Western Democracies Are In Collapse

October 3, 2012 04:48

If you define collapse as a process rather than a singular event, then we have been in collapse for a while.


By Monty Pelerin


Most people cannot conceive of an economic collapse. Normalcy bias is common and distorts expectations, especially in areas outside of personal expertise. If it didn’t happen yesterday or last month or in their lifetime, then many people consider the outcome “impossible.”


Those who can conceive of such events may try to convince others, but proselytizing can be frustrating and usually fruitless. Most try, give up and then become more productive by shifting their efforts toward protecting themselves and their families.


I am often asked: “Can the US collapse.” My first answer is that we are already there. If you define collapse as a process rather than a singular event, then we have been in collapse for a while. The questioner than focuses on avoiding a culminating event which is the collapse of function markets, the currency and law and order. Regarding that, I am less certain regarding, but only slightly so. The damage already incurred by the country and the accelerating trends seem to make such a culminating event unavoidable.


A preview of what is coming is available in Europe who is further into the process than the US. Spain is crumbling as is Greece. Neither are the United States, an objection that will be raised to such a comparison. This differentiation undoubtedly was made back in the day when no empire was as strong as Rome’s, yet it crumbled and disappeared.


Spain and Greece have fewer options to defer their impending ultimate collapse. But they and the US are subject to the same rules of arithmetic. The US may be able to bend these a bit longer via money printing, but it cannot avoid immutable mathematical relationships. Money printing is kicking the can further down the road. It is not a solution and likely makes matters worse. It might lengthen the road somewhat, but it produces a bigger and more painful culminating event.


Michael “Mish” Shedlock provides a description of what has been occurring in Spain. As time passes, the numbers to solve their problems are increased ever upward. No one knows the final numbers, other than they will be worse tomorrow than they are today.


Mish describes the current condition:


The Spanish implosion is breathtaking in every way: Human Flight, Capital Flight, Real Estate, Employment, and Taxes. The cost of a full bailout is now €300 billion, up from a preposterously low €30 billion projection in June.


Mish describes some recent headlines from Spain:


  • Social Security Fund Runs Out of Money: Social Security pulls from its reserve fund for the first time, using it up almost entirely. Article states there is nothing to stop the government from selling the main SS fund investment to meet payments. Article also notes the fund is invested heavily in Spanish sovereign debt, to the tune of €67.948 billion.
  • Cost of Unemployment Benefits Soar: Unemployment benefit cost predictions blow out. The government prediction was -5%. Reality was +5.4%
  • Price of Gasoline Soars: Gasoline prices up 75% in the last 4 yrs here and was not cheap to start off with!
  • Massive Mortgage Debt: Household debt is €848.222 billion, 76.9% of which is mortgage debt.
  • Capital Flight: Clients pull 15.6% of deposits at Novagalicia in the first half.


All of these things are going on in the US as you read this. Are we any different than Spain regarding any of these developments? Depending upon the particular item, the US may be advanced in its decline. A principle difference is that Spain has exhausted most of its options other than outside help. That difference should mean that the US can hold out longer, although not avoid the same ultimate fate. Spain started down the road to serfdom sooner and has no printing press. Hence it may be reasonable to assume that it will implode sooner than the US. But make no mistake, collapse is well underway in both countries.


When a culminating event occurs is difficult to forecast. Political and economic interventions influence its timing. In the case of Spain, it collapses when the ECB refuses to monetize and subsidize Spanish debts (or if Germany comes to its senses and leaves the Eurozone). When that happens, most of the countries in Europe also incur a culminating event. This domino effect is why small countries like Greece are attended to and why Greece is able to thumb its nose at outsider demands. It is a shaky domino that could fall and trigger the debacle.


A collapse in Europe probably triggers a collapse in the US. And don’t discount Japan as one of the world’s dominoes, capable of wreaking havoc around the world. Is it possible the US could lead in the culminating event stage? It is unlikely because of its printing press and military. Creditors cannot force the US government to honor its obligations without dealing with its military. From that standpoint, I don’t think the US will be the lead domino. But they are in the domino chain. Were they the only domino in the chain, they would eventually fall under their own weight.


Regardless of who is elected in this election, the US will continue its collapse. Arithmetic is absolute. No amount of political posturing or money printing can overcome the verities of mathematics.


Are you prepared or do you believe the political propaganda that things are fine and getting better?


“Monty Pelerin” is a pseudonym derived from The Mont Pelerin Society. The writer has no connection with the Society (other than coincidence of philosophy). Nothing said by me should be considered to be representative of the views of the Mont Pelerin Society or any of its members. “Monty Pelerin”  blogs at Monty Pelerin’s World

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