Swag

We're like a sprawling family bickering over the inheritance: we'll keep arguing over who deserves what until the inheritance is gone. That will trigger one final outburst of finger-pointing, resentment and betrayal, and then we'll go do something else to get by. The "solution" is thus collapse. This model has been very effectively explored in The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization by Thomas Homer-Dixon. The basic idea is that when the carrying costs of the society exceed its output, the whole contraption collapses. The political adjunct to this systemic implosion is that the productive people just stop supporting the Status Quo because it's become too burdensome. The calculus of self-interest shifts from supporting the bloated, marginal-return Status Quo to abandoning it. 
So the root problem is the system, human nature, blah blah blah. There are no "solutions" that can fix those defaults. The "solution" is collapse, as only collapse will force everyone to go do something more sustainable to get by.

Capitalism can be subverted by either an Elite or the majority. Marx traced out how Capital (wealth) naturally consolidates into monopolies or cartels (shared monopolies). These concentrations of wealth then buy political influence via campaign contributions, armies of lobbyists and the full spectrum of cronyism: sweetheart deals, envelopes of cash, revolving doors between the cartels and their regulators, plum jobs for lazy nephews and so on. This base corruption of the Central State, which is now the dominant force in the economy, allows Elites to change the rules rather than accept failure (also known as losses). Thus we have Crony Capitalism: profits are private and yours to keep, losses are transferred to the taxpaying public. This mechanism is well known and catches most of the attention. But M.M. highlighted the way the democratic majority can subvert capitalism. This is generally ignored for the simple reason that most commentators are part of the majority subverting capitalism to benefit their own self-interest.

This leads to a terminal state of self-delusion and self-justification

What's your wild guess? 

The ethics of debt, at least in the officially sanctioned media, boils down to: nobody made them borrow all those euros, and so their suffering is just desserts. What's lost in this subtext is the responsibility of the lender. Yes, nobody forced Greece to borrow 200 billion euros (or whatever the true total may be), but then nobody forced the lenders to extend the credit in the first place. Consider an individual who is a visibly poor credit risk. He would like to borrow money to blow on consumption and then stiff the lender, but since he cannot create credit, he has to live within his means. Now a lender comes along who can create credit out of thin air (via fractional reserve banking) and offers this poor credit risk $100,000 in collateral-free debt at low rates of interest. Who is responsible for the creation and extension of credit? The borrower or the lender? Answer: the lender. In other words, if the lender is foolish enough to extend huge quantities of credit to a poor credit risk, then it's the lender who should suffer the losses when the borrower defaults. This is the basis of bankruptcy laws--or used to be the basis. When an over-extended borrower defaults, the debt is cleared, the lender takes the loss/writedown, and the borrower loses whatever collateral was pledged. He is left with the basics to carry on: his auto, clothing, his job, and so on. His credit rating is impaired, and it is now his responsibility to earn back a credible credit rating....The potential for loss and actually bearing the consequences from irresponsible extensions of credit was unacceptable to the banking cartel, so they rewrote the laws. Now student loans in America cannot be discharged in bankruptcy court; they are permanent and must be carried and serviced until death. This is the acme of debt-serfdom.

The concept of social fractals can be illustrated with a simple example. If the individuals in a family unit are all healthy, thrifty, honest, caring and responsible, then how could that family be dysfunctional, spendthrift, venal and dishonest? It is not possible to aggregate individuals into a family unit and not have that family manifest the self-same characteristics of the individuals. This is the essence of fractals. If we aggregate healthy, thrifty, honest, caring and responsible families into a community, how can that community not share these same characteristics? And if we aggregate these communities into a nation, how can that nation not exhibit these same characteristics? If this is so, then how do we explain the complete corruption of America's financial and political Elites? What else can you call a nation that passively accepts financial predation, looting, robosigning, etc. by protected cartels as the Status Quo but thoroughly corrupt?

The mainstream view uniting the entire political spectrum is that all our financial problems can be fixed by what amounts to top-down, centralized policy tweaks and regulation: for example, tweaking policies to "tax the rich," limit the size of "too big to fail" financial institutions, regulate credit default swaps, lower the cost of healthcare (a.k.a. sickcare), limit the abuses of student loans to pay for online diploma mills, and on and on and on. But what if the rot is already beyond the reach of more top-down policy tweaks? Consider the recent healthcare legislation: thousands of pages of obtuse regulations that require a veritable army of regulators staffing a sprawling fiefdom with the net result of uncertain savings based on a board somewhere in the labyrinth establishing "best practices" that will magically cut costs in a system that expands by 9% a year, each and every year, a system so bloated with fraud, embezzlement and waste that the total sum squandered is incalculable, but estimated at around 40%, minimum....The painful truth is that we are far beyond the point where policy/legalist regulatory tweaks will actually fix what's wrong with America. The rot isn't just financial or political; those are real enough, but they are mere reflections of a profound social, cultural, yes, spiritual rot. This is the great illusion: that our financial and political crises can be resolved with top-down, centralized financial reforms of one ideological flavor or another. It is abundantly clear that our crises extend far beyond a lack of regulation or policy tweaks. We cling to this illusion because it is easy and comforting; the problems can all be solved without any work or sacrifice on our part.

