-paying jobs.

You see the point being made here: living within our means requires a massive structural downsizing of assets, employment and expectations. An economy that has lived on the creation of debt (phantom assets) cannot be transformed by the mere writedown of debt: the entire structure that created and enforced that debt must be torn down, and everyone who skimmed off a profit or livelihood from that reliance on the machinery of debt will experience a decline in their standard of living.

2. We would still have a global economy facing the constraints of higher-cost energy and commodities. As we all know, it's easier to create phantom wealth than it is to create real goods such as grain, energy, gold, etc. Phantom assets are ultimately claims on A) income streams or B) real-world assets, and so all phantom assets are ultimately claims on a limited resource, either a commodity or an enterprise.

You can "grow" phantom assets to near-infinity, but that near-infinite sum of money will still distill down to a claim on limited resources and income streams.

As I have often noted here (thanks to correspondents Bart D. and Harun I.), energy may well be abundant at a certain price; what will be scarce is the cash/income to pay for that "abundant" energy. Abundance of a commodity that has a high cost-basis due to real-world constraints does not lead to lower prices: if it takes one barrel of oil to extract and refine three barrels of shale oil, the cost of those barrels cannot drop below the cost of extraction, refining, return on the capital invested, labor costs, etc.

Sellers of oil below cost will rapidly deplete their capital and go bust.

Eliminating Elites is a first good step, but it does not magically eliminate the constraints imposed on a phantom-asset based system. Living within our means will require a massive reduction not just in phantom assets but in the income that has been generated by those phantom assets. It won't just be bankers and billionaires who will be poorer; everyone with exposure to the financial system and the real-world costs of the FEW essentials (food, energy, water) will be poorer in terms of purchasing power.

3. As Status Quo policies fail, replacement policies will become less predictable in their implementation and unintended consequences. Recognizing that a policy has failed is only a first step; understanding the structural causes and designing a policy that won't alienate all the vested interests while addressing the problem is politically impossible until the crisis has left the Status Quo no other choice.

But there is very little history that informs the confluence of crises we now face; the more replacement policies diverge from the mainstream, the more unpredictable their comsequences become. As the saying has it, the road to Heck is paved with good intentions, and policy choices that seem common-sense in crisis could issue disastrous results.

Political expediency is a powerful force for unintended consequences. Even if we got rid of the Fed and various financial Elites, the losses trickling down to the Main Street economy would still be large enough to cause powerful vested interests (union and municipal pension plans, for example) to support Status Quo "saves" of phantom assets and the machinery of debt-creation.

Political expediency will not vanish along with the Fed; vested interests will still seek to impose self-serving policies that have not been thought out or tested in the real world on smaller scales. they will attempt to conserve their own wealth and power at the expense of the general citizenry or politically weaker rivals.

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Temporalist's picture
Monti Warns of Euro Breakup as Tussle Over Aid Hardens

Italy’s Prime Minister Mario Monti warned of a potential breakup of Europe without greater urgency in efforts to lower government borrowing costs, as a standoff over European Central Bank help for Italy and Spain hardened.

LongSoupLine's picture

Guest Post: A Little Perspective On What Lies Ahead


A liitle perspective on all the lies ahead (fixed it).

LowProfile's picture


2. We would still have a global economy facing the  constraints of higher-cost energy due to goverment induced scarcity

Fixed that one too.

Herd Redirection Committee's picture

So if everyone is poorer... Is anyone really poorer?  Because clearly the price of goods would have to go down in that scenario.  Its really a question of relative wealth, if we 'cut the head off' then its the Billionaires and Elites who LOSE THE MOST.  Which is the point, to try to bring things back to a  level playing field.

Why would there be a jubilee on student loans ONLY???  Wouldn't the point of a jubilee be to benefit everyone equally, so that those who over-borrowed would get the most benefit, but its quite inconsequential as no one is massively indebted afterwards, meaning its not like they planned on a Jubilee occurring, nor could they plan to take advantage of 'the next Jubilee' by borrowing up to their eyeballs AGAIN (Jubilees need to be something like 70 years apart historically to prevent repeat offenders and taking advantage of the system). 

