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How Things Fall Apart: Extremes Aren’t Stable
How Things Fall Apart: Extremes Aren’t Stable
A funny thing happens on the way to stabilizing things by doing more of what’s failed: the system becomes even more unstable, brittle and fragile.
A peculiar faith in pushing extremes to new heights has taken hold in official circles over the past decade: when past extremes push the system to the breaking point and everything starts unraveling, the trendy solution in official circles is to double-down, pushing even greater extremes. If this fails, then the solution is to double-down again. And so on.
So when uncreditworthy borrowers default on stupendous loans they were never qualified to receive, the solution is to extend even more stupendous sums of new credit so the borrower can roll over the old debt and make a few interest payments for appearance’s sake (also known as “saving face.”)
A funny thing happens on the way to stabilizing things by doing more of what’s failed: the system becomes even more unstable, brittle and fragile.
Central banks and states have latched onto a solution akin to a perpetual-motion machine: the solution to all problems is simple: print or borrow another trillion. If the problem persists, repeat the print/borrow another trillion until it goes away.
Consider China, a nation (like many others) dependent on a vast, never-ending expansion of credit. So what happens when defaults start piling up in the shadow banking system? The central bank/state authorities conjure up a couple trillion yuan (a.k.a. liquidity) so defaults go away: here, Mr. Bad-Risk-Default, is government-issued credit so you can pay off your defaulted private-sector loan. Everybody saves face, private losses have been transferred to the public sector/state, problem solved.
Small banks over-extended and technically insolvent? Solution: print or borrow another trillion and give the insolvent bank the dough. Problem solved!
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The Global Economy Could Fall Farther and Faster Than Pundits Expect
The Global Economy Could Fall Farther and Faster Than Pundits Expect
Systemic fragility doesn’t respond to central bank jawboning or Keynesian claptrap; unlike those “policy tools,” fragility is real.
The core narrative of central bank/cartel capitalism is centralized agencies have the power to limit downturns and extend credit-based “good times” almost indefinitely. The centralized power bag of tricks includes fiscal policies such as deficit spending to boost “aggregate demand” in downturns and monetary policies such as lowering interest rates to zero and buying assets, a.k.a. quantitative easing.
If we crawl under the barbed wire and escape the ideological Keynesian Concentration Camp, we find thinkers such as Ugo Bardi, John Michael Greer and Dimitry Orlov, whose work explores the dynamics of collapse, resilience and sustainability.
All three have added a great deal to my own (emerging) understanding of the many dynamics of collapse.
We can summarize the dynamics of collapse in many ways; here’s one: collapse is latent fragility manifesting. A familiar (and tragic) health analogy offers an example: a middle-aged man doesn’t appear ill, a bit thick around the middle perhaps, but neither he nor his intimates can see the fragility of his clogged arteries and blood-starved heart. Seemingly “out of the blue,” the man has a massive heart attack and passes from this Earth, to the shock of everyone who knew him.
Financial collapse isn’t “out of the blue,” any more than a heart attack is “out of the blue.” Actions and choices have consequences, and as resilience and redundancy are slowly stripped from complex systems, systemic fragility builds beneath the surface. At some difficult-to-predict point, a threshold is reached and the complex system fails.
In the financial realm, fragility builds as the system relies ever more heavily on marginal lenders, borrowers, buyers and investments for its “growth.”
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