Americans have been conditioned for three generations to expect the Savior State to "do something" during downturns to "make it right." The idea that systemic problems are now beyond the reach of the Federal government does not compute; there must be something the government can do to "fix" everything. This notion that the Central State is effectively omniscient and all-powerful is central to the belief system of Americans now. The concept that the government cannot fix the problem, or that government central-planning has made the problem worse, is anathema to everyone conditioned to believe government intervention will "save the day." The basic reality is the Federal government has already pulled out all the stops in the past four years to "make the economy recover," and all its unprecedented actions have accomplished is to maintain the Status Quo via unsustainably gargantuan borrowing, spending and backstopping. If we scrape away the rhetoric and bogus statistics, at heart the current fantasy that the U.S. has "decoupled" from the global economy and will remain an island of "permanent prosperity" in a sea of recession boils down to this belief: the Federal government "won't let us stay in recession." In other words, it's within the power of the Central State to make good every loss, guarantee every debt, maintain the Empire, solve every geopolitical challenge and find technological or military solutions to potential energy shortages. All we need is the "will" to force the government to use its essentially unlimited power to "fix everything." A people conditioned to this expectation will have great difficulty accepting that their government has already done everything possible, and that these stupendous debt-based expenditures are simply not sustainable going forward. Some problems are not fixable by more government intervention; indeed, government intervention in the marketplace is like insulin: the system begins to lose sensitivity to Central State manipulation and intervention.

The great cold lie at the heart of present-day America is that the nation will magically benefit if we each single-mindedly pursue our self-interest to the exclusion of all else. The idea has a sleek quasi-free-market sheen, as it borrows the market's "invisible hand" and applies it to social, fiscal and environmental policies. That is a magical-thinking fantasy. If I pursued only my own self-interest, I would dump the toxic effluent from my factory right into the river ( a la China's very laissez faire economy) while I lived far away in an exclusive community far from the stench and poisons. Why pay for costly remediation when the "free" river beckons? After all, it all works out wonderfully if we each pursue our own self-interest with methodical, nay maniacal, single-mindedness. (Recall that rivers in America caught fire in the 1960s, before environmental regulations limited corporate self-interest.) "The good of the nation" is now a code-phrase for "good for me, and to heck with the country at large." Every self-serving fiefdom, every self-serving cartel and every self-serving constituency (a.k.a. special interest) claims that its pathetically obvious self-serving lobbying "serves the national interest." It's all lies, blatant emotional manipulation of the vilest, crassest sort. Yet we as a nation have sunk so low that the entire notion of a national interest which doesn't benefit a powerful lobby or constituency has been lost. We are now a nation of self-interested pygmies, blind to any national interest that isn't devoted to enriching us personally.

Complexity works beautifully as self-preservation, because it actually expands the bureaucratic power of fiefdoms and widens the moat protecting cartels. Once the fiefdom expands to manage all those new rules, only a handful of corporations can possibly afford the regulatory reporting burdens. They are thus free to exploit the populace as an informal cartel. Put another way: in the competition with the private sector for scarce capital, the State and corruption always win. That's why kleptocracies and banana republics are characterized by bloated, unaccountable State bureaucracies and systemic corruption: sweetheart deals, no-bid contracts, shadow banking, shadow governance by Elites, inefficient workforces that cannot be fired or held accountable, and so on...The single goal is preserving the revenue and reach of concentrated power centers: State fiefdoms with large constituencies and headcounts, and cartels with no competition and stupendous profits. The two are hand in glove. But complexity does have an eventual cost: collapse. Keep adding decks to the ship and eventually it capsizes and sinks. One the ship is sufficiently top-heavy, all it takes is a small wave.

The "too big to fail" banks and Corporate Cartels effectively own the Federal machinery of governance, the Savior State's fiefdoms are expanding their reach and power like uncontrollable cancers, and the "leadership"--mostly self-glorifying. grossly incompetent, self-absorbed, greedy Baby Boomers, but with a few equally clueless 40-somethings present just to prove that age is no protection against self-delusion and supreme greed-- has resolved to surrender to the Financial Power Elites and State fiefdoms, and fiddle around with "extend and pretend" strategies until they can exit the stage with bulging bags of swag.
Their only goal is to not be the one blamed when the whole corrupt contraption finally collapses under its own weight. If there was ever a more pathetic, corrupt, cowardly and incompetent set of "leaders" in the nation's history, they must have done their skimming during periods of relative prosperity. Now we need real leaders, not TV-ready simulacra spouting bloated slogans that contain the magic word "change."