Many people have been co-opted, but we can't deceive ourselves into thinking this was by accident, or as some kind of quirk of Big Gov't/Corporatism, it was the plan.  Keep the poor dumb and with a full stomach, teach them gov't is there to look after them, and boom, most chance of revolt is out the window.  Achieving critical mass support for change is severely curtailed once the poorest people feel their 'livelihood' of gov't dependency is at risk.

LowProfile's picture

The problem is that the cost of energy inputs to the USA are about to increase by 200-500%

Bringin It's picture

If that's what it takes to bring down this sick system we have - then bring it on.

Panafrican Funktron Robot's picture

"the losses trickling down to the Main Street economy"

I believe that about as much as I believe that the gains trickle down to the Main Street economy.

Truth:  Stock market crashes don't actually lead to reductions in standards of living for anyone that doesn't rely on stocks for "wealth" (and I agree that pensioners are on the hook for that).  The Publix grocery store near my house, they're still going to be in business if the SPX prints 400 tomorrow.  And if we actually get to gold backed money (which solves about 90% of the problem), I'll actually be able to afford good, healthy groceries due to my productive labor.

This article is frankly bullshit.  Earth to Charles:  The plebs have already taken the hit.  Do you really think we'd give a fuck if stocks were a tenth of their current value, if it meant we could live as free people?

Payable on Death's picture

We have met the enemy and they is us.

Offthebeach's picture

To the elites, muppets are the problem. Fat, dumb, slovenly, ghetto, rednecked, always mewing for more cheese, more cheaper for them colostomy bags, higher disibility farm price supports roads jobs .........and on and on.
There is no reform until ruin, and then the seed is planted again.

MillionDollarBoner_'s picture

Monti can suck my salty balls.

Goldman Shill!

Duke of Con Dao's picture


"You didn't build that Nazi Party," sez Obama. "Someone else Koch-ed it up for you."

el Dukerino


boogerbently's picture

If anyone saved the article from yesterday I'd appreciate you posting the link.

It was a "book review" on a book about grassroots revolution being the only way to take back our govt.

New World Chaos's picture

You can also get it by clicking "contributors" to see old articles from the top of the page.  It's like a whole nuther website.

vinu02's picture

Everyone will hire partime instead of full time and payroll will show high number of job added. VIX will drop to all time low.

Payable on Death's picture

It's true. The first response to Obamacare in the restaurant business, at least, appears to be to convert as many EEs as possible to part time (<30 hrs.). The cost of providing health care to all employees exceeds the profitability of the restaurant sector.

SheepDog-One's picture

Meh....whatever, the sheeple love their masters.

CH1's picture

the sheeple love their masters.

Yes, and THAT is the problem. All others derive from this.

Vagabond's picture

Debt based money, and fractional reserve banking are the problem.  Sheeple loving their masters prevents this problem from being solved, but that doesn't make it THE problem.

I could convince a retarded guy that touching women's fun parts is okay... is it that retard's fault if he starts groping women inappropriately, or is it my fault for tricking him?

Most people don't understand the global financial system.  That doesn't make it their fault that it has been designed to put them at a disadvantage... although it certainly doesn't help.

Herd Redirection Committee's picture

Exactly.  People lose faith in their fellow man because of the huge ignorance (and apathy towards educating themselves) the majority display.  But is it people's fault they have been lied to?  They are victims of fraud, not ignorant by nature/choice.  It starts with fractional reserve banking, the power from which was used to take control of the media (which is post-school education for the masses) and turn the education system into an indoctrination system.

Whats NOT on school curriculums?  Anything re: money, banking, finance, history (which we are taught is 'boring), logic, the types of appeals used to persuade...

Totentänzerlied's picture

It's many things - ignorance, resignation, laziness, servility. But, I just call it a public school indoctrination.

SWRichmond's picture

Once we shed the elites and the regulatory state, we can begin once again creating wealth.

