November 2, 2011

The End is Getting Close

The End is Getting Close

Monty Pelerin's World
October 27, 2011

There is a discomfort in the air that is palapable. People sense that we are not in a good place and that we are moving further away from such a place. Our political system is seen to have failed and our economic future appears even worse.

The US is headed inexorably toward a systemic failure, a complete and utter collapse of the financial system. TARP and all the other machinations have not improved the underlying insolvency of the banking system. They have, however, deferred a collapse and ensured that it will ultimately be worse.

Our collapse will likely be preceded and triggered by a collapse in the financial and economic systems of several European countries. The US collapse will create economic paralysis, marked by lack of liquidity or an unwillingness to accept paper dollars. The Ponzi scheme that has been the Federal government will also collapse.

Public Awareness

Slowly more people recognize the problems and understand their future. Day by day their condition worsens:

  • additional citizens lose jobs, houses and hope.

  • people are squeezed by higher food and energy prices.

  • people pay more local and state taxes and fees while services are reduced.

  • more people understand government is bankrupt.

  • businessmen freeze plans in light of uncertainty and economic malaise.

  • more people understand that retirement and medical care promises were empty promises that cannot be honored.

  • dependents become nervous as they sense threats to their benefits and what they perceive as entitlements.

  • more people find it attractive to go on the dole rather than deal with the hassles of finding a job and keeping one.

  • retirees return to work as their 401ks fall in value and they fear outliving their decreasing wealth.

All of these factors fuel unrest and distrust. The shrinking pie is viewed nervously by two competing sides:

  • The entitlements class doesn’t believe they are getting enough. This segment includes welfare recipients and overpaid government employees. They sense their way of life is about to change, and they are correct.

  • The producing class is tired of supporting those they increasingly view as free-loaders. Support was tolerable when producers believed their own standard of living was increasing. That is no longer the case, at least for the foreseeable future. Now they see their living standards being decreased so as to support or increase that of the unproductive. Welfare state beneficiaries are increasingly viewed as opportunists. This view creates class conflict which political opportunists are only too happy to exploit.

If you have money, there is no need to put it at risk in such uncertain and unfriendly times. The US may or may not return to sanity. Those who can invest, wisely choose not to. For them, it is better to wait until the madness represented by the Obama Administration is over. They will keep their powder dry until after 2012 and then assess matters. In the meantime, they will invest outside the country.

Declining Living Standards

The simple fact is that the US was never as rich as it thought. The standard of living from 1990 forward was artificially inflated. Apparent prosperity was not achieved via rising incomes and wealth but through borrowing. Few lived within their means; most lived at levels that could not be sustained from current income. Eventually the debt levels became so extreme that new debt was not forthcoming. That was when the music stopped.

Now the standard of living is falling. Capital and jobs are leaving the US. Consumption is shrinking as de-leveraging is required to make up for the madness of the past two decades:

  • long-term, consumption must be cut back to levels sustainable by income.

  • short-term, consumption must be cut back below that sustainable by income in order to pay down debt to manageable levels.

For a time many must live below their long-term living standard. When you have been getting by as a result of credit cards, major adjustments are required.

Government Believes It Is An Exception

No one is a bigger violator of living beyond their means than government. Despite the obvious, they continue to spend rather than cut. The Obama Administration has taken spending to obscene levels. The Republicans are not much better. Bush ran deficits consistently, the largest of any President in history until Obama. The last deficit under George Bush was $160 Billion. Under Obama deficits average close to $1,500 Billion or $1.5 Trillion per year.

Government spending is greater than what can be sustained via tax revenues. Politicians ask others to sacrifice but never themselves. They still try to live the myth that you can forever spend more than you make. The rules of arithmetic and economics are applicable to government as well as individuals. Regardless of what government believes, its ability to sustain itself via continued borrowing is near an end. Credit markets are unwilling to fund ongoing US debt. The US government is becoming a pariah in the world because of its excesses.

  • The “living standard” of government is about to diminish, greatly.
  • The private sector and individuals have cut; government continues to grow.
  • We know where this ends. We see it playing out in riots in other countries.

Those who understand American exceptionalism understand that our people are exceptional in many things, including rioting. Newark, Detroit, Watts and dozens of other areas are evidence of such abilities. These were pretty dramatic but they were over nothing compared to what is coming.

What do you suppose will happen when the means of survival for generations of dependents suddenly dries up?

Desperation is expanding. Anger is brewing even among the productive class. People looking out for their families are without jobs and angry. We are a spark away from massive protests and riots.

Those who believe they will be unaffected by what is coming are fools. Every sector of society and community will be affected. Those who believe they are well-off will learn otherwise.

The inevitability of the collapse of the welfare state scares both the beneficiaries and the contributors. Everyone understands that the cessation of the goodies from Santa will mean unrest in the streets. That is the fear that drives the “extend and pretend” political behavior. For years welfare was little more than buying votes. Then it became protection money to keep the unruly in line. Now this “right” is going away and so is the peace and tranquility it purchased.

