The Dam Is Finally Cracking

The End of Illusions Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] The Dam Is Finally Cracking - The dam is finally cracking… - Free money is the solution to everything… - The path to revival… Recommended Link [Urgent: Market Doomsday Indicator Flashing Red]( [Read more here...]( This little-known “market doomsday indicator” has appeared before nearly every major financial crash in recorded history. And now after years of silence, it has begun to ring out again… And if it chimes even just one more time…It could be game over for the markets. With some experts already predicting that we could see a dow drop of 80% or more practically overnight. If you are holding any stocks, real-estate or cryptocurrencies… Then I’m urging you to drop what you are doing and watch this now. Because if you miss this warning now, once the crash comes… It will already be too late. [Click Here Now]( San Francisco, California April 16, 2022 Editor’s note: “Free money” has been the answer to all our problems. But as Charles Hugh Smith argues today, that answer isn’t working anymore. We must return to frugality and discipline. [Charles Hugh Smith]Dear Reader, We all sense the global order has cracked. The existing order is breaking down on multiple fronts. Those who have benefited from this arrangement are doing everything in their power to patch the cracks, while those who chafed under the old order's chains seek a new order that suits their interests. The task now is to make sense of this complex inflection point in history. Two statements summarize the transition from the existing global order to the next iteration: 1. Finance dominated resources in the old order. Now the roles will reverse and real-world resources will dominate finance. We can't "print our way" out of scarcities. 2. Reshuffling currencies and credit will not stop the breakdown of the global order's "waste is growth" Landfill Economy Model. Playing financial tricks has extended the life of an unsustainable economic model that glorified "growth" from wasting resources. By expanding credit "money," the current global order fueled unsustainable consumption driven by unsustainable speculation. Stop expanding "money" and credit and the global order of "growth" implodes. The Dam Is Finally Cracking Unfortunately for all those who benefited from soaring wealth and income inequality, the trick of expanding "money" and credit has reached systemic limits. The dam holding all the toxic debt, leverage and fraud is finally cracking. The dominance of resources over finance leads to a multipolar global order, an order that has the potential to be far more stable and sustainable than the unsustainable, destabilizing "waste is growth" model that depends on financial fraud to maintain the illusion of "growth." As I explain in my book [Global Crisis, National Renewal]( scarcity leads to either social disorder or rationing. This article explains how government's role will shift from boosting demand (the Keynesian Cargo Cult) to limiting demand in ways that maintain the social contract. Nations that fail to adapt to the end of financialization and globalization will unravel. Every nation has a choice which path it takes: Cling on to the doomed existing order of financialization, globalization and the "waste is growth" Landfill Economy or embrace a multipolar world and a degrowth model of doing more with less and incentivizing efficiency and durability rather than the shoddy planned obsolescence of the debt-dependent Landfill Economy. Recommended Link [Hey, It’s Jim Rickards Here]( I need your attention immediately. My big announcement comes down on Tuesday at midnight. If you haven’t already, [click here now to see it.]( Trust me, you do not want to miss out on what’s coming. [Click Here To Learn More]( Free Money Is the Solution Under various guises, labels and rationalizations, "free money" has now been established as the default policy fix for any problem. Stock market falters? The solution: free money! Economy falters? The solution: free money! Bankers face collapse from ruinously risky bets? The solution: free money! Infrastructure crumbling? The solution: free money! Inflation raging? The solution: free money! Ruh-roh. We have a problem free money won't fix. Instead, free money accelerates the conflagration. Dang, this is inconvenient; the solution to every problem makes this problem worse. Now what do we do? Despite the apparent surprise of the policy-makers, pundits and apologists, this was common sense. Create trillions of dollars out of thin air and spread the money around indiscriminately (fraudsters and scammers getting more than the honest, of course) after global supply chains were disrupted and shelves were bare, then open the floodgates of speculative gambling in stocks, cryptos, housing, used cars, bat guano, quatloos, etc., and what do you think will happen? Supply can't catch up with