During one of my frequent moments of reflection recently, it dawned upon me that we live in an age where the common citizen suffers from a mental disorder of “global acceptance”—people overwhelmingly lay down and accept the common explanations for life’s ills without stopping to question the validity of the explanations themselves, or the motives of the entity doing the explaining. The vast majority of the time, specious and capricious arguments are set forth as valid truth and digested by the masses as logical, with simple indifference fueling the inertia behind people not getting up and asking probing questions.
In short, modern society tends to ignore cause and effect.
In my own experience, this concept applies most readily to my medical practice and has proven to be one of the most challenging aspects of “do no harm”. As I’ve said before on the blog, modern medicine does a very good job of disease management—treating problems when they arise—but not wellness management: keeping people healthy. Instead of asking, “Why are people getting fatter and sicker?” (the cause) the establishment prefers to deal with the effects—more obese and unhealthy patients. Sophisticated marketing efforts directly targeting consumers have been very successful in convincing the public that defining deficient or low XYZ mandates the specific treatment of XYZ supplementation or XYZ replacement therapy (think low T). This algorithm does apply in certain circumstances. After all, it is much more profitable to treat these chronic conditions than it is not to. So instead of ameliorating the causative agents (i.e. the over-consumption of sugars, in particular high fructose corn syrup; the body’s recognition of genetically modified foods as foreign thereby initiating a cascade of events leading to chronic inflammation and several disease states;1 the demonization of fats, leading many to neglect the well-established health benefits of many natural, non-hydrogenated fats such as olive and coconut oil) medicine would rather write you prescriptions for your high blood pressure, cholesterol, diabetes or offer you gastric bypass surgery. Doing all of these things will not cure the patient, but actually identifying the causative factors and eliminating them will.
A case in point: many people suffer from the common delusion that any common fever requires antibiotics. Sometimes this is the case. If the true cause is a virus, however, the best treatment is both rest and time. Antibiotics may even make things worse by killing off all your healthy bacteria and making you more susceptible to more aggressive infections in the future. The latter explanation often is not a welcome one because a layperson won’t have access to a magic pill to fix the effect. Also, treating the cause may actually necessitate the unwelcome strategy of behavior modification.
Let’s switch gears to the economic arena. The housing market is “booming”, the Dow Jones is above 15,000, America is on the fast track to recovery, TARP has worked since the banks are healthy and we can’t live without them, and the nation is more productive than before. Right? Dead wrong. Call me crazy, or call me a conspiracy theorist but THE crash is coming. Not a crash like the financial crisis but THE crash—the biggest, most potent global economic catastrophe the world has ever known. All the economic indicators we are exposed to are all effects, the cause being the massive infusion of money (aka money printing) and deficit spending, not only by our own Federal Reserve and government but also by many other nations around the world. Our economy is like a terminal patient on life support who just got an infusion of blood, steroids and adrenaline. They’re not doing “well” because they’re healthy—they’re doing “well” temporarily because they’re being propped up by external interventions that can only carry the patient so far.
The Central Bank of Japan has even taken a page from Ben Bernanke’s playbook (stimulus) and induced a nearly 100% rise in their Nikkei stock index since the end of last year. Until May 22nd of 2013 the Japanese index nearly doubled from the end of the prior year, an unheard of phenomenon in the financial world. That’s not real economic growth unless the Japanese literally have gold bars, silver ingots, and oil deposits in their backyards. After all, if real economic growth could be created, and poverty eliminated simply by manufacturing capital and creating money, then all we would need to do is print a gazillion dollars and—poof!—all the problems of the world would be instantaneously solved.
Here are some other troubling effects: In the 12 month period ending in March 2013, the Case-Shiller 20 City Composite Home price index was up just under 11%. The index revealed that prices in all 20 cities were up, with some cities posting gains of more than 20% (do such robust housing price gains sound eerily similar to 2006?). The National Association of Realtors announced that in April 2013, pending home sale volume reached the highest level in nearly three years.
The housing bubble is re-inflating but when it bursts this time, the damage will be irreversible and catastrophic.
Effect: Interest rates are low, incentivizing people to borrow instead of saving (who wants to earn only 0.25% interest on a savings account?). The borrowed money is assumed debt by millions who then spend these funds, driving up not only home prices (it feels so good) but prices in general, thus driving up consumption (GDP), and consumer confidence. Multiply that by the fact that any housing price appreciation can be instantly parlayed into an opportunity to get more money and assume more debt (refinancing and home equity loans), fueling the entire nefarious process.
Cause: The Federal Reserve artificially holds interest rates near zero and buys more than $40 billion monthly of mortgage-backed securities and $45 billion of Treasury bonds (over one trillion dollars a year), essentially engineering the lowest mortgage rates on record. By pumping money into the system, there is more “wealth” to spread around but its funny money built not on productivity, but on fantasy, debt, and inflation.
Effect: Who can say no to a 30-year mortgage at 2.5%?
Effect: An aura of recovery blankets the masses, even though per capita incomes are dropping at a 9% annualized rate.
Effect: The household savings rate has fallen to just over 2%.
Cause: The Fed hints that it may cut back on its Quantitative Easing (QE) programs.
Effect: The market sells off.
Cause: The Fed says it will pump even more money into the system.
Effect: The market makes huge gains.
Cause: Multi-factorial market manipulation and exploitation brought to you by your sponsors: The Federal Reserve, government debt, the soon-to-pop housing bubble, and massive inflation due to money printing. The derivatives market (worth more than $700 trillion and not based on actual, physical capital) is also a ticking time bomb.
Effect: The greatest financial collapse in the history of America.
Back in 2005-2006 if someone said a big bust was coming they would be laughed at and scorned. Now, an increasing number of non-tin-foil-hat wearing people from all corners of the rational world are blowing their horns louder and louder that we are all in for a rude awakening. Some many want to live the high life while the system is “booming” but all those who are called pessimistic and doomsayers today will be labeled wise and insightful in the future.
So what’s a wise and forward-looking person to do? There’s a very insightful book written by the same people who predicted the 2008 financial crisis years before it happened, and they’re the same people who say the next big crash is around the corner—Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown by Wiedemer, Wiedemer and Spitzer (2011). These guys hold PhDs in economics, so their opinions are well informed and valuable. Enjoy.
Dr. C.H.E. Sadaphal