Make Your Choice: Change by Pain or Insight

Most experienced investors know the four most dangerous words are: This time is different.

It never is.

And yet one of my key predictions here at Peak Prosperity is that The next twenty years will be completely unlike the last twenty years.

So am I saying that things really will be different this time?

Yes, I am. But to understand why, you have to look closely at the unprecedented moment in history in which we live, as well as how the Three E's – the Economy, Energy and Environment – all tie together now in a way they never have before.

For those who prefer their conclusions right up front, the simplest summary I can provide is that everything we think we know about "how things work" is just plain wrong.

This explains why, among many other grotesque distortions, the stock and bond markets are spectacularly overpriced and overvalued right now.

This danger is important to be aware of because when things correct, as they inevitably must, the next crash will be incredibly damaging. It could be as profound as that which dethroned Spain as a world power, permanently.

Peak Prosperity user Gyurash put this risk in context within his comment to our recent podcast on Economics for Independent Thinkers:

The mention of Paul Volker was interesting. I remember listening to a lecture given by Mr. Volker played on public radio in the mid 80s. He talked about the Spanish empire in the 16th century and the easy money train they had coming from South American gold and silver. He said that although it seemed to create great wealth it also made for a false economy in Spain. In addition to creating price bubbles, the Spanish did not use it to build much of anything other than big villas, built by itinerant foreign labor by the way, so when the gold and silver flow slowed when the biggest mines were effectively depleted, their economy crashed so hard that it never recovered, even up to today. (Source)

Delusional Thinking

What's worse than wishful thinking? Delusional thinking.

The sort of ideas that harm rather than help those who hold them.

Of the many current policy delusions I could rail about, perhaps the greatest of them all is the quite-impossible belief that we can have infinite growth on a finite planet.

I know, I know, refuting this is so brain-dead easy to debunk that it seems pedestrian, if not childishly so, to raise it here again. It's quite an impossible proposition.

Even the most cursory of reviews of mining data (just one of many possible examples), show that many critical ores and minerals are vastly more difficult and expensive to extract and bring to market than they were just a few decades ago. And the trendlines keep getting worse.

But let's go through this once again, because it's such an important point. For those of you already on my side of the boat, please bear with me. Perhaps something new will emerge for you on this next go around.

The Harsh Math

Exponential expansion requires not just some new minerals coming to market, but exponentially more.

It works out like this. Suppose that 100 units of copper were produced in year 1, and output (as demanded by economic growth) was expanding at a 3% rate. How long would it take for production to double? The answer is that after 24 years we'd find that 203 units were being produced. So a 3% growth rate means that it takes only 24 years to fully double production.

However, the more interesting fact is that over that same 24-year stretch, if we add up each year's production into a cumulative total we discover that 3,546 units of copper had been produced. How much copper would you guess was produced over the prior 24-year stretch (the one that got us to 100 units in the first place)?

The answer is just 1775 units. In other words, half the amount produced during the next doubling. Going back further and adding up all of the doublings of copper production throughout all of history we'd discover that each new doubling produced (and consumed) as much as the sum total of all the prior doubling periods combined.

You can prove this to yourself by looking at a doubling sequence such as 0.25, 0.5, 1, 2, 4, 8, 16, 32 etc. Note that 4 is larger than (0.25 + 0.5 + 1 + 2) and that 8 is larger than (0.25 + 0.5 + 1 + 2 + 4) and that 16 is larger than (0.25 + 0.5 + 1 + 2 + 4 + 8) and so on -- into infinity.

Again, each new doubling involves an increase that is larger than the combined values of all the prior doublings in history.

For the visually-minded, here's that same idea expressed in an image:

How Many More Doublings Can We Possibly Have From Here?

Only the most delusional would argue that we can dependably double our extraction of key natural resources forever.

Every two decades (or so), will we always be able to use twice as much farmland, twice as much fish in the sea, twice as much oil in the ground, as has been used before throughout all of human history?

Of course not. Planet Earth is a finite system.

