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Monday, June 24, 2013

The Economics of Planned Global Failure

Debt is the surest and shortest path to a global economy. Punishing all actors in local economies but those who are “too big to fail” empowers “too big to fail” systems and “too big to fail” economies. Encouraging debt and the eventual assumption of debt passed on and commodified by increasingly larger political and economic entities creates supraentities built on debt and dedicated to economic regulation.

The assumption of state debts by the Federal government was a major step in the federalization of the United States. The growing assumption of micro and macro debts by the United States government and by international bodies allows for greater macro and micro regulation of economic activities.

Rewarding and promoting irresponsible economic behavior creates debt which creates opportunities for intervention. Individuals are encouraged to engage in irresponsible day to day consumer spending and large scale home and college loans. Financial institutions package irresponsible loans into commodities of debt. Governments bail out financial institutions by amassing even more debt to pay for the bailouts.

The buck keeps getting passed on until everyone is in debt from the micro to the macro level, from the citizen who has his own debts, the annual and the lifelong, and those of the nation which he is also being taxed to repay, up to banks and governments, where the same experts move imaginary numbers around until everyone is in debt and also a debt holder and then a global state of debt has become universalized.

The universalization of debt leads to the universalization of economic authority and eventually planned economies. By indebting everyone from the individual to the government, everyone is forced to maintain a bankrupt and broken system. Debts are obligations. Obligating everyone to the same system forces everyone to comply with the system.

Interlinked economies are more unstable and require more regulation. Interlinked national economies become regional economies with common regional regulations imposed on multiple countries. And regional economies link in to a global economy which requires universal global economic regulation of all actors from the lemonade stand to the multinational bank to maintain centrally planned targets.

Growing instability is met with tighter regulation leading to the increased power of oligarchies who regulate the system and the diminishing freedom of individuals. Every action taken to create greater security and stability for the oligarchy has the net effect of subtracting from the economic freedom of all smaller actors.

As debt gets passed up the system from the micro to the macro like a spark of electricity, the assumption of failure becomes institutionalized. Encouraging individuals, banks and governments to fail becomes a pathway for larger entities to capture smaller entities and for smaller entities to capture individuals. Irresponsible spending is promoted from the top down and captured from the bottom to the top so that larger entities promote irresponsible economic behavior and by accepting the consequences of that behavior take on the political and economic power of that assumption until the global economy is one great totalitarian welfare state built on subsidies and debt.

Financial institutions gain by encouraging consumer irresponsibility. Governments gain by encouraging irresponsible behavior by financial institutions. Global entities gain by encouraging irresponsible behavior by governments. Responsibility is traded for freedom, but individuals, institutions and governments, who give up freedom of action in exchange for being able to pass their responsibilities up the ladder, are participating in a shell game.

Responsibility is being passed up the ladder, but accountability isn't. Larger systems cost more and distribute that cost widely. Endowing larger systems with responsibility universalizes the obligations of that system. Passing debt upward to national and global institutions means turning nations and global bodies into collection agencies which distribute the obligation of that debt in accordance with their own social and political agendas.

The obligations themselves cannot be escaped; only the direct responsibility for making the difficult decisions can be passed upward along the chain. If the frogs don't want to make their own decisions then they elect a king who makes all their decisions for them. The assumption of debt elects kings who decide how the debt must be repaid and who is first in line to collect and who is first in line to pay.

Larger systems do have more resources to tackle a problem than smaller ones, but those resources are less efficiently managed. When it comes to the individual distribution of those resources, the larger system has less to offer than the smaller one. All that it really offers is the evasion of responsibility.

When failure is institutionalized then the primary task of each failing system is the evasion of responsibility. Institutionalizing failure also universalizes failure so that no one is responsible, but everyone is responsible. No single person, company or government can be assigned the blame, but all of them are obligated to pay upward into the larger system which has assumed the debt.

The universalization of debt breaks the direct connection between debtor and debt holders, both the real one and the moral one. Class warfare colludes with debt collector economics to go after the most prosperous individuals and nations first. And then down the line so that those who amass the most debt are also the last to be asked to pay it. This institutionalization of failure rewards failure economies and implements feudalism with those who have the most accepting responsibility for the welfare of the serfs and implicitly gaining power over them. The more the serfs run up debt, the more the power of the barons grows. This is a formula for mutual resentment and class warfare.

The broken connection hides the forms in which debt is collected as the assumption of failure requires higher taxes and more structured systems that deprive people of economic freedom without alerting them to the real reasons why this is done. The institutionalization of failure raises the cost of every part of the institution that engages in the assumption of failure. This cost is universalized to hide its sources.

