Guest Post: Why We’re Light Years Away From Solving Our Problems

Tyler Durden's picture

Submitted by Simon Black from Sovereign Man

Why We’re Light Years Away From Solving Our Problems

It’s been said that the definition of insanity is to do the same thing over and over again but to expect a different result. On that basis, the western world’s economic policymakers are clearly certifiable.

They cut rates. It does nothing. So they cut rates again. And again.

They in debt future generations to ‘stimulate’ the economy. It does nothing. So they stimulate again. And again.

Nothing that central banksters or politicians have done since the 2008 global financial crisis has fundamentally changed economic conditions. Yet they keep applying the same remedies, drawn from the same old Keynesian playbook.

The false premise which guides their decisions is that we can all grow wealthy by borrowing and consuming, instead of by producing and saving. People have been sold this lie for more than a generation. It is embedded in social DNA.

In the current western economic system, you are rewarded for going into debt with all sorts of tax deductions. Save money, on the other hand, and you are punished through taxation and inflation.

The incentives are all wrong; it’s no wonder that people have over-borrowed and overspent given that the system is so blatantly slanted to promote such behavior.

Housing is one of the most interesting examples of bad incentives: tax policy in many countries encourages people to take out debilitating mortgages, and governments end up with a moral imperative to ensure home prices continue rising.

This strikes me as truly bizarre. You’d think people would want housing costs to stay low and affordable, not rise.

Nobody cheers when the price of healthcare goes up, even though they could just as easily profit by investing in any number of insurance companies.

I don’t click my heels when the price of food goes up in the grocery store, even though we’ve been paid handsome sums from the bountiful harvests of our farm in central Chile.

And let’s not forget how much turmoil ensues when gasoline prices get too high. Why should housing be any different?

For the vast majority of people, a house isn’t wealth. It’s an expense. And wishing for this expense to increase is both foolish and destructive.

Yet most politicians and central banksters in the west are frantically fanning the flames of broken housing markets, desperately trying to re-inflate prices.

Here in Portugal, for example, housing prices have fallen dramatically. Housing has become affordable. Cheap, even. This is a good thing.

Yet the bureaucrats keep trying to figure out ways to ‘prop up the housing market’ and distort prices, often through policy that is very unfriendly to homeowners.

In the United States, the Federal Reserve keeps ratcheting down long-term interest rates and scooping up mortgage bonds in an attempt to re-inflate home prices.

With so many Nobel Prize-winning economists backing these kinds of policies, it’s clear that the people in charge haven’t even begun to acknowledge the flaws in their intellectual framework.

And if you can’t even admit that you have a problem, then you are light years away from solving it.

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Mrmojorisin515's picture

Its not insanity if you realize by allowing deflation you give up all of your power

dlmaniac's picture

It's human nature that people don't change until they have exhausted all wrongs. They will do the right thing when it's the only thing left to do. The entire world is so effing addicted to decades of debt driven borrow-to-overconsume instant gratification model it'd take proportional amount of time for a balanced and more rational model to be adopted

ACP's picture

And by allowing inflation you give up all of your net worth.

But the solution to the financial problem is not light years away, it's right around the corner thru total collapse.

The Big Ching-aso's picture

 

 

And simontaneously the inhabits of Alpha Centauri think resolution of R problems R lite yrs away 2.

HoofHearted's picture

The premise is correct, but SoveriegnMan (sounds like a bad attempt at a superhero..) doesn't seem to take it one step further. I have. I have encouraged all my friends, relatives, associates to run up the zero interest credit cards by buying tangible assets, whether a generator or freezer, food staples that last (to be used from now, but at a lower price because of food inflation OR to be kept for a SHTF situation), arable farmland, or PMs. So many people have taken that Dave Ramsey course that they think the most important thing is to get out of debt. I can't convince them that the price of things now will just get higher...unless they are buying useless shit like Apple iJunk, Krugman's book, residential real estate that won't produce good rents, new TVs, etc.

And, yes, I'm eating my own cooking. I went way long on peanut butter last year when there were rumors of a peanut crop failue. Peanut butter up 20% since then at the local grocery stores. The kids keep on eating and loving the stuff...bought another side of beef, more guns and ammo, and lots of shiny things that got lost in a canoe trip, unfortunately.

