What Went Wrong With the 21st Century?

Fools and Rascals

And it’s time, time, time

And it’s time, time, time

It’s time, time, time that you love

And it’s time, time, time…

– Tom  Waits

Tom Waits rasps about time

“We made about $15,000,” came the reply from our eldest son, a keen cryptocurrency investor.

“Bitcoin briefly pierced the $3,500 mark – an all-time high. The market cap of the entire crypto market shot up, too… with daily trading volume also rising.

“And remember, this is still a tiny market. Most people don’t own any crypto-currencies. Most people don’t even know what crypto-currencies are. The whole market is only one sixty-fifth the size of the entire gold market. There’s a lot of room to grow. Eventually, everyone will be using cryptos.”

Bitcoin Daily 2016-2017

Bitcoin is going bonkers again – from a technical perspective, it has just overcome another major resistance level. The chart is highly reminiscent of the chart of gold in the late 1970s (see further below) - Click to enlarge

Today, we stand back – and our mouth drops open as we behold a bigger picture – a breathtaking tableau worthy of Bruegel or perhaps Bosch. Yes, there are the sinners and the saints, the fools and the rascals, the blessed and the damned. All there.

The scene brought to light by the latest connecting of dots answers the No. 1 economic question of our time: What went wrong with the 21st century? The simple answer: Economists backed a truck over it.

Gold Fixing Price 1978-1980

Gold in the late 1970s: the chart pattern is eerily reminiscent of the one that has formed in BTC over the past few years. Of course, bubble patterns almost always display certain similarities, but they are particularly conspicuous in this case (if one zooms further out and includes the rally into the initial gold peak in 1974 and the subsequent mid-cycle correction into 1976, the similarities are even more striking – we will show such a longer-term comparison in an upcoming post). - Click to enlarge

Flaming Dud

To bring readers fully up to speed, the 21st century has been a flaming dud. In practically every way. Despite more new technology than ever, more PhDs, more researchers, more patents, more earnest strivers than ever before sweating to move things ahead…

And despite more “stimulus” from the Fed ($3.6 trillion) than ever in history, U.S. GDP growth rates are only half of those of the last century. And household incomes, after you factor in inflation, are flat.

In fact, by some calculations – using non-fiddled measures of inflation – growth has been negative for the whole 21st century. Meanwhile, there are more people tending bar or waiting tables… and fewer people with full-time breadwinner jobs. And productivity and personal savings rates have collapsed. And those are only the measurable trends.

Political and social developments have been similarly dud-ish – including the longest, losingest war in U.S. history,  the biggest government deficits, the most vulgar public life, the least personal freedom and, in our hometown, Baltimore, a record murder rate.

What went wrong? Herewith, a hypothesis. It suggests three “causes,” all three linked by a single shared element: time.

Elastic Measure

First, we no longer have real money. We have been operating with the feds’ fake dollars since 1971, when President Nixon finally took the U.S. off the gold standard. These fake dollars have no connection to time.

They are unlimited in supply, unrestrained by available resources, and unhinged from the real world. Like an elastic tape measure, they give you no way to honestly or accurately measure value.

So mistakes, misallocation of resources, and claptrap projects waste time and resources. Some examples: On Main Street, malls got overbuilt – as retailers expanded with cheap credit to sell products to consumers who couldn’t afford them.

On Wall Street, private equity hustlers and corporate insiders borrowed heavily at ultra-low rates, paid themselves huge fees and bonuses and left their businesses to go broke (Sears…  Payless).

In Washington, the Deep State used fake money to transfer real wealth to itself, its clients, and its cronies (defense contractors, Big Pharma, insurers, even private prison operators). The federal government is now looking at average deficits of $1 trillion a year over the next 10 years – which would have been impossible to fund with real money.

Debt Securities and Loans, GDP, Federal Debt compared 1970-2017

Mountains of debt and not much to show for it - Click to enlarge

Debt is a burden that the past imposes on the future. As the weight increases, it becomes harder and harder to move forward. (In their book This Time Is Different, Harvard professors Rogoff and Reinhart showed that as debt increases, growth declines.)

Third, we waste too much time. Internet revolutionaries had scarcely found their pitchforks when – in these very pages – we wondered whether the innovation would turn out to be a great boon to the economy or just a time waster like TV.

Now, 20 years into the Internet Era – with all its POTUS tweets and Facebook whistles – we can see it is a bust. At least for economic growth. The average Joe now spends 5.6 hours a day consuming digital media (that’s in addition to the five hours he spends watching TV!).

Is he learning how to increase productivity? Is he sharpening his masonry skills? Is he studying ancient Greek or brushing up on his calculus? Nah… he’s on a porno site. Or a political rant on Twitter. Or a Facebook blab-fest.

And precious time goes by.