Disruption and Endurance

The twentieth-century brought an astonishing number of advances to the human world – scientific, technological, and agricultural.  It was also a century of appalling violence, the most destructive in human history.  An estimated 167 million to 188 million people died at the hands of their brothers.

The century that put communism, fascism, and nationalism on the map also saw the invention of highly efficient weaponry and a willingness to direct it against civilian populations on a massive scale.

Do we understand what could happen to us on American soil – tragedies more devastating than anything we have experienced since the Civil War?  How easily we ignore the warnings!

At this historic turning-point we can least afford a repetition of the world’s destructive past. Only a strong America, just and wise and levelheaded, can lead a disrupted world back to stability and peace.

In his book, “The War of the World: Twentieth-Century Conflict and the Descent of the West”, the historian Niall Ferguson, who I have introduced to you previously, is explicit:

“The hundred years after 1900 were without question the bloodiest century in modern history, far more violent in relative as well as absolute terms than any previous era…. There was not a single year before, between or after the world wars that did not see large-scale violence in one part of the world or another.”

Niall Ferguson’s observations are useful because he departs from the typical explanations that blame weaponry and fascist governments, as significant as these were.  Instead he identifies the true causes as ethnic conflict, economic volatility, and declining empires.

In short, he reminds us of our human vulnerability to fear, emotional insecurity, and tribalism.

The convergence of multiple crises I have been writing about here involve all these things, but also newly emerging threats that most of us have not seen coming.

These include an extremely fragile, interdependent banking system, depleted natural resources, the rapid loss of farmland and collapsing aquifers, and the degradation of critical environmental ecosystems.

Run-away technology is rapidly outpacing the maturity of human moral competence.

In every case, the challenges we face as individuals and families rarely come into focus until we consider their local implications.

And, as Dr. Ferguson points out, it is the anxiety of people under pressure that leads to social deterioration and violence.

Long-time readers know my views.  In the extremes of social and economic stress, it is my belief that local communities are the only place where we have the freedom and opportunity to take control of our lives in a civilized manner.

The difference between a disrupted past and a secure future will depend entirely on the manner in which we address problems with our neighbors and manage our local affairs.

We cannot completely wall-out the chaos of the world, but we can accept personal responsibility for the unity and well-being of our communities.

The distinction between past and future will be determined by dependable relationships, respectful attitudes, and giving a helping hand.

Building trust with neighbors and cooperating to meet shared needs are personal choices that lead to safety.

As we work together shoulder-to-shoulder, we can begin to know, understand, and influence one another.  The lessons of civility and cooperation to be learned here will serve us well as a nation.

Yes, we need to be realistic— Many people remain crippled by dogmatic prejudices.  This is unlikely to change until we are forced to address the essential needs that we face together in a disintegrating social order.

Patience and determination will then make many things possible as never before.  Necessity sharpens the mind and invigorates the will.

Distrust and alienation are diminished as we identify common concerns and work in service to common needs.

And what of our common purpose?

Ultimately, in my view, our first priority must be the survival of the United States as a constitutional republic.  The future depends on this.

Let us seek a strengthening respect for the Constitution and the cooperative form of governance it requires.

It is the Constitution that has allowed us gradual progress, an advancing strength toward unity, justice and inclusive fairness for more than 200 years

Tom

Dear readers:  I will be taking a short break— Please watch for the next post on or about December 17.  New readers will find a project description, an introduction to the coming book, and several working drafts of early chapters linked at the top of this page.

An Unexpected Threat

In recent decades a profound and unexpected threat has been growing exponentially.  The densely interconnected world of digital networks, instant communication, and global markets have presented a seductively attractive frontier.  Yet, we find ourselves awakening now to the danger embedded in this complexity.

Hidden within this new reality is a menace that is difficult to comprehend.  A new and unpredictable world, it hides hazards of barely imaginable magnitude.

We are confronted with impenetrable complexity.

Exponential population growth and digital connectivity, along with warfare, fragile commercial distribution systems, and the global transmission of deadly diseases, are all contributing to rapidly intensifying complexity.

However, it is the immensity and density of digital networks that is most difficult to grasp.  It is here where we are learning that complexity can behave in very strange and disturbing ways.

Complex systems are capable of spiraling out of control suddenly and inexplicably.  Living as we do with the instability of today’s world, I think it important that we understand this.

In his book, “Ubiquity”, science writer Mark Buchanan writes that a natural structure of instability is in fact woven into the fabric of the world.

