Home » Why we're ungovernable » Why We’re Ungovernable

Why We’re Ungovernable

by John Rubino on July 14, 2010 · 34 comments

For the first time in 250 years, politics has become irrelevant. Not uninteresting or unimportant; obviously the way a society organizes itself matters to its citizens and its place in the world.

But today there are no policies left on the “possible” menu that will save us from what’s coming. So a rational person’s time is better spent preparing rather than debating.* (Later, when we’re trying to decide what to build from the rubble, the argument will get interesting again.)

The most recent batch of election and poll results illustrates this point:

Poll blow raises Japanese economy fears
Naoto Kan has been Japan’s prime minister since only last month, but already he has been dealt a stinging rebuke by the electorate. His Democratic Party of Japan (DPJ) and its tiny coalition ally lost their majority in the upper house of parliament. Japan has already suffered two decades of economic stagnation; now it faces political stagnation too unless Mr Kan can persuade small parties to help him pass laws.

Centre-left rise in German state underlines Merkel woes
The Social Democrats and Greens took over Germany‘s most populous state, North Rhine-Westphalia, on Wednesday in a minority government the centre-left says could one day challenge Chancellor Angela Merkel at federal level.

At a time of weakness for conservative leader Merkel nine months into her second term, the Social Democrats (SPD) speculate that they and the Greens could form a minority German government after the next federal elections due in 2013.

L’Oréality check
Nicolas Sarkozy’s approval ratings have hit a record low in recent weeks

Should Republicans Take Control of Congress?
According to a new ABC News/Washington Post poll, registered voters are increasingly critical of President Obama’s work on the economy, and by an 8-point margin they say they’d prefer to see the Republicans take control of Congress. It’s a clear sign of GOP opportunities and Democratic risks going into the 2010 midterm elections, with 51 percent of poll respondents saying they would rather have Republicans run Congress “to act as a check on Obama’s policies.”

So what’s happening? Just a few years — in some cases just a few months — after sweeping into office with promises of “change” and a quick clean-up of their predecessors’ messes, leaders of major democracies from across the political spectrum are being swept right back out.

Did they turn out to be incompetent, or their policies wrong-headed? There’s hardly been enough time for either verdict. But if not that, what?

The answer, in a word, is debt. When an economy’s borrowing passes an historically identifiable point it loses the ability to navigate from crisis to solution. In the case of Europe, Japan, and the U.S., the range of choices has narrowed to only two, inflation and austerity, and neither is working.

When Europe tried inflation by promising to bail out the PIIGS countries, the euro collapsed, as the global markets correctly saw an oversupply of paper currency on the horizon. When it switched to austerity, workers across the continent saw their livelihoods threatened. Either way, the folks in charge get blamed and have a tough time holding their jobs.

In Japan, public debt keeps soaring no matter who is in charge. The government, believe it or not, will borrow more this year than it raises in taxes. So the newly-elected Prime Minister proposed doubling the national sales tax to 10% and then backed off in face of falling poll numbers, thus becoming a tax raiser and a ditherer, a combination that hardly ever wins popularity contests.

The U.S. government has been flooding the system with liquidity for two years, but unemployment remains in double digits. Three of the five biggest states are functionally bankrupt and will either lay off hundreds of thousands of workers in 2011 or receive a bailout that will dwarf what Goldman and AIG got last year.

The next round of elections will bring either new leaders or old ones who adopt the other side’s ideas in order to hold power. Either way, the death spiral of the military industrial complex/welfare state/fiat currency system will continue, and accelerate.

A really depressing band called Garbage said it pretty well:

It’s All Over But The Crying

Everything you think you know baby
Is wrong
And everything you think you had baby
Is gone

Certain things turn ugly when you think too hard
And nagging little thoughts change into things you can’t turn off
Everything you think you know baby
Is wrong

It’s all over but the crying
Fade to black I’m sick of trying
Took too much and now I’m done
It’s all over but the crying

* But there is a bright side. Make the right decisions now and the coming mess can be profitable (though it still won’t be fun). In 2006, shorting the housing/banking sector made a few prescient people rich (read The Big Short). In 2001 those who saw the Fed easing in response to the tech crash and loaded up on gold now have five times their original capital. In 1999 shorting tech stocks was both obvious and worth a quick fortune. So the question isn’t whether another disaster is coming — it clearly is — but whether we’ll be among the people who look like geniuses when the dust clears.