free-money-boosted demand, prices rise, people instinctively over-order and over-buy, and "don't fight the Fed" speculative betting begets more betting: the inflation rocket booster ignites, wages soar as workers try to keep pace with rising expenses, speculative bubbles inflate to unprecedented extremes, and all this "wealth without work or productivity" gooses spending and gross domestic product (GDP). “Once the Bubbles Pop, GDP Crashes and the Ratio Blows Out” Forty years ago, the total debt-to-GDP ratio was 1.6: debt was $4.8 trillion and GDP was $3 trillion. Then the policy solutions of fiscal "borrow and spend" and Federal Reserve "balance sheet expansion." a.k.a. free money, became the policy default. The ratio rose to 2.76 in 2000 and has wobbled around 3.7 for the past decade, a decade that just so happened to see the stock market quadruple and the housing bubble reinflate to new heights as the Federal Reserve kept interest rates near zero as part of the "free money" policy: If we're going to borrow tens of trillions of dollars to squander, we need near-zero interest rates to keep costs of borrowing down. Though no one in a position of power or influence dares admit it, the ratio of debt to GDP hasn't blown out for one reason: speculative bubbles have pushed GDP higher in a massive, sustained distortion of "wealth effect" and winner take most gains for those who knew how to extract the majority of gains from the bubbles. Once the bubbles pop, GDP crashes and the ratio blows out. The belief that adding trillions in debt magically adds GDP will be revealed as delusional fantasy. Recommended Link [Stunning New Prediction for 2022]( You’re going to want to [see this]( — America’s #1 futurist just came out with a stunning new prediction for what could happen in 2022. And surprise, it’s got nothing to do with Trump. Or trade wars. Or the ongoing gyrations on Wall Street. In fact, this could be your one chance to ignore all that upsetting “fake news”… and get back to the business of getting exceedingly rich instead. It’s all in the forecast you’ll find at the link below... [Click Here Now]( Two Paths Completely forgotten in the era of Free money as the solution to all problems is the discipline of frugality, which can best be defined as discipline over spending as a means of building long-term financial stability and general well-being. Financial discipline (frugality) has been set aside as a needless discomfort: why make difficult tradeoffs and sacrifices when the solution is just to borrow/create more free money? Indeed. Along the same lines, why bother with all the hassles of healthy food and fitness? Just pig out and swallow a couple handfuls of "free" (heh) meds. Discipline isn't just about limiting waste. It's about investing capital and labor wisely to secure future gains in productivity which is the only real source of income and wealth. Creating "money" out of thin air and spreading it around to satisfy every constituency doesn't increase productivity. It destroys productivity by incentivizing waste – the waste is growth Landfill Economy – and speculative bets on bubbles never popping. Alas, all bubbles pop, and now that creating free money only makes costs rise faster, there is no solution other than – oh, dear, dear, dear – the unforgiving discipline of frugality and investing for productivity gains rather than for speculative bubble "wealth." Which path leads to doom? Free money. Which path leads to revival? Frugality and discipline. That's not what everyone wants to hear, but clinging to delusional fantasies of "free wealth" won't lead to positive outcomes, any more than swallowing handfuls of meds leads to "free health." Regards, Charles Hugh Smith for The Daily Reckoning Editor’s note: Here is a million dollar question: Do you think a market crash is coming? [Yes - Click here and we’ll show you how to make more money than you ever thought possible during a crash.]( [No - Click here and we’ll prove to you that a market crash isn’t just coming, but could hit the markets faster than you could imagine.]( Regardless of which option you pick, it’s almost 100% certain that a crash is going to come. It’s not a matter of IF but WHEN… So isn’t it better to be prepared? [Go here now]( if you want to see how to protect yourself and potentially grow a small fortune when it does. --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Charles Hugh Smith][Charles Hugh Smith]( is an American writer and blogger, and serves as the chief writer for the blog "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites, and his commentary is featured on a number of sites including Zerohedge.com, The American Conservative, and Peak Prosperity. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [unsubscribe here.]( Please read our [Privacy Statement](. For any further comments or concerns please email us at feedback@dailyreckoning.com. 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