Monday, May 1, 2023

Gradually and then suddenly

 

The title of this article is a quotation from Ernest Hemingway's 1926 novel "The Sun Also Rises".


“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”



Most people - and most countries - that end up in financial trouble spend a long time on the "gradually" part . . . and are surprised when it accelerates to "suddenly".  Nevertheless, I believe that's the stage we're in right now;  the accelerating decline from "gradually" to "suddenly" in the economy - the world's, and our own nation's.

Many commenters appear to agree.  For example, Sovereign Man warns:  "We’re done with “gradually”. We’ve now reached the “suddenly” part".


The idea behind logarithmic decay is that something declines very, very slowly at first. But, over a long period of time, the rate of decline becomes faster… and faster… and faster.

If you look at it on a graph, logarithmic decay basically looks like a horizontal line that almost imperceptibly arcs gently downwards. But eventually the arc downward becomes steeper and steeper until it’s practically a vertical line down.

Logarithmic decay is like how Hemingway famously described going bankrupt in The Sun Also Rises– “Gradually, then suddenly.”

In fact logarithmic decay is great way to describe social and financial decline. Even the rise and fall of superpowers are often logarithmic in scale. The Kingdom of France in the 1700s infamously fell gradually… then suddenly.

We can see the same logarithmic decay in the West today, and specifically the United States.

The deterioration of government finances has been gradual, then sudden. Social conflict, censorship, and the decline in basic civility has been gradual, then sudden. Even the loss of confidence in the US dollar has been gradual… and is poised to be sudden.

. . .

Is it any surprise? The US government is weeks away from defaulting on its national debt over the latest debt ceiling debacle. And yet the guy who shakes hands with thin air refuses to negotiate a single penny in spending cuts to help reduce trillions of dollars in future deficit spending.

The whole world is watching in utter disbelief at the astonishing level of incompetence that has infected the highest levels of America’s once hallowed institutions, including news media, big business, and the government itself.

America– and the West by extension– really are on the precipice of that logarithmic decay curve… the part where the horizontal line becomes a vertical line down.

It has taken years… even decades to reach this point, gradually. We’re now at the “suddenly” part.


There's more at the link.

John Michael Greer agrees.


In simple terms, the US imposed a series of arrangements on most other nations that guaranteed the lion’s share of international trade would use US dollars as the medium of exchange, and saw to it that an ever-expanding share of world economic activity required international trade. (That’s what all that gabble about “globalisation” meant in practice.) This allowed the US government to manufacture dollars out of thin air by way of gargantuan budget deficits, so that US interests could use those dollars to buy up vast amounts of the world’s wealth. Since the excess dollars got scooped up by overseas central banks and business firms, which needed them for their own foreign trade, inflation stayed under control while the wealthy classes in the US profited mightily.

The problem with this scheme is the same difficulty faced by all Ponzi schemes, which is that, sooner or later, you run out of suckers to draw in. This happened not long after the turn of the millennium, and along with other factors — notably the peaking of global conventional petroleum production — it led to the financial crisis of 2008-2010. Since 2010 the US has been lurching from one crisis to another. This is not accidental. The wealth pump that kept the US at the top of the global pyramid has been sputtering as a growing number of nations have found ways to keep a larger share of their own wealth by expanding their domestic markets and raising the kind of trade barriers the US used before 1945 to build its own economy. The one question left is how soon the pump will start to fail altogether.

When Russia launched its invasion of Ukraine in February 2022, the US and its allies responded not with military force but with punitive economic sanctions, which were expected to cripple the Russian economy and force Russia to its knees. Apparently, nobody in Washington considered the possibility that other nations with an interest in undercutting the US empire might have something to say about that. Of course, that’s what happened. China, which has the largest economy on Earth in purchasing-power terms, extended a middle finger in the direction of Washington and upped its imports of Russian oil, gas, grain and other products. So did India, currently the third-largest economy on Earth in the same terms; as did more than 100 other countries.

. . .

Today, the sanctions are hurting the US and Europe, not Russia, but the US leadership has wedged itself into a position from which it can’t back down. This may go a long way towards explaining why the Russian campaign in Ukraine has been so leisurely. The Russians have no reason to hurry. They know that time is not on the side of the US.

For many decades now, the threat of being cut out of international trade by US sanctions was the big stick Washington used to threaten unruly nations that weren’t small enough for a US invasion or fragile enough for a CIA-backed regime-change operation. Over the last year, that big stick turned out to be made of balsa wood and snapped off in Joe Biden’s hand. As a result, all over the world, nations that thought they had no choice but to use dollars in their foreign trade are switching over to their own currencies, or to the currencies of rising powers. The US dollar’s day as the global medium of exchange is thus ending.

