Keeping Up Appearances

TriangleofDoomgc2reddit-logoOff the keyboard of Steve Ludlum

Follow us on Twitter @doomstead666
Friend us on Facebook

Published on the Economic Undertow on October 18, 2017

Discuss this article at the Economics Table inside the Diner

 

As the US stock market reaches new all-time highs day after day after day, people ask, “When is your decline going to start? You promised!”

They are gracious, they leave out the, “you fucking idiot!” part.

When indeed is the ‘Big One’? Prognosticators announce impending catastrophe and it never happens. Prophets of doom are pilloried … the deflationary collapse never takes place. Instead there are the Pollyannas: “The good times are here, forever. You lost! Get over it!”

The overabundance of good times is certainly why every year thousands of ordinary suburbanites are overdosing on heroin: they obviously can’t stand all the winning! It turns out too much of a good (any)thing is toxic; more success and half the people in the country will be shooting Narcan into the other half. Meanwhile, ‘Brand X’ prognosticators are accused of crying wolf too often. Good grief! The wolf-criers are necessary because they create the ‘Wall of Worry’ that all bull markets must climb in order to reach new highs. Here is irony at work: we are murdering ourselves by way of our prosperity at the same time there is nothing we can do- or are willing to try in order to save ourselves from it!

Predicting out the future is … well, you know. The US government spends hundreds of billions of dollars to gather intelligence to predict … just about anything. There are a thousand different bureaus, agencies, organizations, one-man shops, Silicon Valley startups; also satellites, spy ships, aircraft, torture chambers, radio- and Internet intercepts: there are snoops, informants, analysts; the world is crawling with spies. None of above were aware the Soviet Union was about to come undone, they were unaware even as the collapse was taking place! None of these agencies foresaw the ‘Arab Spring’. They were caught with their pants down by every one of the various oil crises even as these were telegraphed by conditions on the ground well in advance. Analysts missed the fracking ‘revolution’, a forty-year old technology by the time it was finally deployed. Analysts missed the massive post-80s industrial revolution in China; they skipped school prior to the rise of #ISIS even though they had a hand in its creation. The analysts, bosses, money managers and central bankers missed one finance crisis after the other, they also didn’t recognize the tsunamis of excess credit that preceded each and every one of them. The word we look for here is ‘hard’. If it was easy to see into the future, everyone would do it and future would never happen, it would be predictable, like the past. Nothing would ever change. Predictability, permanence and stability … In a sense, the inability to predict serves our immediate interests. Predictability suggests ‘civilization’. We don’t want that.

We also don’t want a crash, that includes everybody in- and out of finance. Everybody wants to keep their jobs or get better ones, they want to keep their yachts and private jets, bonuses and stock options: we all have bills to pay. Even a modest decline in asset prices would mean collateral damage, (the) over-leveraged banks would be rendered insolvent. A 1931-style banking crisis would be devastatingly worse; managers are determined to do whatever it takes to prevent one. They’ve had almost ten years of practice as well as vast resources that can be brought to bear: key men are propped everywhere, there are bailouts. Moral hazard is infinite, real interest rates are negative. Banks effectively pay their largest clients to borrow — businesses, governments and tycoons. The statisticians lie, the media lies, economists are clueless and then they lie. Companies use cheap money to repurchase their own shares = these are Ponzi schemes. Manufacturers stuff inventory channels. Loans are extended to any- and all life forms that can draw breath. Because wars are good for business there are wars. Because depredation of nature is good for business our world and everything in it is … degraded. Because the economy is built around endless business expansion, there it is. If real expansion isn’t possible because of natural resource constraints, there is the fake expansion. We have become extraordinarily good at kicking the can, at keeping up appearances. This is why there is no crash today … we’ll worry about tomorrow when it comes. We predict the static condition of endless growth and by doing so we create it. The outcome is the bizarre, twilight ‘anti-civilization’- overly medicated world we have stuck ourselves with because we have given ourselves no other choice.

Figure 1: US GDP since the end of World War Two (Chart by Fred, click for big): Just as nobody correctly predicted collapse, nobody predicted our prosperity! Who in 1950 could have possibly guessed?