He writes that complex structures and processes – in geology, in rush-hour traffic, in financial markets, and in the many intricate networks of human society – have a natural tendency to organize themselves into what is called a “critical state.”

When this happens they are poised on what he describes as the “knife-edge of instability.”

A critical state occurs when a system is poised for sudden change.  Some mathematicians and scientists now believe that a pervasive instability is a fundamental feature in nature – and in the structures of human societies.

Any event, even a small one, can have an effect that seems far out of proportion to its cause.

A single grain of sand, for example, will cause a sand pile to avalanche. But it is impossible for us to know which grain of sand, which individual maneuver in heavy traffic, or which specific circumstance in the financial markets will trigger an inevitable catastrophe.

What is the difference between something that is complicated and something that is complex?

James Rickards, who I have introduced to you in the past, answers this question in his book, “The Death of Money: The Coming Collapse of the International Monetary System”.

Rickards explains: “Many analysts use the words ‘complex’ and ‘complicated’ interchangeably, but that is inexact. A complicated mechanism, like the clockworks on St. Mark’s Square in Venice, may have many moving parts, but it can be assembled and disassembled in straightforward ways.

“The parts do not adapt to one another, and the clock cannot suddenly turn into a sparrow and fly away. In contrast, complex systems sometimes do morph and fly away, or slide down mountains, or ruin nations….

“Complex systems include moving parts, called autonomous agents, but they do more than move. The agents are diverse, connected, interactive, and adaptive. Their diversity and connectivity can be modeled to a limited extent, but interaction and adaptation quickly branch into a seeming infinity of outcomes that can be modeled in theory but not in practice.

“To put it another way, one can know that bad things might happen yet never know exactly why.”

James Rickards goes on to expound on the instability of today’s financial markets and global economy.  He writes: “Bankers’ parasitic behavior, the result of a cultural phase transition, is entirely characteristic of a society nearing collapse.

“Wealth is no longer created; it is taken from others. Parasitic behavior is not confined to bankers; it also infects high government officials, corporate executives, and the elite societal stratum.”

Today the financial markets and monetary system are again poised “on the knife’s edge of criticality.”

My message here is the importance of resisting panic when confronted with frightening and unexpected shocks.  We must remain steady on our feet when others are ready to stampede.

Only with a commitment to justice and steady self-discipline will we hold our communities together.

The road to freedom requires courage, and getting there through a dark night will depend on the strength of local cooperation and moral responsibility.

Tom

Note to readers:  Watch for the next post on or about November 19.  New readers can find a project description, a draft introduction to the forthcoming book, and several chapter drafts at the top of this page.

The Problem of Trust and the Future of Humanity

Trustworthiness and dependability are usually thought of as admirable aspects of personal character.  But as we witness the continuing deterioration of social order it becomes increasingly clear that these priceless attributes are pillars of civilization.

Fear of crime or violence will cripple any society, but the greatest insecurity comes with the loss of trust between friends or neighbors or fellow workers – those we depend on and thought we understood.

Have we found ourselves unexpectedly questioning whether someone we trusted is actually who we thought they were?  When such questions arise, how can we be sure?  How does one keep body and soul together?  It is hard to recover.

Distrust makes the world precarious.  Uncertainties spread; confidence vanishes.

Things fall apart.

Businesses are particularly vulnerable to loss of trust.  Without dependability in governance and consistency in economic policy businesses are hobbled by unpredictability.  Business owners cannot plan.  And a market economy abhors uncertainty.

This is not the way any of us wish to live our lives.  If constant uncertainty makes things feel out of control, it can get scary.

What can we do as responsible people when we live in a society dominated by distrust and a general lack of personal integrity?

The benefits can be great when we choose to be trustworthy ourselves – in spite of everything.  We can be consciously determined to demonstrate what moral integrity means.  But this is not easy.  If America is to turn the corner it will take time and extraordinary patience.

We will have to keep the necessity of dependability in focus at all times.

Nothing will change unless we establish the effectiveness of trustworthiness to those around us and draw attention to its’ value.

In so doing, it will be important that we not fool ourselves into imagining that we are better than others who are failing to meet our standards.  Moral pride can be obvious, and it will push people away.

How can we assist others to understand and value integrity?  Self-righteousness fails to acknowledge that everyone has the capacity to recognize their mistakes.  So, if we would help America move on to a better future we need to be self-disciplined in our contacts and relationships.  Kindness attracts; arrogance offends.