. . .

In short, America is bankrupt. Our governments from the federal level down, our big corporations and a very large number of our well-off citizens have run up gargantuan debts, which can only be serviced given direct or indirect access to the flows of unearned wealth the US extracted from the rest of the planet. Those debts cannot be paid off, and many of them can’t even be serviced for much longer. The only options are defaulting on them or inflating them out of existence, and in either case, arrangements based on familiar levels of expenditure will no longer be possible. Since the arrangements in question include most of what counts as an ordinary lifestyle in today’s US, the impact of their dissolution will be severe.


Again, more at the link.

Brandon Smith brings it back to the root of the problem - the US-dominated international financial system.  It has to be reformed, but current efforts to do so are predicated on a socialist world order and the undoing of rights and freedoms we've long taken for granted.  (See here for an interesting discussion on that issue).


We just saw the beginning of the end with the latest banking crisis involving companies like SVB, First Republic and Credit Suisse – It’s not just US finances, but banks around the world that rely on liquidity injections from the Fed to stay afloat. The central bankers addicted the system to cheap easy debt and now they are taking away the drugs.

. . .

I believe we are fast approaching another engineered singularity, a controlled demolition of existing systems to make way for a cashless society, a one world currency and global governance. I believe this because it’s all the globalists can talk about these days; it’s not as if they’re trying to hide it anymore.

The BIS and IMF are actively fielding one-world digital currency mechanisms right now; structures that would combine all national CBDCs under one umbrella. In the meantime, globalist think-tanks like the WEF (World Economic Forum) are ranting excessively about the coming era of an AI controlled economy and a “4th Industrial Revolution” in which you will “own nothing, have no privacy” and will be forced to adapt to a cashless socialist sharing system.

All they need is a scapegoat to complete their crisis formula. War seems to work well in distracting the masses from the true culprits behind any financial calamity, and numerous institutions are hard at work to convince the public that countries like Russia are to blame for ongoing stagflation problems ... However, foreign conflagrations will not be enough for the establishment to keep the American public from scrutinizing the narrative. They need a domestic enemy, a frightening threat that lives right next door. That is to say, they need to find a way to blame conservatives and liberty activists for the impending crash that they caused.


More at the link.

I'm going to let Peter Ziehan have the last word.  I know some don't trust his forecasts and views, but I think he offers some genuine insights that too many discount or ignore.  In this short video clip, he points out that "Global Economic Growth is Collapsing".




Please follow the links provided and read the articles in full, and then consider them in the light of Ziehan's comments.  Putting them all together, we're not in a happy place, economically speaking.

I'm not trying to preach gloom, doom and disaster here.  I'm simply pointing out that the whole of the Western world, and to a certain extent the entire world, is facing economic decline, possibly (probably?) precipitously.  We need to take that into account in planning our own futures, and structuring our possessions, plans and supplies accordingly.  That way, at least, we can be as prepared as possible to face what's coming our way.

Peter


17 comments:

  1. terminology quibble. defaulting on the debt means that we don't pay when something is due.

    As I understand it, payments on the debt are required to happen before other spending. Since income from taxes is larger than the debt payments, there is no legitimate reason to go into default on the debt.

    what should happen is that other spending will have to stop as there is not money to pay those bills.

    the problem is figuring out what cuts will happen. From past experience, we know that the Democrats will make the cuts as painful for the public as possible (compare what happened during the government shutdowns under Trump and Obama)

    David Lang

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  2. People forget that the Great Depression was NOT just an American event.

    It was worldwide. The attempts to extract enough juice from Germany's war reparations aka the Versailles Treaty simply pushed Germany into a hyperinflation doom cycle that created Hitler.

    Ding, ding ding, round two or aka WW3 perhaps?

    Nuclear BANG or economic whimper, End of America (maybe the world), dealers' choice.

    As Uncle Hemmingway said “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

    No wonder indeed that the Russians are in NO Hurry to finish off Ukraine. As that old saying goes "Never interrupt an enemy doing a really stupid thing".

    Russia is quite aware that the loss of World Reserve Currency will CRIPPLE the America's ability to send out trouble vis the 3 letter agencies, as what is the Bribe Value of Monopoly Money?

    Protect your family, rule of threes and Grham's Killhouse rules are in force.