Desert Irish's picture

There will never be total collapse. The Western world in the last 100 years fought two major wars, countless minor wars, suffered a depression and a communist revelution and here we are still stuck with the same ponzi model - just more players. Cockroaches would be easier to wipe out.

Anusocracy's picture

Government is a high time preference organism that strives to create a high time preference world to exist in. It slowly undermines the host's viability until there are two choices left: retrenchment, or continuation to the biggest high time preference activity-war.

Seer's picture

"There will never be total collapse."

WTF?  ALL EMPIRES COLLAPSE!  And given that the US is the leader in the World Economy its collapse will result in the collapse of all the others (if they don't fall apart first, which they're really trying hard to do).

Read Jarred Diamond's "Collapse" to understand how this happens. (esp how the loss of a key trade partner can wipe out a civilization)

Nothing has changed in the physical world.  And humans, who would like to think they are "evolved," have not changed either.

But, be my guest and continue with following the status quo.  Those who are in the worst positions will lay down the foundation for the future (in the form of compost).  [an early] Thank You for your sacrifice!

DCFusor's picture

If your net worth is negative, then you want to give it up!

Further, he's missing something really important.  Who says they're trying to fix the economy, other than them?  If you do the old boring "follow the money" it's not us they are attempting to help, it's the banks...one FASB rule change away from having to mark to market and reveal negative actual book value.  Remember, the fed IS private banks...they're saving themselves, not us.

Those talking head clowns speak of banks trading below book value.  Bullshit.  Their actual value is currently a negative number!

Stuck on Zero's picture

The economic model of the Fed is simply to loot the Treasury and call it "stimulus."  It's no insanity.  It's kleptocracy.

 

Helix6's picture

My sentiments exactly.  The policies we're seeing only look irrational because we do not understand the goal of those policies.

The real knee-slapper to me is the oft-mentioned "dual mandates of the Federal Reserve" -- price stability and full employment.  Jeezus, what a hoot!  Come on, folks, the Federal Reserve is a BANK, and it's one and only mandate is to look after BANKS.  Price stability might be a distant concern, as interest rates are influenced by inflation, but full employment?  Ahahahahahaha!  Maybe at election time!

Otherwise, full employment for bankers maybe.  As for the rest of us, we get lip-service only.

DosZap's picture

For the vast majority of people, a house isn’t wealth. It’s an expense. And wishing for this expense to increase is both foolish and destructive.

I agree, but for the last 75yrs, it has been a store of wealth, because the values always increased.

Seer's picture

The "values" have "increased" right along with inflation...  Measuring things in fiat is always a risky proposition.

falak pema's picture

In the old days the surgeons used to led blood every time a patient had a problem. Blood letting then, ZIRP and print today.

What the Oligarchy wants is for the sheeple to pay for the banks. Simple as that. All this is about saving the banks and those who own their assets, all placed in safe havens. 

Steaming_Wookie_Doo's picture

Correct. Of course Mr SovereignMan hasn't touched all of the derivatives, which far exceed all of the total housing costs in the US. I don't think he's really looking at the root cause. Bernanke's loaned out $15T already and we still have a f***ed, bankrupt banking system. And the blame is the % of people who overborrowed on one house? I don't think so.

Vincent Vega's picture

Hi, My name is The Western Economic System and I have a debt and spending addiction. Can I have a hug?

BeetleBailey's picture

"Yet most politicians and central banksters in the west are frantically fanning the flames of broken housing markets, desperately trying to re-inflate prices.

Here in Portugal, for example, housing prices have fallen dramatically. Housing has become affordable. Cheap, even. This is a good thing.

Yet the bureaucrats keep trying to figure out ways to ‘prop up the housing market’ and distort prices, often through policy that is very unfriendly to homeowners.

In the United States, the Federal Reserve keeps ratcheting down long-term interest rates and scooping up mortgage bonds in an attempt to re-inflate home prices.

100% Correct. The only reason is "overhead supply"; dupes that bought high, and are trying to re-coup their "investment", or dorks that flip houses like flap-jacks.

