“After four years of warfare that tore the world apart like never before, a peace was finally reached. But it was a peace which one man in particular vociferously condemned — and that man was John Maynard Keynes.
In just two months, Keynes wrote the book that would make him a household name around the world — The Economic Consequences of the Peace.
In the book, Keynes was highly critical of the deal struck at Versailles, which he felt sure would lead to further conflict in Europe — describing the agreement as a “Carthaginian peace” — and with the passing of a surprisingly short period of time, he would be proven correct.”
~ Grant Williams in The Economic Consequences of Peace
After WWI, a particularly noxious set of treaties and economic reparations agreements were put in place that all but guaranteed a future WWII. Mr. Keynes sniffed that out and, sadly, was proven correct.
The lesson from this is that, at certain times, it’s really not that hard to predict "what" is going to happen next after disastrously short-sighted and self-interested policies are enacted. Predicting the "when", with precision, is much trickier. But obvious misguided economic policies are destined to have a limited period of apparent (but false) prosperity, after which they end with a nasty Bang!.
We have entered just such a time. This isn't a Trump vs. Clinton thing; I'd make this claim regardless of who won this week's presidential election — as our plight is much bigger than a single Administration. And my observation is that neither political party had much interest beyond some temporary election year lip-service to the economic plight of the middle class.
And by “middle class” I mean anybody not in the top 5% economic bracket. For those doing the math at home, that leaves the remaining 95% of us stuck in the meat grinder.
I know a lot of people who are suffering very raw emotional wounds from the harsh negativity and divisiveness of the seemingly never-ending election we just went through. There will be a period of healing and adjustment for many, and I can fully empathize with how they feel.
For the Clinton supporters stunned that she didn't experience the victory so many predicted, here's a “what went wrong” post-mortem given by the brilliant British comedian Jonathan Pie that I think hits close to the mark (caution: it's a pretty heated rant):
Pie asks some very important questions, chief among them: Have we lost the ability to entertain alternative points of view? Are we ready to begin finally talking to each other again?
The Left has a lot of soul searching to do. As does the Right. Because let’s be clear: Trump wasn’t the Republican’s preferred choice either. They fought him tooth and nail. In terms of the traditional Left vs Right rivalry, both sides lost this time.
If we're to heal and progress from here, it's critical that we take the time to understand why.
The conversation has to begin here, I believe, with this excellent article that I ran across in Cracked – yes, the comedy alt-everything online outfit – explaining how it's the rural vs urban divide more than anything else that's pulling our society apart at the moment.
For those desperately seeking answers to Trump's surprise win, this article, of which I have reproduced only a small part, provides essential context. It's explanation has done wonders for everyone I have shared it with who was struggling:
How Half Of America Lost Its F**king Mind
Oct 12, 2016[Note: please go to the article to read reasons #6 through #3 as they are very important for understanding the two I have snipped out below]
Reason #2: Everyone Lashes Out When They Don't Have A Voice[To a rural person] it really does feel like the worst of both worlds: all the ravages of poverty, but none of the sympathy. "Blacks burn police cars, and those liberal elites say it's not their fault because they're poor. My son gets jailed and fired over a baggie of meth, and those same elites make jokes about his missing teeth!" You're everyone's punching bag, one of society's last remaining safe comedy targets.
They take it hard. These are people who come from a long line of folks who took pride in looking after themselves. Where I'm from, you weren't a real man unless you could repair a car, patch a roof, hunt your own meat, and defend your home from an intruder. It was a source of shame to be dependent on anyone — especially the government. You mowed your own lawn and fixed your own pipes when they leaked, you hauled your own firewood in your own pickup truck. (Mine was a 1994 Ford Ranger! The current owner says it still runs!)
Not like those hipsters in their tiny apartments, or "those people" in their public housing projects, waiting for the landlord any time something breaks, knowing if things get too bad they can just pick up and move. When you don't own anything, it's all somebody else's problem. "They probably don't pay taxes, either! Just treating America itself as a subsidized apartment they can trash!"