  • PeteCA

    John – all too true, I’m afraid.

    At this stage I am focusing almost exclusively on personal preparations. There’s hardly any point any more … debating which political face thinks that he/she can change the game at this stage.

    What amazes me is that these casino gamblers who are running places like GS actually think that they have an escape strategy. More than once I have heard rumors that these people have far-fetched plans – so that if the global markets crash then they will sell out, move to a piece of land in Idaho, and live like “opulent hermits” in some log cabin. What a joke. I give ‘em maybe a few weeks, or a few months at best.

    PeteCA

  • Javawerks

    Depressing, but absolutely spot on. Default is the only solution, followed by a political reset.

  • tym Payne

    re: “Nationalizations” of oil, etc
    if p. metal prices jump, some countires will ‘nationalize’ all mining,
    stop trading, then what?

  • http://www.geniebusters.org/untouchables.html The Emperor’s Tailor

    Here is where the political reset is coming from:

    http://www.geniebusters.org/untouchables.html

    It’s time to take our country back. Which side are you on?

  • Jon McIntyre

    “The answer, in a word, is debt.”

    Actually, this is the answer to the problem when one only barely scratches the surface. So in fact, debt is not the problem but the symptom of the problem. The actual problem is the very structure of modern capitalism. The basic, irrefutable law of modern capitalism is that it must continually expand.

    This works perfectly fine in an environment with unlimited capacity for expansion. This requires unlimited resources for production, unlimited environmental capacity to absorb output of toxic byproducts from production, and unlimited growth of population to consume the unlimited production.

    As it stands, we have none of the three required components for our model of economy. What this does is cause the economic system, over time, to become increasingly unstable. It’s like trying to force a square peg into round hole. It may kind of work but there’s going to be problems.

    As the square peg of our economic model runs into the round hole of the reality we live in, the imbalances that naturally result require an ever increasing application of stabilization methods to remedy the incongruity.

    The stabilization method we employ is debt. Debt fills in all of the cracks that form in the dam. Early on, this process works just fine. The expansion of the cracks of incongruity can be easily filled with debt. But at a point the economic model of infinite expansion overwhelms the ability of debt to fill in the cracks and the dam begins to fail structurally.

    So is debt the problem? No it is not. Much like cholesterol is not the cause of clogged arteries. Similar to debt compensating for imbalances in the economy, cholesterol is a stabilizer that your body sends out to try and compensate for an underlying problem caused by an imbalanced diet. And just as cholesterol can clog an artery and kill you, debt can bring down the entire economic system. But debt is not the underlying cause of the problem. It is the symptom of a deeper underlying problem, which is the very structure of our model of economy.

    So we have two choices right now. The first is to do what we’ve been doing. We keep fighting the cracks in the dam with more debt or we restructure the global economy to work within the constraints of reality.

    Rest assured, debt will continue to expand in an attempt to fill in the spreading cracks. And rest assured, there will come an inflection point at which the entire economic model will be called into question and it will be restructured.

    This is a certainty. The only question is, will the dam burst before that happens or will it hold the water back while the new dam is constructed down stream? Either way we will get out of this mess. The new dam will be built. The only question that remains is how many of us will drown in the process?

  • Brad Thrasher

    It’s pretty obvious today’s politicians are nothing more than shills for special interests.

  • Bruce C.

    First, a questions for JR:

    Are you getting your beauty sleep? This makes 3 articles in three days!

