Here’s Why the Status Quo Is Doomed

The central illusion of this era is that the Status Quo can be reformed or saved.All we need to do is (or so we’re told):

1. Get money out of politics

2. Re-impose the Glass-Steagall Act on banking

3. Close the tax loopholes exploited by corporations and the wealthy

4. Overturn the Supreme Court decision giving corporations personhood

5. Restrict the Imperial War Powers of the president

6. Restore the civil liberties stripped by post-9/11 legislation

and so on. All good-governance, all prudent, all necessary.

But none of these reforms–or any of the other good-governance tweaks habitually promoted by left, right, center and Libertarian–can save the Status Quo. For what’s wrong with the Status Quo is systemic: tweaking rules and limiting excesses may make us feel like we’ve accomplished something useful, but that sense of accomplishment is illusory.

The problem is the Status Quo only works in a world with plenty of room to expand–a world of virgin resources ripe for exploitation (oops, I mean development), easy-to-extract abundant energy, and an expanding population with rising productivity and little debt.

In this world, there’s plenty of room for everything to expand: resource extraction, energy consumption, population, productivity, income and debt.

This is a world optimized for growth: there is so much material and labor capital available, enormous quantities can be squandered on wars, mal-investment, elite excesses and plain old waste.

The world optimized for growth begins with little or no debt. Debt, as we know, is a way to consume future earnings today. If $1 in income can be leveraged into $10 of debt, the worker earning the $1 can consume $10 of goods and services today, or buy $10 of assets.

The world optimized for growth is also optimized for banks and central states.Banks earn money as debt expands, and government tax revenues explode higher as population, earnings, productivity, commerce and profits all expand.

The Status Quo has been optimized for this world of limitless growth. There’s one tiny little problem with this: the real world has limits, and so does the financial world of debt, interest and taxes.

Does this look like a world with plenty of room for everything to expand?

How about this?

Does this look like a world ripe for limitless expansion of debt to fuel limitless growth of consumption?

Here’s the problem: when the world the Status Quo has been optimized to exploit can no longer expand, the Status Quo doesn’t just slow–it implodes.When incomes stop expanding, debt eventually stops expanding, which means consumption (i.e. “growth”) stops expanding.

When debt and the consumption it fuels both stop expanding, the system implodes because it’s based on a simple iron directive: the system requires more of everything to sustain itself: more households and enterprises borrowing more money to consume/produce more, and paying more taxes as commerce, consumption and debt all expand.

There is no way for less to be produced, purchased, consumed and borrowed,or for the number of workers and consumers to decline. The system is not just optimized for growth, it is entirely dependent on expansion of everything for its survival.

Once the number of workers starts declining, the social security/old-age pension system implodes.

Once households and enterprises stop borrowing more and start defaulting on existing debt, the banking sector implodes.

Once household consumption starts declining, the retail sector implodes.

Once tax revenues plummet and nation-states destroy their currencies with excessive borrowing and/or money-printing, nation-states implode.

The world is shifting from unlimited growth to limits and Degrowth. The Status Quo that is completely dependent on growth is doomed–an implosion that no amount of reform can stave off.

Degrowth, Anti-Consumerism and Peak Consumption (May 9, 2013)

When Conventional Success Is No Longer Possible, Degrowth and the Black Market Beckon (February 7, 2014)

And the Next Big Thing Is … Degrowth? (April 7, 2014)

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  • A great and timely article Mr. Smith!


    “Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits.” — Sir Josiah Stamp, President of the Bank of England in the 1920s, the second richest man in Britain.

    I know many people have a great deal of difficulty comprehending just how many wars are started for no other purpose than to force private central banks onto nations, so let me share a few examples, so that you understand why the US Government is mired in so many wars against so many foreign nations. There is ample precedent for this.

    More than 50% of US Government Spending Goes to the Military 2010 US Spending Priorities

  • Here is a topic most have no idea or clue about and myself as well until I came across this explanation years ago in my research of U.S. history!

    14th Amendment Citizenship: Citizen = SLAVE

    Prior to the alleged ratification of the 14th Amendment, there was no legal definition of a “citizen of the United States”, as everyone had primary citizenship in one of the several states. The Constitution referred to the sovereign state citizen, and no one else. Those who went to Washington, D.C. or outside the several states were commonly called “citizens of the United States.” In the Constitution for the United States, the term was used to identify state citizens who were eligible under the suffrage laws to hold office, and they were required under the Constitution to have primary allegiance to one of the several states.

  • David_Jodrey_PhD

    One point that might be worth making – debt is NOT “a way to consume future earnings today.” Nothing that is ever consumed comes from the future. It comes from what is available today. What is being consumed is not “future earnings” – it is “present goods” not currently owned by the debtor, but which are being transferred to the debtor on the promise of repayment.

  • Is it CAPITALISM itself? Is THAT the problem?

  • jadan

    Economists do not define debt. They assume it’s existence as a natural element of our economic environment without specifying what it is or why it exists.

    Debt is a tax imposed on those who borrow money. The people who have money charge a fee to those who do not have money. Ideally, a person borrows money to produce goods or services that earn more than the amount borrowed. When the borrower can pay back his loan + interest, this means the economy is growing and his labor is successful. The investor/creditor is successful, too, and he did no work. He gets his money for nothing.

    The “limits to growth” Smith is referring to are physical limits and in these terms the “status quo” is ultimately doomed by a “peak oil” type of situation.

    But our current dilemma in 2015 is not the result of scarcity of raw materials or of “lebensraum” as Hitler used to call it. There is a scarcity of money. There’s plenty of oil, steel, copper, cement. pork bellies, and so on. There is not enough money in the hands of consumers who are therefore unable to consume. The economy stagnates and ultimately implodes from an accumulation of debt.

    The cost of money is too high, even though the Fed Funds rate is just 0.25%. Why is this cost so high? Because there is an increasing number of people who believe they are entitled to money for nothing. This is the American Dream: to retire young and live off “investments”, ie, other people’s labor. The elite, the 1%, the aristocracy, have always had their money for nothing. Warren Buffet profits from the exorbitant interest paid by a buyer of a piece of shit mobile home. This poverty-level buyer does not enjoy the Fed Funds rate. A financial sector has grown to become more than 20% of the GDP. Money-making-money is a huge tax on all productive enterprise. This is why the status quo is doomed.

    The status quo is being cannibalized by.the money-for-nothing group. This group includes your sainted grandmother, by the way, and all retirees who depend on pension fund investments and so on and on.The elite and the retired would like to see that little minion, Janet Yellen, raise interest rates, but the conflict between labor and investors cannot be reconciled. The status quo is doomed because the financial system represented by this diminutive white haired minion is doomed. It is failing as we speak. It has never worked for the mass of people.

    Once again, Smith, your diagnosis has fallen short of the mark because you cannot envision an alternative financial structure. It is possible to eliminate debt-money and radically reduce the debt load of this economy. We need a financial revolution to do it. As for the natural limits to growth, the low-to-no growth economy, that’s something we will be better equipped to deal with when we have eliminated the privatized financial system that is destroying our nation.

  • Mathew

    This article is full of false assumptions and incorrect statements. The truth is there are no limits to growth because there are no limits to the creativity and genius of the human mind. This article is a simple extension of neo-Malthusian thinking which has been debunked many times over.