Part 34: An unexpected and extremely unwelcome houseguest

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.)

      Given her keen anticipation of being home alone, Alexia did not welcome the lights on in her flat. Heaving a sigh which bridged her initial confusion and mood deflation, she recalled giving Robin permission to stay in her spare bedroom.
     Shivering in her thin gold-and-green sundress, Alexia clutched her small travel bag and strode through the evening's cool air with a new and profound annoyance—at Robin, for being in her flat right when she needed respite, and at herself for being so irritated by her unwitting presence. If there is anyone who will understand, it's Robin, she reassured herself; I'll just excuse myself, take a bath and then fall into bed.
     But then another set of emotions arose within her, feelings born of her memory of the unexpected embrace they'd shared on her sofa. If there's ever a night I could use some comfort, this is it, she thought, and then dismissed her hopes of a second act as foolish. Despite her admonitions that such fantasies would only heighten her disappointment, Alexia climbed the steps with the keen desire to unburden her distress in the arms of an understanding lover.
     Most of the time she kept her mind away from such tender vulnerabilities, but as she opened the door, her heart fluttered with the possibility that Robin would offer comfort of the primordial sort. Forget it, she told herself irritably; he's not my lover, he's my neighbor; that was a one-off event.
     As she entered her home, her attention was immediately drawn to a scuffed old pair of men's sneakers by her shoe rack and the rich scent of meat cooking. Both were unexpected, for she'd never seen Robin wear anything so ratty, nor had she ever known him to cook a meal.
     Walking into her kitchen, her greeting to Robin froze in her throat, for a strange man of mid-height and age with dark damp hair was standing contentedly at her stove, tending a sizzling frying pan and a steaming pot. Dressed in a red and gold embroidered Chinese smoking jacket, he cut a peculiar figure beside her expectation of preppily-attired Robin, and as she watched in dismay he bent down and offered a tidbit to Hanover, who accepted the offering with gusto. Seeing the stranger had already seduced her cat only increased her sense of trespass and she announced crossly, "Excuse me. Who are you, and what are you feeding my cat?"
     The man turned to her with a look of surprise that melted into an expression of delight. "You must be A.R. You are even lovelier than Robin led me to believe."
     Those who knew Ross best might be forgiven for expecting him to respond the woman's accusatory tone with a torrent of wounded effrontery. But despite having opened the cabernet some time ago, Ross's sense of the moment's fragility was extremely acute. He intuited at once that this long-legged, busty dusky-blond sexpot in a gold-green dress had to be A.R., and that he was standing on ice so thin that the scales on the fish peering up from the placid world below could easily be counted. If he mismanaged her neurotic volatility, the ice would crack and he would be plunged into the cold world of a homeless shelter.
     Furthermore, Ross was in a rare mood of warm gratitude: for the upcoming trip to Las Vegas, for the deluxe temporary quarters, and now, for the opportunity to feast on the delectable if somewhat annoyed visage of his heart-stopping hostess. For despite her frigid demeanor, Ross found everything about her utterly enthralling—even the neurotic edge he'd so presciently expected. And so his first words of praise carried the unmistakable weight of complete sincerity.
     For it was a generally obscured strength of Ross's character to rise up not to life's daily disappointments and corrosions, but to life's tsunamis, when the odds were so heavily stacked against him that survival, much less triumph, seemed hopeless. Facing just such a challenge, he unearthed the charm that few other than his ex-wife had ever witnessed, and quickly intuited the best approach to A.R.'s foul surprise was to act as if he'd been expecting her.
     It was a stretch, he knew, akin to body-surfing the tsunami, but he had one huge advantage: the wine and the meal were prepared for two. For in the daft hope that Kylie would yet appear to join his celebration, he'd prepared both rib-eye steaks he'd bought, as well as potatoes and asparagus for two.
     Feeling anything but lovely—bedraggled would have been her self-description—Alexia demanded, "What are you feeding my cat?"
     Rather than answering her question, her unwanted guest added to her aggravation by taking up a waiting wine glass from the counter, half-filling it with red wine from a costly-looking bottle and affably crossed the room to hand it to her.
     Bowing slightly, Ross said, "R.T. at your service. Hanover is getting very small tidbits of grilled rib-eye, and don't worry, I'm not overfeeding him. Oh, and dinner is about ready: small red potatoes encrusted with Provence herbs, asparagus with light vinaigrette, and the rib-eye steak, medium-rare and drizzled with fresh ground pepper."
     As Alexia absorbed this friendly patter, her stomach rudely announced it hadn't received any sustenance since breakfast. As she accepted the wine in a state divided equally between high dudgeon and befuddlement, the man suddenly exclaimed, "By Jupiter, you truly are incredibly hot."
     Not at all in the mood for such coarse compliments, even if they were rather charmingly sincere, she replied testily. "I am not. At least not tonight."
     Ross's expression turned contemplative, and as he raised his glass to hers in a toast he said in a solicitous voice, "You do look a bit peaked. Why not tell me all about it over dinner?"

