History teaches us that there is no free lunch, reminds Dr. Ben Hunt, publisher of EpsilonTheory.com.
And science informs us that even the most simple systems become nearly impossible to predict or control with 100% precision as time and variables change.
But our society today is ignoring these lessons. It’s betting that the increasingly excessive distortions required to keep the status quo continuing will succeed, and come at no cost.
That’s a losing bet, warns Hunt:
Society burns itself on a really hot stove every three or four generations.
I think we’re at that point where the Millennials coming of age who are having to wrestle with what the Baby Boomers have done to the world. They’re going to end up burning themselves on this hot stove. The hot stove of looking to government as the answer for everything that ails you. Of looking towards your political leaders as somehow able to provide never-ending exponential growth in comfort and standard of living.
And ultimately, they’ll burn themselves — there’s no such thing as a free lunch. You’ve got pay for these things in one way or another — in terms of resource extraction, in terms of taxation, in the form of sacrifice of individual liberties.
There’s a price to be paid, though. That’s the hot stove that I’m talking about. That hot stove can manifest itself in war. That’s certainly happened in the past. It could manifest itself in the subordination or forfeit of individual liberties. That’s certainly happened in the past.
There are any number of ways in which that burning on the hot stove could happen.
Take the 0% interest rate policy that made money so readily available and so cheap. I really do think it saved the world in March of 2009. I get it. I think that’s what the central bank was created to do – to be that lender of last resort. But when it takes the position as not the lender of last resort but the lender of first resort? The lender of constant resort? That’s where we are now.
This is the consequence of over-financialization: if I’m running a corporation, I’m trying to do well by myself, by my shareholders, why in the world would I take a risky action like actually building a new factory, of actually investing for growth? Why would I take that sort of risk when I can borrow the money essentially risk-free and use it to do something that is risk-free like buy back my stock? Like give the dividend to my shareholders. All of which things drive up the value of the asset – the financial asset – all of these things which drive up the earnings per share. But none of these things are adding to productivity. I’m not investing in technology or property, plant, and equipment, in order to squeeze more juice out of my sales dollar. I’m just not squeezing at all. I’m able to use that addiction that our society has to free money, to cheap money, to generate wealth for myself and my shareholders in this non-productive way.
Is there a cost to that?” Of course, there is. We’re told that the stimulus is costless. But what it costs us, in truth, is that we’re not taking risks anymore for the future. We’re not investing in the future anymore. And where do we end up with that? We end up with essentially zombie societies and zombie economies, which just makes the ultimate burning on the hot stove that much worse.
Click the play button below to listen to Chris’ interview with Ben Hunt (44m:26s).
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