Collapse generally comes as a surprise, even to those who predict it.
The USSR didn’t just fail one day, as does a person who dies of a sudden heart attack or stroke. It was more like a wasting illness brought on by an unhealthy lifestyle. A physician tells a morbidly obese patient: “Your daily consumption of twelve cocktails, three packs of cigarettes, and 4,000 calories, and your refusal to engage in exercise more strenuous than walking to the refrigerator will kill you, but I can’t say when.” For both individuals and governments, certain choices are incompatible with continued existence, and the Soviet government made plenty of those.
Very few people foresaw its failure when it was imminent, even purported experts. The small group who said Soviet communism wouldn’t work because it couldn’t work were disparaged right up until it didn’t work. However, the deck is always stacked in favor of those predicting this or that government will fail. Ultimately they all do because they all come to rest on a foundation of coercion and fraud, which doesn’t work because it can’t work.
There is both a quantitative and qualitative calculus for individuals subject to a government: what the government takes versus what individuals get back. Government is a protection racket: turn over your money and it promises physical security from invasion and crime, and adjudication and restitution in the event of civil or criminal wrongs. The quantitative calculus: am I getting more back than I put in? The qualitative calculus: what activities and people does the government help or hinder?
Need a good laugh before the shtf?
Protection rackets are often indistinguishable from extortion rackets, the “protector” a bigger threat to the “protected” than the threats against which they’re supposedly protected. Such is the case with the US government, as it was with the former Soviet government. Blessed with naturally defensive geographies and huge nuclear arsenals, the chances of the US being attacked are (or were, in the case of the former Soviet Union) remote. The cost for actual protection provided by those governments has been a tiny fraction of what’s been extracted by force or fraud from their citizenries, the very definition of an extortion racket.
Freedom militates against stupidity; coercion compounds it. Competitive markets and a wide-open intellectual climate either kill the worst ideas or impel their improvement. Power corrupts so completely because those who hold it rarely face negative feedback or consequences. Critics are mocked, stifled, imprisoned, or murdered. The costs of failure are borne by the victims. The perpetrators blame those failures on lack of funding or authority and receive more of the same.
Nothing succeeds like failure in coercive systems. Just look at the US governments “wars” on poverty, drugs, and terrorism. For rational people in free, competitive systems an ever-expanding gap between shining intentions and dismal reality prompts psychological turmoil. The powerful salve outbreaks of cognitive dissonance with arrogance, which expands apace with their failing programs. Just look at Obamacare, which its progenitor hails as his greatest accomplishment.
As the protection racket and its sub-rackets expand, the “protected” receive less and less, but pay more and more. By now, both the quantitative and qualitative calculuses are clear to productive Americans: they’re being reamed by people they despise, who in their arrogance and willful blindness despise them. The government steals trillions directly, but still resorts to financial sub-grifts—debt, fiat money, and central banking—to feed its insatiable money-lust. Like the government’s debt, stupidity compounds exponentially and rational people wonder how long unsustainable rackets can persist. The racketeers, if they realize their rackets can’t last, don’t care; they’re going to milk them as long as they can.
With the world’s most powerful military, largest nuclear arsenal, and most intrusive surveillance apparatus, the ostensible power of the US government is daunting. Yet, if a tenth of the US population ran up their debts, withdrew their funds from the financial system, and then stopped making debt service payments for a few months, it would propel a run on the banking system, choking the government’s financial lifeline and exposing its worthless fiat debt scam. Thus, the government is hardly invulnerable. As stupidity compounds, so too do its vulnerabilities.
The foundation of the global economy and financial system is interlinked debt. Anyone paying attention during the last financial crisis recognized that it took surprisingly few defaults—debt markdowns that marked down the value of the corresponding credit-assets—in a highly leveraged and interconnected system before that system unraveled and imploded. Anyone with a modicum of analytic ability and intellectual integrity realizes that the “solution” to that last financial crisis—more government and central bank debt—was another instance of stupidity compounding itself. Now, there’s more craziness in the debt asylum than there was in 2007.