Looking at this chart it would be safe to predict national income would continue going forward as it has in the past. Yet, for most of human history the line was flat or changed very slightly, tracking the rise- and fall of human population. It summed up what resources (capital) could be accessed with muscle- and animal power, plus water, wind and firewood. As it is, everything below the blue line represents the total natural capital converted into waste by industrial America over the past 80 years = the ‘liability’ side of the GDP balance sheet. This is capital that can never be accessed a second time. The implication is there is are limits and that they are closer than they were 80 years ago. What the chart cannot indicate is how much capital remains accessible or how long it might take to exhaust it. As such, national income is an inadequate forecasting tool.

During the 82-year period on this chart there have been eleven recessions, added together these amounted to a total of 35 quarters, eight-and-a-half years of downturns. This means the US economy experiences declining growth about ten percent of the time with incidences being for the most part relatively brief, less than a year. Past performance suggests the next eighty year period will be similar with the economy being in recession about ten percent of the time. This isn’t set in stone: countries such as Australia and Netherlands have been able to avoid recessions for long periods; 25 years and more. An argument can be made that no obvious reasons exist why the US cannot do the same.

American recessions have tended to follow the credit cycle; periods of expansion followed by inventory buildup then fire sales. Credit is expanding now but this only feeds the illusions, (Andy Xie):

The mistaken stimulus (bank lending) has the unintended consequences of dissipating real wealth and increasing inequality. American household net worth is at an all-time high of five times GDP, significantly higher than the bubble peaks of 4.1 times in 2000 and 4.7 in 2007, and far higher than the historical norm of three times GDP. On the ­other hand, US capital formation has stagnated for decades. The outlandish paper wealth is just the same asset at ever higher prices.

Banks simply trade each others’ securities back and forth using self-generated credit, all the while pretending the process means something. As long as the banks can preserve the illusion of solvency the process can run on indefinitely: Dow 45,000,000.

Maybe not: the end comes when debt service costs consume total borrowing capacity; a ‘Minsky Moment’; what occurred in Argentina and Greece and is underway in Venezuela.

The end comes when finance players are perceived as insolvent in the way of Walter Bagehot:

 

“Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone … “

This is what happened to Lehman Brothers in 2008: they were considered insolvent despite the protestations and proofs offered by the company, they could neither borrow nor lend, their credit was gone. And because Lehman was in most ways ‘like’ all the other money-center banks, it’s failure reflected on the others, their credit was gone as well.

The outcome was a bailout by the government and Federal Reserve: funds were handed over to the banks no questions asked, funds borrowed from the exact same banks that were bailed out! Outrageous … there was nowhere else the funds could have come from: the $700 billion dollars demanded by Treasury Secretary Hank Paulson in September of 2008, “Now or Never”- plus the tens of trillion$ offered afterward by Bernanke! Both government and Fed held their noses and ignored the widespreading rot and criminality. There was grumbling from the public but soon enough they followed the ‘lead’ of their betters, and why not? The alternative was a smashing depression that nobody wanted. Over time, the banks were seen to survive, executive bonuses remained intact: fakery succeeded and perceptions changed. A handful of companies were sacrificed, others nationalized or gobbled up by other firms. Meanwhile, ‘Green Shoots’: the sub-$40 oil prices of 2009 allowed the consumers to jump back into their SUVs and start shopping again, leading everyone to the point, “When is your decline going to start?” When, indeed …

Keep in mind, the Lehman debacle was part of a crisis that only a handful were able to foresee. Here is a proven forecasting tool, the Economic Undertow ‘Triangle of Doom™’:

Figure 2: Triangle d’ Doom, (by TFC Charts, click on for big): The descending trend line suggests the real credit capacity is shrinking. In 2008, the high price was $147 per barrel. By 2014 the triggering price could only reach $115 … there was insufficient credit to allow end users to bid past that price! All else being equal, the price high-enough to cause a credit event this year would be about $90 per barrel. If the price was that high, everyone would be feeling it including traders on Wall Street. The current price range of $40 – $60 per barrel represents a significant discount. It’s high enough to constrains consumption to some degree — by historical standards $50/ is high — but it’s not high enough to walk the system off the plank.

