Part 22: Power Outage

Here is this week's chapter of my serialized comic novel "Four Bidding For Love."(Those who find absurdist humor and adult situations offensive, please read no further.)

      Pleased with her giddiness and her demure cloaking of it, Kylie returned home and parked her car just as the streetlights sputtered and went dark, along with all the lighting in the buildings lining her street. Hoping it would only a temporary power outage, Kylie took the precious T-20Z toaster and vintage posters and made her way through the gusty wind to her rooming house porch. The moonless night and high cloud cover—practically hurricane weather, Kylie noted—left the door in pitch blackness, and she fumbled with her keys for some seconds before remembering the lock had been broken for a week.
     Pushing open the heavy door, she noticed a faint glow emanated from beneath Ross's door. Grateful he was home to take delivery of the troublesome toaster and posters, she lightly tapped her signature knock to signal her presence without alerting Vonda.
     Ross swung open the door and Kylie saw the source of the illumination: an assortment of candles were set atop his desk and the stacks of catalogs which did not yet reach the ceiling.
     Ross's whisper startled her. "Vonda's on the warpath," he hissed. "She's beside herself without the television and is desperate for company. I managed to get rid of her by giving her some candles, but you better be quiet unless you want to hear her stories for the 400th time."
     "Thanks," Kylie whispered, for the last companion she would choose in the powerless darkness was her nosy, endlessly loquacious upstairs neighbor Vonda.
     "I brought you the T-20," she said softly. "Fully tested and in perfect condition."
     Instead of the gratitude she rightfully expected, Ross snarled—if a whisper can be said to contain a snarl—"Can you believe this? I'm cursed."
     "Well, you're welcome," she murmured icily, and he issued a monstrous, deeply anguished sigh. "That's just the point," he moaned quietly. "I was all ready to take some photos of the T-20 to send with my application for the show, and now there's no light. I'm cursed!"
     "Stop being so dramatic," Kylie whispered peevishly. "Your camera has a flash, doesn't it?"
     "You still need some ambient light or the contrast kills you."
     "Just take the toaster down to Dewey's shop. He'll have a generator. Or maybe the power's still on down there."
     Her solution struck Ross as a nearly spiritual revelation, and he turned to her with sudden reverence. "Brilliant. You've saved the day once again, dear girl. I'll call him, and then take the bus down there."
     Kylie shifted closer and lowered her voice to a conspiratorial tone. "Now that it's all over and you have your miracle toaster, there's something else I've been dying to tell you."
     With a loving gleam in his eye, Ross stroked the shining surface of the coveted toaster. "Fire away."
     "It's about your nemesis, Alexia."
     "I'm all ears. No, let me guess. She's the Devil's consort?"
     "Practically," Kylie exclaimed in a low voice. "I found out how she can afford such fancy digs. She makes her best money on the sofa."
     " I've heard there's big money in used furniture if it's the right quality."
     "No, dunderhead, on the sofa. With guys, sans clothes."
     This revelation carved its way through the collector's fixation on the toaster and Ross blurted, "You mean . . . for money?"
     "Yes," Kylie whispered. "I cased her flat, and saw her lead a guy in a pricey business suit straight to her sofa. After she'd taken care of him, he passed her an envelope."
     Ross gave her a dismissive glance. "Your imagination is certainly fertile. It's just her boyfriend. And how did you see all this? Peek through her window?"
     "She didn't even bother closing the blinds. I could see the whole thing a half-block away. And it wasn't her boyfriend or husband."
     "What makes you so sure?"
     "Who strips their hubby between the front door and the sofa? And why would he pass her an envelope right after the, uh, service was performed? They weren't lovey-dovey after, either; it was business all the way."
     Ross rubbed his chin and gazed at his beauteous neighbor. "Rent's pretty stiff on Green Street. What was she wearing? I mean her shoes."
     "Purple pumps."
     "And what does your woman's intuition say about that?"
     Kylie paused meaningfully. "I just told you."
     "Is she a pretty hot number?"
     Kylie gave him a puckishly innocent look. "Why?"
     Ross sighed exasperatedly. "Right. On my budget? No, it was just standard male curiosity. And admit it—you'd be disappointed if I hadn't asked."
     Ross pushed the toaster into a package and murmured, "At least that explains how she had the money to outbid me on the T-20Z. He unrolled the gaudy film posters and then chuckled softly. "Blue Bikers Take Borneo and Kama Sutra Cadillac? These are so deliciously bad I might keep them for myself. I could use some wall art."
     "Too bad you don't have any blank walls," Kylie said, and he waved her irritably away. Leaving Ross to examine the bonus posters in the dim candlelight, muttering as excitedly as if he'd just discovered the lost treasure of the Superstition Mountains, Kylie slid silently to her own door and searched for the right key on her ring in near-perfect darkness.
     Entering her cave-black room, she edged over to her tiny kitchen cabinet to search for the scented votive candles a friend had given her as a present the year before. As she felt blindly through her cupboards and storage boxes beneath her bed, she heard Ross leave his room, followed by the creak of the entry door.
     Vonda's still powerful voice called down the staircase. "Kylie dear, is that you?"
     Freezing as solid as ice, Kylie waited for the inevitable curiosity of her old neighbor. As expected, footsteps descended the stairs and came to a stop by Ross's door. Kylie detected the faint light of a candle in the crack beneath her door, and was not surprised to hear Vonda's ragged voice. "Ross, Dearie, are you home?" Vonda repeated the question twice before eventually surrendering to the silence and returning to her upstairs lair, very much like a spider, Kylie thought, creeping back to the edge of its quivering web.

