There is a pleasant mist in the air which conceals the depths of the disorder with earnest efficiency. Cavernous divergences exist between the financial economy and the real economy. Yet only the crankiest will speak of them.
The union in Europe was temporarily saved last Friday. Investors the world over cheered the relief. The DOW and S&P 500 closed out the week at record highs.
The big news was that the Greek bailout will be extended four more months. The fact that Greece will never pay back its creditors doesn’t matter for now. The clever program of extend and pretend has been preserved.
This is how things work in 2015. The world economy roles round and down with remarkable precision, borrowing massive amounts of digital monetary credits into existence and spending them. Certainly, this can’t go on forever.
The more duct tape and safety pins that are used to hold things together… The more money creation that occurs to temporarily paper things over… The greater destruction the final financial blowout will ultimately be. This troublesome truth goes largely ignored for short-term band aide solutions.
A New Paradigm
But life roles on. Plans are drawn up. Decisions are made. People do the best they can with what they have. Some seek out new prospects with shrewd acumen. Others schlep coffee in hand to their daily grind. All must enlist in the government’s programs of benevolence. Givers through compulsion. Receivers through hard luck and apathy.
Here at the Economic Prism we go about our business of observing, distilling, and documenting with a steady hand and an unbelieving eye. How can the impossible continue on for so long? Can it last forever?
Presently we seem to have reached a new paradigm. How else can one explain this remarkable new exemplar? The old callous laws of nature have been repealed. There are no limits. There are no consequences. Bailouts are extended. Stocks hit record highs.
Why should we care if it’s all based on a sham? Not when everything is so agreeable and idyllic. Not when it’s sunny and 74 degrees Fahrenheit every single day.
The corner grocers are always stocked full of fresh produce and prime cuts of meat. Confections of cotton candy and strawberry soda are in abundance. There’s a profusion of free entertainment waiting at the mere click of a button. Best of all, hot showers greet us each morning with the unwavering predictability of the new dawn.
The End of the New Paradigm
Governments across the planet are battling the problem of too much debt. The unanimous solution, if you can believe it, is more debt. So long as governments can continue borrowing they do not need to face the reality of their true financial situation. Conveniently, through the magic of central banking governments are able to borrow without limits.
Years ago Herbert Stein, economic advisor to both Richard Nixon and Gerald Ford and father of Ben Stein, formulated Herbert Stein’s Law. Here he expressed that “If something cannot go on forever, it will stop.”
From what we gather, a scientific law, opposed to a theory, is a statement based on a repeated observation that describes some aspect of the universe. For example, water boils at 212 degrees Fahrenheit. This is a scientific law. It has been repeatedly observed since before the measuring scale was even discovered.
The present financial and economic state of affairs is challenging Herbert Stein’s Law. We are living in an era where something that cannot go on forever, doesn’t stop. Remarkably, it continues on.
Forever, of course, is a very long time. On the road to forever, practically anything and everything can happen. Even if something hasn’t happened yet, doesn’t mean it will never happen.
Similarly, solving the debt problem with more debt may be working for now. There’s a vested interest by the current power structure in maintaining it. But it won’t work forever.
The new paradigm will end when it can no longer continue forever. We suspect that day is rapidly approaching.
for Economic Prism