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Recognize that you’re being lied to, but understand why (Part 2)

Photo courtesy of Londoninflames

We have been subjected to a massive conspiracy of lies, but it’s a conspiracy of our own making and one in which almost all of us have willingly taken part.

The big lie was that we could have something for nothing. That we could all live lives filled with unimaginable levels of convenience and leisure. That consumption and speculation — not savings, investment, entrepreneurship and hard work — were the keys to prosperity.

We hear it all the time these days from politicians, pundits and economists. “We’ve got to get Americans consuming again”. We obsess more over benchmarks like consumer spending and consumer confidence than the gross national product or how much we produce, invest or save. We’re not even called citizens anymore, we’re only referred to impersonally as consumers.

Scenes like the annual Black Friday mob of frenzied shoppers breaking down the doors of Walmart stores are now treated like an annual rite of tradition, rather than the appalling displays of hyperconsumerist behavior they actually are.

Elites have no problem looking down their noses at THOSE displays of conspicuous consumption of course because it’s the hoi polloi doing it… “How can these brown, black and redneck shoppers be so irresponsible” they seem to say, while neglecting to apply the same standard to their own fanatical consumption habits — McMansions with jumbo mortgages; second and third vacation homes; a shiny new Lexxus and Escalade, both leveraged to the hilt, in the driveway.

It used to be that our leaders preached self-sacrifice, frugality, and an ethos of hard work. Now economists, elected officials, even our Presidents tells us it’s everyone’s moral duty to consume. If we want to help the country and the economy get back on track, we must spend more.

That’s the big lie… It’s called a Ponzi scheme.

The definition of a Ponzi scheme is simple:

 A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from profit.

The Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

Apply that definition to our economy. There should be no question that our current generation has figured out a way to live off the wealth of future generations. In essence we’re paying returns to ourselves today with money that will have to be paid by subsequent generations – our children and grandchildren.

Today’s Ponzi economy generates very little real wealth in the form of production, manufacturing output, or business creation. What it does generate is mind-bogglingly complex financial abstractions like derivatives, CDO’s, and credit default swaps – casino-like speculations that demand constant growth and are mathematically doomed to fail when that growth stalls.

Make no mistake, the majority of our economy today is one great big financial abstraction – an economy-wide “get rich quick” scheme of housing bubbles, exploding entitlements like Social Security and Medicare, state pension systems that promise magical 7-8% returns, and an ever-increasing expansion of private and public debt – to keep the goodies flowing.

All are predicated on the idea of constant growth fueled, not by saving, investment and real output of goods and services (in other words, real work), but by the ever-increasing byproducts of consumption, luxury, leisure and speculation.

The fraud has been right in front of our eyes for a long time, we just refused to acknowledge it when times were good. As Chris Martenson points out, “It’s only when the pie stops expanding that you find out who’s been running a Ponzi scheme.”

Now that we’re standing in the rubble, we’re angry… Surely we can somehow get back to the way it was before it all came tumbling down, we say. Our leaders lie to us and convince us that it’s possible. With a few new policies here or rejiggering finances there, by simply spending more money to prime the economic pump we’ll be in high cotton again.

But since we haven’t faced the truth, we are largely incapable of preparing for a different reality with lower expectations. The truth is that we don’t have a liquidity problem in our economy, we have a solvency problem. Sure our elected leaders are lying to us, but they are simply aping our own unrealistic expectations and inability to recognize the root of the problem: We’re insolvent.

Managing unrealistic expectations is a very dangerous game. Charles Hugh Smith says that as our perceptions and expectations about “economic recovery” are pushed farther and farther from reality, we will lose faith in our institutions and they will become the target of our wrath.

And that’s precisely what’s happening. Public approval of our elected officials is at never before seen historic lows. In every election cycle we lurch back and forth between the two political parties, desperately looking for that one candidate who has the magic plan to get the good times rolling again. New movements like Occupy Wall Street and the Tea Party spring up demanding change, but really just hoping for more of the same – not to be inconvenienced.

It’s easy and convenient to blame our institutions – be they political, financial, or corporate – and yes, they deserve their fair share of the blame. But they are simply mirrors of our own expectations.

The reality is that we’ve been lying to ourselves.

Next week: Steps we can take individually to become financially resilient

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3 Responses to "Recognize that you’re being lied to, but understand why (Part 2)"

  1. Unhappycakeeater says:

    I like where this is going Coley. Keep up the good work

  2. Sam says:

    part 3? You were on a roll.

  3. Karl Smiley says:

    You’re forgetting all about the out sourcing, “free” trade, plummeting wages and the cost of playing “empire” around the world. “real output of goods and services” gets you nothing when no one can afford to pay for them.

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