Protecting the sources of failure is a primary goal of those who benefit from institutionalizing and universalizing failure. If the failure sources are addressed, isolated and treated then smaller systems and actors will reclaim economic responsibility robbing larger systems of their regulatory power. Creating entire sectors dedicated to economic irresponsibility in the name of greed and idealism is a means of weakening smaller systems and individuals in order to subsume them into a global failure economy.

Every local failure where the responsibility remains localized creates a mandate for local regulation, whether it is the individual regulating his own spending or the municipality or company learning the lessons of their own setbacks or governments addressing their own monetary policy. However every local failure where the loci of responsibility are passed upward creates mandates for regulation at the level to which that responsibility has been passed on to.

The assumption of debt increases regulatory mandates to the highest level of its assumption. And as the mandates increase they tip from regulating risk to mandating activity much like the way that universal health care went from offering health care to mandating health insurance purchases. The federalization of power reduces the natural limits of that power. Expanding economic authority within a central system leads to a planned economy.

The more debt is assumed, the more authority is assumed. Maximizing debt also maximizes and centralizes control over spending. Central planning reduces economic flexibility and diversity in order to meet target goals which can never be met because the very system created to meet them is incompatible with the efficiency and productivity necessary to achieve them.

An ever more expensive system that produces ever diminishing results and warps the economy around itself creates another economic black hole. It's an economic black hole whose event horizon could be seen in the declining days of the Soviet Union when the failure of the agricultural collectives took it deep into debt buying American wheat or in the Obama Administration’s obsession with government stimulus plans to revive an economy even as that spending is pushing the country closer to default on its debts.

Grandiose political and economic systems come wrapped in ideologies that reinforce assumptions about an ideal state of human behavior. A state which does not exist in the real world. Drawing links between an ideal state of behavior and an ideal economic state inevitably results in ideologically driven economic disasters as leaders and regulators assume that enforcing and enacting ideal behavior will yield an ideal economy.

The cloistered nature of central institutions makes them all the more vulnerable to ideological mapping. Ideologies thrive in hothouse atmospheres alienated from the real world where the ideal is easily mistaken for the real and passion for castles in the sky construction outweighs the mud and dirt challenges of building actual structures. The further an institution is detached from the consequences of its policies, the less capable it is of experiencing negative feedback and the less reliable the reports that reach it are.

When failure comes it is never attributed to the ideology or to the entire structure, rather to a failure of comprehensive control. Each attempt at deepening control expands the system that is the cause of the problem and deepens the level of failure in areas affected by the system. The more the ideal is pursued, the more the real declines until the entire system implodes with devastating consequences.

Having exploited the failure of the preexisting systems to amass authority and responsibility within a centrally planned economy, the failure of the central system destroys the decision making capacity for all areas under its responsibility. A central system creates a culture of failure by robbing individuals and smaller entities of power. When it gives out, the smaller entities have lost their capacity for making their own rational economic decisions and have to start from scratch. Having turned everything under its control into one giant welfare prison where the inmates are cared for by the nanny state, the collapse of the system leaves the inmates, whether they are individuals, municipalities or nations with no available skills to care for themselves.

The economics of planned global failure threaten to repeat the consequences of the decline and fall of the Soviet Union on a global scale. While such a system is never likely to successfully come into being, it has been the long term progressive aim throughout the twentieth and now the twenty-first century. It is now closer to coming into being than at any time before. The distillation of free market economics into the crony capitalist corporation which looks to the government to take care of the messes It makes even as it campaigns for a borderless world is tipping the globe closer into the black hole of a planned global economy where universal debt leads to universal power and universal failure.

9 comments:

Robin said...

Daniel-

You nailed it once again. This is similar to what I had been thinking about with local school districts where the Central Office staff is familiar with the broader social, political, and economic transformation plans. Because they are lying to parents, taxpayers, and school boards about what is essentially mind arson, all of a sudden anything goes.

We get side consulting business. Ignored huge conflicts of interest. Ignoring cheating. Ignoring deceit. Ignoring theft until the thieves cease to be useful. We really are in a situation at all levels of government now where the public sector and their cronies are trying to return to a feudalistic system.

We taxpayers are just the source of funds who must be kept as empty headed and dependent as possible. Well a political electoral majority must be kept dependent.

It does feel like the final days of a massive shakedown, doesn't it? And we are about to find out the Cold War ended because there were better ways to go after the West's resources and consciousness. Mostly invisible ways.