Washington has put us in a death spiral from which there is no exit. Before this ends, much of the population will be broke. Folks who believed they were well off may end up living in their BMWs.

Mac Slovo opines on how he believes the disaster will unfold:

What’s coming next will be complete and utter panic in European debt markets, the result of which will likely be a shift of capital from Europe to areas of the globe deemed “safer,” leaving, ironically, US Treasury instruments as one of the few bastions of safety as investors look to save themselves from financial annihilation. This means that money will flow back into the U.S. dollar, and we would not be at all surprised to see a strong move up against other currencies. On the flip side, this means we could potentially see a massive crash in stocks on Western exchanges. The panic may lead to unprecedented selling of stocks, commodities and even precious metals as individual investors rush for the exits.

But all of that is just the first phase of the next leg down. After Europe goes, we in the U.S. will likely be next, with events perhaps playing out over several months or years, eventually leading to similar circumstances – collapse of our financial institutions, destruction of our currency, a complete wiping out of the U.S. middle class, political instability, riots, and the historically traditional outcome in such cases of collapsing nations – war.

The reality of the situation has now gone mainstream.

Prepare for the worst and hope for the best.

And as He went out of the temple, one of His disciples saith unto Him,
Master, see what manner of stones and what buildings are here!
And Jesus answering said unto him,
"Seest thou these great buildings?
There shall not be left one stone upon another, that shall not be thrown down."

And as He sat upon the mount of Olives over against the temple,
Peter and James and John and Andrew asked Him privately,
Tell us, when shall these things be?
And what shall be the sign when all these things shall be fulfilled?

And Jesus answering them began to say,
"Take heed lest any man deceive you:
For many shall come in my name, saying, 'I am Christ;' and shall deceive many.
And when ye shall hear of wars and rumours of wars, be ye not troubled:
For such things must needs be; but the end shall not be yet.
For nation shall rise against nation, and kingdom against kingdom:
And there shall be earthquakes in divers places,
And there shall be famines and troubles: these are the beginnings of sorrows.

But take heed to yourselves:
For they shall deliver you up to councils; and in the synagogues ye shall be beaten:
And ye shall be brought before rulers and kings for my sake, for a testimony against them.
And the gospel must first be published among all nations.
But when they shall lead you, and deliver you up,
Take no thought beforehand what ye shall speak, neither do ye premeditate:
But whatsoever shall be given you in that hour, that speak ye:
For it is not ye that speak, but the Holy Ghost.

Now the brother shall betray the brother to death, and the father the son;
And children shall rise up against their parents, and shall cause them to be put to death.
And ye shall be hated of all men for my name's sake:
But he that shall endure unto the end, the same shall be saved.

But when ye shall see the abomination of desolation,
Spoken of by Daniel the prophet,

Standing where it ought not, (let him that readeth understand,)
Then let them that be in Judaea flee to the mountains:
And let him that is on the housetop not go down into the house,
Neither enter therein, to take any thing out of his house:
And let him that is in the field not turn back again for to take up his garment.
But woe to them that are with child, and to them that give suck in those days!
And pray ye that your flight be not in the winter.

For in those days shall be affliction,
Such as was not from the beginning of the creation which God created unto this time, neither shall be.
And except that the Lord had shortened those days, no flesh should be saved:
But for the elect's sake, whom He hath chosen, He hath shortened the days.

And then if any man shall say to you,
'Lo, here is Christ; or, lo, he is there;' believe him not:
For false Christs and false prophets shall rise,
And shall shew signs and wonders, to seduce, if it were possible, even the elect.
But take ye heed: behold, I have foretold you all things.

But in those days, after that tribulation,
The sun shall be darkened, and the moon shall not give her light,

And the stars of heaven shall fall, and the powers that are in heaven shall be shaken.
And then shall they see the Son of man coming in the clouds with great power and glory.
And then shall He send His angels, and shall gather together His elect from the four winds,
From the uttermost part of the earth to the uttermost part of heaven.

Now learn a parable of the fig tree;
When her branch is yet tender, and putteth forth leaves, ye know that summer is near:
So ye in like manner, when ye shall see these things come to pass,
Know that it is nigh, even at the doors.

Verily I say unto you, that this generation shall not pass, till all these things be done.
Heaven and earth shall pass away: but my words shall not pass away.
But of that day and that hour knoweth no man,
No, not the angels which are in heaven, neither the Son, but the Father.

Take ye heed, watch and pray: for ye know not when the time is.
For the Son of man is as a man taking a far journey,
Who left his house, and gave authority to his servants,
And to every man his work, and commanded the porter to watch.
Watch ye therefore:
For ye know not when the master of the house cometh,
At even, or at midnight, or at the cockcrowing, or in the morning:
Lest coming suddenly he find you sleeping.
And what I say unto you I say unto all, 'Watch'."

[Mark Chapter 13]

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