    ___

    Now, not that I really care all that much any more about the fate of political parties, but I’ve been thinking recently that it may actually be better for the Republican Party if they don’t take over the Congress in November. Besides being as intellectually bankrupt and vapid as the Dems, they will be compelled to choose between the same bad choices and may well get the lion’s share of the blame for the results.

    This whole article evoked a dream I once had in which I was elected President of the US, presumably based upon my vision and ideas about the real problems in the country and my solutions to them. Unfortunately, soon after the festivities ended, I was ushered in to the Oval Office and debriefed on the true state of affairs. Basically the actual circumstances were so different, and the options so limited and impossible, that I could hardly breathe. Every decision and policy from the last five administrations became instantly crystallized. They were no real choices for any Presidents before me, just as I was facing.

    If that dream at all reflects the realities of political office today then, yes, we are ungovernable in the usual sense, and politics has become irrelevant. Chilling.

    In the meantime, I think it’s fun having “a ringside seat for the global financial collapse”, at least for now. Making money on the debacle is like a receiving a grade for the thoroughness of one’s understanding of what is really going on.

    • http://dollarcollapse.com John Rubino

      Thrash and Bruce…

      Thrash, it does seem like the people in charge are really employees of other organizations. But I’m not sure it would matter if they were replaced by Jefferson, Lincoln, FDR, Reagan or some other icon because the problems the latter would face are beyond the available tools. There’s no magic marginal tax rate or immigration policy or diplomatic initiative or bank regulation that gets us out from under $100 trillion of debt.

      Thanks for the kind words lately. Much appreciated.

      Bruce, yeah, I had a couple of free days. Unfortunately the window is closing again. Besides normal life of day job, family, etc., we’re building a house, which is something I’ll never do again.
      Your point about the Republicans getting in is right-on. The worst thing possible for a political party is to take power in the next five or so years, because they’ll get blamed for everything that happens — when the blame should really go in equal parts to the creators of the Fed, the past five or so presidents and the past two Fed chairmen…and every member of Congress except Ron Paul. I’m leaving Goldman et al off the list because they’re symptoms rather than the disease itself. Without easy money and corrupt politicians, banks and other corporations can’t cause this kind of trouble.

  • Javawerks

    And I meant to add: a return to the gold standard.

    Rumor has it that the Saudis are accepting only 50% gold and 50% USD for oil, and the Russians are considering accepting 100% gold for all resource payments. Is that true?

  • ben pierce

    How about if campaign contributions were banned, and cable and broadcast TV campaigning were banned, and all video political campaigning took place on YouTube, which is free. President gets one eight year term but can be replaced by the electorate any time certain preliminary conditions are met. Anyone for Karl Denninger? How easily the present system could be improved, but I have to agree that the probability of it actually happening any time soon is slim to none.

  • http://chaosandconspiracy.wordpress.com CompassionateFascist

    They can run, but they can’t hide. Actually, closing the borders, terminating “free trade”, forcing government to stop spending money it does not have, and getting Israel off our back would eventually solve most of our problems. But getting from here to there will require crossing a river of blood.

  • http://www.geniebusters.org/untouchables.html Lyle Burkhead

    I was the one who posted as “The Emperor’s Tailor.” I thought using that moniker would remind everybody of the Emperor’s New Clothes story, which is the starting point for the Untouchables page. However that name also carries the suggestion that I was somehow responsible for the illusion, which is certainly not so. In any case I regret not using my real name. I am in fact the author of the Untouchables link.

    After the question, Which side are you on? – the Untouchables page continues as follows:

    “The question is, how do we take our country back? It cannot be done by setting up a confrontation between the people and the government. Change has to start within the government. I’m not talking about a coup. What I have in mind is to set the wheels of the law in motion. That is the only thing that could possibly work.”

    The idea is to investigate everybody who was involved in 9/11, until we find somebody who will step forward and confess in public. This will be the Emperor’s New Clothes moment. At that point all arguments will come to an end, and it will be impossible for anyone to still be in denial.

    There is more to it than that, but that is the basic idea.