The rural folk with the Trump signs in their yards say their way of life is dying, and you smirk and say what they really mean is that blacks and gays are finally getting equal rights and they hate it. But I'm telling you, they say their way of life is dying because their way of life is dying. It's not their imagination. No movie about the future portrays it as being full of traditional families, hunters, and coal mines. Well, except for Hunger Games, and that was depicted as an apocalypse.
So yes, they vote for the guy promising to put things back the way they were, the guy who'd be a wake-up call to the blue islands. They voted for the brick through the window.
It was a vote of desperation.
#1. Assholes Are Heroes
But Trump is objectively a piece of shit!" you say. "He insults people, he objectifies women, and cheats whenever possible! And he's not an everyman; he's a smarmy, arrogant billionaire!"
Wait, are you talking about Donald Trump, or this guy:
You've never rooted for somebody like that? Someone powerful who gives your enemies the insults they deserve? Somebody with big fun appetites who screws up just enough to make them relatable? Like Dr. House or Walter White? Or any of the several million renegade cop characters who can break all the rules because they get shit done? Who only get shit done because they don't care about the rules?
"But those are fictional characters!" Okay, what about all those millionaire left-leaning talk show hosts? You think they keep their insults classy? Tune into any bit about Chris Christie and start counting down the seconds until the fat joke. Google David Letterman's sex scandals. But it's okay, because they're on our side, and everybody wants an asshole on their team — a spiked bat to smash their enemies with. That's all Trump is. The howls of elite outrage are like the sounds of bombs landing on the enemy's fortress. The louder the better.
Already some of you have gotten angry, feeling this gut-level revulsion at any attempt to excuse or even understand these people. After all, they're hardly people, right? Aren't they just a mass of ignorant, rageful, crude, cursing, spitting subhumans?
Gee, I hope not. I have to hug a bunch of them at Thanksgiving. And when I do, it will be with the knowledge that if I hadn't moved away, I'd be on the other side of the fence, leaving nasty comments on this article.
The essential context is simply that rural residents are drowning under chronic economic blight. And when they dare to complain about it, they're castigated and humiliated by the dominant city culture that has no awareness of or sympathy for their troubles.
We've NAFTA'd away millions of manufacturing jobs (and those that served manufacturing communities) without providing the displaced labor a path to reskill and apply itself. Instead, we've left a patchwork of bomb crater communities across the heartland, where there are no employers and no prospects. To these rural folks, being cast as racist, misogynist, ignorant, or uneducated buffoons for being angry about their plight just adds kerosene to the fire that's been smoldering within theem. A fire which just conflagrated during this week's election.
So to reiterate: the cultural divide that's really in play here is not between the 'enlightened/progressive' people and their supposed opposites. Rather, it's Urban vs Rural.
And as the rural dwellers have increasingly felt marginalized, demonized and otherwise unfairly treated, they are now angry enough at the perceived injustice to lash out against the status quo and roll the dice with an outsider who promises to shake things up. It's not surprising, really — as I've written about before, we humans are wired to reject unfairness. This next short video is a favorite of mine, because it perfectly demonstrates how it's in our genes to become enraged when we perceive we're being unjustly treated:
To put in in monkey terms: since surbanites set the rules because they happen to outvote the rural people, and those same urbanites don't have to live with the consequences of their decisions, then it's cucumbers for rural people and grapes for the urban folks.
Adding to this understanding is today's article by our good friend Charles Hughes Smith, who validates the rage the downtrodden are feeling these days:
The Source of our Rage: The Ruling Elite Is Protected from the Consequences of its Dominance
There are many sources of rage: injustice, the destruction of truth, powerlessness.
But if we had to identify the one key source of non-elite rage that cuts across all age, ethnicity, gender and regional boundaries, it is this: The Ruling Elite is protected from the destructive consequences of its predatory dominance.
We see this reality across the entire political, social and economic landscape. If I had to pick one chart that illustrates the widening divide between the Ruling Elite and the non-elites, it is this chart of wages as a share of the nation's output (GDP): 46 years of relentless decline, interrupted by gushing fountains of credit and asset bubbles that enriched the few while leaving the economic landscape of the many in ruins.