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  3. I am not sure how to prepare for a financial apocalypse other than stored food, stored water, guns, ammo, long term investments in real estate, etc. I have read the Mandibles book three times now and the outcome never gets better.
    https://www.amazon.com/Mandibles-Family-2029-2047-Lionel-Shriver/dp/006232828X/

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  4. I agree that Peter Zeihan does have some useful insights in his area of expertise, which is demographics and how that affects economics.
    When he gets out of his wheelhouse discussing military capabilities and Great Game maneuvering he is much weaker, mainly due to using other people's (bad) data and suppositions. GIGO.

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  5. For those of us who worked and saved and bought frugally. What does this mean?

    J

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  6. @Anonymous at 7:17PM: It means we're pretty much screwed. Pensions/IRA's/401K's are going to be worth a whole lot less in terms of real purchasing power than was intended: some may end up completely worthless. Most of us won't be in a position to retire unless we have some sort of independent income. Relying on Social Security and Medicare is a losing proposition, because their annual increases are tied to the "official" rate of inflation - which, as we've noted repeatedly in these pages over several years, is 3-4x lower than the REAL rate of inflation.

    Keep your powder dry, batten down the hatches, and prepare for rough weather ahead.

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  7. Anon @7:17 PM your money is frozen, stolen or devalued into Zimbabwe Dollars.

    Sometimes life isn't fair. My wife and I have lived well below our means all our lives. Whatever isn't in your hands when it goes down aka banks and retirement funds will be frozen, stolen or devalued into worthlessness.

    Got over a years worth of stored food and trusted friends?

    Will be worth far more than electronic digits in the banks.

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  8. Anonymous said...

    For those of us who worked and saved and bought frugally. What does this mean?

    J


    And it means that your money will last a month longer than the people who did not scrimp and save.

    I cannot decide if they are going to seize the IRAs and 401Ks to "invest" the money in tbills. First, that will crater the stock markets but they will probably be cratered already. Second, the seizure of the IRAs and 401Ks will be an outright admission that the Dollar is hosed. But this crew that is in office right now does not care at all. I have never seen a more uncaring bunch of government officials. It is almost as if they are tearing down the country on purpose, a bunch of sociopaths.

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  9. One final comment, roughly 10% of the USA is rich, 80% is middle class, and 10% is poor. The coming fiscal apocalypse is going to collapse the middle class into the poor class. So, the USA will be 10% rich and 90% poor. That is the stuff that civil wars are made of but some of the rich will have to finance the civil war to make it happen.

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  10. Sorry, Peter, no sale.

    We are, indeed, in dire financial straits, which will eventually accelerate.

    But anyone who pens "...China, which has the largest economy on earth in purchasing-power terms..." with a straight face is too stupid to know what they don't know, and not to be taken seriously anywhere outside of perhaps Clown College in Florida.

    China's economy is almost 3/4s the size of that of the United States.
    As in, even if you added all of India's economy to China's, the two combined are still smaller than that of the U.S., ever.

    Added to that is the annoying truth that China's population is a bug for them, not a feature.
    This is why the U.S. is the 5th wealthiest country, while China is the 63rd.

    People like Greer, who can't tell the difference between an elephant and a whale, cannot be relied upon for any deeper insights, and should instead seek out a good optometrist, and a brand new pair of spectacles.

    They're certainly entitled to their opinions (informed ones would be notably better), but they do not get to spin their own set of facts straight out of their underpants, and act as if they were legitimate, when they are, in truth, recockulous (that being a step beyond merely ridiculous).

    Find someone who can start from what actually is, and track things from that point.

    Things are bad enough without pseudo-experts spinning fairytales from deep down in their Pampers.

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  11. Time will tell Aesop if your estimate of the Finacial strength of America is accurate.

    Meanwhile enjoy living in California, the epicenter of woke change and probably Newson the next selected President of the Titanic.

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  12. Aesop, beware of using GDP as it includes government spending. The US 19% of GDP is healthcare - a maintenance cost at best. In other words GDP is really a poor representation of industrial capability, especially with respect to the US.

    Ziehan mentions that China lies about their statistics, all governments do. If China is preparing to bring down the US via economic means are they prepared to loose their export market-I would guess yes.

    OBTW, lots of women available throughout Asia. Not like taking war brides/trophies is a new thought in the human experience. Certainly the Mongols did it. Desperate times, desperate measures.

    As for preparing for what comes next. The Dems already floated nationalizing all pensions fund as it was not fair to the poor that some would have more when they retired. TPTB want digital currency and all the control that will enable. The dollar is going down and any retirements with it.

    This is a war between good and evil, we have let evil run unchecked. Too easy to say that is what the vote decided, too easy to be quiet when people are telling you that you are mean. Too easy to take on the guilt of our forefathers and be silenced while people drag us back down the slope of progress.

