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Published on Economic Undertow on November 18, 2013
Discuss this article at the Geopolitics Table inside the Diner
“It was a miserable damn performance, just like it always is. These people won’t listen. They make the same mistake over and over again in the same way”.
– John Paul Vann after the battle of Ap Bac in South Vietnam, 1963
One of the great themes of the ongoing unraveling is the establishment’s tendency toward failure and the choice taken — usually with great cynicism — to adopt over-elaborate and punitive strategies in the place of simpler, less destructive alternatives. At the same time, this failure strategy is almost always hidden behind a scrim of public theater which by itself indicates the managers understand the choices yet purposefully make the wrong ones.
Administrative failure isn’t new or a monopoly good of the current regime, nor is it entirely the by-product of our current unraveling. Failure is the 600-year-old stepchild of modernity. Along with contrived ‘scarcity’, failures of past regimes are offered as reasons to justify modernity’s expansion into every area of human- and non-human life. Without failures there are no reasons for more ambitious follow-ups. The cans are kicked; the latest- and greatest expedients are duct-taped into place on top of all the others. Complexity isn’t designed, it grows like a fungus; as failures emerge there are more complex responses which reveal more failures which in turn give birth to more complexity.
Permanently eliminating the sources or cause for failure is always judged to be ‘costly’ or ‘difficult’, it ‘takes too long’ or discomforts wealthy clients. Structural adjustments are rejected when the choice endangers some precious aspect of modernity. Because making minor reforms risks the entire enterprise, we hesitate and the status-quo becomes institutionalized.
Failure inhabits military adventures gone awry, policies that pitch the small- but self-sufficient enterprises into competition with gigantic- but credit dependent varieties, decrees which encourage evasions of the law rather than compliance, processes that demand the worst from people other than their best. Failure emerges from money- and credit policies that enrich lenders at the expense of borrowers, support asset prices rather than incomes, that sacrifice the future to the insatiable present. Waiting for us at the end of the road is the entropic failure for which there are no possible antidotes; the light at the end of the tunnel is a grave marker. “Here lies modernity” … when the entire edifice of patched and tattered expedients collapses with a sigh of exhaustion and disillusion.
The ‘Modern America’ the world’s citizens inhabit in 2013 sprang almost fully- formed from the US’s victory over Germany and Japan in World War Two. We defeated two military superpowers in two different parts of the world at once; this was our first- and defining, ‘If we can put a man on the Moon’ moment. Americans were competent; we did things right, we were efficient yet (somewhat) humane and civilized. Our armies triumphed without massacring prisoners or raping and pillaging, they gave candy to the enemy’s children. America succeeded in spite of internal differences and a crushing economic environment. After saving the world from Nazism and Japanese militarism Americans believed they could do anything including remake the debauched old world in their own, atomic-powered, tail-finned image … and to the large degree they succeeded.
America’s failure regime emerged twenty years later in Vietnam; which gave birth to ‘Blunder, American-style’. Vietnam war is the template for our subsequent- and ongoing failures: policy-making as play; denial, the over-commitment to faulty premises and propagandistic marketing, institutionalized stupidity and sadism, fetishized violence and technology, complexity for its own sake; the refusal to consider limits, preening arrogance and intellectual dishonesty; colossal/heedless waste of irreplaceable social capital — Americans’ narcissistic idealism and naive patriotism — all of this for non-existent gains. Ambitious, corrupt men set about to satisfy trivial personal ambitions; even as they failed, the country was broken: red versus blue, old vs. young, hawk versus dove, urban against rural, liberal/conservative. Beavis vs. Butthead … The great failure in Vietnam sits like Carlos Castaneda’s death upon the left shoulder of the United States. Everything the US does and has done since 1968 has been a desperate effort on the part of both the establishment and culture to re-write history; to find a different outcome to the Vietnam War.
Enter the monetary policy failure …
… enter Janet Yellen. It’s not hard to feel sorry for Yellen because she has absolutely no clue what she is about to step into …
Figure 1: The sublime Triangle of Doom: both Bernanke’s and Yellen’s cognitive failure is that they ignore the ongoing exchange relationship between money and petroleum, where both are priced regardless of interest rates. Central banks cannot ‘print’ crude oil, they cannot print jobs or value … they cannot even print money. Central banks can only refinance existing loans, they can witch-doctor and pantomime.