Next: Dinner, Confession and the Blossoming of Love (Chapter 11)

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

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The United States of Delusion

The irony is that clinging to delusion rather than face the necessity of deep cuts in borrow-and-squander budgets will lead to the involuntary reset of the entire system, depriving every vested interest of their share of the swag.

We are living in the United States of Delusion. The delusion has four key sources:

1. We can borrow-print-and-spend our way to prosperity when debt and fiscal/monetary stimulus are yielding ever more marginal returns:

The Dangerous Blindspots of Clueless Keynesians (January 2, 2013) The Keynesian model is a Cargo Cult, mired in a distant, romanticized past where Central Planning, intervention and manipulation were solutions rather than the root of the economy's fatal disease.

2. The risks of this fatal fiscal delusion are masked by a complicit Mainstream Media and a perception-management, manipulation-dependent Central State and Federal Reserve.

Spoiled Teenager Syndrome (January 3, 2013) Masking risk, cost and consequence creates an illusory world that eventually crashes on the unforgiving rocks of reality.

Is masking risk, cost and consequence a strategy that leads to success? No; it is a pathway to repeated catastrophic failure. What is the Central Planning strategy being pursued by our Central State and the Federal Reserve? Masking risk, cost and consequence.

3. The true costs of the Neoliberal Cartel State are cloaked, massaged and distorted by bogus budgets and wildly unrealistic projections.

Sickcare Will Bankrupt the Nation--And Soon (March 21, 2011)

Sickcare is fundamentally a system of interlinked politically powerful cartels.Insiders who refuse to speak on the record for fear of antagonizing the powers that be, exorbitant price increases, confidential agreements and a tug-of-war between warring tribes. Is this the Mafia we're talking about?
From the point of view of investigative journalism, it could al 

so describe America's health care industry. Stated truthfully, the industry is a highly profitable and politically powerful group of companies which operate in cartel-like fashion: that is, they use their clout to limit competition and establish highly profitable pricing. 

Western Pennsylvania has about 140 MRI machines, while the 32 million residents of Canada share 151 MRI machines. And the U.S. machines are getting a lot of use: the number of CT and MRI scans (scans other than old-fashioned X rays) tripled from 85 to 234 per thousand insured people since 1999.
While proponents are quick to note that scans are cheaper than the alternative diagnostic procedures, one firm's research found that a doctor who owns his own machine is four times as likely to order a scan as a doctor who doesn't. 

As if that wasn't enough to highlight the self-serving nature of "fee for service" cartels, MRI scanner manufacturer General Electric waged a two-year lobbying campaign to roll back cuts in Medicare reimbursements for scans. While the effort proved unsuccessful due to the intense political pressure to reduce soaring Medicare costs, critics observed that providers simply made up the reduced reimbursements by increasing the number of tests administered. 

The only solution that actually addresses the systemic problem is to get rid of the entire fee-for-service structure and break up the cartels.Healthcare must be reconnected to diet, nutrition, fitness, lifestyle and community, and to education and emotional well-being.