Next: The Mysterious Masseur 


To read the previous chapters, visit the "Four Bidding For Love" home page.

Buy the Kindle ebook for $4.95             Four Bidding For Love (print, $16.99) 

Read more...

What Could Go Right?

A number of macro-issues could "go the right way" in the coming months.

Correspondent David N. gently suggested I devote some effort to what could go right in the months ahead, and I think this is an excellent suggestion.

I notice that you are relentlessly negative in your outlook, and a wise sage once told me that this is a trap that many erudite people fall into--namely, being too negative about the future. Occasionally you have to force yourself to study the other side, the bullish "yin" to the bearish "yang". I think you and your readers would be well-served if you would devote some of your ruminations to what can possibly "go right."

Thank you, David, for presenting me with a positive challenge. I think David is right about the trap, though I suspect it is less a trap of negativity and more one of being pressed into stripping away the artifice and propaganda that obfuscates the real situation, depriving us of the first step toward solutions: accepting reality and setting aside fantasies.

This was the point of yesterday's entry, The Positive Power of Crisis (October 4, 2012).

Some of you may think I am being jocularly dismissive in my list, but I am quite serious. Nothing good can possibly come from artifice, propaganda, misdirection and simulacra "fixes." Something must break through the facade for good things to happen. OK, let's get started:

1. The global contraction could pick up momentum, crushing demand for oil. Recall that the price of oil is set on the margins, so modest fluctuations in supply and demand have outsized effects on price. Price drops when demand falls faster than supply, meaning that global exports of oil could decline but as long as demand declines even more sharply than supply, the price of oil could plummet.

The price of oil falling in half would be a great boon for consumers around the world, and as we will see below, it even has a silver lining for citizens of oil exporting nations. Using 2008 as a recent model, we can expect oil to fall to $35/barrel once demand craters. Below around $50/barrel, oil-dependent regimes such as Iran and Venezuela cannot fund their militaries, welfare states and bureaucracies. As a result they will implode.

2. Mideast tensions decline as the Syrian dictatorship collapses and an attack on Iran is shelved by the U.S. There are too many long-standing tensions and conflicts in the Mideast to hope for anything but relative calm, but relative calm would be conducive to a slow normalization of relations and modest but steady improvements in the lives of residents.

The collapse of the Baathist dictatorship in Syria would be a major positive, as the Syrian grip on Lebanon would loosen, Iran would lose its key regional ally, and the Syrian people would have a chance (not a guarantee, but an opportunity nonetheless) to establish a government that was less oppressive and more responsive to their aspirations.

Notice what happens when you combine 1) and 2): the Iranian dictatorship also falls. The Iranian people have long suffered under a repressive dictatorship, and its collapse would give them a chance (not a guarantee, but an opportunity nonetheless) to establish a government that was less oppressive and more responsive to their aspirations. (Ditto Venezuela.)