Yellen’s eligibility has less to do with her ordinary talents as an economist, rather more with her ability to meet public expectations of what a Federal Reserve System Chairman is supposed to look, act and sound like. Yellen is a placeholder, a technocratic character set to operate within an elaborate bit of post-modern Kabuki. Her signature characteristic to date has been unswerving support for Bernanke’s monetary accommodations, including zero-percent policy rate and securities purchases and asset swaps with commercial lenders. As Bernanke’s backup samurai, Yellen promises more of the same: more accommodation, lowest of all possible interest rates, more QE (quantitative easing or asset purchases).
That this policy is a self-evident failure does not matter! It will continue until the entire monetary/fiscal regime collapses under its own weight. How long will that take?
Figure 2: The thin, dashed line @ the middle of the chart is the amount of GDP gained by way of the amounts of credit indicated by the red line at the top since 2008; <$1 trillion of GDP gained from the +$35 Trillion in ongoing accommodation/rescue (Doug Short/Lance Roberts, click on for big).
Soon enough
Inevitably, there will be negative growth gained from accommodation, then what? There is no ‘Plan B’.
Enter the US healthcare flop, (Zero Hedge):
Total Healthcare “Enrollment” As A Result Of Obamacare: -3.9 Million
By Tyler Durden
“We fumbled the rollout on this health-care law,” could be President Obama’s understatement of the century. In the month-or-so since Obamacare was unleashed 106,185 people enrolled (based on a loose re-definition by the White House). However, in that same period, the WSJ reports a stunning 4.02 million people received policy cancellations. So, in a month, a total of 3,918,205 fewer people are now ‘enrolled’ in a heathcare plan than before Obamacare. So far, California, Florida, and Washington are suffering the most under Obamacare…
Figure 3: State net enrollment in the Affordable Care Act including policy cancellations, (ZeroHedge/Wall Street Journal). Failure is built into the strategies the government chooses, so is corruption, (Washington Post):
Health-care Web site’s lead contractor employs executives from troubled IT company
By Jerry Markon and Alice Crites
The lead contractor on the dysfunctional Web site for the Affordable Care Act is filled with executives from a company that mishandled at least 20 other government IT projects, including a flawed effort to automate retirement benefits for millions of federal workers, documents and interviews show.
…
A year before CGI Group acquired AMS in 2004, AMS settled a lawsuit brought by the head of the Federal Retirement Thrift Investment Board, which had hired the company to upgrade the agency’s computer system. AMS had gone $60 million over budget and virtually all of the computer code it wrote turned out to be useless, according to a report by a U.S. Senate committee.
The thrift board work was only one in a series of troubled projects involving AMS at the federal level and in at least 12 states, according to government audit reports, interviews and press accounts. AMS-built computer systems sent Philadelphia school district paychecks to dead people, shipped military parts to the wrong places for the Defense Logistics Agency and made 380,000 programming errors for the Wisconsin revenue department, forcing counties to repay millions of dollars in incorrectly calculated sales taxes.
Lawrence Stiffler, who was director of automated systems for the thrift board at the time and a 25-year veteran of IT contracting for the federal government, said AMS was highly unreliable. “You couldn’t count on them to deliver anything,” he said.
In the years since the purchase, CGI has grown rapidly in the United States, dramatically expanding its role as a federal and state contractor. Agencies that tapped CGI Federal often rehired the company and, in the past two years alone, the company has been awarded contracts with at least 25 federal agencies worth $2.3 billion.
The failure of the health insurance scheme isn’t simply a matter of poorly executed software. It would have been very simple for the government to expand Medicare to cover every American. Too simple … doing so would have rendered precious insurance companies redundant so it was not even considered. No health insurance approach can succeed without cost controls — patent reform, salaries for medical professionals, the end of piecework payments and malpractice awards, breakup of medical cartels — none of these were considered, either.
Enter home mortgage modification programs, (Town Hall):
The Stunning Failures of Obama’s Mortgage ProgramKevin GlassWay back in 2009, President Obama’s Treasury Department launched the Home Affordable Modification Program, a massive authorization to help homeowners struggling with their mortgages in the wake of the financial crisis. 1.2 milllion people participated in the program at a cost to taxpayers of $4.4 billion.A report [pdf] dropped this week from the Office of the Special Inspector General for TARP (SIGTARP) that HAMP has a stunning failure rate. Of the 1.2 million HAMP participants, 306,000 have re-defaulted on their mortgages, at an additional cost to taxpayers of $815 million. What’s more, another 88,000 homeowners in the HAMP program have missed payments and are at risk to re-default.
The mortgage modification schemes share many of the characteristics of the health care enterprise: complexity for its own sake, denial regarding the extent of the problem and capture by the same industries that caused the original breakdown in the first place. HARP is another failed home mortgage modification program, (Examiner);
HARP loan program has been a dismal failure
Shelby Bateson
December 13, 2009
The HARP loan refinance program, which was supposed to have aided four to five million home owners with a streamlined refinance of their existing mortgage has been a dismal failure.