Houses are met to be LIVED in. The silly assed notion of owning real estate for a short period of time, then selling it to turn a handsome profit is asinine.

Lastly, FUCK The Fed and their asinine schemes. Every one of them should be shot in the face.

sickofthepunx's picture

same problem exists in all asset classes.

 

investors used to buy assets because they believed in the long-term viabilty of the instrument they were buying.  now you have a bunch of dillholes who think they can out-trade a friggin algorithm that never gets tired, distracted, hungry or thirsty and makes more money in nanoseconds than most of us will see in our lives.

The Big Ching-aso's picture

 

 

And then you have someone like this banker guy who drifts off to sea taking the 'problem' with him until ahem, he's found. "Price has said he owns real estate in Venezuela and frequently went there and to Guatemala..."   Maybe he took Simon's advice about everyone needing a safe place to bug out to until things get better?

http://news.yahoo.com/missing-bank-director-sends-confession-disappears-090107668.html

 

 

same old story's picture

God this guy is such a pompous ass.

 

The false premise which guides their decisions is that we can all grow wealthy by borrowing and consuming, instead of by producing and saving.

 

The false premise is assuming those in charge do not understand what they are doing is wrong. LOL they know what they are doing it is quite simple: mass transfer of wealth by all means possible from the majority to the few and leaving the majority to hold the bag.  

Colonel's picture

"The false premise is assuming those in charge do not understand what they are doing is wrong. LOL they know what they are doing it is quite simple: mass transfer of wealth by all means possible from the majority to the few and leaving the majority to hold the bag."

 Bingo! They know what they are doing and its not about helping the average Joe. Right now the banksters and their "economic policy maker" enablers ie... politicians are playing a mass game of psyops on the public. There are WMD's in them thar hills I tell ya!

Diet Coke and Floozies's picture

And all of this is done now because of peak resources per person IMHO

To the down arrow, pleasee refer to this...

http://www.albartlett.org/articles/graphs_images/art200jan_hubbert_figur...

and

http://www.albartlett.org/articles/art2000jan.html

Coke and Hookers's picture

Okey, so you think our benevolant leaders are transferring wealth and bankrupting the middle class out of concern for us because they believe the world has hit peak oil? We must (almost) all become poor because the world is running out of resources? So the Government and the financial elite are the good guys after all with our best interests in mind?

Seer's picture

Who the fuck knows what they really"think."  What THEY think is immaterial.  It is, shifting ACTION from "us" to "them."  Fuck that!  Take fucking charge of YOUR life, hedge accordingly!

Whether "they" understand the realities of resource shortages or not (but, really, ALL AWARS are fought over resources; some more "pleasant" story lines, such as "fighting terrorism" or "spreading 'democracy'" might be given, but it's ALWAYS about resources [only difference would be if you're defending your own turf, in which case it's likely the invaders who are trying to do a resource grab]) does NOT change the facts on the ground (that this is a finite planet and we've been VERY efficient at extracting resources).

Here's a test for you...  If YOU KNEW the real future, you KNEW the facts and they ALL clearly showed massive resource shortages, how would YOU communicate it?  You'd be treated (just like those here that try to get this point across) as a crackpot; those who control everything are NOT wanting you to scare the sheep and cause a panic.

Perhaps some "elite" types actually know, but there's no way they're going to hang their dicks out to save idiots (bad programming by the marketing machine).

Diet Coke and Floozies's picture

If you know an endgame dieoff is near (oil = food), wouldn't it make sense to transfer as many physical assets to yourself and ignore the laws if your TPTB?

Coke and Hookers's picture

Absolutely correct. This policy (and keynesianism in general) is just a tool to move all wealth over to the banks/elite and destroy the middle class. This crisis is both the result of this policy and the point of this policy to begin with. It's wildly successful.

SWRichmond's picture

The false premise is assuming those in charge do not understand what they are doing is wrong. LOL they know what they are doing it is quite simple: mass transfer of wealth by all means possible from the majority to the few and leaving the majority to hold the bag.

Yes you are of course correct but remember there are two battles to be fought; the real one, and the one for public opinion.  The public are not ready to digest the fact you state, but they ARE more ready to understand the simpler point made by Simon.