If You Want Solutions, First Pin Down Where the Money Is Going (May 23, 2011)

If you really want a solution, then start by pinning down exactly who's getting all the money. Then find out if they're accountable for how it's spent. Nobody wants to admit the reality: our nation is dominated by cartels and fiefdoms serving entrenched constituencies whose budgets are simply not sustainable.Please consider this chart of the University of California system's employment of professors and administration. If we extrapolate the lines, then soon there will be more highly-compensated seat-warmers in administration than there will be professors teaching in the classrooms.

It seems that some members of the Education Cartel and Fiefdom came to do good but stayed to do well--as in triple the national median earnings of full-time workers: 

(Source: www.championnews.net/ftf_teacher.php?tid=78195&year=2010)  

Salary: $172,163
Position: High School Teacher
Full/Part Time: Fulltime
Percent Time Employed: 100%
Assignment: Physics (Grades 9-12 Only)
Years Teaching: 30.5
Degree: Master's

Salary: $163,526
Position: High School Teacher
Full/Part Time: Fulltime
Percent Time Employed: 100%
Assignment: Driver Education
Years Teaching: 32
Degree: Master's

And how about those pension and retirement costs? We have an answer for New York City, and it is sobering. NYC budget - pension costs skyrocketing:
Over the past decade, New York City hasn’t really grown its population but has increased expenses from $28.8 billion to $49.7 billion. The vast majority of that $20.9 billion increase has been in the form of more dollars to fewer employees. Pension costs are killing us most: this has grown from $1.3 billion in 2002 to $8.3 billion in 2012.
That's a 638% increase in pension costs in one decade, while the city budget leaped 72% despite a stable population. The share of the budget devoted to pensions jumped from 4.5% in 2002 to 16.7% in 2012.

I have addressed these issues many times, for example in The Devolution of the Consumer Economy, Part II: Rising Costs, Declining Wages (April 8, 2011) and Complexity: Bureaucratic (Death Spiral) and Self-Organizing (Sustainable) (February 17, 2011).

I have highlighted the Education and Sickcare Cartels, but there are many others with exploding costs and zero alignment with accountability or performance. The Department of Defense, famous for routinely losing track of hundreds of billions of dollars (and does anyone lose their job over that gross mismanagement? No, everyone gets a promotion and raise for doing such a swell job), manages to triple the cost of every weapons system, regardless of the actual performance benefits (increasingly marginal, perhaps?)

The new F-35 fighter aircraft cost $150 million each, once we add in the overruns, replacing the Super Hornet F-18 E/F that cost $57 million each. (Once lifetime costs are included, the F-35 will cost upwards of $300 million each.) Is the F-35 really three times better than the F-18? Which would a commander facing 100 bogeys rather have, 30 F-35s or 90 F-18s? (I suspect they'd take the 90 F-18s, as long as they were loaded with the latest Sidewinder and long-range air-to-air missiles. As has been famously pointed out, at some point quantity becomes a winning quality.)

Will 100 F-35s prevail over 1,000 dirt-cheap drones? How about 10,000 drones? If the future of warfare is increasingly powerful unmanned networked drones (and it clearly is), why are we spending $1 trillion+ on hyper-costly aircraft that are essentially designed for a previous era?

4. The consequence of substituting delusion for reality is ignored or hidden from view, with the complicity of all the self-serving, entrenched vested-interests.

Is there any evidence that continuing to borrow and squander money on diminishing returns will magically cause a sudden return to productive investment? Of course there isn't; the magical belief that doing more of what has failed will eventually evade causality is delusional.

Does anyone seriously think that counterproductive "investments" in diminishing returns will "grow our way out of debt"? Of course not; everyone with a vested interest in the crumbling Status Quo is terrified that their share of the borrowed/printed swag will be cut. So the only alternative is to cling to a delusional state where belief in the impossible replaces a realistic assessment of risk, cost and consequence.