Iran is already suffering from hyper-inflation, more from gross mismanagement of the economy than from Western sanctions, though the sanctions provide an easy target for the failed regime. Street protests are spontaneously arising as people's already-limited wealth is completely and utterly destroyed by the regime's cronyism and incompetence.

Following the SOP (standard operating procedure) of all dictatorships, the Iranian regime is responding to the impoverishment of its citizens with police suppression. The collapse of oil prices will provide the last straw.

Although you won't read this in the mainstream media (MSM), the U.S. does not want Iran destroyed or crippled, as Shi'ite Iran provides an essential counterbalance to Sunni extremism. Those predicting an Israeli strike on Iran will be proven wrong, as the U.S. has nixed that as counterproductive to the Great Game.

Once traders finally "get it" that the Israeli war drums were largely domestic politics in action and the U.S. has ixnayed military action against Iran, the "war premium" currently priced into oil will dissipate.

As I have long suggested, a massive, sustained decline in oil is a "head-fake" in the bigger scheme of things, but in the near-term it will provide a catalyst for all sorts of incompetent, oppressive oil-dependent dictatorships to exit stage left, clearing the stage for more responsive and competent governments.

3. One nation exits the euro and the sun rises the following day on a healing Europe. It might be Greece, it might be Germany, it might be Spain, it might be Italy: all that matters is that somebody steps up and exits the euro and renounces all its debts, or in the case of Germany, renounces its promises to cover all the impaired private-bank debt that is crushing Europe.

Once people wake up and find the sun is shining despite the "disaster," they will realize the real disaster was trying to pay unpayable debts and promises and staying in the euro. Life will quickly get better once one brave and resolute set of leaders renounces unpayable debts and exits the euro. Other nations will quickly follow and the owners of bad debt will finally be handed the losses that are well and truly theirs to absorb.

Renounce and restructure: there is no other way forward. What could go right is one nation declares the truth, renounces unpayable debt and exits the euro and the iron stranglehold of the European Central Bank (ECB)/Troika.

Why the Eurozone and the Euro Are Both Doomed (June 23, 2011)

Yet Another Reason Why the Euro Is Doomed (October 17, 2011)

Why the Euro Might Devolve into Euro1 and Euro2 (March 2, 2010)

What's Lost With the Demise of the Euro? Only What Was Unsustainable (November 22, 2011)

Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt? (November 15, 2011)

It's Your Choice, Europe: Rebel Against the Banks or Accept Debt-Serfdom (December 5, 2011)

A Crazy Idea That Might Just Work: Greece's New Currency, the U.S. Dollar (May 14, 2012)

4. The U.S. dollar continues strengthening, making imports cheaper for U.S. households. No nation ever became powerful with a weakening currency. Non-U.S. holders of capital are moving their capital into the U.S. at a rate of about $75 billion a month, roughly equivalent to the Fed's entire QE3 program. This is good news for households and the U.S. economy, despite the naysayers who claim the U.S. dollar's rise is some sort of catastrophe for America.

Yes, exports may be pressured, but they're going to be pressured by global recession anyway. A stronger dollar helps reprice money, debt and risk, all of which desperately need repricing.

What's Hated Most May Be a Contrarian Buy (U.S. Dollar) (April 19, 2011)

Some Heretical Thoughts on the U.S. Dollar (November 21, 2011)

Why the U.S. Dollar Is Not Going to Zero Anytime Soon (July 23, 2012)

5. Federal Reserve Chairman Ben Bernanke takes one too many hits of Ibogaine and suffers an unprecedented bout of inexplicable honesty, declaring on national TV that the Fed is a ponzi scheme, he has no control over employment and the Fed exists to preserve the banks' wealth and power. The normally sedate Chairman apologizes to the American people for lying about the Fed's real agenda and its illusory power to fix a dysfunctional, corrupt, fraud-based neofeudal economy.

OK, I realize this is unlikely, but history is replete with unexpected eruptions of truth and honesty by an insider who finally sickens of all the lies, prevarications, half-truths, secret bailouts, pay-offs, bribes and cronyism that is the Status Quo in America's machinery of finance and governance. It won't be Ben, but perhaps someone in the Power Elite will finally value his/her integrity above cash and status and deliver the truth to the public.

It's a long shot, but we can always hope. Without truth, there is truly no hope.