Have you ever read Mein Kampfe?  The chapter on proaganda is the best explanation of propaganda and reaching the masses ever.  Hitler took a very dim view of the intellectual power of the masses, and his proaganda programs suceeded.

lamont cranston's picture

To alter Mr Carville's rant from 1992, "It's the BANKS, stupid".

If Bank A has a house loan valued in 2007 at $500K and can only liquidate it at $250K, with $450K on the books in 2012, that is not only a capital loss of $200K but also shrinks its capital base by $450K. Shrinking the base (reserves) reduces leverage and the gross amount of derivative speculation. And bonuses. 

"That Catch-22, that's some catch." 

BLOTTO's picture

Might as well measure the DEBT in AU-Astronomical Units.

 

The $ numbers are so LARGE - its like distances between celestial bodies...

 

Yea, so, the debt is 4.5 AU...the distance from Earth to the Milky Way...

Flakmeister's picture

You are on to something, but me thinks you have no idea what you are talking about...

4.5 AU is closer to the sun-jupiter distance (5.2 AU)

DCFusor's picture

And oh shit, we are IN the milky way already.

yrad's picture

The looks you get when you buy $50 worth of Raman noodles and $50 worth of Bottled Water (I just did) from Target is priceless. A lady in front of me at checkout with a baby in arms looked worried for me, I looked worried for her.

slackrabbit's picture

Perhaps, but starvation is worse...

FL_Conservative's picture

Its called Keynesian Monetary Masterbation.

Cognitive Dissonance's picture

"And if you can’t even admit that you have a problem, then you are light years away from solving it."

While the above sentence perfectly illustrates the behavior of a hard core addict, one who is deep in denial, there is much more going on here than first meets the eye. Much more.

Something malicious is operating behind the scenes. It is not "just" self interest run riot. Meaning that while the addicts are most certainly addicted, and there is pressure for the drug dealer to keep dealing, there are more sinister hands behind the dealers of the fiat debt drug than "just" the feeding and caring of our addiction.

This is about slavery, about control of our minds and bodies.

same old story's picture

Not sure it is any more sinister now than before.  It is all about power and control, although the methods they might use this time will be on a scale never seen before.  

Cognitive Dissonance's picture

The control mechanism is ratcheting up as more and more minds open to the possibility that everything is not as it seems. For many the idea that there are sinister hands working behind the scene flies in the face of their default belief that it all is just human nature at work.

Seer's picture

"the possibility that everything is not as it seems."

Need to back up farther, go farther back to the REAL troublesome premise: perpetual growth.

If everything is predicated on such a view, that this is the un-challenged premise as I believe it is, then people are trying to solve the WRONG problem, which can only lead to insanity.

As I noted above, it's quite possible that _some_ of the upper-echelon KNOW that the world's resource base can't provide for this "perpetual growth" premise.  When TPTB maintain power only through this false premise then how could anyone possibly combat such forces (propaganda)? These folks are going to fight with everything they have.

DosZap's picture

Not sure it is any more sinister now than before.  It is all about power and control, although the methods they might use this time will be on a scale never seen before.  

This is the perfect set up for the appearance of the Antichrist............I believe we are living in the time of the last 7yrs,or the couple of years prior to.

The entire world ,running to and fro, saying woe is me, and no one has any answers. Until HE appears,and has the answers and they all worship,and adore him for a time.For their supposed return to peace,and  miraculous prosperity for the entire world.

 

Seer's picture

Ha ha... funny!

This is human fucking nature!  It's all about overshoot.

Seems no one is capable of taking responsibility: expecting there to be some "god" only means that you are powerless- so, why not party and let "god" work it out, eh?

The Apocalypse is about a "great unveiling," no more.  When people are finally faced with reality, with the REAL facts, THEN, and only THEN, will there be this big introspective and willingness to shed the past meme.

I'm sure that the story-tellers will cook up a new "improved" "god."  Nothing new.  Time to serve up yet another "immaculate conception" story...