The irony is that this strategy of clinging to delusion rather than face the necessity of deep cuts in borrow-and-squander budgets will lead to the involuntary reset of the entire system, depriving every vested interest of their share of the swag. Is delusion a sustainable state? No. Thus we can confidently predict that causality, factuality and karma will eventually sweep aside delusion and all those who cling to it.

---

My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economyComplex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

10% discount on the Kindle edition: $8.95(retail $9.95)       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

Thank you, Paul F. ($10), for your much-appreciated generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Karen B. ($30), for your wonderfully generous contribution to this site --I am greatly honored by your support and readership.

Read more...

Spoiled Teenager Syndrome

Is masking risk, cost and consequence a strategy that leads to success? No; it is a pathway to catastrophic failure.

What are the core characteristics of the spoiled teenager? The conventional view is that the spoiled teen "gets everything they want." In my view, the key characteristic of Spoiled Teenager Syndrome is that risk, cost and consequence have been masked.

This is a systemic point of view, meaning that the masking of risk, cost and consequence help us understand not just the eventual failure of spoiled teenagers but the eventual failure of every group or enterprise that masks risk, cost and consequence as a strategy to paper over an unsustainable Status Quo. This includes families, companies, states and nations.

The spoiled teen is spoiled precisely because the risk, cost and consequence of their choices and actions are suppressed by Mommy and/or Daddy. Since Mommy and/or Daddy diligently cover the cost and mask the eventual consequence of Junior's unrealistic expectations and poor choices, the risks created by Junior's choices and lifestyle are also masked. Junior naturally assumes Mommy and/or Daddy will bail him out of every scrape and "make it right" at no cost to Junior.

Masking risk, cost and consequence creates an illusory world that eventually crashes on the unforgiving rocks of reality. Anyone who knows parents who have spoiled their kids has stories that beggar the imagination of those who have no choice but to live in the real world. In one such instance within our circle of friends, the daughter who was caught shoplifting told her Mom that she did not want to go to court, and Mom had to do something so she wouldn't have to face any consequence from her actions.

This 16-year old apparently believed that Mommy could push risk, cost and consequence aside in all cases; even the law should give way if it proved inconvenient or painful.

Are the values, experiences and skills spoiled teens receive going to help them navigate adulthood, or will they encourage a state of permanent adolescence? When will Mommy and Daddy stop hovering, warding off risk, cost and consequence? We know the answer: when they are finally unable to do so.

Did all their "help" masking risk, cost and consequence actually aid their child in the long-term? Or did it cripple the child by leading him into a false sense of security, an illusory state where someone will always save you from consequence?

What sort of skills to assess and manage risk does the spoiled teen have in hand when risk has been cloaked? How can the teen understand cost and trade-offs when the true costs of their lifestyle have been hidden? How can the teen navigate adult life, which is characterized by taking responsibility for one's actions and being accountable to others, when the consequences of his choices have been smoothed away by Mommy and Daddy?

One intrinsic characteristic of parents who have masked risk, cost and consequence is that they do not perceive themselves as having spoiled their children. Instead, they see themselves as "good parents" who are protecting their children from the unpleasant rough edges of life. In their view, there is plenty of time later in life to learn about risk assessment, short-term and long-term trade-offs, costs (both financial and emotional), accountability, realistic appraisals and consequence.

These parents seem blind to the reality that their coddling and hovering have left their children disastrously ill-prepared for adulthood. If there is any recipe for guaranteed unhappiness, it is nurturing expectations that are wildly at odds with what real life offers. Risk and return are indeed causally linked.

I have watched in amazement as coddled 19-year olds taking a few classes at community college and dreaming of rock stardom confidently declare that they would be OK with being a firefighter in a wealthy city because the starting pay was $80,000. That there are 1,000 applicants for every opening did not seem to register in this young man's assessment, nor did his inability to clean up a weedy backyard; he stopped after an hour or so because there was no consequence to a sorrowfully half-baked effort.

I grieve for young people so ill-prepared for a recessionary economy, not to mention marriage, managing scarce income and capital and a hundred other aspects of unsubsidized adulthood. Their parents have essentially robbed them of the slow and relatively safe part of the learning curve, where you get fired for being late at 16 years of age rather than at 26.