We cannot move forward until we shed the regulatory state and the elites who created it and whom it serves.

The problem highlighted by the author remain unsolvable while we turn away from the above steps.  Once we do those things, a path to the future opens.

duo's picture

Once the FIRE economy is returned to the 10% of GDP from the 40% that it is now, the living standards of the productive worker can be increased.  All of the producivity improvements from the PC, semiconductor, and internet/web eras went directly into expansion of FIRE and government.

What CHS doesn't mention expliceitly is that if financialization is removed from our economy, 40 million people are going to have to find something else to do.

Or, we could end up like E. Germany, where one third of the population spies on or guards the other two thirds.

Cognitive Dissonance's picture

"Or, we could end up like E. Germany, where one third of the population spies on or guards the other two thirds."

Ummmm....didn't I just see a stat somewhere showing that direct and indirect US Gvt (local, state and national) spending was 40% of US GDP. Mission Accomplished!

Wait. There's more coming.

Herd Redirection Committee's picture

If people have more free time and use it to raise their kids properly that isn't exactly a bad thing, either...

Totentänzerlied's picture

"40 million people are going to have to find something else to do."

Something that is productive, within a truly comptetitive labor market, within an unfettered free market system? HAHAHAHAHA! Former bankers, equity analysts, economists, lawyers, politicians, lobbyists, and MSM faces can be employed as target practice with live ammunition - it's a temp job but there's huge demand.

HardAssets's picture

What often gets lost is the opportunities that going a new & different way would provide. This was the reason that America was considered such a threat to the entrenched European aristocracy at her founding. - - If we actually followed those founding ideals (tossed away very early in our history) the release of human creativity and energy would be tremendous. China got a very little taste of this on a very limited and controlled basis - - and look how that country was transformed economically.

The American ideal (with its foundations in past societies) is very threatening to oligarchs and dictators.  Thats why they want to destroy the small remnant of this ideal that remains.

Things that go bump's picture

This is true, SW.  For instance, I have my mother's recipe for banana cake from scratch with brown sugar boiled frosting and for chocolate maraschino cherry cake and several other such goodies.  It is a a bit labor intensive, mashing those bananas or chopping those cherries, but well worth the effort.  A little slice of heaven as opposed to artificially flavored cake mix.  I would like to sell cupcakes from a cart downtown.  I think my product would compete well.  I think I could turn bananas figuratively into gold, but regulations make what should be a simple undertaking into mission impossible and the startup would require a significant outlay of bananas exchanged for the privilege of being taxed to death.   

Panafrican Funktron Robot's picture

This is probably one of the most convincing arguments, that starting a business is such a complete fucking pain in the ass, and it's very challenging to get any reward from it.  4:5 businesses fail in the first year.  That is undeniable proof that we have a very fucking stupid system for businesses.

mjk0259's picture

Maybe it's proof that 4/5 people are too stupid to run a business?

A Lunatic's picture

Damned if you do............Damned if you don't.

SheepDog-One's picture

Meanwhile ObaMao is found to be a prime pumper and dumper of Facebook stock and no one says a word, except Max Keiser.

buzzsaw99's picture

wrong and lacking any substance whatsoever. not even worth correcting.

Jim in MN's picture

What Lies Ahead?  That's easy.  The political and financial classes and their lapdogs.  They always lie.

Title is a bit of a Freudian slip on this one.

NidStyles's picture

This article states that the problem could be partially solved by eliminating the institutions that exist, but then says it wouldn't solve the problems that are actually created by those institutions in the first place for them to justify their existence to the masses.


Sounds to me like this is an article that is meant to test someone's intellect. I see many are already failing above me here. You don't ask the failed institutions for advice, or listen to what they say the problems are, because if they truly knew, they would not be failed institutions. 


#1. That debt belongs to those institutions, not the rest of the public. Keeping them around isn't fixing that problem.

#2. It's called Inflation, the rest of this community understands why costs are rising, why the fuck can't the authors of these articles understand this?