In 1938 the citizens of the major European powers, Germany, France and the UK, along with isolationist America, having suffered grievously during WW1 were willing to believe almost any lie that supported the prevailing sentiment. Sentiment exemplified by the aforementioned timeless speech from Neville Chamberlain. Today I see a European political and economic elite clinging desperately to the notion that any action that calls into question the current construct of pan-European “unity” must be quashed to preserve the peace. The reality from the available evidence suggests that what these elites are more fearful of is broad realization that this current construct is as fatally flawed as the one in existence in 1938.

Yesterday I laid out why the U.S. will inevitably experience The Great Reset. What comes after that systemic devolution/crisis is unknown, but we can speculate on the shape of things to come. Though we cannot know the outcome, we can certainbly discern the outlines of the crisis itself. These destabilizing conditions will force a crisis at some point and will be resolved one way or another. The resolution of these brewing instabilities could be orderly or disorderly. In an orderly scenario, a new Constitutional Convention is convened, and a leadership backed by an enlightened public hammers out a consensus to limit the political and financial dominance of Financial Power Elites and corporate cartels. The new consensus reorients the Central State to its original purpose of limiting predation of the citizenry by Elites and criminals, defending the nation and imposing the rule of law as defined by the Constitution. The Savior State would be dismantled in an orderly process. In a disorderly resolution, the Status Quo and the public both refuse to deal with reality and instead cling to the Titanic, demanding magical solutions that will keep the doomed ship from sinking. There is no such magic, of course, and so the ship will go down, and disorder will reign. It might take the shape of a financial crisis such as a devaluation or hyperinflation, or it might take a political crisis such as a "Quiet Coup" by Elites or an outbreak of resistance to the heavy-handed Central State.

I haven't found any firm estimates of the unfunded liabilities due in the next 20 years, but since 25% of the entire population (the Baby Boomers) will be retired and drawing on Social Security and Medicare within 15 years, I think we can reckon that about half that $106 trillion will come due in the next 20 years--and that is probably absurdly conservative. $15 trillion down, $35 trillion to go. Do you see how utterly hopeless this exercise is when Federal spending rises by 6.5% every year even as the underlying economy muddles along at 2% in good years and -5% in poor years, if we subtract borrow-and-spend deficit financing? In other words, $100 trillion in unfunded liabilities is the number now, but if spending continues rising at triple the rate of the real economy, then that number will only grow. If we're honest about our accounting, then the U.S. economy hasn't grown at all since 2008; it's shrunk by $6 trillion, a sum we have masked by borrowing and spending $6 trillion in Federal debt, money that replaced the decline of private borrowing and spending. Please look at the charts of healthcare and local government pension and healthcare costs again. Those rocket-launch lines shooting higher cannot be funded by a national income that is flat or declining. We need a national conversation about reality, not wishful thinking. We need to grasp the nettle and talk about triage, about conserving Social Security for those with no other sources of income, and about devoting our scarce resources for palliative and preventive care. The Status Quo is completely, utterly unsustainable, but that needn't bring the nation to its knees--unless we actively insist that it does so.

The Status Quo consensus is that "kicking the can down the road" a.k.a. "extend and pretend" will work because "Greece, Spain, Ireland et al. are going to "grow their way out of debt." That is a fantasy. Once a household or nation is burdened with stupendous debt loads and stagnating earnings, "growing your way out of debt" is impossible. The E.U. may succeed in strong-arming Greece into swallowing even more debt, more austerity and higher interest payments, but that will only speed up the self-reinforcing dynamics of insolvency, and guarantee the losses kicked down the road for a few months will be even more devastating.

Whenever I unleash a tirade at home about how Federal spending has leaped 40% in three years and how the government is now borrowing 42% of its spending, my wife points out that nobody cares because the deficit doesn't impact them at all. This always stops the tirade in its tracks, because it's so obviously true. As long as the Federal checks keep being issued and everyone gets their 17 "low-cost" meds paid by Medicare, the National Defense State gets unlimited billions to spy on the citizenry and indeed, the entire world, gasoline at $1,000 a gallon flows freely in Afghanistan and other distant corners of the Empire, and Wall Street writes itself billions in bonuses, then nobody cares about the deficit. The only way anyone will feel the deficit is if their share of the Federal swag is trimmed to pay the interest on the ballooning debt. But the Federal Reserve has a solution to that eventuality: keep interest rates (and thus yields on new Federal debt) super-low. At zero interest, $50 trillion in debt costs nothing. Heck, you and I could handle the interest payments on $50 trillion at zero interest. At 1%, the interest is "only" $500 billion a year--no big deal, as we can easily borrow another $500 billion a year, no problem. After all, the bond market hasn't barfed yet and we're already borrowing $1.65 trillion a year, plus hundreds of billions "off-balance sheet" in "supplemental appropriations."