Is it any wonder that many young people are boiling with frustration when they exit college and the protected enclave of their parents' home to find a world that doesn't respond to their desires for creative expression and their long list of likes and dislikes, i.e. demands?

On the other side of the ledger, I have seen quiet young men and women, residents in youth homeless shelters, who received no buffering at all between the teen years and unforgiving adulthood. Abused at home or simply abandoned, they hit the road as the only alternative open to them. Penniless and without family support, they often face bleak choices. Their appraisals (in my limited experience) are by necessity realistic. Of course they are hurting; but ironically, perhaps, they are in some ways better prepared to navigate adulthood than teens who have yet to be exposed to risk, cost and consequence.

Is masking risk, cost and consequence a strategy that leads to success? No; it is a pathway to repeated catastrophic failure. What is the Central Planning strategy being pursued by our Central State and the Federal Reserve? Masking risk, cost and consequence.

Masking risk, cost and consequence is disastrous not just for teens, but for entire nations.

---

My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economyComplex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

10% discount on the Kindle edition: $8.95(retail $9.95)       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

Thank you, Mike G.($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, Stephen C. ($10), for your wonderfully generous contribution to this site --I am greatly honored by your support and readership.

Read more...

The Dangerous Blindspots of Clueless Keynesians

The Keynesian model is a Cargo Cult, mired in a distant, romanticized past where Central Planning, intervention and manipulation were solutions rather than the root of the economy's fatal disease.

If we want to trace today's policy failures back to the source, we find ourselves at Richard Nixon's famous statement that "We are all Keynesians now." The fundamental Keynesian project is that the Central State and Central Bank should manage market forces whenever the market turns down.

In other words, the market only "works" when everything is expanding: credit, profits, GDP and employment. Once any of those turn down, the State and Central Bank "should" intervene to force the market back into "growth."

The Keynesian has two basic tools: the State can borrow and spend money (fiscal stimulus) and the Central Bank can create money and "inject" it into the economy (monetary stimulus): quantitative easing, lowering interest rates, extending unlimited credit to broker/dealer investment banks and financial institutions, etc.

The sharper the downturn, the greater the State/Central Bank intervention. This accounts for the martial analogies of State/CB responses: "bazookas," "nuclear option," etc., as the market is overwhelmed with ever greater fiscal/monetary firepower.

After basically voiding the market's ability to price risk and assets, the Keynesians believe the market will naturally resume pricing risk and assets at "acceptable to Central Planning" levels once fiscal and monetary stimulus is dialed back.

The entire Keynesian Project has numerous blindspots. When reality inconveniently fails to meet Keynesian expectations, reality is ignored or massaged to suit the Keynesian Cargo Cult's belief system.

For example, the Grand Poo-Bah of the Keynesian Cargo Cult, Paul Krugman, loves to repeat that massive fiscal-stimulus deficits haven't raised interest rates, confounding doomsdayers, but he never mentions the Federal Reserve's role in this magic: what would interest rates be if the Fed wasn't buying hundreds of billions of dollars of Treasury bonds every year?

The honest position would for Keynesians to state that the Central Bank's role is to print money to enable unlimited, fiscally reckless spending by the Central State. But dishonesty is a modest Keynesian fault compared to the blindspots in their core policies.

Here is a partial list of Keynesian blindspots:

1. The Keynesian Model no longer works; it is counter-productive and destructive.

2. Markets that have been managed by the Central State/Central Banks are broken and no longer function in pricing risk and assets.

3. Keynesians are incapable of recognizing opportunity cost: the money they borrow and squander on sinkholes is no longer available for productive uses.

4. Keynesians are blind to the difference between an investment that yields a positive return and a sinkhole that sucks scarce capital away from productive uses.

5. Keynesians are incapable of recognizing institutionalized moral hazard is the inevitable consequence of flooding the financial sector with cheap, easy money.

