oftwominds-Charles Hugh Smith

This Week's Theme: The Rot Within

Alternative: We Are The Frog in the Pot


Regarding the alternative title for this week's theme: It has long been my thesis here that the issues we face are not just "business/problems as usual," but far deeper, far more profound systemic failures which have no ready/easy solutions.

The "we are the boiled-frog" theme comes from the story of the frog placed in a pot of tepid water over a low flame. Though the water temperature is rising constantly, it is warming at such a slow rate that the frog doesn't notice how hot the water has become until it is already par-boiled/doomed.

We as a society and as an economy are the frog in the pot, finally noticing the bubbles of near-boiling water forming beneath our feet.

In no particular order, here is my short listing of The Rot Within, systemic sources of rot which have eroded the entire structure of our society and economy to the point of structural failure. I will be exploring these issues in upcoming entries.

1. Infrastructure: broken. Air traffic control system: broken. 160,000 bridges: obsolete, defective, or worse. Sewage systems: 100 years old, crumbling. Here in the Bay Area, it has taken nearly 20 years to replace a damaged span of the Bay Bridge. The cost has of course spiraled out of control since the 1989 earthquake did the damage. Is this any way to maintain critical infrastructure?

2. Legal system: broken. Big homebuilders hide defects galore behind "binding arbitration" clauses, bankruptcy favors the banks which continue offering credit to the uncreditworthy, consumer protection is under assault, public health and safety agencies are grossly underfunded, and yet we have $400 billion/year to throw away on mostly useless MRI scans and medical procedures that don't work, out of fear that a malpractice suit could be won over lack of sufficient testing.

But if the front fork of your kid's bicycle snaps off because it's defectively manufactured by an unknown factory in China, then what are your chances of winning a product-defect suit against the retailer, Wal-Mart, or the shadowy manufacturer? Zero to none.

Yes, we live in a legal system based on advocacy and contention. But with one million lawyers and counting, how much of the horrendously costly advocacy ends up becoming a hidden and essentially unproductive tax on productive resources? How much is spent protecting the 300 million citizens and safeguarding the 145 million taxpayers from fraud and waste? Put simply: how much is a huge waste of money? Answer: Most of it. The system is broken.

3. Lobbyists own Washington. An old story, blah blah blah, money is the mother's milk of politics, etc. But how about the fact that there were 11,000 lobbyists in 1997, and now there are 33,000? How about the fact that corporations can "earn" $344 in Federal "earmarks" (i.e. pork-barrel spending) for every $1 "invested" in a lobbyist? Democracy: broken.


4. Deficit spending: broken. As this administration has added trillions in debt onto the backs of future generations, they have the unmitigated gall to trumpet a Federal budget deficit of "only" $177 billion, down from $413 billion a few years ago. But this is based on bubblicious profits (and therefore taxes) flowing from the real estate and stock market bubbles, and includes the slight-of-hand accounting which applies the Social Security surplus to the entire Federal Budget.

Social Security is supposedly a Trust Fund which retains surpluses to be used in years when outlays exceed FICA tax collections. But instead, these massive surpluses are used to offset non-Social Security Federal spending. If you look closely at the budget and projections for Medicare and Social Security entitlements due to rise in the near future, there is only one conclusion: Federal borrowing and spending: broken.

5. Public pensions: broken. As public pension managers flocked to the higher returns offered by hedge funds, CDOs and other "exotic" investments based on derivatives and leverage, they have dug their own graves. Most public pension funds are set to suffer stupendous losses in capital when the entire derivatives/easy-credit/no-risk speculative bubble pops.

6. Government as savior: broken. From the billions wasted on post-Katrina aid (hundreds of empty mobile homes sitting in an empty field), to the bail-outs being proposed for housing bubble gamblers/speculators, it's all about Uncle Sam borrowing hundreds of billions of dollars to bail out private parties.

7. Foreign policy: broken. Fill in the blanks, folks.

8. Energy Policy: broken. We don't have one, except "drill Alaska--that'll give us another month of oil, dammit!" This simple math leads to astounding totals: the U..S. uses 23 million barrels of oil a day. That's 8.4 billion barrels a year. A two-billion barrel field is perhaps 50% recoverable, meaning about 1 billion barrels can be extracted. That 1 billion barrels will cover about 6 weeks of America's oil consumption--but it will take at least a decade to drill, extract, refine and deliver to consumers.

9. Accounting: broken. This week we will witness the big investment banking houses release their earnings reports, and virtually everyone who knows anything knows the reports will be filled with what are essentially self-serving lies: assets which are not fairly priced because they are not required to be marked-to-market by third parties. This is modern-day accounting in the U.S. of A.: off-balance sheet assets, marked-to-model, and various other accounting tricks and obfuscations.

10. Bureaucracies: broken. Medicare: $9,000 CAT scans, a week of "care" costs $100,000, and your elderly parent exits without even being healed. Welcome to Medicare and our "best of the best" medical system. The Pentagon, FEMA, your local school district, your state housing office, your local building department, the list is (in too many places) nearly endless. Yes, there are a few bright spots, but in general: bloated, inefficient, unresponsive, broken.

11. The Media: mostly broken. Celebrity-focused, backward-looking, advertising-dependent, largely in thrall to powerful interests whose chief concern is maintaining the status-quo (i.e. their power).

12. Technology: oversold. Beneath the razz-matazz press releases and the hype, most of the new wonderfully-marketed technology (iPods, smart phones, Web2.0, social networks, etc.) is either unproductive time-sinks (a.k.a. "entertainment"), unreliable, or fundamentally a toy for kids with too much time on their hands.


13. Our "health"-care system (in actuality our sick-care system): broken. Unaffordable now, inevitably metastasizing into an unaffordability which bankrupts the nation.

14.Government statistics: broken. Unemployment stats: lies. Inflation numbers; Lies. Budget numbers: lies. Call them misleading or manipulated if you prefer, but I'll stick to the raw simplicity of calling them knowing lies, carefully engineered to pull the wool over the eyes of a fatuous, want-to-believe-fantasy public and mainstream media.

15. Our health and food consumption: nearly broken. Over a hundred million prescriptions written for psychotropic drugs--hmm, if we're so happy and well-adjusted and spiritually whole, then why are we driven to buy billions of dollars of illegal drugs and pop hundreds of millions of "feel good/fix me" pills? If our healthcare system is so great, and our food so wonderful, why are 2/3 of us obese to point of dangerous consequences, and so many of us unable to sleep well or run around the block even once? If we're so healthy, why do we look like Heck warmed over?

16. The culture: completely broken. Greed, self-absorption, self-as-what-do-I-wear-consume-drive, mega-churches promoting wealth, bakeries for dogs, victimhood as saintliness, I-want-my- 15 seconds-of-fame-now-on-national-TV, entitlements, working 20 years on the public payroll in order to nail down 40 years of fat retirement checks, violence glorified 24/7, hype and marketing-as-reality, Fox and CNBC cheerleading shameless propaganda, "reality" TV--in sum, a culture so twisted, dysfunctional and ill that self-parody has been rendered impossible.

I know I missed many deserving candidates here, but I'm already dismayed/sobered by the length and depth of the list. I have sources for the data mentioned above, and will provide links as I address each topic in more detail.


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