The smallish crash in the energy sector is why we haven’t had the giant crashes everywhere else. Even as low prices hammered drillers and fuel speculators, they saved the rest of the economy and boosted the stock markets! The drillers are further underwater than ever but this does not matter as they were underwater at the higher prices, they simply borrow more. Their job is to keep bankruptcy at bay each day as it comes … while looking for tomorrow to take care of itself.

The question next is how long would it take for declining credit sufficiency to cause the current fuel price to be ‘too high’?

Figure 3: The Triangle of Doom Extended (click on for big); this is a better representation of the trend line than Figure 2 which does not include the highest price point in 2008. Extending the line suggests a few more years of ‘cheap-ish’ fuel before even that price is unaffordable and the fuel regime collapses: roughly 2022. It could be a bit farther out or there could be another fuel price collapse. Should the Minsky Moment arrive or a major bank fail, the crisis would occur sooner.

Creditworthiness is an analog for available resource capital. As capital is exhausted, a greater proportion of what remains must be deployed to extract and consume what little remains. At some point this process itself … becomes unaffordable. Even now, end users’ credit access is up for grabs. Moral hazard, low interest costs and current monetary policy shift credit away from customers toward their vendors, tycoons and finance itself. As the customers are ’emptied out’ and fall by the wayside support for those who depend on them and their flow of credit evaporates: over the longer term, tricks used to keep up appearances cannot substitute for top line revenues and actual solvency.

… and It’s called ‘progress’.

In the ‘old days’ civilizations were local. One could fail ‘over here’ even as others survived ‘around the corner’. Our industrial waste-based economy is global; universality brings all resources including crude oil within our grasp. Regardless of the markets, resource exhaustion is ongoing, this is the background story: it must be paid attention to. Everything else we do is part of the fooling ourselves process.

The goods offered by now-obsolete civilizations were permanence and stability. These are not really goods at all but rather moral virtues representing the ascendance of human ambition to an idiosyncratic upper limit of physical and mental development. Periods of high civilizations were considered to be ‘golden ages’ and for good reason. The narrative was one of humans emerging from animalistic savagery and barbarism, evolving to the point of imagining themselves possessed of the characteristics of gods. Reaching this near-godlike state was meant to be permanent; why not? If not actual gods how about the next best thing? The dynamic was virtue — civic and otherwise — leading to its attainment set in granite; ‘how to’ could only be earned with mastery and sustained effort. The means to virtue was self discipline, creativity and imagination. The civilized were certainly not paupers but it did not matter; the civilized whole was always greater than the sum of individual components.

Fast forward; godliness has been reduced one of a long line of frauds and sales-pitches, replaced by consumer goods and the banal processes to emit them. Virtue to- permanence is the antithesis of economic growth. Permanence means no markets for (new) smartphones, ‘e-cars’ or tract houses every other year or so, it also means nobody cares whether they have these things or not. Social media gadgetry, Sheetrock and plastic junk are offered up as aspirational, but these are meaning-free counterfeits, available to anyone with a charge card. In the place of civilization we have ‘the’ economy: it permits us to buy, to speculate, cannibalize, burn and waste and to borrow. Economy doesn’t allow us to ‘create our way out of the box’ — any box. Creativity gets in the way of the buying and the borrowing needed for the economic throughput regime to continue. Economy exalts mediocrity, sameness, loss of identity and transience, all in the service of fashion as the highest and most comforting (non-) virtues. The standards industrial economy set for itself are minuscule, the bar is always low, stumbling over it is easy, the costs, so far, are low. At the same time, the inability to stumble is never enough to undo the project. In this way mediocrity ‘normalizes’ or recalibrates the meaning of success in all the different ways to serves itself … to the point where half the people are busy reviving the corpses of the other half.