There probably won’t be a voluntary debt payment moratorium, although for anyone asking how “we the people” can throw off the burdensome yoke of “our” government that would be a fine place to start. There doesn’t have to be; the mechanics of debt implosion guarantee the same result. Most of the world’s financial assets are debt or equity claims. Equity has a lower legal right to a debtor’s assets than debt. A debt collapse will leave the world impoverished, and so too its governments. Many real assets will be tied up in creditors’ squabbles. Governments’ and their central banks’ vaunted abilities to drive interest rates to subzero, go further into debt, and exchange their pieces of paper or computer entries for other pieces of paper or computer entries will mean little in a world submerged in debt, worthless paper and computer entries.
Those who scoff at the notion of cataclysmic collapse ignore ubiquitous signs of deterioration and recent history. Real economic growth and incomes have been trending downward since the turn of the century, even by official statistics. One has to question how much of the growth in either is the product of statistical legerdemain—government statistics leave much to be desired—and debt. If debt grows at 5 percent and the economy and incomes grow at 2, is the economy actually growing? Should some present value accounting be made of the fact that the longer debt growth exceeds economic growth, the greater the burden that debt imposes on the economy?
Some say the last financial crisis proved that governments and central banks can prevent a debt implosion. They’re drawing the wrong conclusion. It “proved” that massive injections of fiat debt defibrillated the patient, and it still serves as essential life support. However, not even life support will keep the patient alive the next time the EKG flatlines. All governments will then have are lots of weapons, worthless debt, millions of angry beneficiaries, and whatever loyalty they can still command, literally, from the police-military-surveillance complexes.
At which point, the calculus becomes intolerable for those long milked and bilked by governments, and offering them only further pain with no gain. Inevitably, they will consider their options: flight, secession, devolution, or revolution. Governments are only temporary arrangements and pendulums swing. Cataclysm should afford, for those inclined, opportunities—if they’re willing to fight for them—to live under arrangements more conducive to individual freedom and voluntary interaction.
THE PINNACLE OF OPTIMISM
STRAIGHT LINE LOGIC 
Now that is a very interesting and thought-provoking analysis Mr. Gore. Not only will I consider it deeply, but I am also sending its link to my entire list. Thank you for writing it.
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Thank you for distributing it.
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All this is blindingly obvious (albeit extraordinarily well said) to me, but even among those able to comprehend it – a percentage likely so low as to be too depressing to speculate about at any length – it will be dismissed by a large majority as paranoia, heresy, or worse. For those who acknowledge reality, however, I believe a few clarifications / elaborations are in order:
>The foundation of the global economy and financial system is interlinked debt.
There’s an essential sub-foundation supporting and enabling that enslavement racket. A very few, such as yourself and Ron Paul, know what it is, but I don’t think anybody emphasizes it nearly enough. See below.
>However, not even life support will keep the patient alive the next time the EKG flatlines.
Possibly. Or the resuscitation attempts might be successful for awhile longer. What is indisputable is that while “life support” can work in the short run, if it inhibits healing of or degrades the natural processes, that will eventually kill the patient.
>Cataclysm should afford, for those inclined, opportunities – if they’re willing to fight for them – to live under arrangements more conducive to individual freedom and voluntary interaction.
Even if such arrangements are ultimately viable without abolition of the State, they won’t stand a chance of either being established or maintained absent subversion – pending total eradication – of the notion that money provision must be a coercive territorial (i.e. State) monopoly.
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As usual, well put. I’ve long said that money is too important for the government to have any role. Throw it open to the private market and see what happens. We’d probably get a variety of mechanisms that performs money’s essential functions.
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As usual, very good analysis, Robert!
Let me share a true story about “protection rackets.” Here in the vast flyover Midwest, in the 1950s, La Cosa Nostra was still alive and well in places like Detroit, Cleveland, and Pittsburgh.
