Friday, June 1, 2012

The Collapse is the Easy Part

Throughout the recent five years of American economic, political, and Constitutional crises the world chugged along with winners and losers selected by fate and foolishness as the erosion of our modern civilization continued from within. This system crash at all levels, morality, financial structure, religion, politics, and the viability of the nations impacted from this disaster is going to lead to some extremely long term changes in the world, some of which will shock the unprepared, and kill the unaware. There is, however, some good news:

The collapse is the easy part.

If one takes a moment to review modern history, the realization that the statement above is not a concoction of a historian from the skeptical point of view, but one of reality. The American people have been living in a bubble since 1991, created by politicians who over reacted to a garden variety slowdown in the business cycle by pressuring a then scheming Alan Greenspan into finding new ways to use the power of the Federal Reserve banking system to inflate and expand economic activity. Based on the charts below, the efforts of the political and financial elites was a resounding success until the end of the century.

Unfortunately for the proverbial powers that be, the effectiveness wore off when the bubble popped in 1999 and the theory that perpetual printing will cure all is beginning to lose out to the forces of natural business cycles, deleveraging, and economics.  Eventually, as consumers ran out of money and earnings failed to keep pace with real inflation as opposed to the hedonically manipulated C.P.I., the velocity of money began to decline which meant that credit was collapsing not just at the consumer level, but across the economy as a whole. The chart below continues to verify this decline.

Thus every effort to avert a deflationary economic depression has been met with half measures of so-called “Quantitative Easing” which has done nothing to offset deflationary pressure but instead created price inflation in the face of a continuing economic contraction. The Federal Reserve has put itself into a liquidity trap with none of the benefits from monetary printing filtering beyond the banking sector and into the general economy. If in fact this had worked according to theory, the graph above would continued with a move back above the 1.7 level; instead it has collapsed to the lowest levels in over twenty years. Yet this little tidbit is comforting in the fact that it only indicates a greater risk of economic collapse without providing a timetable or the consequences thereof.

In Europe, Greece is the closest example to a complete collapse in its government, economy, and as a result civilization. Middle class citizens have been wiped out financially. Families are abandoning pets in record numbers and children in lower, yet expanding numbers. The dramatic suicides are now becoming an almost daily occurrence with each event drawing more and more attention to the futility of thinking that there is a pension or retirement program for the elderly to rely on. The collapse has not hit Greece at this time, it is just now beginning to accelerate. The election on June 17th will determine its future and if the powers in charge are able to work with the financial elites and rig the election, odds are the transition will be worse as the European Commission attempts to paint a happy face on to a revolution. The revolt that can be expected in Greece will eventually follow in Ireland, Cyprus, Hungary, the rest of the Balkans and possibly even Italy and Spain.

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