Mediocrity is itself an industrial product like (canned) pleasure and the ‘good jobs’ that never materialize. The physical products of industry are clichés rendered as such by design, they are the containers- or bearers of mediocrity. The mediocratic status of the products reinforces that of the enterprise that extrudes them like turds from the endless furnaces, pit mines and assembly lines. (False) hope — marketing — propels the process, the promise of something better, of a slightly less mediocre tomorrow. No wonder we are in a state of clinical depression: it’s “gimme the dope or get me out of here”! By jettisoning civilization we have left ourselves with nothing to reach for, we are stranded in the twilight, half-men, no longer godlike but not quite devils, either. We have become nothings, we are the sour taste inside our own mouths.

Growth has become the only permissible revolution against the status quo. ‘Old stuff’ is never good enough except with the added ‘nostalgia premium’. The imperative is always more, everything ‘more’ must be new. All else is subject to ‘creative destruction’. Even as these old things are proven useful, they ‘stand in the way of progress’ so out they go! Where does that leave us? Waiting for our chance at the Narcan.

6 Responses to Keeping Up Appearances

  • Bill Sodomsky says:

    Now we're talkin!

    RE, Ludlum, quite a combo. Now we just need to tie inTverberg, Pagette, Lewis on a podcast and it's a quorum. Some of the best minds in the business hands down. 

    • RE says:

      We’ve done numerous Podcasts & Vidcasts together.  Besides Steve, Gail, Norman & Tom, we also regularly featured Ugo Bardi.  Also had folks on like George Mobus, Paul Chefurka, Nicole Foss and Dr. McStinksion as well!  They’re all up in the files on Diner Soundcloud & Diner YouTube.

      RE

  • UnhingedBecauseLucid says:

    ["In this way mediocrity ‘normalizes’ or recalibrates the meaning of success in all the different ways to serves itself … to the point where half the people are busy reviving the corpses of the other half."]

    The proverbial engine with 99 times more friction than function…

    Lots of meat, lots of treats, Steve is really an outstanding writer.

     

  • RE, I was fully aware of the fact that there were a number of collective sessions with the "Crew." It was just a longing for another round. Some of us I'm sure not only listened and watched them once, but a number of times, not only from an informative perspective but as a kind of intimate virtual participation with likeminded people. 

    • RE says:

      A few problems exist with resurrecting the Collapse Cafe Chats.

      1- Google changed the software and I haven’t been able to get the new software to run right.

      2- Several participants blog very little these days, or not at all.

      3- I have had “disagreements” with some of the participants over collapse issues.  This list of people I am not talking to or who are not talking to me gets longer all the time.

      4- My health positively sucks and working up the energy to do a 1 or 2 hour show on the latest in Collapse is low on my personal agenda.  High is working up the energy to lift myself out of bed.

       

      RE

  • foreignlander says:

    Steve had fallen out of my radar as he took a sabatical for writing.  What a great surprise to drop by the Diner and chew on his latest take at the waste economy.

    It comes at an interesting time for me as I just read last Saturday's Chris Martenson's warning that oil will spike over a $100 again.

    How? I thought.  A renewed peak at the Triangle of Doom tells me that it sure can but…not for long before the whole show of industrial civilization comes to a screeching halt.  It'd be woundrous if big oil can keep going long enough to maintain the nuke plants cranking without a meltdown, me thinks.

Leave a Reply

Your email address will not be published. Required fields are marked *

Knarf plays the Doomer Blues

https://image.freepik.com/free-icon/musical-notes-symbols_318-29778.jpg

Support the Diner
Search the Diner
Surveys & Podcasts

NEW SURVEY

Renewable Energy

VISIT AND FOLLOW US ON DINER SOUNDCLOUD

" As a daily reader of all of the doomsday blogs, e.g. the Diner, Nature Bats Last, Zerohedge, Scribbler, etc… I must say that I most look forward to your “off the microphone” rants. Your analysis, insights, and conclusions are always logical, well supported, and clearly articulated – a trifecta not frequently achieved."- Joe D
Archives
Global Diners

View Full Diner Stats

Global Population Stats

Enter a Country Name for full Population & Demographic Statistics

Lake Mead Watch

http://si.wsj.net/public/resources/images/NA-BX686_LakeMe_G_20130816175615.jpg

loading

Inside the Diner

Quote from: Surly1 on Today at 08:36:22 AMQuote from: RE on Today at 07:41:54 AMQuote from: Eddie on Today at 07:09:06 AMWhat a fine mess. Looks like it'...