And all this debt IS going into the pockets of the politically connected.

Conservative Language Institute of America said...

Miserable jerkoffs like Krugman and Bernanke force us to pay interest from our real hard-earned labors on fake money endlessly created out of thin air by the Fed.

Corporatism at the top, and socialism at the bottom, aided and abetted by lying, leftist, malignant narcissistic scum like Obama...

Welcome to the brave new world of the USSA.

Ex-Dissident said...

Daniel, individual human beings are not that stupid. The system is horribly deranged, but people always find the means to survive. Immigrants from East Europe and China thrive in the US. People are clever, shrewd, and resourceful. They are not going to be left without the skills needed to take care of themselves. However, I would much rather be living in the 1980's USA than in the USSR.


IgorR said...

In order to create money the government has to go into debt. That's the only way the "seed" dollars and such originally come into being. Fractional reserve banking is a machine to turn this original money into more money and more debt. Thus the entire US economy is built on the issuance of debt. The system is having trouble as the marginal utility of debt to increase GDP is getting lower and lower. Eventually the system will collapse either though drastic economic destruction or inflation, perhaps hyperinflation. What can't go on forever won't, and ever-increasing debt is one of those things.

Lars said...

May your nanny never wear the burqa,

Bob said...

The destruction of the dollar due to this never-ending QE will cause the dollar to cease being the world's reserve currency, at which time overseas dollars in the trillions will likely find their way back here since there is no reason to hold them any longer. And the inflation we've all been waiting for for 4 years now will finally result, big time, destroying what is left of the middle class and it's wealth. And it's being done deliberately. The submission to a New World Order can't allow the U.S. to exist as a strong nation. And the too-big-to-fail pathology is just one of the methodologies in use to get us to that point of weakness.

Failure has indeed been institutionalized, on a global scale. How many people realize that the U.S. (the FED) is backstopping IMF loans to countries all over the world? Yes, your hard earned dollars paying for empty cities in China. Does anyone remember the $20B (billion) from an IMF loan that 'disappeared' in Russia years ago? Afterwards, the banksters were tripping all over themselves to make new loans, since Uncle Sam was guaranteeing the deal.

The only way to survive that I can see is to convert your wealth into hard assets and precious coinage. And get a rifle or two. When the cities no longer have any food guess where the masses will be going?

Stephen Carter said...

The only solution is to exit the system entirely, translating your wealth into 'stuff'' the state can't expropriate. Longer term people seem to have been dumbed down and can't see they're being led to the slaughter. It resonates with Atlas Shrugs where the productive just flat out go on strike -- oil well owners set their wells on fire and just let them burn, and everyone with anything of value prefers to destroy it than see the parasitic degenerate corrupt state get ahold of it. All we can do is short term keep your wealth for a small circle of those you're close to, and long term destroy what you can't keep or convert or pass on to others as productive as yourself. The State will just keep interfering until everyone is equally culpable and victimized and unable to extricate themselves. Our one real enemy is this maniacal Luciferian self-worshipping State ...

fsy said...

I still don't get the arithmetic here. For every dollar someone is in debt, someone else has a dollar of credit. Who is holding onto all these debts?

Mark said...

The socialist welfare state is not possible without a debt-based, monetary system. Having a completely elastic currency allows the state to borrow indefinitely from the future, with one proviso - gdp must grow at a rate grater than the increase in debt plus debt service. By service, I mean interest expense, since all principle can be refinanced and always is on a system-wide basis.

When GDP stops growing or declines, the whole debt edifice is endangered. We reached this point a number of years ago but 2008 was the first real earthquake. Monetary expansion at incredible rates aided by a massive derivatives complex, such as interest rate and credit default swaps, drove down debt service costs making the expansion of debt easier in the face of collapsing savings rates and productivity.

Today, those days are over. The mathematics of debt compounding overwhelm us even at historically low interest rates. There is no capital formation, as there is no savings pool to fund it. The capital stock of the nation is degrading at a remarkable rate, making worse an already impaired economy's ability to produce income.

So, crony capitalism is a fallback position for the central planners as a means of increasing capital formation, according to their designs. It is, in a word, fascism. Problem is it doesn't work.

I expect a very large dose of speed to be injected into the economy, shortly, through the use of negative, nominal interest rates on reserves. This will force the big banks to lend the money into the economy, forcing up inflation and reducing the real value of debt. As Mises described, a crack-up boom will ensue, before the whole system collapses.

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