Guest Post: We've Decoupled, Alright - From Reality

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

We've Decoupled, Alright--From Reality

Forget decoupling from Europe--we've been decoupled from reality since 2008.

Have we decoupled from the global slowdown? Doubtful. Have we decoupled from reality? Undoubtedly--and have been since 2008. One key attribute of reality is feedback: actions have consequences, and various forces reinforce or resist each other in a dynamic interplay of positive and negative feedback.

Another key attribute of reality is risk. Risk is as ever-present as gravity, and it cannot be eliminated; it can only be shared or transferred.

When you overwhelm feedback with massive interventions that mask risk, you decouple from reality. With feedback suppressed and risk hidden, the system's resilience and resourcefulness both atrophy. Participants start making decisions not on risk assessment and feedback from reality but on the results of the intervention.

Pharmaceutical intervention offers an apt medical analogy. Various risk factors such as high blood pressure and high levels of LDL cholesterol have been correlated with increased risk of heart disease. Medications can lower these metrics, and so these interventions are now ubiquitous.

Sometimes these result from genetic propensities, but other times they are consequences (feedback) of an unhealthy lifestyle: obesity, poor diet, lack of fitness, etc. If we suppress a single feedback from a spectrum of health-related feedbacks and consequences, have we restored health or simply masked the risk of an unhealthy lifestyle?

Clearly, complex systems do respond to critical thresholds or "pivot points" that trigger cascading responses. It is wise to identify key metrics and manage the risks they present or elevate. But it is unwise to assume that manipulating one metric will necessarily restore a system that is wobbling out of equilibrium to a dynamic equilibrium.

Slamming down one metric or another does not necessarily reduce the systemic risk. Just as someone who eats junk food, smokes cigarettes and drinks sodas all day while slumped on a sofa will not become "healthy" just because statins have slammed down his LDL cholesterol levels, an unhealthy economy cannot be restored to health by manipulating a handful of inputs such as money supply or key metrics such as unemployment.

All these interventions accomplish is to mask risk by transferring it to the system itself, where it builds up behind the apparent "fix" and eventually explodes.

All sustainable systems must be resilient and transparent. Intervening to suppress key inputs and manipulating data points makes the system appear less at risk, but reducing apparent risk is not the same as encouraging resourcefulness and resiliency.

What we have as a consequence of four years of intervention, suppression and manipulation of data is a stock market that is now totally dependent on one input: quantitative easing intervention by the Federal Reserve. An unmanipulated market is based on multiple transparent inputs, including corporate earnings, revenues, currency valuations and so on.

Once inputs are gamed or manipulated, transparency is lost and feedback is distorted or suppressed.

Four years of intervention, suppression and manipulation of data have left the U.S. economy dependent on monetary interventions and massive fiscal deficit spending. Imagine a sickly patient in bed who has become totally dependent on several driplines (interventions). To keep the patient alive, the meds are steadily increased.

Are these interventions restoring health, or simply keeping the patient going until some unknown magic restores health?

In the U.S. economy, the driplines are debt-based spending and leverage. Thanks to endless intervention and manipulation, the economy is now totally dependent on massive debt-based spending and increased leverage for its "growth."

The person or business that becomes dependent on welfare loses resiliency and resourcefulness. To the degree that economies become dependent on debt and leverage just like individuals and companies become dependent on welfare, entire economies lose their resilience and resourcefulness.

A healthy forest offers another apt analogy. A healthy temperate-region forest depends on occasional forest fires to clear out deadwood and refertilize the depleted soil with ashes. In suppressing all fires--what we might call "stress" and feedback-- management virtually guaranteed that when the forest was eventually set ablaze by a random lightning strike, the resulting fire would be catastrophic because the deadwood had been allowed to pile far higher than Nature would have allowed.

The "managers" of the economy have let a couple hundred billion dollars in bad debt burn, and they think the $15 trillion economy is now restored to health. Writing off a couple hundred billion is like letting a few acres of grassland around the parking lot burn and reckoning you've cleared the entire forest of deadwood.

The buildup of deadwood--fraud, impaired debt, leverage, bogus accounting, malinvestments, promises that cannot possibly be met and the multiple pathologies of crony capitalism--continues apace, untouched by Federal Reserve intervention.

Masking risk and suppressing feedback do not restore resiliency or vitality; they cripple the system's ability to respond to reality.

The greater the system's dependence on intervention for its stability, the greater the probability of instability and systemic collapse.

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SMG's picture

When will it end already?  Guesses?  I say in a month or less.

