FedUpUSA

The costs of maintaining a sclerotic, cartel-state Status Quo infected with incurable diminishing returns eventually exceed the carrying capacity of the real economy and the Status Quo collapses in a heap.

On the surface, the Status Quo appears stable, if not quite healthy. This stability is illusory, however, for the Status Quo has a fatal disease: diminishing return.

The basic idea of diminishing return is closely related to marginal utility and marginal return: the more capital, energy and labor committed to a project, the lower the return/yield/output.

Diminishing return works in two ways:

1. Output (yield) remains stable, but it requires an ever-increasing input of capital, energy and labor to maintain that output.

2. Input remains stable but output (yield) constantly declines.

To survive, the Status Quo must maintain the same output: the stock market must be held aloft at current levels, entitlements must be paid, the National Security State must either expand or maintain its current global reach, and so on.

What’s hidden from view is the rising input costs to maintain this illusion of stability. Consider the Federal Reserve’s campaign to elevate the housing and stock markets. First the Fed need only threaten to buy mortgages and Treasury bonds to trigger a market rally. But soon this is not enough to keep the market aloft, so the Fed unleashes a campaign of quantitative easing (QE1) with an eventual end date.

This pushes the market higher, but once the artificial stimulus ends, the market feels gravity once again and rolls over. To maintain the necessary output–a rising stock market–the Fed must increase each dose of QE.

But the return on this ever-increasing input diminishes. Like an organism fed a stimulant, markets habituate to the artificial stimulus and quickly become dependent on ever-increasing doses to maintain the output (i.e. the “high”).

In 2012, the Fed announced essentially unlimited QE to infinity. There can no longer be any hint of an end to the quantitative easing, or the output (the market) will fall off a cliff.

That’s the problem with diminishing return: eventually the input is so costly the system implodes. The Fed has already injected the patient (the economy) with massive doses of financial crystal meth to maintain the stock market’s “high.” Unfortunately for the Fed, the market demands a bigger dose to keep the high going, but the larger dose will prove fatal.

Illustrating the other mechanism of diminishing return is the Higher Education Cartel, one of the monopolistic rentier arrangements that dominate our economy (banks, the mortgage industry, national security, healthcare/sickcare, etc.).

Even as the cost of attending college have skyrocketed by 600% (adjusted for inflation), the output–the value of that education–has declined. A recent major study, Academically Adrift: Limited Learning on College Campuses, concluded that “American higher education is characterized by limited or no learning for a large proportion of students.”

‘Academically Adrift’: The News Gets Worse and Worse (The Chronicle of Higher Education)

Meanwhile, student loans exceed $1 trillion, only 37% of freshmen at four-year colleges graduate in four years (58% finally graduate in six years), and 53% of recent college graduates under the age of 25 are unemployed or doing work they could have done without going to college–retail clerks, waiting tables, etc.

The Educrat Industry blames the economy for its own abysmal failure to actually provide a measurable yield on the immense sums spent on higher education, of course, but the reality is that higher education fails to prepare students for work in the real economy.

What higher education excels at is maintaining an ever-increasing input of cash while its output/yield declines. the same is true of all the other fiefdoms and rentier arrangements that dominate our economy.

The input needed to keep the Status Quo stable must be taken from other potentially more productive investments. Taxes notch higher as the state scoops ever greater sums into its maw to fund its failing fiefdoms and diminishing-return cartels, and it borrows trillions of dollars to fill the gap between tax revenues and ever-rising input costs.

All that borrowed money has a cost, too, of course–interest. The costs of maintaining a sclerotic, cartel-state Status Quo infected with incurable diminishing returns eventually exceed the carrying capacity of the real economy and the Status Quo collapses in a heap.

Charles Hugh Smith – Of Two Minds

These are clear warnings signs that a rational person simply cannot ignore.

Bottom line, Nations are going bust. And the worse things get, the more desperate their tactics become. This isn’t the first time that the world has been in this position. This time is not different. History shows that there are serious, serious consequences to running unsustainably high debts and deficits. And those consequences have almost invariably involved pillaging people’s wealth, savings, livelihoods and liberties… either directly or indirectly.

What’s happening right now is playing out in textbook fashion. More taxes, more debt, more printing, more confiscation, less freedom. I’m not talking about the end of the world here, I’m talking about difficult times ahead, and the things that go beyond economics. It’s time to face facts and look at how society will change (and has already changed).

Many people will resist the change and instead cling desperately to the old system - the cycle of debt and consumption that provided jobs, stability, and prosperity. These people will have their lives turned upside down because that system is gone forever. And in case it still weren’t obvious, here is three minutes of clarity from Ron Paul and Jim Rogers…“I would expect that there is going to be a lot more chaos still to come.” – Ron Paul; “They won’t take our bank accounts…they will take our retirement accounts.” – Jim Rogers

Via Simon Black of Sovereign Man blog,

The world is truly an enormous place… and, despite the dearth of good news and positive trends out there, I still see a lot of amazing opportunities in my travels.