    What is coming will be ugly and often out of control
    But we need to think about what we have learned. Productivity has gone up 2% per year on average but real wages have gone down. Where did the money go? No wonder a family needs 2 working adults to avoid government bondage, I mean assistance. It's been very easy to sell yourself into debt slavery. Poor diet via processed food is almost a requirement to exhausted family's, especially when you are told if you are not spoiling your one child and acting as a helicopter parent that you are committing child abuse. Health of the soul is more important than health of the body. We are finding out the results of letting the narcissistic power grabbers run the govt and economy. Allowing people to run for office heavily biases the pool of candidates to people I wouldn't trust to watch my dog. Figuring out how to fix this is a major issue.

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  13. Canceled my company's 401K a year or so ago. Sneaking in as many bucket list items as I can.

    Michael's right - buy a year's worth of emergency food and water purification while they're still available.

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  14. PeterZ gets some things right, but has a couple of huge blind spots as noted above. He also treats people as 100% economically and culturally fungible, so an 18 YO typically 70IQ Congolese is a viable drop-in economic replacement for a typical American white Gen Z here in the American business. Nope.

    He treats a few too many things in aggregate, when the dis-aggregated parts tell a different story.

    Personally, I think there will be a couple of cycles of waring inflation and deflation as government try to tame the untamable, and it will end with a massive debt jubilee (either explicit or defacto via inflation), currency re-works, and a number of civil wars / coupes.

    Raise cash. Pray. Get fit. Pray. Stash supplies. Pray. Garden. Pray. Get to know the neighbors. Fix nagging problems while parts are available. Pray. Stay in touch with friends.

    Exciting times.

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  15. I said nothing about the strength of the American economy, (which in fact I regard as much like the strength of calcium-depleted old men's bones).

    But the size of the American economy, in any terms, is beyond dispute, and so much greater than China's that the entire size of other nations would fit within the slack between ours and theirs exactly as I said.

    So people babbling about China's economy being bigger than that of the U.S. are quite simply full of a crock of a substance well-known to anyone who's ever shoveled out a septic tank, and they are not to be taken seriously if they can't get fundamental facts correct.

    That "Babylon is fallen, and great is the fall of it" is a future fate as inevitable as sunrise.

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  16. Aesop, is the unwinding of massive finical "FED magic" starting to worry you a bit?

    Remember about 6 months ago I mentioned that there was serious trouble in the largely hidden bond market? About how the Fed raised rates into the beginning of what is now called the Great Depression? And NOW the more public failure of various banks as the Fed attempts to tape together the house of cards?

    So just how much of the "But the size of the American economy, in any terms, is beyond dispute, and so much greater than China's that the entire size of other nations would fit within the slack between ours and theirs exactly as I said."

    Is pure Finacial smoke and mirrors?

    Our country makes nearly NOTHING beyond bad movies, transvestite "Rights" and American Debt aka Treasury Bills.

    MAYBE THATS WHY we had to BUY (err get s LOAN of) 155mm artillery shells from South Korea and now from our Israeli stockpiles for the Proxy War against Russia?

    China and Russia STILL MAKE STUFF.

    Protect your family and trusted friends. Winter is near.

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  17. 1) The economy has been in serious trouble since the late 1970s.
    Plotting new points on the logarithmic downturn is merely an exercise in mathematics, but not in news, for anyone with eyes to see.

    2) We haven't made nor possessed adequate supplies of artillery (or bombs, rockets, bullets, spare parts, POLs, or anything else necessary for waging full-scale war) for any purpose since about 1965. This has been the world's worst-kept military secret since about 1966, to anyone paying the slightest attention to military topics. {Meanwhile, Russia has expended much of their stocks, to the point of hamstringing itself for decades, in order to lose gradually but inexorably to an adversary 1/10th their size, who is happily putting to good use and great effect every gift sent their way.}

    3) What China and Russia make has been found scattered in loose aggregations of parts in every conflict around the world since 1946. Very occasionally (Cuba 1960, Vietnam 1975) their junk prevails. The failures outweigh the successes by about 12:1, in anyone's lifetime, and in the two successes, the winning factor was personnel motivation over materiel, exactly as outlined back to Napoleon. Nothing has changed in that respect since the early 1800s. Ask Lebanon, Syria, Jordan, Egypt, Saudi Arabia, Iraq, Libya, et al, how that works out under field conditions.

    4) While America has many would-be enemies, the only ones worth noting are all inside the perimeter, and have been for nearly a century. Just as in the 400-year-old story, Gulliver was happily beset and tied down by the Lilliputians.

    Until he woke up.

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