Our local tonsorial artist, “Tony the Barber,” inherited the place from his Sicilian immigrant father and planned to make go of it. One week we were stunned to see his place boarded up with plywood sheets, so we ambled over to see what’s up. Curiously, the front door was open, so we walked in, and Tony was at his duty-station, “mowing the lawn” as he liked to say. “C’mon in, fellas!” was always his greeting. Always a pot of hot coffee in the mornings and great lemonade for kids or “dago red” in afternoons there free of charge.
So we inquired: “What’s the deal with the plywood sheets on your store front, Tony?”
“Well,” Tony drawled, “one of ‘the boys’ came ’round and said ‘it sure would be a shame if something happened to me or your nice place. Youse should be paying for “protection” against that sorta thing.” And Tony added: “So I put down my clippers, squared off with the guy, punched him in the face so hard, I dropped him. Then, I grabbed him while he was down and threw him through my plate glass window. He looked like ground meat when he hit the sidewalk out front.”
We asked: “Ain’t you scared now, Tony?” “Nope,” answered Tony, “I know the game these thieves play. You just got to play a bit harder.”
Tony was right. No one ever bothered him again. He cut our hair and our kids’ hair for decades. Always with the mysterious “‘Scusa me while I take a call,” when Tony would recede into a unlit back room with black rotary phone, and we’d hear the usual: “Sure, a c-note on number three in the seventh.” We had a few Thoroughbred and trotter racetracks around. Tony also studied and got his real estate license, and wound up selling homes to his local paisano in addition to being the local barber who “takes no manure.”
Tony retired a wealthy and happy man in Florida!
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Now that’s the kind of real life story that’s better than anything anyone could make up. Great story, thanks for sharing it.
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I agree with the part about the nation state being a protection racket, and an expensive one when it takes a quarter of GDP.
I do not see the link between this and financial leverage. The economy being based on people serving one another by applying hard work to scarce resources is a fact of reality. There’s no economic system that supports a big chunk of the population deciding at once to sell the means of production and consume that value right now.
I agree with the analogy of deficit-financed spending being like a health problem waiting to happen. The heart attack usually doesn’t kill people of a sudden anymore. We get treatment, make modest improvements in our lifestyles, take medications for the rest of our lives, and we live nearly a normal lifetime, but it’s not as pleasant a life as if we had rationally avoided the Taco Bell and Mtn Dew all those years beforehand.
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The state is, by far, the chief beneficiary of debt. It borrows, its central bank buys its debt with its own fiat debt (not money), and as first user of the newly created debt proceeds, the government gets to buy before depreciation raises the price of goods and services.
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So, when we have the economic correction, what is to prevent the Leviathan from injecting more fiat debtbucks into the system, and everyone breathing a sigh of relief? With all due respect, Mr. Gore, if all the players agree on the rules of the game, no matter how ridiculous, the game continues. That is what happened in 2008.
In 2008, Bush, Cheney and Paulson STOLE $850 BILLION DOLLARS from the Amerikan Sheeple. There was not revolution or even a whimper. There was more concern over that week’s NFL standings or who got kicked off DWTS. If and when things flatline again, I predict the can will get kicked further down the road. It has been that way for decades. Why would it change?
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The main reason would be the steadily declining marginal effectiveness of debtbucks. It takes more and more of them to move the needle less and less. When every asset secures a debt and debt service takes more out of the underlying economy than new debt can add, the system collapses, no matter how many debtbucks governments and their central banks inject. All debt is either an implied or explicit claim on real assets or real production, even government and central bank debt. We have, or soon will, reach the point where all read assets are encumbered and all real production pledged to debt service. The only thing left to pledge is more unsecured debt. How long can debt expand when the only security for it is debt? That which cannot persist won’t, but I don’t know if the world financial system is the USSR in 1985, or 1991, although I suspect it’s the latter.
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Here is the real dynamic: the international dollar, not backed by gold since 1973, has since then been backed by War. As in, “stay on the dollar, or else”. The first time “or else” fails, and that time is fast approaching, the dollar will collapse – along with all dollar-denominated paper derivatives – and ‘Murka with it.