---

Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)

Read the Introduction (2,600 words) and Chapter One (7,600 words) for free.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.    

Thank you, Kevin L. ($50), for your astonishingly generous contribution to this site--I am greatly honored by your steadfast support and readership.

Read more...

The Positive Power of Crisis

Only in crisis do human beings actually change anything.

If there is any demarcation with profound implications going forward, it isn't the line between the 1% and the 99% or the line dividing the Status Quo into two safely complicit ideological camps: it is the divide between those who squarely face the burden of knowing the present is unsustainable and those who flee into the comforts of denial. Those who accept the burden of knowing are part of the solution, those who cling to denial are part of the problem.

Those who accept the burden of knowing do not necessarily have answers, but they are alert to alternatives and potential solutions. Those in denial can only hope that reality can be buried for a while longer.

Thus we have pronouncements that "the euro is irreversible," that progress is being made, and so on. Nothing has been fixed, but those clinging to denial are comforted that crisis has been pushed forward once again.

Pushing problems under the rug doesn't solve them; they only get worse. This is the positive power of crisis: only in crisis do human beings actually change.

As long as "enablers" are around to protect them from the consequences of their actions and choices, addicts are free to pursue their destructive (to themselves and others) ways. The addicts can be sociopaths or they can be "normal;" the unifying characteristic is their terror in facing the end of the Status Quo, even when the Status Quo is patently destructive and unsustainable.

In the Status Quo, the "enablers" include everyone who gains if the Status Quo continues unchanged, as they are hoping to collect their share of the unpayable promises that have been issued to buy political support or silence, i.e. complicity.

The "handlers and enforcers" of the neofeudal Status Quo--the political and financial Elites and their Upper Caste of managers and apparatchiks--are consciously shoving problems under the rug, in the hopes that some sort of unknown magic will restore the elixir of "growth" that has reliably bailed out the corrupt, increasingly fragile skimming operation (the Status Quo).

The Internet boom bailed it out in the 1990s, and the global housing bubble bailed it out in the 2000s. Now the skimming operation has run out of miracles, and its true nature--it is fundamentally a cargo-cult--has been revealed. Central bankers and their political toadies are in effect praying for a miraculous return of prosperity by painting radio dials on rocks and dancing around the campfire late at night.

The process of shoving structural problems under the rug takes two forms: one is to manipulate data and news flow to "manage perceptions" that all is well, that the Elites have the will and power to force the system back to "set point." The Machine's visible failure to do so after four years of ceaseless "fixes," stopgaps, reassurances, pronouncements and increases in complexity suggests not that it has the power to do so, but that it has lost the ability to repair the boilers with policy/intervention duct-tape.

The other is propaganda: announcing that the latest "fix" will do the trick, or more perniciously, that the present crisis is not an "unrecognized Depression" but merely another "business cycle" recession. Human habituate rather quickly to a range of "normal," and so the substitution of manipulation for accountability becomes "normal" over time.

The "new normal" isn't just a decline in purchasing power and employment; it is the slow loss of institutional legitimacy as the lies and obfuscations pile up.

But since the underlying dynamics are continuing to expand, masking the problems only increases the fragility and vulnerability of the system as the extremes are pushed ever farther out the curve.

For example: if too much leverage is the problem, the Status Quo solution is to increase leverage and hide the increase in opaque derivatives, offshore banking accounts and "dark pool" trading.

Now that collateral has vanished, the leverage in the system is near-infinite. The Status Quo "solution" is to issue new phantom assets to replace the assets which have become recognized as illusory.

How many iterations of the game can be run before some non-linear second-order effect causes the sandpile to collapse?

Rather than fear the crisis, we should embrace it, for it is only in crisis, when all the lies, half-measures, excuses and backstops have broken down, is positive transformation possible.

This essay was drawn from Musings Report 36. The Reports are sent weekly to subscribers and major contributors.

My apologies for the lack of email response. I was on the road and have only been able to respond to 10% of my correspondence. Your understanding of my limits is greatly appreciated.

---

Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)

Read the Introduction (2,600 words) and Chapter One (7,600 words) for free.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, John R. ($10/mo), for your astoundingly generous subscription to this site--I am greatly honored by your support and readership.

Read more...

