Guest Post: Now That The Easy Stuff Has Failed, All That's Left Is The Hard Stuff

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The easy fixes--throwing around trillions in "free money"--have all been tried. Now the only choices left are the hard ones everyone has avoided for four years because they're politically impossible.

I want to elaborate on a key point in yesterday's entry 'The Resilience and Fragility of the Status Quo': now that we've run through all the easy fixes, all we've got left are the hard choices. You know, facing the music, dealing with reality, making the cuts, taking the losses and tossing aside the impossible promises.

The irony is that completely surrendering to the vested interests hasn't fixed what's broken, but neither will overthrowing them. Getting rid of the parasitic financial Elites would be a positive first step, but that won't magically make Medicare a sustainable promise. Medicare is careening off the fiscal cliff regardless of who's nominally in charge of the political machinery, for the reasons listed yesterday: demographics, the technological destruction of paid work and the diminishing returns on debt.

Here is the easy stuff that's already been done:

  1. Paper over every problem with trillions of yuan, euros, yen, dollars, etc. Print it, borrow it, conjure it electronically, but flood the vested interests with essentially "free money" to stop the political pain caused by vested interests screaming as their slice of the swag is threatened by financial collapse.
  2. Twist, bend, fold or break the rules to insure the flood of free money flows to all the vested interests. "Rules are made to be broken," especially in legal systems in which the Central State and its regulatory machinery have been captured by vested interests.

"When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it." Frederic Bastiat, 1850 (via Scott)

That describes the easy part: surrendering to the vested interests. From the point of view of the vested interests, what was the point of buying political power other than securing and protecting our interests in times of crisis?

But the vested interests are short-sighted, and so their "solution"--free money for us-- is politically expedient but financially disastrous. Medicare is careening off the fiscal cliff precisely because the simulacra "reforms" (Obamacare, etc.) are complexity shields behind which the vested interests retain their share of the national income and their political influence. What better mechanism for control than a convoluted 1,300 page bill with hundreds of opportunities to influence regulations to protect your fiefdom?

The same can be said of the Dodd-Frank financial reform bill, which ceded unprecedented powers to the Federal Reserve while creating hundreds of nooks and crannies in 4,500 pages of regulations (many yet to be written--the lobbyists are still writing them) for financial vested interests to exploit.

Lobbyists aren't hired to understand the big picture, they're hired to secure a swollen river of free money for their vested-interest clients. Public unions, banks, Big Pharma, for-profit hospital chains, insurance companies, defense contractors, etc. don't care where the swag comes from or how it's skimmed, they only care about getting their share of it.

In Survival+ and Resistance, Revolution, Liberation I discuss profound political disunity as an operative dynamic of devolution.

This describes not just the political battle between the 0.5% and the 99.5%, but the diverging interests of the various vested interests and Elites. It would be tidy if all the Elites were united, but as pressures build and systems are pushed to extremes, the interests of Elites diverge to the point that the system is pulled apart. None of the Elites are willing to act in the best interests of the nation, and so their self-absorbed greed becomes a destructive force that cannot be controlled.

The decline of the Roman Empire had this subtext. In Victorian England, the landed Elites who skimmed rents fought a political war with the Imperial "free trade" manufacturers who profited from the expansion of the Empire and the industrial workforce. The manufacturers won and the landed Nobility, though still immensely wealthy, took a back seat.

The collapse of Medicare/Medicaid would be a catastrophe for all those skimming billions in profits from the fraud-laced, bloated sickcare system. The same can be said of the crippled mortgage/real estate industry, the insolvent banking system, the bloated defense industry, the out-of-control National Security Complex and so on.

On a local level, the implosion of state, county and city finances is a catastrophe for public unions and all the other vested interests living off local government.

I call the war over dwindling resources and income streams internecine conflict between protected fiefdoms. Each fiefdom will fight to the death to protect its power and share of the swag, right up until the moment the government declares bankruptcy, the account is emptied, and the checks bounce.

Politicians and the Federal Reserve responded to the pain of their financial Overlords by ignoring both prudence and the rules as they fell over themselves to shovel free money to the vested interests. The trillions of dollars were borrowed from future taxpayers, of course, but who cares about them? They don't even vote, much less give campaign contributions.

This disregard for the future and the fundamentals of fiscal well-being is about to reap consequences. The Powers That Be counted on "time healing all," as if the mere passage of time would magically heal a broken economy and political machine.

Time heals all--unless you have an aggressive cancer. We have multiple aggressively metastasizing cancers--moral, political, demographic, technological and financial. The Status Quo has chosen to ignore these fast-growing cancers because it was politically expedient to quiet the powerful vested interests with trillions in bailouts, backstops, free loans, guarantees, "stimulus spending," and so on.

That was easy to do, but it didn't fix anything.

Now there are obstacles to this sort of irresponsible pandering: it is no longer fiscally or politically possible to hand another $23 trillion to vested interests. If the easy stuff is gone, that leaves only the hard stuff on the menu. The hard stuff has been ignored for four years precisely because it is politically impossible: how do you take away entitlements that have been promised to politically potent constituencies? How can you slash the income stream or profits of vested interests? You can't, unless you want to lose your own power.

So toady politicos and their apparatchiks are squirming and twisting, trying not to visibly break impossible promises while continuing to divert billions to their their donors and insider pals. The problem is that this approach will bankrupt the nation and spark an overthrow of the Status Quo.

The system has been pushed to extremes: the expectations are impossibly high, the promises are impossibly generous and the sums of money demanded by the vested interests "just to stay afloat" are stratospheric. The "run to fail" levers have all been pushed to the maximum, and it is simply too politically painful to make any real-world adjustments that might save the system from imploding.

Nobody wants a crisis, yet a crisis is the only thing that can save the system from implosion.