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A factor I overlooked but one I will not dispute.
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A well written article to be sure, and certainly true for 80 or 90% of the population, but unlike true protection rackets the government one lends itself to exploitation. Millions live quite happily on faked welfare claims, just as many by working for cash and paying no direct tax. The fact that the burden of this is passed on by government to the rest of the population does not negate its reality, and points all of us, or those of us willing to exercise personal freedom, to a way of life outside the worst effects of the government swindle.
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I sent this out to everyone I know. One of the best articles I’ve read on the subject. Its too bad the average American is ignorant and apathetic, and those who aren’t are impotent to change it.
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I’m glad you liked it. Thanks for sending it out and spreading the word.
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Robert, as you know, the real issue is that such systems (USSR’s, Sweden’s, USA’s) embed misallocations of capital. No matter how long the appearance of normalcy is maintained, under the surface (or right in front of our faces) people respond to the nest of perverse incentives and add their wealth and their time to succeed under them.
A nation built during a debt-binge will favor all the industries for whom debt-demand was highest. We thus see tens of millions of people working hard in thousands of firms associated with the delivery of medical services. Those services are heavily subsidized by Uncle Sammy, so demand for “medicine” is amplified. Ironically, given that medical misadventure is a leading cause of premature death, this has the mal-effect of making Americans less healthy. Ditto that lowering their perceived cost of “being sick” makes people less likely to AVOID behaviors that contribute to illness.
This is but one of many pervasive pathological incentive loops brought to life and then amplified to mountainous proportion by 35 years of borrow-to-spend, where each dollar borrowed becomes TWO dollars, one for the GDP economy and a second for the Asset market (where it is treated as an account receivable.)
Mises irrefutably showed that successful socialist calculation was impossible. The year: 1922. Yet the USSR outlived him. The monetary/financial/economic system the USA (and world) have run for 35 years was insane at inception, yet here we are. We won’t know until the mushroom cloud rises that all these multiple, related fissile stupidities reached critical mass.
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I couldn’t agree with you more.
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Yes, we all preach to the choir, don’t we. In my case, I’m looking for either or both of:
1. someone who will conclusively show me where my analytical framework is wrong, so I can stop worrying about all this, and/or
2. someone who has discerned further into the inevitable future than me (I’m utterly blind to what to do, NOW, to better navigate beyond the phase change) and has a solid, defensible set of preparations in which to invest.
So far, no one seems to get further than I do. In light of that, I adhere to a four-part forecast:
Plan A: things go on as before.
Plan B: a big reset, but the banking system survives as it is.
Plan C: a reset so large that it eventually capsizes the banking system.
Plan D: Zombie Apocalypse (WROL, etc.)
Twenty-two years of being wrong on the timing forces me to keep some of my eggs in Plan A. This might go on longer, since it surely has done so beyond my wildest imagination. Resources embedded in Plan A will be sacrificed if we get to C or D, and maybe even in B.
I put some eggs in Plan B, too. People are ingenious and the bankers aren’t going away quietly. I also put some eggs in Plan C, but those become dead capital beyond buying hobby-related items useful in a period of unrest. I still hope to get Plan B Resources out if we head that direction because they’ll be gone in Plan C.
I don’t prep for Plan D. Prepping for Plan D is mutually exclusive to being able to handle A through C. If Plan D comes, the line between the quick and the dead is too narrow to walk. Chance becomes too large a factor. I also think we’d likely pass through B and C before getting to D, so maybe an element of time is favorable.
Otherwise, my Plan C stuff is largely what Prechter suggested in CTC from 15 years ago. That’s a long time to sit and wait, though.
I sincerely wish someone would find a better crystal ball than I’m using. I don’t like groping in the dark.
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PS: This looks like the greatest game of chicken in the history of Mankind.
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I think the bankers new world order will take over, order out of chaos will cement it’s control. Revelation 17
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Reblogged this on The Ratliff Notepad.
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Thanks.
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