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If we no longer have the capacity to distinguish between moral legitimacy and self-serving corruption, then we might as well eliminate the Middleman and vote directly for Pfizer or Merck. There’s a fancy word for cutting out the Middleman: disintermediation. Removing intermediaries who take a cut but neither produce nor add value makes perfect sense, reducing costs and increasing efficiency.

So one index or asset or another hits a new high, wow, more proof everything is so robust and healthy, we never had it so good–right up to the seizure and collapse. Some readers occasionally make the point that I’ve been predicting a market crash for ten years and been dead-wrong for ten years.

What seemed so permanent for 13 long years will be revealed as shifting sand and what seemed so real for 13 long years will be revealed as illusion. Magical thinking isn’t optimism, it is folly. Predictions are hard, especially about the future, but let’s look at what we already know about 2022.

In other words, our economy and society have been optimized for failure. If we look at the fragility and instability of essential systems, it’s clear that 2022 will be the year of breakdown. Let’s start by reviewing how systems break down, a process I’ve simplified into the graphic below.

The interesting feature of the ‘last chance to get out’ is nobody sees it until after the crash has done its damage. Every asset bubble has a last chance to get out before the crash point that becomes obvious in the aftermath. But at the time, this last opportunity to exit before the wipeout is difficult to identify for a number of reasons.

What would be truly optimistic would be to surrender our dependence on asset bubbles and malinvested debt to prop up an unstable delusion of effortless “wealth.” The most sacred liturgy of American culture is to always be positive and optimistic.

Christmas Eve seems like a good time to release my anthem for 2022, You Owe Me.

Go ahead and become dependent on asset bubbles and the free spending of the top 5%, and optimize your economy to serve this “growth,” but be prepared for the consequences when the costs of this optimization and dependency come due. Here’s the problem with concentrating most of the income and wealth in the top 5%:

How vulnerable is your personal supply chain? For the average American, the answer is: very. Americans consider abundance and ready availability as birthrights so basic they’re like the air we breathe. The idea that shelves could become bare and stay bare is incomprehensible. yet that is the world we’re entering, for a number of complex reasons.

But when the Fed’s fundamental powerlessness is revealed and the buy-the-dippers have been forced to liquidate, the true meaning of “mild” contagion will become apparent. Since I’d rather not be renditioned to a rat-infested, freezing cell in an unnamed ‘stan, I’m circumspect about viruses in general.

Are we smart enough to keep our oh-so-easily conjured riches? If we continue to believe that doing more of what’s failed spectacularly will deliver permanently expanding riches, then the answer is no.

When the market goes bidless, it’s too late to preserve capital, never mind all those life-changing gains. Everyone with some gray in their ponytails knows the stock market has ticked every box for a bubble top, so everybody get in crash positions:

If Xi’s gambit succeeds, China could become a magnet for global capital. If success is only partial or temporary, China may well struggle with the structural excesses that are piling up not just in China but in the entire global economy. As noted here last month, the Chinese characters that comprise “crisis” are famously–and incorrectly–translated as “danger” and “opportunity.”

We have an extraordinary opportunity to transform our unsustainable “waste is growth” economy and toxic inequality to sustainable systems that optimize well-being rather than collapse. The possibility that the United States could fragment is no longer a marginalized topic.

So here we are, witnessing the switch from risk-on to risk-off in real time. All bubbles share common characteristics: during the euphoric expansion, participants are richly rewarded for buying every dip and for confidently embracing the belief that this time it’s different.

But alas, humans do not possess god-like powers, they only possess hubris, and so all bubbles pop: the more extreme the bubble, the more devastating the pop. Long cycles operate at such a glacial pace they’re easily dismissed as either figments of fevered imagination or this time it’s different.

But alas, humans do not possess god-like powers, they only possess hubris, and so all bubbles pop: the more extreme the bubble, the more devastating the pop. Long cycles operate at such a glacial pace they’re easily dismissed as either figments of fevered imagination or this time it’s different.

The value of these super-abundant follies will trend rapidly to zero once margin calls and other bits of reality drastically reduce demand. Inflation, deflation, stagflation–they’ve all got proponents. But who’s going to be right? The difficulty here is that supply and demand are dynamic and so there are always things going up in price that haven’t changed materially (and are therefore not worth the higher cost) and other things dropping in price even though they haven’t changed materially.

If one possible result of the current system is collapse, realizing the system itself must be changed isn’t doom-and-gloom, it’s problem-solving. Those of us who discuss collapse are generally dismissed as doom-and-gloomers, the equivalent of people who watch dash-cam videos of vehicle crashes all day, reveling in disaster.