Forget decoupling from Europe--we've been decoupled from reality since 2008.
Have we decoupled from the global slowdown? Doubtful. Have we decoupled from reality? Undoubtedly--and have been since 2008. One
key attribute of reality is feedback: actions have consequences, and
various forces reinforce or resist each other in a dynamic interplay of
positive and negative feedback.
Another key attribute of reality is risk. Risk is as ever-present as gravity, and it cannot be eliminated; it can only be shared or transferred.
When you overwhelm feedback with massive interventions that mask risk, you decouple from reality. With
feedback suppressed and risk hidden, the system's resilience and
resourcefulness both atrophy. Participants start making decisions not on
risk assessment and feedback from reality but on the results of the
intervention.
Pharmaceutical intervention offers an apt medical analogy. Various
risk factors such as high blood pressure and high levels of LDL
cholesterol have been correlated with increased risk of heart disease.
Medications can lower these metrics, and so these interventions are now
ubiquitous.
Sometimes these result from genetic propensities, but other times they
are consequences (feedback) of an unhealthy lifestyle: obesity, poor
diet, lack of fitness, etc. If we suppress a single feedback from a
spectrum of health-related feedbacks and consequences, have we restored
health or simply masked the risk of an unhealthy lifestyle?
Clearly, complex systems do respond to critical thresholds or "pivot
points" that trigger cascading responses. It is wise to identify key
metrics and manage the risks they present or elevate. But it is unwise
to assume that manipulating one metric will necessarily restore a system
that is wobbling out of equilibrium to a dynamic equilibrium.
Slamming down one metric or another does not necessarily reduce the systemic risk. Just
as someone who eats junk food, smokes cigarettes and drinks sodas all
day while slumped on a sofa will not become "healthy" just because
statins have slammed down his LDL cholesterol levels, an unhealthy
economy cannot be restored to health by manipulating a handful of inputs
such as money supply or key metrics such as unemployment.
All these interventions accomplish is to mask risk by transferring it to
the system itself, where it builds up behind the apparent "fix" and
eventually explodes.
All sustainable systems must be resilient and transparent. Intervening
to suppress key inputs and manipulating data points makes the system
appear less at risk, but reducing apparent risk is not the same as
encouraging resourcefulness and resiliency.
What we have as a consequence of four years of intervention,
suppression and manipulation of data is a stock market that is now
totally dependent on one input: quantitative easing intervention by the
Federal Reserve. An unmanipulated market is based on multiple
transparent inputs, including corporate earnings, revenues, currency
valuations and so on.
Once inputs are gamed or manipulated, transparency is lost and feedback is distorted or suppressed.
Four years of intervention, suppression and manipulation of data have
left the U.S. economy dependent on monetary interventions and massive
fiscal deficit spending. Imagine a sickly patient in bed who has
become totally dependent on several driplines (interventions). To keep
the patient alive, the meds are steadily increased.
Are these interventions restoring health, or simply keeping the patient going until some unknown magic restores health?
In the U.S. economy, the driplines are debt-based spending and leverage. Thanks
to endless intervention and manipulation, the economy is now totally
dependent on massive debt-based spending and increased leverage for its
"growth."
The person or business that becomes dependent on welfare loses
resiliency and resourcefulness. To the degree that economies become
dependent on debt and leverage just like individuals and companies
become dependent on welfare, entire economies lose their resilience and
resourcefulness.
A healthy forest offers another apt analogy. A healthy
temperate-region forest depends on occasional forest fires to clear out
deadwood and refertilize the depleted soil with ashes. In suppressing
all fires--what we might call "stress" and feedback-- management
virtually guaranteed that when the forest was eventually set ablaze by a
random lightning strike, the resulting fire would be catastrophic
because the deadwood had been allowed to pile far higher than Nature
would have allowed.
The "managers" of the economy have let a couple hundred billion
dollars in bad debt burn, and they think the $15 trillion economy is now
restored to health.Writing off a couple hundred billion is like
letting a few acres of grassland around the parking lot burn and
reckoning you've cleared the entire forest of deadwood.
The buildup of deadwood--fraud, impaired debt, leverage, bogus
accounting, malinvestments, promises that cannot possibly be met and the
multiple pathologies of crony capitalism--continues apace, untouched by
Federal Reserve intervention.
Masking risk and suppressing feedback do not restore resiliency or
vitality; they cripple the system's ability to respond to reality.
The greater the system's dependence on intervention for its stability,
the greater the probability of instability and systemic collapse.
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