The Ruling Elite once had an obligation to uphold the social contract as a responsibility that came with their vast privilege, power and wealth (i.e. noblesse oblige).
America's Ruling Elite has transmogrified into an incestuous self-serving few unapologetically plundering the many. In their hubris-soaked arrogance, their right to rule is unquestioningly based on their moral and intellectual superiority to "the little people" they loot with abandon.
Rather than feel a responsibility to the nation, America's Elite views the status quo as a free pass to self-aggrandizement. Much has changed in America in the past 46 years. Not only have wages and salaries declined as a share of "economic growth," but the wealth that has been generated has flowed to the top of the wealth/power pyramid (see chart below).
Social mobility has also declined drastically: Restoring America’s Economic Mobility, as has trust in government and key institutions.
As Frank Buckley, the author of The Way Back: Restoring the Promise of America observed: "In a corrupt country, trust is a rare commodity. That’s America today. Only 19 percent of Americans say they trust the government most of the time, down from 73 percent in 1958 according to the Pew Research Center."
The top .01% has seen its share of the household wealth triple from 7% to 22% in the past four decades, while the share of the nation's wealth owned by the bottom 90% has plummeted from 36% to 23%.
Look at that. The share of the national wealth has been steadily, if not increasingly, siphoned away from the 95% and towards the 5%. In reality, it's almost entirely gone towards the 0.1%.
The economic “peace” we’ve seemingly enjoyed over the past number of decades turned out to be no peace at all. It was the same sort of peace that existed between the Treaty of Versailles and the outbreak of WWII — a crippling arrangement that overwhelmingly favored one side over the other. Germany eventually had no choice but to rebel.
Similarly, by failing to protect anyone but their cloistered and wealthy friends, the elites of both current US political parties has laid the fuel for the fire that now burns.
Bernie Sanders’ post-election statement had this to say about the economics that drove the result:
"Donald Trump tapped into the anger of a declining middle class that is sick and tired of establishment economics, establishment politics and the establishment media. People are tired of working longer hours for lower wages, of seeing decent paying jobs go to China and other low-wage countries, of billionaires not paying any federal income taxes and of not being able to afford a college education for their kids — all while the very rich become much richer.”
Bernie would have easily bested Trump in my opinion. It was a huge twin set of mistakes by the DNC to first hamper his primary efforts, and then fail to at least make him Clinton's running mate.
Redistribution of money and power seem to happen peacefully only rarely among humans and virtually never in America. Labor rights? Fought and died over. Women’s right to vote? Fought and died over. Environmental rights? Brought kicking and screaming across the moats. Racial rights? Only partially achieved after the greatest amount of violence and bloodshed of all these causes.
Can we do better? Absolutely, in theory. But so far we don’t a lot of better examples to point to inside the US.
So this battle is just getting started and will far outlive Trump and everybody reading this. Decades of ill-advised growth and financial squandering cannot be wished away — we, and our children (and likely our grandchildren, too), will be cleaning up the messes of our profligacy for a long time.
And just as one can easily peer at Charles Hughes Smith's charts and conclude that eventually a rebellion of sorts is inevitable, there’s an even more startling chart you need to see. If you can truly internalize it, you'll understand why the new era of status quo rejection is just getting underway.
Promises That Can’t Be Kept
There's a lot of data I can provide here, but I’ll go with a single — but critically important — chart from Ray Dalio’s Bridgewater Associates, one of the largest money management firms out there.
I’m sorry that you have to squint a little to see this, but here’s all you need to know: when you add up both the debts and the liabilities of the US, those are more than 1,000% of current GDP:
One thousand one hundred percent?!?!? As in eleven times GDP?? You might as well say eleventy gajillion because there’s no sense in any of these numbers.
Yep. No country has ever dug out from under such a load. None have even come close. The “prediction,” which is so simple it’s not really a prediction at all, that flows from the above chart is this: Somebody is going to have to eat the losses.
Massive, fabulously enormous losses.
Trillions and trillions of losses in current dollars. Even if the economic elites don’t try to force all of those losses on the ‘little people’, the pain is still going to be so extraordinary that serious political and social crises will erupt.