But it’s really important to remain grounded about the challenges that face us. As I pen this letter to you, in fact,

- The NSA’s Utah data center, which will intercept every phone call, email, and tweet sent across the Internet, is nearing completion.

- The Marketplace Fairness Act, which will create additional sales taxes on US-based Internet transactions, is set to pass the Senate next week.

- The government of Cyprus just passed the final bail-in measures, officially authorizing the direct confiscation of people’s savings in that country’s banking system.

- The Bank of Japan recently announced its intentions to double down on their already unprecedented money printing operations.

- Not to be outdone, the US Federal Reserve just announced that they will maintain their Quantitative Easing program, which dilutes the existing money supply by more than $1 trillion annually.

- At $16.83 trillion, the US federal debt is at a record high and set to breach $17 trillion early this summer.

- President Obama recently proposed to cap the tax deferral benefit on Individual Retirement Accounts in the Land of the Free

These are clear warnings signs that a rational person simply cannot ignore.

Bottom line, nations are going bust. And the worse things get, the more desperate their tactics become.

This isn’t the first time that the world has been in this position. This time is not different.

History shows that there are serious, serious consequences to running unsustainably high debts and deficits. And those consequences have almost invariably involved pillaging people’s wealth, savings, livelihoods and liberties… either directly or indirectly.

What’s happening right now is playing out in textbook fashion. More taxes, more debt, more printing, more confiscation, less freedom.

I’m not talking about the end of the world here, I’m talking about difficult times ahead, and the things that go beyond economics. It’s time to face facts and look at how society will change (and has already changed).

Many people will resist the change and instead cling desperately to the old system– the cycle of debt and consumption that provided jobs, stability, and prosperity. These people will have their lives turned upside down because that system is gone forever.

And in case it still weren’t obvious, I’d like to present Ron Paul and Jim Rogers, speaking together at our event in Chile a few weeks ago, with their own views on the situation.

“They won’t take our bank accounts…they will take our retirement accounts.” – Jim Rogers

“We are going to have a calamity in economics and political crises as economies worldwide are a lot weaker than they tell us.” – Ron Paul

“I would expect that there is going to be a lot more chaos still to come.” – Ron Paul

“There are so many distortions because we disobeyed economic law – no matter what Bernanke tell’s you.” – Ron Paul

“Bernanke’s whole intellectual career has been dedicated to the study of printing money.” – Jim Rogers

“I don’t doubt [the confiscation] at all; and they will use force and they’ll use intimidation.” – Ron Paul

Three minutes of clarity…

ZeroHedge

“Rolling Stone” magazine published an excellent article on April 25, 2013 on the out-of-control illegality of the world’s big banks. The thrust of the piece is that banks are so big that government is scared to reign them in. But the problem is deeper than breaking up the big banks. It can’t be fixed unless you do two things. Features a synopsis of Prof. Jeffrey Sachs comments from last week.

You can now Pre-Order the new documentary, “Jekyll Island” at:

www.jekyllisland-themovie.com

Please circulate this around to your friends. Let’s see if we can get a big audience going all around the world. This is what you can do to help out.

Also, here is the DONATE link.

If you set out to design a system that would implode with devastating consequences, it would be the Keynesian Cargo Cult’s neofeudal financialization debtocracy.

The heart and soul of the Keynesian Cargo Cult is the dogma that the cure for all economic ailments is more aggregate demand, i.e. consumption. The Keynesians’ fanatic faith in boosting consumption would be merely childishly naive if it didn’t directly support a parasitic neofeudal debt-serfdom. Sadly, Krugman and his fellow cultists’ single-minded parroting of “aggregate demand” makes them well-paid lackeys and toadies for an extractive neofeudal-neocolonial debtocracy.

If you are unfamiliar with the neofeudal, neocolonial model of financialization, please review:

The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

Debt = Serfdom (April 2, 2013)

Crisis and Opportunity (February 1, 2013)

Financialization and Crony Capitalism Have Gutted the Middle Class (July 13, 2012)

Students: You Are Exploited Debt-Serfs (April 12, 2011)

Is Anybody Else Tired of Buying and Owning Stuff? (September 7, 2012)

Like all cargo cults, Keynesians maintain a magical-thinking belief in the power of wanting more stuff. But in so doing, they embrace and support the mystification that protects the power structure that is dooming the nation and its economy to stagnation and eventual collapse (call it “reset” if you prefer).