  • Max C

    I have a question for John: it would be naive to think that the central bankers do not know what’s going on or what’s going to happen (dollar collapse or system collapse) therefore they are planning ahead. I do own physical metals however I’m becoming more and more perplex that it will be this simple (metals you preserve wealth, cash you lose everything). The question is this: if you were a central banker right now, what would you do as a second step to ensure you get richer and everyone else poorer (even people who own metals). Thanks!

    • esmith512

      One point that you mention was that wealth was preserved in metals. If you look closely, most people who “own gold” actually own “gold certificates” which can be traced some relationship to a piece of metal somewhere. The likelihood that there are 100 gold certificates all “valued” at $100 for a single $100 piece of gold is probable at this point–a form of fractional reserve and a certificate by fiat–like cash. Also, if there is a currency crash, relatively recent history will imply that possession of and preference for gold-as-currency would be outlawed as it was in the early 1930s in the USA. “Owning gold” (real/physical or fiat/certificate) or other precious metals in the prevailing market mechanics or psychology does not guarantee anything.

      • esmith512

        …and I just noticed the date of this thread!! I’m about four months late to this party!

  • mell

    This is insane to thing Republicans who under George Bush harmed freedom in The US, would do better – I suppose they would do better at ruining us with a clear majority. No, the answe is vote all congress and senate memebers out of office -we need fresh – not good ole boy sellu up the river types like the lifers now in office who do nothing but enrich themselves at our behest.

    Law should not be a prerequisite for being a congressman, how about a high school education, or a technical school, or a teacher or a doctor or plumber or waste handler genuine hard working Americans who care and above all have common good in mind.

    Mell

  • Dave (from Cornell, John)

    The next leg down may cause enough chaos to bring the banks to their knees. Check out the latest Hussman; he now suggests that “grinding the banks to powder” is a likely prerequisite to repair. That is not very Hussman-esque (at least until lately.) At least part of the problem is that the politicians can be bought so cheaply and there are no constraints on the bidding process. Read “Gangs of America” for a very scholarly account of the rise of corporate strength viewed from the perspective of Supreme Court cases granting them civil rights. (It all started at Dartmouth College of all places.)

    In any event, I am a believer that the reset is coming (Rogoff style), it’s not gonna be pretty at all, and it is necessary to avoid a rot in perpetuity.

  • h5mind

    I agree with others about personal preparedness- it’s no longer just for Boy Scouts or Mormons. It certainly isn’t fatalistic, any more than buying any other insurance would be. The difference between that term life policy you bought back when you first realized you were not going to live forever, and a “living life insurance policy” of precious food, water, and other essentials is the first is merely a poor consolation prize your your next of kin, while the second could very well mean the difference between life and death for you and your family. So stock up now. Every catastrophic crash throughout history was an unpleasant surprise for everyone but the architects who created them.

  • Doug

    John,

    I know that you prefer to be prudent and big-picture with your analysis and I’m a fan of that. I would be interested however, in hearing your views on exactly how this will all go down. Maybe you could write some fiction or a possible scenario of things playing out.

    Things to include may be what state goes under first, who wins elections, future inflation rates during specific years, wars, etc.

  • http://www.buyerbeaware.blogspot.com David Jeremiah

    You are damned if you do, you are damned if you don’t. Buy Gold.

  • Bret

    If I was to be pro-active and try to “prosper” as things progress,
    what would a plan look like? What yardsticks or sign posts would I monitor?
    Some basic concepts make sense to me. Invest in things that have real value; metals, land, food, commodities, etc.. Maybe prepare for basic needs and try to become self sufficient. Has anyone tried to grow their own food? I have, the first year I failed hungerly (the bugs won). If anyone has a good track record on reading the “signs” and prospering, I would appreciate some help. Surviving is good. Will I ever retire?
    I want to take care of my family and support my community.
    Thanks
    Bret

  • ben frank Lyn

    re: Canada. , C hina bubble?
    Canada 7 / 10 wants to chop wages -25% for some workers.
    House sales / prices esp. in B.C. are falling (web says).
    Yet ppl praise Canada for (relatively) low debt, plenty of resources,
    shale oil, P O T ash / mining companies.
    Any other iimportant geographical areas?
    (see “Is P R C. . . . . in a housing bubble? Roach, no’
    Chandros, Rogoff, yes a big bubble esp in S. hai).