The HARP (Home Affordable Refinance Program) program was designed to help those with loans owned by either Fannie Mae or Freddie Mac, but underwater, refinance their mortgages to lower prevailing mortgage rates. The program was rolled out in April 2009 with lots of anticipation that this program would free up cash for those home owners and help the economic recovery.
…
The end result is that only 116,677 loans, as of September 30, 2009, have been modified. The problem has not been a lack of interest by home owners, but a lack of interest by lenders. As originally rolled out, lenders were able to refinance loans up to 105% underwater on the first mortgage, regardless of the amount of a second mortgage.
As home values continued to fall, during the summer, the ratio underwater was raised to 125%, but almost no lenders permitted the increased ratio. And, in fact, lenders found almost any reason under the sun to decline these loans.
Enter foreign development failures, (World Affairs Journal):
Money Pit: The Monstrous Failure of US Aid to Afghanistan
Joel Brinkley
More than half of Afghanistan’s population is under twenty-five, which shouldn’t be surprising since the average life span there is forty-nine. But the United States Agency for International Development looked at this group and decided it needed help because, it said, these young people are “disenfranchised, unskilled, uneducated, neglected—and most susceptible to joining the insurgency.” So the agency chartered a three-year, $50 million program intended to train members of this generation to become productive members of Afghan society. Two years into it, the agency’s inspector general had a look at the work thus far and found “little evidence that the project has made progress toward” its goals.
The full report offered a darker picture than this euphemistic summary, documenting a near-total failure. It also showed that USAID had handed the project over to a contractor and then paid little attention. Unfortunately, the same can be said for almost every foreign-aid project undertaken in Afghanistan since the war began eleven years ago.
Deja vu all over again … (Washington Post):
Top Democrat: Obama’s red line strategy on Syria ‘not well thought out’,
By Aaron Blake
The top Democrat on the House Armed Services Committee says President Obama’s decision to draw a “red line” when it came to Syria using chemical weapons “was not well thought out.”
“I don’t think you draw a red line like that, that is not well thought out,” (Representative Adam) Smith said during an appearance at the Council on Foreign Relations on Thursday. “You do not say, ‘If you step across this line, we will commit U.S. military force,’ unless you really mean it, unless you know the full implications of it.”
Smith also accused the administration of not working with Congress on foreign policy and of making it look like it was developing that policy “on the fly.”
There is the failure to craft responsible energy policy and climate policies … instead there is denial, (Bloomberg):
U.S. to Be Top Oil Producer by 2015 on Shale, IEA Says
By Grant Smith
The U.S. will surpass Russia as the world’s top oil producer by 2015, and be close to energy self-sufficiency in the next two decades, amid booming output from shale formations, the International Energy Agency said.
Crude prices will advance to $128 a barrel by 2035 with a 16 percent increase in consumption, supporting the development of so-called tight oil in the U.S. and a tripling in output from Brazil, the IEA said today in its annual World Energy Outlook. The role of the Organization of Petroleum Exporting Countries will recover in the middle of the next decade as other nations struggle to repeat North America’s success with exploiting shale deposits, the agency predicted …
U.S. crude production rose to 7.896 million barrels a day in the week ended Oct. 18, the most since March 1989, according to the Energy Information Administration. West Texas Intermediate futures dropped as much as 83 cents to $94.31 a barrel in trading today on the New York Mercantile Exchange and was $94.83 as of 11:36 a.m. in London.
Global oil demand will expand by 14 million barrels to average 101 million a day in 2035, according to the IEA report. The share of conventional crude will drop to 65 million barrels by the end of the period because of growth in unconventional supplies, the IEA said without providing current data …
Brazil will triple output to 6 million barrels a day by 2035 as it exploits deep-water reserves, an expansion that will account for one-third of the increase in global production and make the nation the world’s sixth-largest oil producer, according to the agency.
How goes Brazil, really?
Figure 4: Brazilian net exports by way of BP/Mazama Science Who knows what will occur twenty years from now when the promoters have retired and cannot be held accountable for their misstatements? Right now Brazilian demand is rapidly outstripping diminishing Brazilian supply. Putting cars on the highway — in Brazil as elsewhere — costs a lot less than extracting oil from oil reservoirs under thousands of feet of ocean water, (FT).
From burgeoning start-ups to Brazil’s own state-controlled behemoth Petrobras, many of the industry’s players are struggling to live up to the heady expectations of five years ago when vast offshore oil discoveries promised to transform the country.