Six Charts: Money, Oil and Credit

Six charts tell the story of financialization and the diminishing returns of credit.

Today I present a story in six charts. Entire books could be written about the complex interactions of money, oil and credit, but let's try to keep the story as simple as possible.

Here is the monetary base of the U.S. Notice the big ramp-up as the Federal Reserve responded to the global financial crisis with a flood of liquidity/expansion of base money supply.

Here is base money and the price of oil in U.S. dollars. Not a perfect correlation, as there are many inputs to the price of oil (geopolitics, currency fluctuations, etc.) but the correlation is still significant: when base money goes up, so does the price of oil.

Meanwhile, oil exports have topped out. Oil exporters are using more of their oil domestically, leaving less to export. This raises the specter of an imbalance of demand-supply, i.e. insufficient supply to meet demand. In that case, prices rise.

Bank credit has skyrocketed. Plenty of credit sloshing around the system. This curve looks exponential, i.e. unsustainable.

But ample credit doesn't necessarily lead to growth (as measured by gross domestic product). Here we see the diminishing returns of credit: credit soared from 1990 to 2008, while GDP growth drifted lower.

Bank assets have risen exponentially along with credit.

Bank assets have risen along with credit: this reflects the financialization of the U.S. economy. But a funny thing happens when oil supply tops out and base money expansion drives oil higher when priced in U.S. dollars: when the cost of oil rises, the economy stalls out.

Expanding base money pushes the price of oil up to stall speed, while expanding credit has a diminishing effect on the real economy. It does however handsomely boost bank assets.

My apologies for the lack of email response. I have been traveling for the past five days.

---

Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)

Read the Introduction (2,600 words) and Chapter One (7,600 words) for free.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, Helen S.C. ($5), for yet another most generous contribution to this site--I am greatly honored by your steadfast support and readership.

Read more...

If You Prop Up an Artificial Economy Long Enough, Does It Become Real?

Does carefully nurturing a facade of health actually lead to health? No; all it does is perpetuate a destructive illusion.

The policy of the Status Quo since 2008 boils down to this assumption: if we prop up an artificial economy long enough, it will magically become real. This is an extraordinary assumption: that the process of artifice will result in artifice becoming real.

This is the equivalent of a dysfunctional family presenting an artificial facade of happiness to the external world and expecting that fraud to conjure up real happiness. We all know it doesn't work that way; rather, the dysfunctional family that expends its resources supporting a phony facade is living a lie that only increases its instability.

The U.S. economy is artificial in three important ways:

1. The Federal Reserve has distorted the market for borrowing capital by reducing interest rates to zero. Those holding capital (savings) receive essentially zero interest income while favored borrowers (banks and large corporations) can pursue marginal-return speculations for free (when measured in real terms), creating systemic moral hazard of the most pernicious sort.

2. The Federal Reserve's monetizing of Federal borrowing via the purchase of Treasury bonds has given the government a "free" hand to spend $1.3 trillion more than it collects in tax revenues, feeding inflation (The Source of High Inflation: Government Spending) and the moral hazard created by having essentially free money to dispense to cronies and to buy voter complicity.

In a real market economy, the cost of Federal borrowing would rise as bondholders would demand a premium for taking on the risk that interest rates would eventually rise under the relentless accumulation of stupendous debt. That mechanism has been frozen by the Fed's monetiziation of Federal borrowing.

3. The housing market has essentially been socialized, with the taxpayers now funding the entire mortgage market (98% of mortgages are backed by Federal agencies) and endless subsidies of marginal buyers (3% down payment loans, etc.) The Federal Reserve has committed itself to taking trillions of dollars of impaired or dodgy mortgages off the balance sheets of banks and burying them in its own opaque balance sheet, while also maintaining near-zero interest rates (when adjusted for inflation) to incentivize refinancing and home buying--both of which generate billions of dollars in fat fees for banks.

All this artifice has created an artificial economy on multiple levels. The entire bond market is artificial, the entire stock market is artificial, and the entire housing market is artificial.

One of the more striking quotes I've read recently was buried in a report chronicling the effects of the housing bust on Nevada. The quote was by a woman who had stopped paying her mortgage three years ago and had been living rent/mortgage-free in the house courtesy of the bank, which had declined to even begin the foreclosure process.