Moral pride,” wrote Reinhold Niebuhr, “is revealed in all ‘self-righteous’ judgments in which the other is condemned because he fails to conform to the highly arbitrary standards of the self.  Since the self judges itself by its own standards it finds itself good. It judges others by its own standards and finds them evil when their standards fail to conform to its own.  This is the secret of the relationship between cruelty and self-righteousness.” (The Nature and Destiny of Man, Vol. I, p. 199.)

Readers who profess their belief in the Christian Faith may recall the admonition of St. Paul when he wrote: “For wherein thou judgest another, thou condemnest thyself; for thou that judgest doest the same things….” (Romans 2:1)

Those of other faiths, or those who do not consider themselves religious, will never-the-less recognize this compelling logic.

Integrity is a personal choice.  We must never assume that others are incapable of cleaning up their act.  It is an intrinsic capacity we are given at birth.

A word of warning before we finish: When we recognize a consistent pattern of dishonesty and deceptiveness, it can become necessary to distance ourselves from it.  Such destructiveness permeates and subverts everything around it.

We must be practical, but also ready, if possible, to care for people who are troubled in this way. The greatest forgiveness is the least deserved.

However, forgiveness and trust are two entirely different things.  Once trust is lost, it can be very difficult to recover.

So it is that the restoration of trust and dependability in all our endeavors must be championed by every American as we enter a new day.

Without trust the future is lost.

Tom

A note to readers:  This blog posts regularly.  The next post is due on or about January 31. However, it will be less predictable than usual as I will be traveling.

You may request emailed alerts by clicking the Follow button on this page.

Why the Bankers Are Trapped

Few seem to grasp that we have arrived at an historic turning point: a nation and a world confronted with profound structural change.  The hope to recover the past will not be helpful. We must pick ourselves up, hit the reset button, and respond to a rapidly changing reality.

I cannot accept assumptions about political policies or intentions without asking practical questions. I want to understand a complex transition that is having an immense impact on us all.

There are many aspects to the changes we are experiencing, some with immediate implications, others longer-term.  To seek solutions we must recognize structural change.

I have given attention to the continuing financial crisis in recent posts because I believe that is where the closest danger lies.

So, I begin here with a financial question with structural implications: Why is the Federal Reserve unable to return the economy to some semblance of fairness and order? Or, to put it another way: Why have our financial liabilities not been corrected since the crisis in 2008?

The short answer is that they want to believe they are dealing with a cyclical crisis rather than a structural crisis.  Again, why?

Because the truth represents an unbearable existential threat.

Here we find a powerful example of the problems presented by structural change.

The economy has shifted into a long-term deflationary trend, which presents banks and governments with an impossible situation.

I refer you again to James Rickards’ best-selling book, “The Death of Money: The Coming Collapse of the International Monetary System”.  A monetary economist and former banker, Rickards has been advising the Pentagon and CIA concerning financial warfare and terrorism.

Using simple math, Rickards’ explains how, “in effect, the impact of declining prices [deflation] more than offsets declining nominal growth [GDP] and therefore produces real growth.”

Most of us would think this is a good thing.

He writes: “Despite possible real growth, the U.S. Treasury and the Federal Reserve fear deflation more than any other economic outcome. Deflation means a persistent decline in price levels for goods and services. Lower prices allow for a higher living standard even when wages are constant, because consumer goods cost less. This would seem to be a desirable outcome, based on advances in technology and productivity that result in certain products dropping in price over time….”

Why is the Federal Reserve so fearful of deflation that it resorts to extreme measures to oppose it? Rickards gives us four reasons.

First, deflation has a severe impact on government debt: “U.S. debt is at a point where no feasible combination of real growth and taxes will finance repayment…. But if the Fed can cause inflation…, the debt will be manageable because it will be repaid in less valuable nominal dollars. In deflation, the opposite occurs, and the real value of the debt increases….”

Second, deflation impacts the debt-to-GDP ratio, causing foreign creditors to lose confidence in the dollar and demand higher interest rates. This is an urgent problem because the debt is continually increasing. Budget deficits require new financing, and interest payments are already being financed with new debt.

Third, deflation is a major problem for banks. As Rickards’ puts it, “deflation increases money’s real value and therefore increases the real value of lenders’ claims on debtors…. But as deflation progresses, the real weight of the debt becomes too great, and debtor defaults surge.”

