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How Things Fall Apart: The Extremes Aren’t Stable
Charles Hugh Smith

A funny thing happens on the way to stabilizing things by doing more of what’s failed: the system becomes even more unstable, brittle and fragile.

A peculiar faith in pushing extremes to new heights has taken hold in official circles over the past decade: when past extremes push the system to the breaking point and everything starts unraveling, the trendy solution in official circles is to double-down, pushing even greater extremes. If this fails, then the solution is to double-down again. And so on.

So when uncreditworthy borrowers default on stupendous loans they were never qualified to receive, the solution is to extend even more stupendous sums of new credit so the borrower can roll over the old debt and make a few interest payments for appearance’s sake (also known as “saving face.”)

A funny thing happens on the way to stabilizing things by doing more of what’s failed: the system becomes even more unstable, brittle and fragile.

Central banks and states have latched onto a solution akin to a perpetual-motion machine: the solution to all problems is simple: print or borrow another trillion. If the problem persists, repeat the print/borrow another trillion until it goes away.

Consider China, a nation (like many others) dependent on a vast, never-ending expansion of credit. So what happens when defaults start piling up in the shadow banking system? The central bank/state authorities conjure up a couple trillion yuan (a.k.a. liquidity) so defaults go away: here, Mr. Bad-Risk-Default, is government-issued credit so you can pay off your defaulted private-sector loan. Everybody saves face, private losses have been transferred to the public sector/state, problem solved.

Small banks over-extended and technically insolvent? Solution: print or borrow another trillion and give the insolvent bank the dough. Problem solved!

Here in the U.S., the solution to student loan debt hitting an astronomical $750 billion was to double the student loan debt to $1.5 trillion. When faced with an extreme that’s blowing up, double-down and do more of what’s failing.

Once $1 trillion of that soaring student loan debt is in default, the solution will be for the Federal Reserve/Treasury to print or borrow another trillion dollars and hand it to the debtors so they can pay off their private-sector student loans. Problem solved!

There is literally no extreme that can’t be doubled down. Tens of millions of disenfranchized folks getting restless and voting for the wrong candidates? Solution: print or borrow another trillion and distribute it as Universal Basic Income: problem solved. Repeat annually, and if it’s still not enough to quell revolt, double-down: print or borrow $2 trillion more every year to double everyone’s UBI bribe, oops, I mean entitlement.

In terms of system structure, extremes are not stable. They beg for a reversion to the mean. Extremes in finance, credit and debt are akin to monoculture crops: flood the fields with fertilizers, herbicides and insecticides, and the apparent stability of the monoculture is preserved (at great expense, but who cares? Just print or borrow another trillion.)

But the system isn’t stable. It’s brittle and fragile. Eventually some non-linear dynamic manifests: a blight that’s resistant to the herbicide destroys the crop, an insect that’s resistant explodes out of nowhere and eats the crop, etc. Pushing the system to an extreme only made it more vulnerable to an increasingly broad range of disruptors.

Systems made to appear stable by brute-force application of extremes will never be stable. Stability arises from all the features erased by brute-force application of extremes.

Debt at an extreme? Double-down. (Student loan version)

Debt at an extreme? Double-down. (China version)

Debt at an extreme? Double-down. (U.S. version)

Extremes beget extremes. Extremes of financialization lead to extremes of wealth which lead to extremes of class disparity which lead to extremes of political polarization which lead to destabilization and collapse.

By all means, double down again in the next crisis, Leadership Elites. That should destabilize the status quo for good and your privileges will go the way of all the other extremes: into the dustbin of history.

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At readers' request, I've prepared a biography. I am not confident this is the right length or has the desired information; the whole project veers uncomfortably close to PR. On the other hand, who wants to read a boring bio? I am reminded of the "Peanuts" comic character Lucy, who once issued this terse biographical summary: "A man was born, he lived, he died." All undoubtedly true, but somewhat lacking in narrative.

I was raised in southern California as a rootless cosmopolitan: born in Santa Monica, and then towed by an upwardly mobile family to Van Nuys, Tarzana, Los Feliz and San Marino, where the penultimate conclusion of upward mobility, divorce and a shattered family, sent us to Big Bear Lake in the San Bernadino mountains.

The next iteration of family took us to the island of Lanai in Hawaii, where I was honored to join the outstanding basketball team (as benchwarmer), and where we rode the only Matchless 350 cc motorcycle on the island, and most likely in the state, through the red-dirt pineapple fields to the splendidly isolated rocky coastline. In 1969-70, this was the old planation Hawaii, where we picked pine in summer beneath a sweltering sun.

We next moved to Honolulu, where I graduated from Punahou School and earned a degree in Comparative Philosophy (i.e. East and West) at the University of Hawaii-Manoa. The family moved back to California and I stayed on, working my way through college apprenticing in the building/remodeling trades.

I was quite active in the American Friends Service Committee (Quakers) and the People's Party of Hawaii in this era (1970s).

I next moved to the Big Island of Hawaii, where my partner and I built over fifty custom homes and a 43-unit subdivision, as well as several commercial projects.

Nearly going broke was all well and good, but I was driven to pursue my dream-career as a writer, so we moved to the San Francisco Bay Area in 1987 where I worked in non-profit education while writing free-lance journalism articles on housing, design and urban planning.

Within a few years I returned to self-employment, a genteel poverty interrupted by an 18-month gig re-organizing the back office of a quantitative stock market analyst. I learned how to lose money in the market with efficiency and aplomb, lessons I continue to practice when the temptation to battle the Monster Id strikes.

Somewhere in here my first novel was published by The Permanent Press, but alas it fell still-born from the press--a now monotonous result of writing fiction. (Seven novels and I still can't stop myself.)

I started the Of Two Minds blog in May 2005 as a side project of self-expression, and in an unpredictable twist of evolutionary incaution, that project has ballooned into a website with about 3,500 pages that has drawn almost 20 million page views.

The site's primary asset may well be the extensive global network of friends and correspondents I draw upon for intelligence and analysis.

The blog is #7 in CNBC's top alternative financial sites, and is republished on numerous popular sites such as Zero Hedge, Financial Sense, and David Stockman’s Contra Corner. I am frequently interviewed by alternative media personalities such as Max Keiser, and am a contributing writer on

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