Harris, 38, stopped paying her mortgage three years ago after her accounting business lost its biggest client and her home’s value plummeted 52 percent. Some neighbors are also delinquent on their mortgages. “There are so many people like me who aren’t paying their mortgage so they can buy groceries and gas,” said Harris, who was rejected for loan modification programs. “It’s creating this whole false economy.”

This is an astonishing statement on several levels. That people can only afford to keep afloat if their housing is free reflects an extreme of financial fragility. That the banks are willing to pay property taxes and receive zero income for 3+ years reflects the banks' dedication to restricting the inventory of unsold homes so prices will be forced higher as supply drops below demand.

This strategy, no doubt orchestrated with quasi-official approval, has already paid handsome dividends, as beaten-down markets such as Phoenix have seen sharp increases in home values this year as the number of foreclosed homes entering the market has dwindled. This artificial restriction of inventory by lenders has been well-documented; not only are there millions of homes in the foreclosure pipeline that are not being moved onto the marketplace, there are at least (by some estimates) another 4 million in-default homes that are being held out of the pipeline entirely; this is the "shadow inventory," the inventory that is not even recognized as being in default despite 3+ years of non-payment.

This is a risky game the banks are playing, as this visibly artificial restriction of inventory undermines the belief that this recent surge in home valuations is legitimate, i.e. a balancing of actual supply and demand. Sqeezing inventory does not magically enlarge the pool of qualified home buyers; it "games the system" so those buyers are paying more for the homes that they would otherwise be worth if the market weren't being manipulated. This helps banks by raising the prices they're getting for the few foreclosed properties that reach the market, but it certainly doesn't help buyers.

This strategy is betting that the gains reaped by selling REOs ("real estate owned," i.e. houses the banks own) at higher prices more than offset the losses generated by paying the costs of non-performing loans--property taxes, for example--and the decline in income as homeowners stop making mortage payments.

The real estate industry and the banks are hoping that the increase in housing prices caused by the restriction of inventory will spark a new rush into real estate as people start believing "the bottom is in." But this is based on the expectation that there is pool of potential buyers who are only waiting for the bottom to be identified to jump in and buy a house.

The irony is that restricting inventory keeps prices high, limiting the number of people who qualify for large mortages. Given that incomes of the lower 95% of households have been declining for four years, the foundation of borrowing is crumbling. The Fed has attempted to increase leverage by lowering mortgage rates to 3.5%, barely above official inflation, while relieving banks of impaired mortgages by buying $1 trillion of mortgage-backed securities in 2009-10 and now another $500 billion over the next year.

The idea here is that maintaining an artificial market and reality will somehow magically transform a broken system into a self-healing one. Stated in this transparent fashion, the absurdity of the Status Quo's primary policy is clearly revealed.

Dysfunctional families, enterprises, markets and governing Elites all share this same dilemma: you cannot fix an unhealthy, dysfunctional system by hiding reality behind an artificial reality facade. All you're doing is increasing the instability of the system, which is not allowed to self-correct.

The U.S. economy is riddled with artifice: millions of people who recently generated income from their labor have gamed the system and are now "disabled for life." Millions more are living in a bank-enabled fantasy of free housing. Millions more are living off borrowed money: student loans, money the government has borrowed and dispensed as transfer payments, etc. Assets are artificially propped up lest a banking sector with insufficient collateral be revealed as structurally insolvent.

One definition of dysfunction is an internal conflict that cannot be resolved. That is our Status Quo: its strategy to fix its dysfunction and instability is to create an artificial economy based on smoke-and-mirrors data, ginned up balance sheets and a facade of "normalcy" that is anything but normal or healthy. How can such an artificial economy become healthy when its self-correcting features and transparency have both been overriden by artifice?

It's not difficult to predict an eventual spike of instability in such a system; the only difficulty is predicting the date of the instability. Hiding a broken, dysfunctional economy behind a facade of artifice and illusion can't fix what's broken, it only adds to the system's systemic instability as resources that could have gone to actually fix things are squandered on propping up phony facades of "growth" and "health."

---

Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)

Read the Introduction (2,600 words) and Chapter One (7,600 words) for free.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, Vladimir T. ($20), for your most-excellently generous contribution to this site--I am greatly honored by your support and readership.

Read more...