The fourth problem with deflation is about taxes. When a worker receives a raise, the additional income is subject to taxes. But, if the cost of living drops by the same amount, the worker in effect receives the same raise and the government cannot tax it.

“In summary,” writes Rickards, “the Federal Reserve prefers inflation because it erases government debt, reduces the debt-to-GDP ratio, props up banks, and can be taxed.”

“Deflation may help consumers and workers,” he says, “but it hurts the Treasury and the banks…. The consequence of these deflationary dynamics is that the government must have inflation, and the Fed must cause it. The dynamics amount to a historic collision between the natural forces of deflation and the government’s need for inflation.”

Such are the challenges of structural change.

Tom

Note to readers: You can support this blog and the book project by suggesting that your friends and associates take a look.  And, watch for the next post on or about November 3.

When Money Dies

Americans experienced a major financial crisis in 2007-8.  Some would argue that it began far earlier, and clearly it is ongoing today.  We may be more aware of this crisis than others because it confronts us daily.  In preparing for what is to come, we would do well to listen to those who saw it coming and who continue to warn of its’ inevitable consequences.

Beyond all the foolishness and greed running rampant in the financial world, one great threat hangs over our future more than any other: The greatest expansion of debt the world has ever seen.  This is in large part due to non-stop deficit spending by governments.  Corporate borrowing has recently exploded similarly.

However, we need to understand that this has been made possible by a credit-based monetary system.  Easy access to credit, which is money created out of thin air, has led to the belief that credit is wealth.  This fantasy has infected society from top to bottom.

When a credit-based monetary system functions the way central bankers wish, the money supply should expand only slightly faster than economic growth.  Enough additional money must be created to cover the growing cost of servicing the expanding debt.

But, since 2008 the central bank (which we call the Federal Reserve) has expanded the monetary base almost four-fold while the economy has grown very little.

They call this “money”, but it is mostly debt.

The arrangement is extremely profitable for banks and the wealthy elite.  It allows for all kinds of mischievousness.  And, it depends on inflation, which is a long-term problem for the rest of us.  If it sounds to you like a Ponzi scheme, you are not alone.

In managing the money supply to avoid the growing threat of another banking crisis, the Federal Reserve has facilitated repetitive cycles of booms and busts, each more severe than the last.  This has perpetuated major social and economic distortions and dislocations.  It has stifled any possibility of restoring normalcy to the lives of ordinary Americans.

The economy has not been permitted to return to a normal and balanced condition.  Nothing has been fixed.  Extremely low interest rates have encouraged rapid growth of corporate and government debt, so the situation has been steadily worsening.

At such extreme levels, there are only two paths forward: default or devaluation.

Debt must default and be liquidated before economic productivity can recover.  But, the immediate pain of bankruptcy is too great for the bankers and policy-makers to bear. Consequently, they are struggling to gradually devalue the currency in relation to the cost of goods and services.

The government hopes desperately to meet the nominal cost of Social Security, Medicare, and other long-term budgetary obligations without defaulting.  This means the value of the dollar must fall significantly.

By altering the method of measuring price inflation, rising prices have been masked and social security payments held to a minimum.  Only those who live in the real world know the truth.

The devaluation of currencies is taking place around the world as budget deficits grow. Central banks attempt to minimize the interest costs of huge debt loads, while at the same time trying to avoid the failure of banking institutions that depend on interest rates.

Monetary economist and former banker, James Rickards, has written that “financial crises have supplanted kinetic warfare at the center of complex system dynamics. Financial crises in 1998 and 2008… are warnings – tremors ahead of a misfortune beyond imagining.” (“The Road to Ruin”, 2016, p.204)

The consequences of all this are profound and unpredictable.  We face a deepening crisis that will exaggerate all others, severely limiting the capacity of businesses to grow and create jobs, undermining our standard of living, and making it impossible to address pressing needs without worsening monetary instability.

The dependability of a productive, self-sustaining economy has been sacrificed to the tyranny of selfish interests.

Strangely, however, the wealthy elite have behaved like parasites that destroy their host.  They have wrecked the healthy economy upon which their profits depend.  And they have exposed themselves, as well as the rest of us, to the evaporating value of credit-based money.

Tom

Please look for the next post on or about October 6.  We will take a look at the problem of complexity, and the realities of financial markets and other systems that have vastly exceeded the human capacity to fully understand or control.