You can count on it.
You can already see that larger future predicament playing out painfully around us. One example is how pensions are cutting back benefits, lowering expectations, demanding higher funding payments by taxpayers, and otherwise displaying signs of distress.
And this is with equity markets perched at all-time highs (at the moment of this writing, the Dow is at a new record).
So our recent decades of economic peace must end, given the thousand percent indebtedness predicament revealed by the chart above.
We got into that thousand percent predicament the exact same way the DNC lost to Trump: by failing to address things that plainly needed to be dealt with. We proved to ourselves, yet again, that pretending something uncomfortable doesn’t exist doesn’t make it go away.
“Well, we might just grow out from under those debts and obligations” some might be tempted to say. My response is to ask you to go back and look at that chart again and note that it has grown from 700% to 1,100% since 2001. If GDP had been growing at the same pace, the ratio value wouldn't have budged. It would have remained at 700%.
But it grew to 1,100%, which means the debts and obligations were growing much faster than GDP.
So for the past 15 years the “grow out of it” mantra — which has been echoed ad nauseum — has been a complete train wreck of a failure. How many more years before we can all just admit the obvious?
Just as both the RNC and DNC opted to ignore the extreme damage their policies had been inflicting on the upper, middle and lower classes, sparing only the very tippy-top elites (but hand-feeding those elites peeled grapes it should be noted, because their lot improved wildly over the past decades), everybody in power has been steadfastly ignoring our massive debt and liability problems, too.
Those are going to shape the future, and that future is going to be plenty painful. The longer we wait, the more painful it will be. This has been our steady message at Peak Prosperity for a very long time, and we are actually hopeful that now, finally, we can speak about the unspeakable to those who had no willing ear for it just a short week ago.
The political upheaval of Donald Trump is best understood through the lens of economic erosion suffered by the vast majority of people. If a democracy is measured in how well it serves the interests of the majority, the United States is not a democracy at all.
Of course, nearly everyone already knows this. But it's been all but unspeakable in polite circles to say so.
Now, it is finally becoming okay to voice.
Which is, admittedly, a breath of fresh air for us at Peak Prosperity. Because not only are massive, obvious economic issues going to unavoidably visit the US in the not-too-distant future, but they'll be doing so at a time when many critical resources will be in decline.
Chief among those? Oil, of course.
To skirt the impact of a future oil supply crunch, we'll need an incredible effort of joined forces and strict prioritization to assure that whatever transition we can effect will be a smooth as possible. Even then, we’ll be lucky to evade painful disruption.
But if we don't begin to view our future with clear eyes and a united sense of what the predicaments are, if we instead turn to another version of four more years of preservation of the status quo, then we will face a future of disruption so painful it will make the worst of post-election Wednesday for the most ardent liberal seem like a minor inconvenience (by comparison, I mean, of course).
It will take an enormous amount of effort simply to stem the tide of economic erosion that now besets the land. And that’s just as true for the US as it is for Japan, Europe and the UK. The same forces are at play in all of these centers.
It will take another massive bowlful of effort to begin to address the debts and liabilities issues. And yet another cauldron of effort to revamp our energy infrastructure in parallel with all the other challenges. Put it all together and you can begin to understand why, if we're going to deplore something from the recent election, it should be the running of an intentionally divisive set of campaigns that have driven as large a wedge between people in the US as has existed in a very long time.
We need to be working together on the common predicaments that care not if we are liberal or conservative, religious or not, male or female, or which race or sexual persuasion best applies to us. Declining global net energy per capita. Our massive fiscal over-indebtedness. The collapse of too many ecosystems we depend on for food and drinkable water. The list is sadly long…
It’s not just time to heal; it’s imperative that we do. So that we stand united to deal with these predicaments as they arrive in full force.
There’s really not a moment to spare.
And for those looking to get a jump on what's coming, we need to better understand the implications of what just happened this week. The Trump upset has changed all of the probabilities that we track.
I've been keeping a running update of the developing situation in Part 2: OK, Here's What We Think Is In Store After Trump's Win. We'll be continuing to update this important assessment as new information filters in over the next few days.