Saturday, March 19, 2022

"A Deal With the Devil"

"A Deal With the Devil"
Now the Devil is demanding his due…
by Charles Hugh Smith

"Unbeknownst to most people, America's leadership made a pact with the devil. Rather than face the constraints and injustices of our economic-financial system directly, a reckoning that would require difficult choices and some sacrifice by the ruling financial-political elites, our leaders chose the devil's Pact: Substitute the creation of asset-bubble "wealth" in the hands of the few for widespread prosperity.

The devil's promise: that some thin trickle of the trillions of dollars bestowed on the few would magically trickle down to the many. This was as visibly foolish as the promise of immortality on Planet Earth. But our craven, greedy leadership quickly sealed the deal with the devil and promptly inflated the greatest credit-asset bubble in human history. Rather than trade away one's soul, America's leaders traded away the future security and stability of the nation.

Sacrificing Innocents at the Altar of the Gods: By refusing to deal with the real problems exposed by the collapsing financial scams in 2008-09, our leaders – both the unelected Federal Reserve and the elected "best government money can buy" – chose to bail out the scammers who had greased their palms so generously and sacrificed the prosperity of the many to do so. This is more or less the equivalent of sacrificing innocents at the altar of the gods to ensure the leaders' rule will continue to be successful.

The devil was delighted to serve up the illusion of godlike powers to our corrupt, greedy leaders. The deal looked oh-so win-win: we enrich the top few percent and offload the costs and sacrifices on the powerless many, who were told that they would benefit from the trickle of cash leaking out of the super-wealthy's bulging pockets.

Of course, the Federal Reserve and the rest of the Savior State has saved us from the financial consequences of rampant speculation for decades. As a result, few of those in the casino have the necessary experience of hardship and losses to accurately assess risk. The vast majority have only experienced being saved: the most profitable response to a losing bet is to double-down on the next bet because the house (the Fed) will amply reward every "buy the dip."

The Devil Is Demanding His Due: But as I often point out, risk cannot be extinguished, it can only be transferred. Risk has been offloaded from speculators to the entire financial system itself, and so rather than a few speculators going down in flames, the entire casino will collapse.

Now the devil is demanding his due: the unprecedented credit-fueled bubbles in stocks, bonds and real estate are popping, and America's corrupt leaders can only stammer and spew excuses and empty promises. All this amounts to begging the devil to renegotiate the deal because now the downside is not just visible but inevitable. So sorry, America's leadership – the devil doesn't respond to pleas or threats. Sorry about that; the deal stands as agreed. All your bogus gains and powers will evaporate, and then the destruction really begins.

How does all this end? In ruin, of course. Our craven, self-serving leadership may well bleat, "the devil made us do it!" but that is not true: they fell all over themselves to sell the future stability and security of the nation for the quick-fix riches of bubbles and corruption. And of course, we’re staring at recession. But hey, look on the bright side…

Recessions Aren’t All Bad: Everyone looking at the inevitability of recession with alarm is forgetting the many upsides of recession, especially one that crushes all attempts to reverse it with the usual tricks. Let's not forget the simple joys of lighter traffic, faster commutes and the relative ease of getting a table at your favorite bistro – if it survives the bust.

Graveyard levity aside, there really is no equivalent to the positive force of crushing recessions. Only recessions which defy the usual tricks of monetary easing (create trillions of new dollars) and fiscal stimulus (give away a few of those new trillions) have the power to cleanse a system clogged with dysfunction, waste, fraud, corruption and financial zombies that soak of resources while doing little more than enriching the few at the expense of the many.

The problem with free money is that there's no mechanism to distinguish between waste and productive investment or fraud and productive utilization. All uses of free money are equally beneficial because if this free money is squandered, there's always more to spend tomorrow. In other words, in a system in which free money is the solution to all problems, there's no motivation to limit waste, friction or fraud because there's always enough free money for both waste, friction and fraud and needed spending and investment.

Time for Some Discipline: Recessions driven by inflation and the collapse of speculative bubbles aren't fixable with free money because free money fires up the afterburner of inflation. Once there are limits on how much free money can be created and distributed, squandering what's left means there's not enough left to fund essential services and to invest in the only real-world source of income and wealth. That’s productivity increases – doing more with less capital, labor and resources.

Only crushing recessions introduce the discipline of having to choose between waste, friction and fraud and essential services and investments. Waste, friction and fraud aren't simply gargantuan drains on resources… They corrupt the system by incentivizing friction (unproductive complexity and gatekeeping) and fraud (collusion, fraudulent billing, buying political favors, insider trading, etc.) and giving the recipients of friction and fraud the financial means to protect their fiefdoms with complexity thickets and political protection.

Recession Is the Only Cure: Financial systems that never experience crushing recessions can't tell the difference between a speculative mania driven by corporate buybacks and a bull market driven by improving productivity that lifts both profits and wages. The phony charade of speculative bubbles inflated by the Federal Reserve's spew of free money for financiers fatally distort the entire incentive structure of the financial system, which then balloons up and fatally distorts the entire economy.

Unbeknownst to those trembling in fear of a crushing recession, the crushing recession they fear is the only curative for a fatally distorted system which has lost touch with reality. Yes, there is a difference between speculative bubbles and bull markets. And yes, there is a difference between an economy riddled with the cancers of waste, friction and fraud and one strengthened by incentives and corrective mechanisms that bury unproductive zombie financial entities and reward those who actually increase productivity rather than destroy it. Recession will mean short-term pain but long-term gain."
Stipendium peccati mors est...
Full screen recommended.
"Doctor Faustus, Final Monologue And Ending" (1967)
"A most fantastic and moving performance by the late, great Richard Burton in this dazzling adaptation of Christopher Marlowe's astonishing work. The way the vision of Helen of Troy cackles and mocks Faust is so cruel and honest as we see the poor, lost soul accept the fate of eternal damnation, wrought entirely by his own hand." - ScarletDusk99
Freely download "The Tragical History of The Life 
And Death Of Doctor Faustus", by Christopher Marlowe, here:

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