LawsofPhysics's picture

When paper promises and promissory paper fiat is no longer excepted. Go last longer than you think, a.k.a. Japan 2.0.

Xibalba's picture

If stock are relatively 'cheap' due to the manipulated treasury rates....what happens when the manipulation stops????  

LawsofPhysics's picture

Depends what you can cash the stocks out for.  essentially, what is the stock priced in?  More worthless fiat?

LowProfile's picture

All paper is ultimately a derivative of gold, the apex of Exter's pyramid, the premier wealth reserve.

In the end, paper claims on physical assets will only be honored to the extent they can be enforced.  In the case of real estate, if you live in a strong community, your deed will be honored.  If you are an absentee landlord (especially outside your sovereign jurisdiction), good luck with that.

In the case of stocks & bonds, you will be paid out in nominal terms, purchasing power of the numeraire is guaranteed to be destroyed.

Commodities will do slightly better, depending on how essential they are.  Silver will do well if remonetized by a sovereign, e.g. Mexico or China, or if enough people worldwide buy it to make it a viable medium of exchange.  IMO, all of these are unlikely, and silver will be left out in the revaluation.  Purchase according to how you percieve the risk/reward.

Paper claims on gold will be paid out on a percentage basis depending on how extensive the dilution is (if 100 times as much paper gold has been sold as gold exists, you will be paid 1%).

Only physical gold, held securely, will weather this storm.

LawsofPhysics's picture

Correct.  Like any other law-less period in history, if you can't touch the asset or physically defend it, you don't own it.

Precious's picture

Bernanke's easy money creates irrationality.  Just like Greenspan's easy money created irrationality.  Easy money for banks who don't deserve it, and wealthy investors who don't need it.  Zuckerberg gets a 1.5% loan on his 6 million dollar house.   Like he needs that.  But of course, it is never enough for them. It's not even about the money to them.  It's their mentality.  It's their drive to never let anyone else take the slightest fucking perceived advantage of them.  It's their hypnotic state of material accumulation at every fucking, even insignificant, decision point.  More.  Me.  Win. 

Edward Teller's picture

Well, ultimately, most things sell (exchange) for the cost of their production. The "cost" to produce money is, more or less, zero. So that's the real value of your money. When will people stop accepting it? Who knows. I do know the FED is trying to get people to use electronic money (ie. micro voltage patterns in electronic circuits). They admitted as much to me in a private tour of the St Louis FED many years ago. It is my opinion that the purpose is to be able to regulate trade/transactions and thus maintain control longer. If I had to give advice I would suggest avoiding the use of electrical voltage patterns in all transactions that you can. Use cash.

Winston Churchill's picture

Wishful thinking.

That said, it could be next month.Go read John William @shadowstats long report.

He's been writing it ,and updating, it for years.

Basically its game over by the end of 2014,but could happen at any point before.

Any catalyst(black swan),war etc could be the spark.


Anything Bernanke Cannot Destroy..

iDealMeat's picture

Disagree..  I think we have a good 4 to 5 more years of can kicking..


@ 16T in Debt, no one cares..    @ 25T in Debt no one will care..  @ 30T, someone somewhere may start to believe it is unsustainable.


Till then..  The show must go on..



EDIT:  and those are just napkin numbers..  Probably should 10x them for reality.

LowProfile's picture

No offense, but you're going to have to be a lot more specific than that to get an up arrow from me.

IMO things will start to get interesting in August.

They will start to get really interesting late November.

Next Summer will be REALLY interesting...

Q1 2014 is likely when the reset button gets punched.

I'm basing this on Williams & Armstrong's work, US election cycles, and residential/commercial RE and US GOV debt maturation.

graneros's picture

Anything's possible at this point but I'm inclined to think not until after the election.  Unless of course the Dems calculate that they will lose even with the unprecedented amount of manipulation (cheating) they will do. In that case Obama will immediately be procalimed "Der Fuhrer" and we will all live happily ever after in abject poverty, shopping with our EBT cards, and watching "Jerry Springer Dances with Idols at The Jersey Shore" on our big screen TV's.  Sure we'll be able to afford them.  The government will heavily subsidize those.  The Proletariat must have their household propoganda delivery system.  Even in the old Soviet Union when lines were blocks long for a pair of shoes one could easily get a color TV.

TruthInSunshine's picture

OT, but I am on a mission, bitchez.


Everyone is blaming LIEBORGATE for sinking municipal pension funds, due to low fixed interest returns, BUT WHAT ABOUT THE BERNANK & ZIRP/NIRP????????