Quote from: Surly1 on Today at 08:36:22 AMQuote from: RE on Today at 07:41:54 AMQuote from: Eddie on Today at 07:09:06 AMWhat a fine mess. Looks like it'...

Quote from: Surly1 on Today at 08:19:06 AMQuote from: Eddie on Today at 08:10:36 AMI had to take a 20 minute detour this morning because the main road in front of my neighborhood was clo...

Quote from: RE on Today at 07:41:54 AMQuote from: Eddie on Today at 07:09:06 AMWhat a fine mess. Looks like it's going to be bad for some time. Wow!On the comparison scale, it ...

Quote from: Eddie on Today at 08:10:36 AMI had to take a 20 minute detour this morning because the main road in front of my neighborhood was closed because someone clipped a telephone pole last night, or a utility pole ...

Recent Facebook Posts

Our Planet Is Angry

We aren’t necessarily seeing more large storms. We’re seeing the usual storm activity jumping into overdrive, as The Washington Post’s..

3 hours ago

This Week in Doom Sept. 16: Florence

“Hurricane Florence stormed the East Coast this week inducing dread that roiled millions and left seventeen dead as of Sunday. When they tot..

3 hours ago

China says it will retaliate after Trump imposes fresh tariffs

Dept. of What Could Possibly Go Wrong? Trump hits China with fresh tariffs, threatens more if Beijing retaliates-

3 hours ago

She's a model citizen, but she still can’t hide in China's 'social credit' system

Leave no dark corner– China is building a digital dictatorship to exert control over its 1.4 billion citizens. For some, “social credit”..

3 hours ago

Pro Labor Alliance Inc.

4 hours ago

Diner Twitter feed

Knarf’s Knewz

Quote from: Eddie on March 13, 2018, 05:21:10 PMAl [...]

Quote from: knarf on March 13, 2018, 03:33:01 PMAU [...]

Quote from: knarf on March 13, 2018, 03:25:04 PM [...]

A new study found that the Great Recession correla [...]

From 2003 to 2005, Gina Haspel was a senior offici [...]

Diner Newz Feeds
  • Surly
  • Agelbert
  • Knarf
  • Golden Oxen
  • Frostbite Falls

Quote from: Surly1 on Today at 02:14:19 PM[html] [...]

Of all of these stories that moved today, I think [...]

Quote from: Surly1 on Today at 11:45:18 AMd... [...]

Quote from: Eddie on March 13, 2018, 05:21:10 PMAl [...]

Quote from: knarf on March 13, 2018, 03:33:01 PMAU [...]

Quote from: knarf on March 13, 2018, 03:25:04 PM [...]

A new study found that the Great Recession correla [...]

From 2003 to 2005, Gina Haspel was a senior offici [...]

My good fortune in life was to find a good mentor [...]

Quote from: Eddie on September 17, 2018, 08:23:27 [...]

These glitches are a pain in the ass. I was pretty [...]

Quote from: Surly1 on September 17, 2018, 04:27:34 [...]

Quote from: RE on September 17, 2018, 04:25:21 AMQ [...]

Quote from: RE on Today at 06:39:37 AMNow I have t [...]

I got the new permanent D/L in the mail, which I a [...]

I got over to the USPS today for the Passport Rene [...]

You know that we always write the month first on b [...]

Quote from: Eddie on August 31, 2018, 06:59:21 AMO [...]

Alternate Perspectives
  • Two Ice Floes
  • Jumping Jack Flash
  • Error

Mother Nature Shows Off Her Stuff By Cognitive Dissonance     Mrs. Cog and I live on the edge of the [...]

Control the Narrative and You Control the People By Cognitive Dissonance   It is extremely difficult [...]

Impotence and Denial: The Desperate Virtue Signaling Voices By Cognitive Dissonance     Regardless o [...]

A Near Death Experience: Back from the Brink By Cognitive Dissonance   In an odd sort of way I am fa [...]

Bob By Cognitive Dissonance     Mrs. Cog has an ironclad rule honed and confirmed by decades of expe [...]