6. Keynesians are blind to the fact that cheap, easy money at near-zero rates destroys the premium on real capital (saved cash), fatally distorting the economy and finance.

7. The Keynesians are blind to the eventual consequences of higher interest rates on rapidly rising sovereign debt. What's left of the private market for bonds eventually recognizes that Central Planning has pushed the risk of default or currency depreciation much higher. That will push interest rates higher, unless the central Bank buys essentially all newly issued Treasury debt.

Regardless of who buys the debt, increasing sums of national income are diverted to pay interest on debt taken on to fund marginal-return Bridges to Nowhere, starving the State and economy of income and investment capital. Default is the only possible endgame when debt rises faster than income and productivity.

8. Keynesians are blind to diminishing returns: ever-higher debt produces ever-smaller returns.

I have often identified Keynesian economists and the Federal Reserve as cargo cults.

After the U.S. won World War II in the Pacific Theater, its forces left huge stockpiles of goods behind on remote South Pacific islands because it wasn’t worth taking it all back to America.

After the Americans left, some islanders, nostalgic for the seemingly endless fleet of ships loaded with technological goodies, started Cargo Cults that believed magical rituals and incantations would bring the ships of “free” wealth back. Some mimicked technology by painting radio dials on rocks and using the phantom radio to “call back” the free-prosperity ships.

The Keynesians are like deluded members of a farcical Cargo Cult. They ignore the reality of debt, rising interest payments and the resulting debt-serfdom in their belief that money spent indiscriminately on friction, fraud, speculation and malinvestment will magically call back the fleet of rapid growth.

To the Keynesian, a Bridge to Nowhere is equally worthy of borrowed money as a high-tech factory. They are unable to distinguish between sterile sand and fertilizer, and unable to grasp that ever-rising debt leaves America a nation of wealthy banks and increasingly impoverished debt-serfs.

The Cargo Cult faithful do not understand diminishing returns: at some point, the interest on skyrocketing debt drains income and capital from potentially productive investments to pay for previous unproductive spending on fraud, friction and malinvestments, starving the economy of productive investment.

"Free money" creates moral hazard, which means that those who can borrow money for almost nothing and never have to pay it back act entirely differently from those paying market rates for money and backing their loan with real collateral that is at risk.

The Keynesian definition of Heaven is World War II, because that war "proved" that digging a gigantic hole (global war) and filling it with trillions of dollars of borrowed money is the perfect (and perhaps only) way to create enough "aggregate demand" to lift an economy out of depression.

What clueless Keynesians cannot see is that World War II was a one-off and cannot be duplicated. The Global War "solution" had a key characteristic that is almost universally ignored.

Depression-era calls to bulldoze homes to be rebuilt and destroy grain so it could be regrown were rightly dismissed as malinvestment on a vast scale. But war is more or less an equivalent malinvestment on a grand scale. Hundreds of ships were built and then sunk, thousands of aircraft were built and then shot down or lost, and monumental mountains of provisions and supplies were manufactured and then either consumed or lost to enemy submarines, bad weather, rot and a host of other causes.

At the end of the war, most of the leftover goods manufactured--ships, tanks, aircraft, munitions, etc.--were mothballed or scrapped.

Despite this staggering waste, the war spending launched a long boom. How did it work this magic? One, it constructed new plant; unlike the Keynesian calls to bulldoze houses so they could be rebuilt, the war investment created factories that could then be converted to produce goods.

More importantly, the war spending created a vast pool of private capital--what we call savings. As resources were diverted to the war effort, rationing limited both the manufacture and availability of consumer goods. Meanwhile, tens of millions of people were put to work, either in the Armed Forces or in the war manufacturing sector, and most had few opportunities to spend money. Industrialists also piled up war profits.

Though the 1930s Central Planning extend-and-pretend policies did not write off the overhang of debt that had depressed the economy and destroyed the market's ability to properly price risk and assets, this gargantuan pool of private capital simply overwhelmed the remaining debt overhang.