BOTTOM LINE: the ONLY answer/truth is how humans can live sustainably. (the story of The Garden of Eden was about meddling in "God's" works, which, if one were to translate this to the REAL world one would read it as living with that which is available on a sustainable basis, from Nature)

If "God" wanted us to live more lavishly (and taking into consideration the mandate of "go forth and multiply" then perhaps we'd have been given more than one planet? [but then there'd be the issue of "on Earth as it is in Heaven" - would "Earth" then be "Earths?"]).

Helix6's picture

This is about slavery, about control of our minds and bodies.

Maybe for some of the government types.  For the financial types, though, I can't agree.  The have no more interest in us than how they can syphon off as much of our wealth as possible -- preferably by rigging the system so it happens automatically.

Other than that, the have no more interest in us than they have in a cockroach.

Seer's picture

They're humans too, though perhaps a bit more sociopathic, but humans nonetheless.

I see things as pure desperation to keep a system going that can not keep going (bad premise = FAIL).  These folks have been programmed to believe they have the answers, and they've paraded as they have (false belief), so now that things are really starting to come un-glued they're running around like rats in a cage trying to figure out why their magic powers don't work (and they have to spend more energy to keep from sinking into the masses' pit).

Ratscam's picture

A good article by SB. I deducted 1 point though because there is no Nobel price on economics nor on mathematics. Research yourself. Again there is bankster industry behind it. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

DrGrumpy's picture

Spot on. We have got too used to the idea that our own house is an investment. This is a nonesense. It generates no income and it can't be realized without having nowhere to live. As you say its an expense. The young should stop complaining about not being able to get a mortgage, and tell the central banks and politians to stop proping up house prices. As a baby boomer the price of my house is of no benefit to me because I am not going to sell it. I DON'T CARE HOW MUCH IT FALLS IN VALUE.

Azannoth's picture

True, nobody who bought their house for the right reasons ie. to live in it, cares much about it's current price, as long as they bought it for an amount they thought was reasonable and they could repay.

Another piece of the puzzle ofc is that most (socialist) countries tax the value of your residence so obviously they don't want it to ever go lower and preferably much higher

For me who does not yet own a home and want to buy 1(in near future) I do hope for the prices to remain reasonable and LOW

But as usual the young generation is always expected to pay for the sins on the old 1

DosZap's picture

For me who does not yet own a home and want to buy 1(in near future) I do hope for the prices to remain reasonable and LOW

 

Trust me, the LAST thing you want, or need is to be buying a house at this time.

Be glad you are free of a money pit.I have owned mine for a long time and wish I had never paid it off.

Believe me,just because you own a home outright doesn't come with a damned steep price.

Seer's picture

"I have owned mine for a long time and wish I had never paid it off."

"Trust me, the LAST thing you want, or need is to be buying a house at this time."

Hm... are you sure you've gotten things right?

What should people do with a stash of fiat?  Swap it for PMs and then walk the streets (homeless)?

Food, Shelter and Water.  "Shelter" IS a key ingredient.

I once had a "shelter" that I realized wouldn't be what was needed for the future, so I sold it (near the top of the market).  I rented for several years, and then bought PROPERTY.  My "new" shelter is in a northern latitude and faces toward the equator (passive solar): no obstructions during the heating season.  The property has ample wood (hardwood) for home heating (and my wife will occasionally cook using wood).

I burned up a fair amount of fiat in this latest property acquisition.  Not cashing out totally means that I still have a hedge open for the possible case that the mortgage collector may not appear one day.

Maintenance is, I'll agree, an issue.  But, this is ALWAYS the case.  Best advice, however, is to look for "simple."  Property taxes... I sought to keep mine low by going with Ag land (which I'm actually, SLOWLY, putting in to production).

One never really "owns" land/property.  Nature does; and, sooner or later Nature will reclaim it.

I think that the LAST thing the poster needs is to hear absolutist statements.  Broad brushing isn't good.  Lots more to expose before coming to any conclusion.  As I always say when asked about anything: "It depends."

The Big Ching-aso's picture

 

 

OTOH, you don't necessarily have to live in it either.   You can rent it out.   Thus a house has the potential to be an investment, an income stream, so you so choose.    Not so much with a car for example.    Ironically said car can be lived in however.