#3. The reliance on institutions and policy setters created this situation in the first place, when the fuck are you morons going to learn?

Spacemoose's picture

regardless of the institutional causes, the REAL problem is that we have been, are currently, and will in the future, be consuming more than we produce.  this cannot continue.  we must either (1) consume less and / or (2) produce more.  this is the ONLY long term solution to the problems we are experiencing today.

NidStyles's picture

What is this "We" shit you are so found of talking about? If "You" are consuming too much, then "Your" extranious costs will devour "Your" savings and "Your" revenue, problem solved genius. It's called letting the market work, rather than devolving into barbaric price controls and centralization. Quit trying to force "Your" problems onto everyone else, and get "Your" own shit straight. Problem solved again.

Spacemoose's picture

say what???  wow.   maybe too much coffee this morning?   i'm merely pointing out that, as a nation, our aggregate consumption outstrips our aggregate production and this is the root cause of our aggregate problem.  you seem to have read one hell of a lot more into my comment than is there.  do you often "read between the lines" like this?  i'm not certain my comment means what you think it means.    

NidStyles's picture

No the problem is that idiots like to make their problems belong to all of the people rather than just taking care of their shit themselves. 


We are not a fucking Nation. We are individuals within imaginary lines. I don't know you, and you don't know me. You are not working for my benefit, and I am not working for your benefit. This notion of "We" is part of the fucking problem. 


Quit telling the rest of us what the fuck you think our problems are, and then everything will be fine. Can you understand that, or do we need to go into more detail here? Your perception issues aside I think you are making great progress once you learn to quit telling everyone else what their problems are.

Totentänzerlied's picture

You fail to grasp the primary assumption of all Western economic and sociopolitical thought. It is a valid assumption as shown by all of human history since the Paleolithic, and in a wider sense the history of biological life. Oh well, I'm sure it's spurious and you know better.

NidStyles's picture

It's your problem that "You" believe these assumptions "You" have latched onto as being true and have faith that others are going to take care of you. In the end you are nothing but a bag of flesh, and what use is one bag of flesh over another to those people that you so willingly give your alleigence to? If you want to know how much those people value you, join the Military and find out first hand.


Human history has taught me one thing, and one thing alone, that no matter how many times people make the same mistakes over and over again, they are going to repeat them until they are dead. 


The rest of your comment is Dialectic nonsense, just like the rest of your BS assumptions.


Clampit's picture

Problem is, We have a currency.

NidStyles's picture

Nope, The Federal Reserve has a currency, I have gold and silver. 

Cognitive Dissonance's picture

Na na na na na na na.....I can't hear you!

Too much Cognitive Dissonance in this article. It's those bad guys over there that are the one and only problem, not me. My assumptions and expectations are just fine bro.


NotApplicable's picture

I quit reading when he started ascribing his own implied assumptions onto his readers, then deconstructs "their" argument.

This guy writes some decent stuff from time to time, but clearly has no clue about how to reach his audience.


NidStyles's picture

Step 2: Do not insult their intelligence either, that gets them worked up even faster.

Dr. Engali's picture

Yes there will be some pain, and a lot of phantom wealth will be destroyed. But we will be better off in the long run as a nation who goes back to actually producing things instead of consuming everything the world has to offer.

RiverRoad's picture

Agreed.  Big reverse split coming for sure.  And why should phantom wealth be perpetuated?  The phantom debt that created the phantom wealth shouldn't be serviced either. 

Bluntly Put's picture

I don't quite get the point here. Is Mr. Smith saying that libertarians who call for an end to the fed think as much of magical unicorns as the current bulk of the financial industry? I'm pretty sure we understood from the bulk of writings here and elsewhere the system is flawed, and usustainable with current instability the rises exponentially every year.

The better question then is, what happens to fringe internet bloggers that correctly identify the problems and inherent risks once they become popular. Do they upgrade their bug out spots with higher voltage solar panels and equipment, maybe even and electric pump for their well? Or do they buy a more posh home in the burbs with a 3-car garage and loft from which to pen end of the world prognosticians?