Event Update For 2018-09-16http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2018-09-15http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2018-09-14http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2018-09-13http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2018-09-12http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

RSS Error: This XML document is invalid, likely due to invalid characters. XML error: not well-formed (invalid token) at line 1, column 9109

Daily Doom Photo

man-watching-tv

Sustainability
  • Peak Surfer
  • SUN
  • Transition Voice

Cherry Blossom Soap"China’s real wealth is not yuan but cherry blossoms."No longer having a television at hom [...]

Sustainablin…"Guided by an unquenchable passion for meaning and impact."We are participating in a 4 wee [...]

Eco-Civ 101"We are the people who are eating the first crabs."I have never been terribly fond of citi [...]

Angels in Carbon Paradise"Being co-evolutionary, Gaia tried to keep pace with our evolution but lately has given that up [...]

Slow Thinking"Plastics and climate change have a lot in common with a broken Maytag." The sudden emerge [...]

The folks at Windward have been doing great work at living sustainably for many years now.  Part of [...]

 The Daily SUN☼ Building a Better Tomorrow by Sustaining Universal Needs April 3, 2017 Powering Down [...]

Off the keyboard of Bob Montgomery Follow us on Twitter @doomstead666 Friend us on Facebook Publishe [...]

Visit SUN on Facebook Here [...]

To fight climate change, you need to get the world off of fossil fuels. And to do that, you need to [...]

Americans are good on the "thoughts and prayers" thing. Also not so bad about digging in f [...]

In the echo-sphere of political punditry consensus forms rapidly, gels, and then, in short order…cal [...]

Discussions with figures from Noam Chomsky and Peter Senge to Thich Nhat Hanh and the Dalai Lama off [...]

Lefty Greenies have some laudable ideas. Why is it then that they don't bother to really build [...]

Top Commentariats
  • Our Finite World
  • Economic Undertow

Interesting.... does this mean I should open the fire door on the Rayburn and allow some of the blac [...]

Whatever it takes... means WHATEVER it takes. And so far.... it is working.... it is staving off the [...]

https://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/01/China%20National%20Team [...]

https://pinkblockchain.com/wp-content/uploads/2018/03/4-phuong-dien-bitcoin-van-dung-cartel-ep-gia-l [...]

Modern nation survive through debt. Credit issuers that issue credit backed by oil seem to do the be [...]

Why fetishize debt/GDP? Because it is a trend that never ends. It is chronic, not some temporary flu [...]

Charles Hugh Smith is saying that since 2008 the central banks of the world have been buying up zill [...]

Steve, have you read this author? http://michael-hudson.com/2007/08/why-the-miracle-of-compound-inte [...]

Absolutely true. I am waiting for someone to say that debt can increase faster than income forever. [...]

RE Economics

Going Cashless

Off the keyboard of RE Follow us on Twitter @doomstead666...

Simplifying the Final Countdown

Off the keyboard of RE Follow us on Twitter @doomstead666...

Bond Market Collapse and the Banning of Cash

Off the microphone of RE Follow us on Twitter @doomstead666...

Do Central Bankers Recognize there is NO GROWTH?

Discuss this article @ the ECONOMICS TABLE inside the...

Singularity of the Dollar

Off the Keyboard of RE Follow us on Twitter @doomstead666...

Kurrency Kollapse: To Print or Not To Print?

Off the microphone of RE Follow us on Twitter @doomstead666...

SWISSIE CAPITULATION!

Off the microphone of RE Follow us on Twitter @doomstead666...

Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money

Off the keyboard of RE Follow us on Twitter @doomstead666...

Merry Doomy Christmas

Off the keyboard of RE Follow us on Twitter @doomstead666...

Peak Customers: The Final Liquidation Sale

Off the keyboard of RE Follow us on Twitter @doomstead666...

Collapse Fiction
Useful Links
Technical Journals

El Niño–Southern Oscillation strongly influences rainfall and temperature patterns in Eastern Austra [...]

In this study, the authors evaluated the spatial and temporal variability of rainfall over the centr [...]

Despite the interest in detecting the extremes of climate in the West African Sahel, few studies hav [...]

Follow on our http://www.doomsteaddiner.net/forum/