Guest Post: When Does This Travesty Of A Mockery Of A Sham Finally End?

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Submitted by Charles Hugh Smith from Of Two Minds

When Does This Travesty of a Mockery of a Sham Finally End?

Intersecting global crises cannot be papered over with artifice and propaganda for long.

We all know the Status Quo's response to the global financial meltdown of 2008 has been a travesty of a mockery of a sham--smoke and mirrors, flimsy facades of "recovery," simulacrum "reforms," and serial can-kicking, all based on borrowing and printing trillions of dollars, yen, euros and yuan, quatloos, etc.

So when will the travesty of a mockery of a sham finally come to an end? Probably around 2021-22, with a few global crises and "saves" along the way to break up the monotony of devolution. The foundation of this forecast is this chart I prepared back in 2008:

This is of course only a selection of cycles; many more may be active but these four give us a flavor of the confluence of crises ahead.

Cycles are not laws of Nature, of course; they are only records of previous periods of growth/excess/depletion/collapse, not predictions per se. Nonetheless their repetition reflects the systemic dynamic of growth, crisis and collapse, and so the study of cycles is instructive even though we stipulate they are not predictive.

What is predictable is the way systems tend to follow an S-curve of rapid growth with then tops out in excess, stagnates in depletion and then devolves or implodes. We can see all sorts of things topping out and entering depletion/collapse: debt, financialization, the Savior State, Chinese auto sales, oil production, and so on.

Since each mechanism that burns out or implodes tends to be replaced with some other mechanism, this creates the recurring cycle of growth/excess/depletion/collapse.

I plotted four long-wave cycles in the first chart:

1. The credit expansion/renunciation cycle. a.k.a. the Kondratieff cycle. Credit expands when credit is costly and invested in productive assets. Credit reaches excess when it is cheap and it's dumped into malinvestments, and as collateral vanishes then credit is renunciated/written off.

This is inexact, but obviously the postwar cycle of expansion has ended and is now rolling over into the collapse/renunciation stage.

2. The generational cycle of four generations/80 years described in the seminal book The Fourth Turning. American history uncannily tracks an 80-year cycle of crises and profound transformation: 1860 (Civil War), 1940 (world war and global Empire) and next up to bat, 2020, the implosion of the debt-based Savior State and the financialized economy.

3. The 100-year cycle of inflation-deflation described in the masterful book The Great Wave: Price Revolutions and the Rhythm of History. The price of bread remained almost constant in Britain throughout the 19th century. In contrast, the 20th century has been characterized by inflation--the U.S. dollar has lost approximately 96% of its value since the early 20th century.

Another characteristic of this cycle is wage stagnation: people earn less even as costs of essentials rise, a dynamic that inevitably leads to political crisis and upheaval.

The end-game for inflation is destruction of fiat currencies, i.e. hyper-inflation or complete loss of faith in paper money. This is of course "impossible," just like World War I, the Titanic sinking, the global meltdown of 2008, etc. Impossible things happen with alarming regularity.

4. Peak oil, which does not mean the world runs out of oil, it simply means oil production no longer rises to meet demand and eventually declines even as new fields are brought online.

Many observers are confident that fracking and other technologies will enable current energy proligacy to continue unabated as the U.S. replaces oil and coal with newly abundant natural gas. Not only will this lessen American dependence on non-U.S. oil exporters, but domestic energy will spark a jobs boom as well: Fuel to Burn: Now What? (via Joel M.).

“The reduced vulnerability of North America — and the world market — to oil price spikes also has deep consequences geopolitically, including the reduced strategic importance to the U.S. of changes in oil- and natural gas-producing countries worldwide,” Mr. Morse said in a recent 92-page report called Energy 2020. ”Pressures towards isolationism in the U.S. will likely grow, with consequences for global stability that can only just begin to become understood.”


“In a world of high energy prices, the potential economic activity generated by this wave of new hydrocarbon production is extraordinary and should strongly boost national output, increase incomes, create wealth, stimulate consumption and create jobs,” according to Citigroup.


Mr. Morse of Citigroup forecast that North American oil production could reach an astounding 27 million barrels a day by 2020, almost twice the rate of production of 15 million barrels a day at the end of 2011. Production from the United States could grow to 15.6 million barrels a day by 2020, up from nine million barrels a day in 2011.


If that trend continues, the growth in oil and natural gas supplies in the next decades could turn the United States into a top energy exporter, rivaling some members of the Organization of the Petroleum Exporting Countries. Natural gas could be sold to Mexico and Canada (because exploiting oil sands is so energy-intensive, Canada might have to import natural gas to produce its oil). Refined petroleum products, and even crude oil, could find customers in Europe and Latin America. Coal could be exported to China.


With less gasoline demand, the nation’s surplus refining capacity means the United States is already exporting petroleum products — like gasoline and diesel. The United States is now the top exporter of refined products, just ahead of Russia.


James Brick, an energy analyst with Wood Mackenzie, a research firm, said in a recent report that by 2030 the United States could end up exporting 500 million tons of coal a year, 3.2 billion cubic feet a day of natural gas and 2.5 million barrels a day of oil products.


All this surplus energy in North America sounds wonderful, but that doesn't mean the world as a whole has escaped Peak Oil. Even if these projections turn out to be accurate, that expansion of production will not replace the loss of production as supergiant fields in Mexico, the North Sea and the Mideast enter the depletion phase. Yes, technology can extract more oil, but technology is costly. The days of cheap natural gas may have arrived, but the days of cheap oil are numbered.

How all this plays out is unknown, but even raising U.S. production by 10 million barrels of oil equivalents a day--quite a challenge in the real world despite the easy-to-pen hype-- might not be enough to maintain current production levels. Since several billion more people desire the U.S.-type lifestyle of energy profligacy, then what are the consequences of the mismatch between global demand and supply?

We can also posit that "good-paying jobs" in developed economies are also tracking an S-curve. The post-industrial decline in labor has many causes, but the Internet is a key factor going forward as the Web leverages all sorts of productivity gains without the pesky overhead, costs and trouble of workers.

This reality was masked by the initial boom in Web infrastructure that topped out in 2000, and again by the credit-fueled global malinvestment in real estate that topped out in 2007. Now that those bubbles have popped, the reality of long-term employment stagnation can no longer be masked.

Credit bubbles are not engines of employment, they are only engines of mis-investment and wealth destruction on a grand scale.

A number of other questions arise as we ponder these dynamics. How "cheap" will all that cheap energy be to those without full-time jobs? How will 100 million workers support 100 million retirees, pensioners, welfare recipients and parasitic Elites as costs rise and wages stagnate?

The Status Quo is unsustainable on a number of fundamental fronts. How long it can maintain the facade of stability and sustainability is unknown, but the global willingness to squander four years on artifice and propaganda suggests that another decade will fly by and the end-game will be at hand whether we approve of it or not.

I address these dynamics in various ways in all my books:

Resistance, Revolution, Liberation (Kindle edition)
Survival+: Structuring Prosperity for Yourself and the Nation
Survival+ Kindle edition
Survival+ The Primer
Primer Kindle edition
Weblogs & New Media: Marketing in Crisis
An Unconventional Guide to Investing in Troubled Times (print edition)
An Unconventional Guide Kindle edition.