C'MON, MUNICIPAL UNIONS, calPERS, government workers of the world to retire or retired on vanishing pension funds. UNITE!!!! AGAINST THE BERNANK & THE BERNANK'D MARKETS!!!!

LawsofPhysics's picture

Because the majority of the "representatives" are on the Fed's payroll.  Fucking duh.

TruthInSunshine's picture

It was rhetorical, but intended as a message to anyone who actually believes calPERS or any other pension fund can survive should Bernank'd markets and rates continue.

LawsofPhysics's picture

You are correct sir, most people do not understand that there is and always will be a very real cost for issuing and creating capital.  ZIRP and NIRP is default and money printing for the elite by any other name.  Capital and resource mis-allocation and mal-investment at maximum velocity.

TruthInSunshine's picture

They don't understand it now, but there are weird shades of miscommunication happening (e.g. Libor rather than Bernankio's ZIRP being blamed for what will be the continued implosion of pension funds).

*Did not and would junk you no matter how much we disagree on any single topic, however rare.

LawsofPhysics's picture

"Did not and would junk you no matter how much we disagree on any single topic, however rare."

I know, probably on "the list", but then again, the truth is simply too scary for most sheeple.

TruthInSunshine's picture

Porn surfing & forum trolling Fed Reserve lackeys and SEC midget&donkey bondage connoisseurs - they be everywhere.


Zero Hedge should do a front page centerpiece on how Bernank's ZIRP is hammering pension funds and all retirement vessels of state, county and local retirement funds. It's that worthy.

LowProfile's picture

You guys make me feel all warm and mushy inside...

geewhiz190's picture

today's NYT ran a story about seniors being foreclosed on.  how can a retiree earn a return on a non-market investment to help pay the bills?  and these reverse mortgage ads should be taken off the air. ZIRP may be one way to solve a the debt problem but it seems like the cure is worse than the disease in many cases.

LawsofPhysics's picture

Apparently the Fed wants them all to become bond traders.  Anyone holding treasuries is not keeping up with real cost of living and will end up paying off the debt with their retirement savings.  "Winning"

TonyCoitus's picture

Agreed.  Not only do we have zombie banks, we have a zombie population completely oblivious to the obvious train wreck that awaits us.  Unfucking believable that even "educated" people have no clue.  Too much faith in our fuckarded politicians and bureaucrats.

Temporalist's picture

Because quisling politicians don't bite the hand that feeds them and the 46million on food stamps because they like their heads attached to their bodies.

CH1's picture


You are making a grave error by expecting the Dems (or the GOP, or the Greens or...) to give a shit about reason or consistency.

All that matters to political people is getting to masses to obey them. In that effort, they will use any piece of info they can, in any way they can. Truth or consistency matters NOTHING.

They are NOT the same as you or I. They really, really don't give a shit about truth.

Winston Churchill's picture

Or us, on whichever side of the political plantation.

blunderdog's picture

Obviously, Congress deserves the single largest share of blame.  But who can blame the actual representatives for refusing put any honest information on the table?

The USian electorate is perceived as a screaming bunch of crazies in a constant state of tantrum.

How could anyone really take issue with that assessment?

10mm's picture

They wouldn't know or understand what ZIRP/NIRP/BIRP was.They would look into the sky searching for a Blimp.

fonzannoon's picture

The market rocketed up during "Twist". Twist has been extended. Granted it can't go on forever, but is it safe to say that as long as they "twist" this goes on?

Deep79's picture

No the market rocketed on LTRO 1 and 2

Twist is nothing



fonzannoon's picture

I know a bunch of people in there 60's and 70's that are in an "investment club". These typical mom and pop investment muppets have decided that Obama will be re-elected and he will let the markets and banking system crash around him. Then, after the "reset" will be an inflationary holocaust.

Are they far off?

Cognitive Dissonance's picture

"The greater the system's dependence on intervention for its stability, the greater the probability of instability and systemic collapse."

That says it all right there, in the last sentence of the article, the inevitability of systemic collapse. And the more the talking heads insist this can't happen, the more you and I should be preparing for the worst.

And from where I sit the worst will be worse than we can imagine. One really can't prep too much because we don't know how long they can keep this going. But the longer it goes before collapse, the harder the fall will be.

duo's picture

A forest fire in a place that hasn't burned in 100 years will burn so hot it can sterilize the soil down several inches, killing almost all life.  Then the first rain washes everthing away and you are left with a moonscape.  20,000 years of topsoil, gone.