Third, trust in the system was restored: the Federal government had effectively "won the war" by printing money and drawing upon the nation's vast surplus of energy and labor, and the manufacturing and financial sectors had been brought to heel by the extraordinary demands of the war and by legislation that had responded to financial fraud and over-reach of the late 1920s.

Keynesians are blind to the fact that the root of "capitalism" is capital. Capitalism requires two fundamentals--capital to invest and open markets for goods and services that transparently price risk, assets, hedges and goods.

Note that debt, and fiscal and monetary intervention are not essential to capitalism. Indeed, if we explore the roots of modern capitalism in the 14th and 15th centuries, we find that commercial credit and hedges were the key ingredients of success, not debt. Lacking sufficient coinage to handle the rising volume of trade, merchants settled accounts at the great trading fairs in Europe.

Long, risky trade voyages were hedged with the equivalent of options and limited stock companies that distributed risk for a price. Leverage was limited by the transparency and appetite for risk.

Compare that with Bernanke's Keynesian policies, all of which severely punish savers (i.e. the accumulation of capital) and reward leverage and debt. By lowering interest rates to zero, Bernanke has imposed the opposite of the World War II experience of forced savings--he has made cash into trash and pushed everyone into risk assets.

By making credit dirt-cheap and backstopping financial-sector losses (i.e. institutionalizing moral hazard), Bernanke has destroyed the market's ability to discipline malinvestment and openly price risk and assets.

World War II launched a boom precisely because private capital accumulation/savings were enforced; when the war ended, there was a vast pool of capital available for investment and consumption.

Keynesian policy is to punish capital accumulation and reward leveraged debt expansion. Rather than enforce the market's discipline and transparent pricing of risk, debt and assets, Keynesians have explicitly set out to re-inflate destructive, massively unproductive credit bubbles.

This is why the Central Planning Keynesian policies has failed so completely, and why they will continue to fail. The Keynesians are not engaged in capitalism, they are engaged in the destruction of capital, productive investment and the open pricing of risk, debt and assets. The markets are not allowed to price risk, capital and assets, so the economy is crippled. The Keynesian model is a Cargo Cult, mired in a distant, romanticized past where Central Planning, intervention and manipulation were solutions rather than the root of the economy's fatal disease.

---

My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economyComplex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

10% discount on the Kindle edition: $8.95(retail $9.95)       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

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Will the Next Bear Market be a Planned Event or a Failure of Central Planning?

Ironically, the very success of stock market manipulation only thins the market of legitimate participants and thus increases the probability that risk that has been suppressed for years will erupt uncontrollably.

Longtime correspondent B.C. recently shared some provocative thoughts on the nature of the next Bear Market. Bear markets are often defined as a decline of 20% or more from recent highs.

Alternatively, others look at long periods of subnormal returns as secular Bear Markets. For example, if officially measured inflation has reduced purchasing power by 35% since 2000, and total stock market returns (dividends plus appreciation) are 15%, then the real return of "buy and hold" is a negative 20%--a Bear Market by any reasonable metric.

That the stock market is manipulated is no longer in question. One explicit goal in the Fed's zero-interest rate policy (ZIRP) is to drive capital into risk assets such as stocks. That is a first-order, transparent policy of manipulation, i.e. a centrally managed policy aimed at managing markets to meet a key central-planning goal: creating an illusion of prosperity via an elevated stock market and the resultant "wealth effect" for the 10% who own enough stocks to matter.

Indirect manipulation is hidden from public view lest the rigging of the market taint the perception that a rising market is "proof" that Federal Reserve and Administration policies are "succeeding." Indirect manipulation is achieved via Federal Reserve quantitative easing operations, unlimited liquidity and lines of credit to fund bank speculations and masked buying of market futures.

This multilevel manipulation creates a Boolean either/or for any Bear market:either it is a planned "panic" that profits the banks or a systemic failure of the orchestrated campaign of market manipulation.

