Tag Archives: Decay

Welcome To The Socialist Paradise Of California, by Michael Snyder

The People’s Republic of California is not quite the egalitarian utopia of which the socialists dream. From Michael Snyder at themostimportantnews.com:

If you like extremely high taxes, a ridiculously inflated cost of living, horrifying bureaucratic nightmares, rising crime rates, endless homeless encampments and “health restrictions” that make it nearly impossible to operate a small business successfully, then you are going to absolutely love California.  Vast hordes of people have fled the state over the past 12 months, and so that means that there is now plenty of room for more socialists to move in.  But before you come, you will want to make sure that you have completely discarded any lingering notions of “freedom” and “liberty” because they won’t be of any use to you once you arrive in California.

Over the past few years, California has gotten a bad rap for being an absolutely filthy place, but the truth is that authorities are going to great lengths to try to clean things up.

In fact, they just removed 180 pounds of feces from one homeless encampment alone…

This week, Echo Lake Park in Los Angeles California, the location of a former homeless encampment, received a much needed, and long overdue, deep cleaning.

The park was closed last month and since then, city officials have been working to clean and revitalize the park and have reportedly removed over 170 tents and other debris, the Los Angeles Times reported.

Among the 35 tons or 70,000 pounds of garbage, there were literal piles of poop, amounting to 180 pounds of feces and 564 pounds of urine according data from L.A. Sanitation & Environment workers. This did not include excrement collected from portable or permanent restrooms. Other hazardous waste like needles used for drugs, gasoline, and kerosene amounted to 300 pounds of the total trash collected, the LA Times noted.

Critics of California often focus on the worst parts of the state, and that is very unfortunate.

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An Exponential Decay Function, by Robert Gore

For a long time, economic policy in affluent, developed countries has attempted to end-run reality. While there have been isolated remnants of intellectual integrity that stood in opposition, much of what passes for the field of economics has provided cover. Delusions being more comforting than reality—and often more profitable in the short term—financial markets have fully endorsed them. Evading reality doesn’t make it go away, and evasion makes the eventual consequences that much more severe. Governments and central banks have postponed and ameliorated the consequences, but the mounting long-term costs are staggering. Now, the end run is no longer possible.

A phrase used to sell the Federal Reserve Act in the early 1900s—“an elastic currency”—denotes its foundation in fantasy. When money is left to private actors, choices, and markets, it is neither elastic or inelastic. Just like other goods and services, it’s acquisition and use is governed by the dynamic forces of supply, demand, and the price mechanism. Money has obvious functions and usefulness, so there is a demand for it. It will be, if government has no role, something tangible that requires resources to produce, probably a precious metal, or something directly convertible to that intrinsically valuable medium (see “Real Money”). Its supply will be governed by the same factors that determine the supply of other tangible items. Its price is its exchange value relative to other goods and services. In a system where government has no monetary role, debt is not money, although it may sometimes fulfill monetary functions, and is tethered to production. Its quantity can not long outrun the means to repay it.

The welfare state—theft from those with productive ability to the government and those it deems “in need”—is a self-evident attempt to abridge reality. Ability and its fruits are limited, needs are not. Governments now meet “needs” for income, pensions, shelter, medical care, child care, weaponry, military bases, corporate subsidies, bailouts, mass transit, crop price supports, education, and anything else those running the governments judge necessary, or more correctly, politically expedient. In most if not all welfare states, the “needy” now outnumber the able. Not surprisingly, economic performance has deteriorated for decades. Economies are sputtering around the zero growth line, depending on the abstruse calculations underlying seasonal adjustments and price indexes, on their way to destinations well below zero.

Debt delays reality and its attendant pain. Both public and private sectors have been going deeper into debt. The growing debt service burden bears a significant share of the responsibility for deteriorating economic performance. Debt is the last refuge of the delusional, but now each additional dollar, yen, yuan, and euro of debt exacts a cost greater than any putative benefit. Debt expansion has slowed and may have stopped altogether. If it hasn’t it soon will, on its way to contraction, because the benefits of reducing debt are now greater than the benefits of additional debt.

The debt overhang—not just stated, on-the-books debt, but governments’ unfunded pension and medical promises—is the salient feature of the global economy; everything else pales in significance. Governments and central banks are engaging in absurd stratagems: monetizing government fiat debt with central bank fiat debt, negative interest rates, and perhaps helicopter money drops, to force already over-indebted individuals and businesses to spend more and take on additional debt. These stratagems are distractions, totems on which financial markets can affix whatever optimism they can still muster.

Financial markets are exercises in crowd psychology. Extremes in either optimism or pessimism give way to reactions the other way. Governments and central banks fighting debt deflation with more debt and low interest rates have delayed the deflation but are, by increasing debt, making it worse. Deflation is everywhere. Despite a weak rebound in some prices propelled by overly exuberant shorts covering ill-timed bets, the collapse in commodities continues, with markets glutted and demand shrinking as economies shrink. Commodities are no longer a leading edge anomaly; gluts and weak prices characterize much of the rest of the global economy: intermediate and finished goods, transportation, retail, and services. Most of the remaining pockets of inflation and supposed economic activity reflect the inefficient hand of government: housing, medical insurance and care, and education.

The reality of debt contraction and deflation has not changed since commodities heralded their arrival in 2014, and will not change until a huge chunk of the world’s $225 trillion in debt is paid down, repudiated, or written off. Even those who focus only on financial markets and pronouncements and statistics from Wall Street and Washington must notice that something is amiss. While central bank machinations have a lot to do with negative interest rates, they couldn’t get away with it in anything but a deflationary environment. With occasional interruptions credit spreads have been widening and bank and other financial companies’ share prices have been declining for months. Legitimate, GAAP-compliant S&P 500 earnings peaked in the third quarter of 2014 and are down 18.5 percent since then. Incidentally, the gap between GAAP-earnings and companies’ dressed up, “adjusted” earnings reached an all time high this latest quarter. The Atlanta branch of the Federal Reserve is predicting just 6 tenths of 1 percent annualized growth in the first quarter, a seasonal adjustment or inflation index tinker away from outright contraction.

The resolutely bullish must ignore the real economy and the growing list of financial and statistical indicators, leaving only central bank faith, hope, and pixie dust, which has been in full florescence since early February. Debt contraction and deflation are exponential decay functions. They start slowly, gather steam, reach a point of inflection, and drop dramatically, approaching or reaching zero. Recall in the last crisis that the housing market topped out about a year-and-a-half before the headline stock market indices did in October of 2007, and most of the financial damage came in a few-month span a full year after that.

The train has left the station. Asset values have been reduced, mountains of IOUs await rescheduling and write-offs, debt-based wealth shrinks, economic activity deteriorates, and reverberations multiply throughout the extensive interlinkages of the global economy. Fools will pay attention to the stratagems and pixie dust. The rest of us don’t have that luxury. The inflection point looms: the unavoidable can no longer be avoided.

This is Crisis Progress Report 17. For the first 16 CPRs, see the Debtonomics Archive.



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