By focusing on increasing demand and consumption by any means, the Keynesian Cultists miss the key dynamics of sustainable growth and fail utterly and completely to acknowledge the corrupt and exploitive nature of our cartel-state crony-capitalism economy.

Has their naivete blinded them to the power structure of the neofeudal-neocolonial debtocracy? It seems unlikely, and so that leaves a less savory motivation: co-option.They’re raking in big bucks as apologists for cartel-state crony-capitalism, and as a result they don’t dare question the power structure, much less hazard a critique of the hands that feed them.

The Krugman-Keynesian Cargo Cult is incapable of distinguishing between productive investment and profligate spending. Keynesian cultists focus on an incredibly blunt and misleading indicator of gross domestic product: GDP. Burn down a house and rebuild it, pay people to dig a hole and fill it, build bridges to nowhere, buy costly weapons systems the military doesn’t even want, purchase boatloads of particle board furniture from China that’s headed for the landfill: it’s all equally wonderful to the Keynesian apologists because it boosts GDP.

Incredible as it seems to GDP-worshippers, there is a difference between productive investment and squandering money. A productive investment generates a multiplier effect: most importantly, it increases productivity which then creates value, surplus and wealth.

There is no multiplier in building McMansions in the middle of nowhere, bridges to nowhere, particle board shelving from China or a university degree in film studies, etc. Housing is consumption, a bridge to nowhere is consumption, particle board shelving is consumption, and a $180,000 bachelor’s degree in a field of study with near-zero economic premium in the real economy is also consumption.

The Keynesian Cultists and their fellow apologists/neofeudal apparatchiks attempt to mystify this consumption by labeling it “investment.” The misdirection may fool craven politicos seeking to buy votes, but the real world is not fooled.

Value, surplus and wealth can only be created by increasing productivity. If an investment doesn’t increase productivity, it is either malinvestment, misallocation of scarce capital or consumption.

How does buying particle board shelving from China improve productivity in America? It does not. Does dumping trillions of borrowed dollars into cartels like sickcare, Big Pharma, higher education or the military-industrial complex increase productivity? No, it actively lowers it by diverting national income to the most corrupt, inefficient and least productive sectors of the economy.

The Keynesians are also blind to the dynamic of improving household income. It their magical-thinking universe, buying particle board shelving from China (yippee, aggregate demand!) is supposed to magically turn lead (wasteful consumption) into gold (higher wages). Wages can only increase as productivity increases. Any other apparent increase is simply a subsidy that shifts money from a more productive sector to a less productive sector.

This is how you end up with a healthcare system that is 50% fraud, paper-shuffling, and inefficiency. We know America’s sickcare is 50% waste, fraud and paper-shuffling because our competitors provide their citizens healthcare for half of what we spend per person.

The Keynesians’ inability to distinguish between consumption and investment that increases productivity is fatal.

The Cargo Cult is also blind to the metric that matters: debt and the ability to service debt. As financialization creates an unproductive nation of debt-serfs who depend on debt to fund their consumption, household income declines. This leaves households less able to service higher debt.

But since aggregate demand (i.e. financialization) is dependent on ever-expanding debt, the system falls apart once households cannot increase their debt loads. ( The Global Status Quo Strategy: Do More of What Has Failed Spectacularly)

In response, the Status Quo increases government borrowing and spending (either directly, or for subsidies to favored cartels like the mortgage industry) to fill the gap left by debt-serfs unable (or unwilling) to borrow more for shelving from China, etc.

The problem with borrowing money for unproductive consumption is the cheap shelving breaks and is hauled to the dump but the interest payment remains–in the case of government borrowing, essentially forever. Unproductive spending of cash is wasteful, as that scarce capital could have been invested in productive assets.

But spending borrowed money on unproductive consumption–McMansions, degrees in critical studies, duplicative medical tests, marginal-utility meds and weapons systems–is truly insane, for the cost of that consumption continues to rise over time as interest is paid, until the debt is retired (paid off) or renounced (defaulted). All that interest is diverting income that could have been invested in higher productivity.

The Keynesian Cultists are also blind to the enormous opportunity cost of funding consumption with debt. Over time, servicing debt bleeds the economy dry as productivity, wages and investment stagnate.

If you set out to design a system that would implode with devastating consequences, it would be the Keynesian Cargo Cult’s neofeudal financialization debtocracy. All the incentives favor increasing debt, misallocation of capital and mindless consumption, and all the disincentives weaken investments in productivity and the creative destruction of malinvestments and subsidies to favored cartels.

Why do the Keynesian Cargo Cultists continue dancing around the campfire waving dead chickens and worshipping aggregate demand? Toadies, lackeys and apologists are always well-paid to support the party line. Aggregate demand, aggregate demand, brawk!

Charles Hugh Smith – Of Two Minds