It's the economic moonscape after our forest fire that I fear.

Cognitive Dissonance's picture

Nice analogy!

I have noticed that since the intense fires in the Colorado hills and mountains they are very worried about rain for several reasons. Two of them are the washing away of the exposed top soil and the potential for flash floods because the no-longer-there underbrush and soon-to-be-gone topsoil no longer hold the rain water to be released slowly over the following hours/days.

duo's picture

Pine cones won't release their seeds unless heated by fire (but not too much).  You'd think forestry science would have figured out by now that fire is a good thing.  Of course, like the housing/debt bubble, it's too late to save the artificially dense forests.  You can kick the can by praying for no lighting, but the moonscape will come, eventually.

UP Forester's picture

I'm surprised no one noted another aspect of a lack of fires.

When you keep fire out of the cycle, standing-dead trees provide the ideal breeding ground of beetles, boring wasps and root fungus.

This then spreads to the rest of the mature and over-mature trees, feeding into the cycle of building fuel load.

After a summer or three of little rainfall, or liquidity if you will, the massive amount of 1-, 5-, 10- and 100-hour fuels are dry enough to produce a conflagration, leading to the "moonscape" resembling a Russian retreat to Moscow....

nowhereman's picture

I went to Mount Saint Helens a few years back expecting to see this very thing, but to my surprise the place is green and vibrant.  

Nature is much more resiliant than we give her credit for.  The earth was here long before us, and will continue long after we've gone.

It is our human hubris and folly to believe we will ever understand her let alone control her.

For this reason, I believe that while future prospects are daunting, we can survive and thrive.  It just won't be anything like what we have now, and that's a good thing, don't you think?

Drachma's picture


He who controls the thunderbolt can plan the conflagration.

Milestones's picture

Nonsense!! I have been in Hawaii after a lava flow and after some  years plants start growing thru it. Yes, if you get a very heavy rain you have erosion. It don't happen the way you lay it out--I've lived in Colorado for over 40 years now and have seen what happens. And I don't live in a big city(Big city in Colorado is !00,000 people) Your comment is sheer Baloney.        Milestones

geewhiz190's picture

the financials trade like they're still coupled. waiting for the next shoe to drop

falak pema's picture

Decoupling from reality : An historically oriented quiz for ZH readers. 

Which of the following statements is historically accurate and why ?

1° Spain has been one of the earliest christian nations even before the Moslem invasion, as the christian presence has been there since 300 BC thanks to the early evangelists.

2° In the middle ages most of the scholarly books were written on valium.

3° Early advances in actors studio invented a new method of emotional performance that required a much physically demanding style of acting called "lavatory" acting. 

4° Stalin intiated the Cold War after WW2 by building a Buffet zone between Eastern and Western Europe stretching from the Baltics to the Balkan Adriatic.

5° Timothy Geithner was head of the NY FED before becoming Treasury secretary in 2009 and in this position was intimately (ir)responsible for interbanking monetary rates and banking cartel decisions associated with FED monetary policy. 

Flakmeister's picture

I think you meant AD.... but point taken...

falak pema's picture

nope i didn't...that was inherent part of the question. Howlers and truth!

Here is the origin of my quiz. It shows how from top to bottom our first world people and civilization now  confuse media marketing  and razmataz for literacy and knowledge of facts. The real world of decoupling, virtuality and reality,  indeed.

Our youth like our Banksta and political elites ONLY believe in porn sex and easy pickings, not in enduring relations that require facing reality and ethical choices, and thus will have to face a future of blood sweat and tears. 

Exam howlers reveal Stalin's sausage roll plan - Telegraph

and this : 

Peter Schiff Fears The Fall Of Capitalism - Business Insider

Ancona's picture

Well said Falk, but I think they were written on Velum, not Valium.

falak pema's picture

That was the whole point of the quiz, four of those questions contained "howlers" for you to identify. Well done you are awake! 

StychoKiller's picture

Vellum, not "velum."

This Buffet zone of Stalin's, did it have fried chicken?

ebworthen's picture

Ben telling Ron Paul that the FED is transparent when they hide names of banks and amounts lent at the backdoor; transparent as a lead-lined concrete bunker.

The "recovery" is a fantasy, a dive into delusion requiring hallucinogenics of massive strength, the crew of the Titanic on equity indice mushrooms and ZIRP LSD; the MSM band drunk and stumbling on Mom and Dad's liquor and Valium, the third class passengers wondering what that horrible grinding noise is and why no one up above seems concerned.