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Apocaloptimism

Trey sent me the picture below yesterday and it gave me a chuckle as I think the case for Apocaloptimism is pretty damn strong.  I’ll explain:

First, the apocalypse…

I was reminded again yesterday that whether it’s the slow motion economic death spiral that is Greece, or similar economic catastrophes in Portugal, Ireland, Spain, Italy or even the U.S., there has still been no recognition of the truth in any of these countries – not by their elected officials, their elites, their central banks, no one.

What is the truth? As Karl Deninger explained yesterday, it’s quite simple: Credit (debt) cannot expand faster than GDP. All of the shell games played over the past 30 years by the Bernankes, Paulsons, Obamas, Bushes, Merkels, Sarkozys, and Lagardes to convince us otherwise were frauds. Deninger’s brief explanation of GDP and credit explains why:

“What happens if there is more and more credit emitted into the system — faster than output goes up?

That’s simple: The value of each unit of money or credit must go down!

[For simplicity’s sake] In 2000 there were 10,130 units of output in the economy.

There were 27,138 units of money and credit in the economy.

Each unit of output was therefore able to be bought by about 2.68 units of money or credit.

As of the 4th quarter of 2010, there were 14,755 units of output in the economy.

But there were 53,353 units of money or credit.  This means you needed 3.62 units of money or credit to buy one unit of output, a direct decrease in your purchasing power of about 35%!

Yes, median household income went up during this period by about 17.8%, but the purchasing power of median households went down in real terms by almost one fifth, even though you had more “dollars”.

Because of this massive expansion of debt (fully sanctioned by your government), almost one fifth of your purchasing power has been stolen from you – no different than if the government had doubled the U.S. federal tax rate.

Only none of your lost purchasing power actually went to roads and bridges… Instead private banks created massive debt, debased the currency, and then skimmed the profits for themselves.

The bank bailouts of 2008 intentionally debased your purchasing power to satisfy a Wall Street cabal who needed the trillions in unbacked credit in order to avoid having to face the music — a balance sheet packed with crappy loans. Without those funds, they would all be out of business.

As Deninger explains, it’s all about arithmetic — which doesn’t care if we want to continue with this charade or not. At some point, the bankers will be forced to eat their own cooking, the economy will implode, the government will go bankrupt and we will go through the “Great Reset.”

Now for the optimism…

We will recover. The Great Reset is simply a “reset” of an unsustainable period of unsound money, skyrocketing debt, explosive government growth, higher taxes, and the erosion of civil liberties — all of which are the consequences of our failure to acknowledge the obvious: We’re broke.

Yes, it will be messy, and a lot of people who are unprepared will lose their wealth. But it will result in the return to sound money, and a much smaller and more affordable government. The economy will recover (and likely be much more localized, decentralized and resilient), and the deadwood – zombie banks, bad loans, Wall Street criminals – will finally be cleared from the system.

As Austrian economist Gary North points out, “We are not moving into a comprehensive tyranny. We are moving into a time in which the federal government is going to go bankrupt, and when it does, it will lose more power than it has ever lost since 1788… Bankruptcy means the federal government is going to shrink in its ability to interfere with our lives.”

That’s reason enough for optimism, but there’s more…

First, the Internet is the great leveler. Yes, there are plenty of examples of government’s petty tyranny and corporate America’s thievery (there always have been), but now such bad acts can no longer be hidden from view. Today any whistleblower or guy on the street with a flipcam can broadcast those bad acts to the world in an instant.

Second, the younger generation is taking matters into their own hands and wants government to stop mucking around in their lives. Take gay marriage for example. Ten years ago, 35% of Americans supported gay marriage. Today it’s over 50%. Many younger Americans believe the government has no business sanctioning marriage in the first place. For them, marriage between two consenting adults should be between them and their God alone.

Or take their attitudes towards the catastrophically expensive failure of our “war on drugs”. The younger generation sees our prisons filled with innocent men and women serving time for simply smoking a joint or being caught with a bag of marijuana and are rightly outraged. Since the 1970s, the drug war has led to the conviction of millions of Americans, disproportionately poor and minorities, while utterly failing to reduce drug use.  This is likely to change quickly after the Great Reset because the government will simply no longer have the resources to pursue such nonsense.

Yes, there will still be lots of thorny challenges ahead, but the Great Reset will unleash the creativity and innovation to deal with many of them. We’re living through a highly unproductive period in history that feels much like purgatory in that we’re not yet quite free of the temporal effects of our past sins and their consequences. The Great Reset will be messy and painful, but it will finally free us to get on with our lives and build a better tomorrow.

And that’s apocaloptimism.

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2 Responses to "Apocaloptimism"

  1. tom says:

    From a perspective of having lived 20 years in Costa Rica, far from the effective reach of the Central Governments, I can assure you that decline in the ‘center’ does not always translate into peace in the ‘periphery.’ Local centers of power are not always friendly and democratic minded and those who have not found a comfy place in the industrial-consumer economy are very likely to continue their ‘anti-social’ activities during the transition to whatever comes next. I’m just happy to live in a rural area, where people still know how to grow food and have close knit communities.

    • Coleyh says:

      Fair point Tom, and yes tyranny can exist at the local as well as national levels. The difference is that it’s always easier to move to the next town over than to escape the long arm of a nation state. Decentralization simply gives you more options.

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