Brazil’s 2007 pre-salt finds, estimated to contain up to 100bn barrels of oil, came as oil prices soared towards $150 a barrel and capital began to pour into emerging markets, creating a sense of euphoria in the industry that has gradually turned to disappointment.
“There was the idea that Brazil would solve all its problems with the pre-salt oil and this optimism contaminated the market, creating a large speculative bubble,” says Adriano Pires, founder of the Brazilian Centre of Infrastructure and a former member of the country’s oil regulator ANP.
The International Energy Agency says Brazil will more than double its production while the Brazilians themselves are unable to hold the modest level of production they already have; Brazil looks to have entered terminal decline, its oil fields have ‘vast’ potential but apparently little accessible oil …
Both climate change and energy depletion are serious as a heart attack. Meanwhile, Americans are unwilling to even consider make the needed material sacrifices so that the human race might escape the consequences of dumping billions of tons of carbon- and other gases into the atmosphere. As in Vietnam, we refuse to face reality, we believe our machines will save us rather than destroy us contrary to all available evidence.
Surviving Climate Change Is a Green Energy Revolution on the Global Agenda? By Michael T. KlareA week after the most powerful “super typhoon” ever recorded pummeled the Philippines, killing thousands in a single province, and three weeks after the northern Chinese city of Harbin suffered a devastating “airpocalypse,” suffocating the city with coal-plant pollution, government leaders beware! Although individual events like these cannot be attributed with absolute certainty to increased fossil fuel use and climate change, they are the type of disasters that, scientists tell us, will become a pervasive part of life on a planet being transformed by the massive consumption of carbon-based fuels. If, as is now the case, governments across the planet back an extension of the carbon age and ever increasing reliance on “unconventional” fossil fuels like tar sands and shale gas, we should all expect trouble. In fact, we should expect mass upheavals leading to a green energy revolution.
What is a ‘green energy revolution’? It sounds like all the other energy revolutions, more waste and another opportunity for people to fool themselves …
ADDENDUM: The lesson of Vietnam
Americans in Vietnam believed that it was impossible for the US military to be beaten by poorly equipped Vietnamese farmers and tradesmen. Yet, they were beaten, and the reason was the tremendous advantages that the Americans had over their Vietnamese adversaries — of money, economic power, intelligence gathering, transport, technology and weapons. In Vietnam and elsewhere, the greater the advantages = greater certainty of defeat.
Advantages were the American’s undoing because they relied on them to the exclusion of everything else and became over-confident. The Vietnamese communists cleverly planted false information regarding communist infiltrators inside neutral- and pro-South villages and towns, this was picked up by US military intelligence networks which led to the Americans launching artillery and air strikes to harass the infiltrators. These attacks caused the deaths of many civilians who quickly turned against the Americans. Over a three-year period beginning in 1963, most of South Vietnam changed from being pro-South Vietnam and pro-American to pro-communist due to compromised intelligence and indiscriminate American bombing and shelling. Once the marginal citizen in South Vietnam become an adherent of the communist North, the war was effectively lost for the Americans. Past that point, it didn’t matter how many Vietnamese the Americans killed, more deaths simply tilted the balance against the Americans and their Vietnamese adjuncts. Toward the end, the frustrated Americans were reduced to waging a genocidal air campaign against their putative allies.
The same manner, our technological advantages are the root cause of our ongoing economic, social and political failures. Use of technology incurs costs which add up, eventually costs become greater than any possible benefit that can be gained by the technology. In the beginning the costs are so modest to be invisible, they aggregate over time, like the rate of depletion in oil fields or amounts due as interest. Eventually, the costs become breaking, like our debts, taken on to pay for and operate our precious — and money losing — machines.
The Chinese philosopher Sun Tzu remarked, “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
In Vietnam the Americans had false ideas about themselves and contempt for the Vietnamese citizens whom they were intended to support; Americans also had purposeful ignorance about the enemy. The Americans did not know themselves or their enemy; as a result they succumbed despite a vast expenditure of treasure, materials and millions of lives.
We don’t bother to know ourselves right now, we prefer to live within bubbles of distraction that emerge from the television and from in front of the windshield of a car. We have made the world and all it contains into our enemy at the same time! We can’t bother ourselves to know anything about the world, we have contempt for it. This leaves us with a choice that is rapidly becoming barren: we can stop fighting, lay down our advantages and become peaceable. We will be uncomfortable but we need not “fear the result of a hundred battles” as Sun Tzu would say … because we would not fight any. Alternatively … we can be crushed, just as we were in Vietnam instead by the world we have taken up arms against.