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The Genie’s Out of the Bottle

Summary:
Though the Powers That Be will attempt to placate or suppress the Revolt of the Powerless, the genies of political disunity and social disorder cannot be put back in the bottle. The saying “the worm has turned” refers to the moment when the downtrodden have finally had enough, and turn on their powerful oppressors.The worms have finally turned against the privileged elites — who have benefited so greatly from globalization, corruption, central bank stimulus and the profiteering of state-enforced cartels. It doesn’t matter as much as the punditry assumes whether they are turning Left or Right; the important thing is that the powerless have finally started challenging their privileged overlords. Though the Powers That Be will attempt to

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Though the Powers That Be will attempt to placate or suppress the Revolt of the Powerless, the genies of political disunity and social disorder cannot be put back in the bottle.

The saying “the worm has turned” refers to the moment when the downtrodden have finally had enough, and turn on their powerful oppressors.The worms have finally turned against the privileged elites — who have benefited so greatly from globalization, corruption, central bank stimulus and the profiteering of state-enforced cartels. It doesn’t matter as much as the punditry assumes whether they are turning Left or Right; the important thing is that the powerless have finally started challenging their privileged overlords.

Though the Powers That Be will attempt to placate or suppress the Revolt of the Powerless, the genies of political disunity and social disorder cannot be put back in the bottle. It took a generation of rising inequality, corruption and the erosion of opportunity to create a society of the protected (the haves) and the unprotected (the have-nots), and rubber-stamping more regulations and distributing Universal Basic Income (UBI) will not rebalance a system that is irrevocably out of balance.

But the rise of resistance, as yet nascent, is only half the story: economic trends and cycles are turning as well, and even if the worms remain passively underground, these reversals will disrupt the status quo. The dominant narrative–the rightness, goodness and sustainability of endless growth of consumption and debt–will unravel, and the internal contradictions of this New Gilded Age (widening wealth/income/power inequality) will finally burst through the thin façade of stability that’s been patched together over the past nine years of “recovery.”

Eight Key Trends/Cycles Are Turning

Here’s the thing about trends and cycles: when they inevitably lose altitude or reverse, we rush around trying to identify the cause. All sorts of theories are put forth, but as a general rule, it rarely boils down to one dynamic.

Consider the decline and fall of the Western Roman Empire. Efforts to identify the cause go back hundreds of years, and include everything from barbarian invasions to the use of lead pipes to deliver water.

A new book, The Fate of Rome: Climate, Disease, and the End of an Empire, pins a significant part of the responsibility on climate change and pandemic diseases—system-wide dynamics that slowly sapped Rome’s vigor, food supplies, capital and labor force.  Not only that, but cooling weather patterns in Eurasia may have been behind the westward movement of the mobile tribes (the Huns and Mongolians) that pushed existing tribes on Rome’s borders into Roman territories—the so-called Barbarian Invasions.

The point here is that systemic trends and cycles are often causally connected and tend to reinforce each other. This is how a stable, wealthy and resilient society gets hollowed out: trends end and cycles reverse, and forces that added stability, capital and resilience when they were working together are slowly replaced by forces that erode the foundations of wealth and stability.

In the current era, eight interconnected trends/cycles are either reaching the end of their run or reversing:

— Central bank distortion/manipulation of markets.

— The business cycle of credit/debt expansion and contraction.

— The yield/interest rate cycle.

— The commodity cycle.

— The stock market cycle.

— Regulation.

— Globalization.

— Demographics.

Each of these would need a short book to do the topic even partial justice, but let’s summarize each trend/cycle.

Let’s stipulate that technology isn’t a cycle or a trend; its disruptions of existing sectors and institutions accelerate and decelerate over time, but it is woven inseparably into all the trends and cycles listed above.   That said, the emergence of some new technology doesn’t mean the business cycle will be repealed for all time; cycles and trends are influenced by Human Wetware V1.0, an OS developed between 100,000 and 160,000 years ago and still in Version One.

Resource depletion is another background to these trends and cycles: robots and drones will not restore depleted ground water or bring back ocean fisheries.

Central Bank Distortion / Manipulation of Markets

Minus the $21 trillion in central bank asset purchases and trillions more in liquidity/credit programs, would the global economy be growing and global markets be at nosebleed heights? We all know the answer is “no.”

Central banks have engineered a “recovery” that looks real enough on the surface, but what are its foundations? Gamed statistics and manipulated markets—in other words, controlling not just the narrative but the information available to market participants.  To achieve the desired outcome—rising equity markets, near-zero bond yields and incentivizing the purchase of risk-on assets—central banks have distorted market information and mechanisms.

The returns on this coordinated distortion are diminishing.  The “buzz” from the initial injections has faded, and now that the monetary authorities are trying to wean the markets off of their drug, the markets have lost the ability to discover the price of assets, risk and capital on their own.

No wonder volatility is rising.

Flooding the economy with trillions in new stimulus worked wonders in the initial stage, but after 9 years, the unintended consequences are metastasizing.

Goosing asset valuations higher in service of “the wealth effect” has widened wealth/ income inequality, creating a New Gilded Age of a few haves and many have-nots. The benefits of the central bank punch bowl—near-zero interest rates, leverage and access to unlimited credit–are reserved for those few at the top of the wealth-power pyramid; very little of the stupendous wealth created out of thin air has trickled down to the bottom 95%.

The Genie’s Out of the Bottle

The relentless rise in asset valuations has pushed homes out of reach of those living in desirable urban/suburban markets, and exposed buyers to the risks of an inevitable reversion to the mean, i.e. a collapse of bubble prices back to historical norms.

Capital is not incentivized to invest in productivity or communities for the long haul; the incentives are for stock buybacks and short-term leveraged speculative bets, forms of mal-investment that hollow out the productive real economy is favor of a momentum-driven financialization boom.

Much of the political resistance troubling the status quo can be traced directly to central bank policies that have exacerbated the New Gilded Age inequalities and excesses. If the central banks can’t find the will to reduce their distortions in service of the few, the political will of the many will do it for them.

Charles Hugh Smith
Charles Hugh Smith is an American writer and blogger. He is the chief writer for the site "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites. His commentary is featured on a number of sites including: Zerohedge.com., The American Conservative and Peak Prosperity. He graduated from the University of Hawaii, Manoa in Honolulu. Charles Hugh Smith currently resides in Berkeley, California and Hilo, Hawaii.

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