Collapse, Part 5: Things Fall Apart

As noted earlier in this series, collapse is not an event, it’s a process, a process we experience as things fall apart (this essay is part five of a series — if you haven’t read part one, part two, part three, or part four, make sure you do).

Why do things fall apart? I have addressed a number of dynamics in the first four essays of this series, but there are many more expressed in Yeats’ few brief lines.

  1. Magical thinking dominates all discussions. The truth, being too fearful to contemplate, is sidelined in favor of magical thinking:
  • we can grow our way out of debt by expanding debt
  • if we simply print enough money, we can pay for everything we want
  • a miraculous new technology (insert current example) will provide limitless energy/food at near-zero cost
  • if we tweak the system with some minor reforms, all the big problems will go away
  • new technology always creates more jobs than it destroys

And so on…

  1. Same as it always was: politics was always corrupt, humans have always been greedy, etc. In other words, today’s problems are no different from those of the past, which we handled without major difficulty. The possibility that today’s extremes of financialization and political decay might actually be quantitatively and qualitatively different from the past 50 years is dismissed.
  2. The political and financial Elites have lost touch with the citizenry. The falcon cannot hear the falconer, for the elites have withdrawn into protected circles of privilege with little contact with the rest of us. Since all is well within these circles of wealth and power, all must be well in the system as a whole.

And if it isn’t, the solution is to withdraw even deeper into circles of privilege and cast off in a luxury lifeboat, leaving the citizenry to muddle through on the doomed Titanic.

  1. Things stop working well or stop working, period. The causes are many: inefficiency born of self-interest and historical habit, loss of accountability, The Ratchet EffectBureaucratic Complexity, diminishing returns, unproductive friction — the list is long.

The net result is things don’t work well even when stupendous sums are thrown at them.

Flush with the tax revenue bounty of a gargantuan bubble in housing and tech start-ups, the city and county of San Francisco now has an annual budget of $9 billion–a sum greater than the budgets of many states, all to serve a population of about 850,000.

One would be forgiven for assuming all the essential systems of a metropolis would be working smoothly, greased with an astonishing $9 billion (It wasn’t that long ago–the late 1990s–that San Francisco’s budget was a mere $3 billion).

But citizens aren’t experiencing the system as working well. Lapses in public services tax San Franciscans’ patience:

Two weeks ago, we asked City Insider readers what they think of the fact that San Francisco’s budget hit a whopping $9 billion a year — more than the budgets of at least 10 states.

Now that more taxes are pouring into city coffers than ever before, do residents think they’re getting their money’s worth?

We were surprised by the deluge of e-mails, which continue to roll in, and the very vehement responses. Every single person who wrote had valid complaints, and not one thought city services were up to snuff for one of the richest cities in the world.

“One thing is for sure,” wrote Philip Snyder, a retired inspector for the Department of Public Health who lives North of the Panhandle. “If money was blood, San Francisco would make Dracula look like a mosquito.

What happens when the budget declines by $1 billion in a run-of-the-mill recession?

Right now, magical thinking reigns supreme, and the idea that bubbles need only stop expanding to trigger a business-cycle recession isn’t in many minds.

But recessions do happen, and those following explosive bubbles tend to be deeper than the average, so a $1 billion drop in tax revenues is to be expected.

In the same vein, the state of California, also flush with revenues from these same bubbles, has a “rainy day fund” of $3.46 billion and an annual budget of $117 billion. In previous recessions, state revenues drop by $10 to $20 billion–meaning the rainy day fund is woefully inadequate.




Here is the budget reality in Greece:


These budget numbers are dated–the current figures are much worse:


The European status quo is expending the last dregs of its legitimacy and cash defending its financial Elites.

It is impossible to “reform” a status quo whose foundation is kleptocracy, just as it is impossible to wean an economy that relies on debt and leverage for its “growth” of excessive debt and leverage: financialization isn’t a feature of the economy, it is the economy.

Things fall apart for systemic reasons that are deeply intertwined; minor policy tweaks and printing more money are simply expressions of magical thinking.


Charles Hugh Smith
for The Daily Reckoning

P.S. Ever since my first summer job decades ago, I’ve been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.

And like most of you, the way I’ve moved toward my goal has always hinged not just on having a job but a career.

You don’t have to be a financial blogger to know that “having a job” and “having a career” do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept “getting a job” has changed so radically that jobs–getting and keeping them, and the perceived lack of them–is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I’ve verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

The Daily Reckoning