Here is B.C.'s commentary:

Consider the possibility that the banksters now effectively control the stock market in ways never before possible, using the NY Fed acting in concert with the dark pools, offshore shell companies and pass-through entities, PTFs, and high-frequency trading (HFT) via the for-profit exchanges.How much would it "cost" the primary dealers to manage the markets using leveraged derivatives, assuming a complicit counterparty or counterparties? 

Hypothetically, if the banks wanted to keep the SPX to no lower than, say, 3% to 7% of the 200 dynamic moving average (DMA) indefinitely, thereby keeping the 200 DMA in a steady uptrend, what would it cost? A few tens of billions at the margin?
If one or more parties could leverage 10:1 futures and then 10:1 again with options, it would cost a small fraction of banks' ~$13 trillion in assets and $1.7 trillion in cash assets. 

One can at least envision the possibility of banks continually leveraging of futures and options on futures, rolling the positions forward while keeping sufficient amount of incremental liquidity to further lever long as required. 

We can infer that if Wall Street banks wants the market to go down because it's the best opportunity for them to make money given the alternatives, a bear market will occur; but it will be blamed not on cyclical factors, overvaluation, etc., but on some other perceived "exogenous" factor, such as the "fiscal cliff", war, "policy mistakes", etc. 

Yet with the banksters having directed Bernanke to explicitly talk up the stock market for more than three years, even specifically referring to the Russell 2000 (small-cap stocks) as a benchmark, to expect that a bear market will occur is by definition to assume that (1) the banksters will act in some manner to allow, or cause, a bear market; or (2) their efforts will fail to prevent one, risking their credibility and legitimacy. Given the hyper-interventionism and expectations management, one is left to assume that the banksters have the capability to prevent a bear market until proven otherwise. 

But without a bear market, valuations will not improve enough to permit a future return that warrants the 35-50% cyclical drawdown risk in the meantime.
How does one trade, speculate, or allocate assets in an environment where one is like a conspicuous, slow-moving target in a shooting gallery for the HFT and PTF sharpshooters, or one's assets are hardly more than part of a slush fund for fee scalpers who add no value to the economy or society?

Thank you, B.C. for explicating the conundrum facing the manipulators: if they never let the market decline, the resultant modest appreciation and low yield does not provide an attractive risk/return given the possibility, however remote, that the market could escape the control of the Fed and banks and plummet by a third or a half.

The loss of credibility and legitimacy any serious decline would trigger could launch a positive feedback loop where buyers who have been trained by four long years of manipulation to "buy the dip" would lose faith if their buying was rewarded with sustained losses.

This means the manipulative Powers That Be must tread a precarious path between a Bear market sell-off that creates buying opportunities for themselves and a decline that escapes their grasp as a loss of faith in the manipulators' control triggers an avalanche of selling.

We can surmise that a manipulated sell-off will have a V-shape: a steep decline that triggers widespread stops and margin calls, followed by a sharp recovery as the manipulators buy the dip they enabled. Ideally, the sell-off would fail to reward buy-the-dip buyers, causing traders to sell to waiting hands. Perhaps the November sell-off was just such an orchestrated decline and recovery.

A sell-off that gets away from the manipulators would likely be characterized by failed rallies and high-volume selling as money managers bail on risk and the perception that the manipulators are not God-like in their powers.

If the markets are well and truly captured by the banks and officially sanctioned manipulation, then any sell-off will be limited. Ironically, the very success of the manipulation only thins the market of legitimate participants and thus increases the probability that risk that has been suppressed for years will erupt uncontrollably.

The after-effect of a Bear that escapes the Fed/bank Zoo is a market that has lost the legitimacy of a truly free market and the credibility of a centrally managed market. It will truly be a dead-zone market, abandoned by all but the bank/central planning manipulators and day-traders.

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My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.

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Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economyComplex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

10% discount on the Kindle edition: $8.95(retail $9.95)       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

Thank you, Robert P.($5/month), for your superbly generous subscription to this site -- I am greatly honored by your support and readership.

Thank you, Cheryl & Jim S. ($5/month), for your wonderfully generous resubscription to this site --I am greatly honored by your ongoing support and readership.

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