  • Brad Thrasher

    The preferred currency of fugitives is diamonds, according to CNBC’s American Greed. Easily transportable and convertible to cash.

    For me to go there, I’d have to believe in a Mad Max scenario. I just don’t see us losing the power grid. There’s rational and beyond nuts.

  • Tom

    Politicians, you can’t trust ‘em, and you can’t shoot ‘em.

  • dnix71

    We are ungovernable because we are human. Our founders didn’t trust women, slaves and non-property owners to vote. Were they right? They did not trust democracy, either, viewing it as mob rule. They were certainly right about that. Stokely Carmichael was also right. No matter who you vote for the government gets reelected.
    The world’s economy has become a zero-sum game because there is not enough surplus oil to keep expanding consumption. Economies must grow to pay interest on debt. Debt grows because bankers are allowed to charge interest, which in turn makes any form of money business a Ponzi Scheme.
    God forbid the Jews from charging each other interest and required the complete forgiveness of all property and personal debts every 50 years. If we followed His law on just that the world’s economy would be a much saner place.

  • john of sparta

    try Ferfal’s blog on Argentina: http://ferfal.blogspot.com/
    his country crashed 10 years ago. No MadMax scenerio.
    here’s what he says you will need:
    1. handguns. not rifles. and ammo. all will get really expensive.
    2. food. non-perishable. whatever you like, but lots. he likes tuna.
    3. money. yeah, money. dollar bills. seems that even in bad
    times, that old “fiat currency” is good for 10 years’ worth
    of value-added storage capacity.

  • Mary Wilson

    Bret,

    You are so right. After trying to grow my own food for one season I learned quickly the value of canned goods. I now laugh at any comment on the internet about growing your own food to survive.

  • Jim

    Gold is the real and true currency. If payment cannot be made in Gold then economy returns to barter system until gold reserves build up again and gold payments and transactions can be made.
    US financial system and fiat currency is a giant ponzi scheme that is totally illegal in foundation and working. The federal reserve and bankers are nothing but con artists fooling the American and Eurpoean public.
    Its time to return to the Gold standard. Load up on guns and ammo…because change is a coming and its going to be a wild wild ride.
    USA is changing back to the wild wild west!

  • tripodXL

    Bret, Mary et al,

    I have been growing some of my own food for some time now. I have good years and bad ones…that is the nature of gardening until you gain a lot of experience. It has been a hobby but now it gets serious and I will be hot on it from now on. You would be wise to cultivate (no pun intended) the necessary knowledge and skills to be successful and I will tell you why. First, most D&G scenarios commonly are mitigated happenings, however, as with all insurance policies you spend a lot of money(time and effort) on them hoping that you never need them, but “thank God I had it when I needed it” is what people say if they do. Second, I see the major economic decline of the US for at least 10 years (the optimistic scenario). If your elec bill is $200 now do you think it will be the same in ten years. If it only triples we will be lucky…..only $600 a month. Same for food and so on. This is ONLY if the collapse is slow and ponderous. Ramp it up, say only 5 years! Everything that you can do to save yourselves will be well worth the effort. If there was a major financial collapse it will cause other collapses. Infrastructures, i.e. elec, water, highways, food transport, etc. will be collateral damages of any financial issues. We can’t pay the bill for the necessary repairs on what we have, much less building newer and better. The only thing that will be worth anything will be PMs, tangible goods, food, arms and ammo, a secure place to live and the most important will be the life skills that you better develop now…..including gardening. Pay off everything, decrease your unimportant output and prepare to survive and even prosper, if only in a transcendental way through a more low profile but much more enlightening and satisfying homesteading type lifestyle. Best Regards

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