This is why I claim that everything we think we know about "how things work" is wrong. Our entire economic and financial systems, their associated monetary models and their current financial asset prices, are predicated on the principle of continuous growth. And not just any sort of growth: Exponential growth. Predictable doubling -- forever.

Look, it's ridiculously easy to prove that there won't always be twice as much copper (or nearly any other key natural resource) as has been extracted throughout all of prior human history. Things run out. They deplete. They become more dilute as the high grades are exploited first.

At some point, doubling becomes impossible. That's when you're past the point where half has been extracted and half still remains in the ground. After that, there are exactly zero doubling periods remaining! That's just elementary math.

Why care?

Because once the doubling periods are over, every single economic model and financial asset that is predicated on continuous expansion breaks. Our systems stop steadily growing; and instead start increasingly shrinking.

This not a hard concept to grasp, intellectually, for most people with an open mind. But in practice, because it challenges our comfortable understanding of the world, because it collides with an entire Disney World of incompatible social belief systems, it's pretty much impossible for the many people to even begin to wrestle with. Forget about a mainstream economist or central banker, whose salary requires them to adhere to the status quo.

The warning here is that we our deluding ourselves as a society. We are herding ourselves, lemming-like, straight towards the cliff ledge.

Think Critically!

Our mission here at PeakProsperity.com is to Create a World Worth Inheriting. While we help people make informed decisions to imbue their lives with greater abundance and satisfaction today, it's our dedication to the long-term picture that shapes everything we do.

Very few voices are standing about waving their arms in the air like we are, warning of the approaching cliff. We're aware that the point of no return might still be several decades out into the future, but we also realize that it could already be behind us. It's nearly impossible to know right now given the complex system that is our planet -- but given the existential risks involved, our opinion is that everyone should be mobilizing in response to this arriving (arrived?) crisis.

We often get labeled as narrow-minded “Malthusians". Or accused of failing to account for human ingenuity. (Neither is accurate, we think.)

But in reality, we're simply data driven. The facts are what they are. Logic is what it is.

And we get it. It's both a factual and a logical nightmare for the infinite growth crowd that the earth is finite.

But as Einstein famously quipped:

And as you wrap your brain around the limits to growth, remember that you're subject to the same comprehensive programming that envelops us all. The messaging that constantly reinforces the idea that endless growth is what we need, and what we can expect.

This programming is subtle, reassuring and ubiquitous; which makes it hard to resist. Here's a prime example:

(Source)

To an economist like Bernanke, there are only virtuous expansions. Of course, the sort of expansion he refers to is exponential growth. Which is absolutely destined to fail in the long run (and now, maybe, the short).

And when that happens, the fallout will be spectacular and highly destructive to the hopes and dreams of literally billions of people.

Make Your Choice: Change By Pain Or Insight

What's unclear to me is if there can be any meaningful recovery from this next crash, whenever it happens and however long it takes.

To return to the opening piece of this article, while I know that this time is different are dangerous words for investors to believe, the impending collision between delusional infinite growth thinking and resource limits and other realities will appear to the average observer like a gigantic change. But, in fact, it simply will mean that humans are subject to the same limits as any other life form on earth.

In other words, it really won't be different this time.

In boy-meets-girl story form, the plot line of the natural process for all forms of life is:

  1. organism finds tasty energy source
  2. organism expands exponentially into that energy source
  3. energy source dwindles even as organism continues into population overshoot, and then
  4. happy times turn into tough times, and organism population plummets

Given that literally everything we hold dear and take for granted, such as well-stocked supermarkets, 24/7 electricity, and an appreciating retirement portfolio are all themselves dependent on an economic model that requires perpetual exponential expansion, several questions emerge.

How can I protect myself, my family and those I care about? How can I secure a prosperous future? What do I need to do to develop the right mental models and belief system to deal effectively with the coming challenges?

You can either address these questions head-on now, while the world still works the way we're accustomed to. Or later, under crisis conditions.

We've learned that there are two ways that people change their beliefs and then their actions: by pain or by insight.

Most people go the pain route. And in the process, they waste a lot of valuable time that could have been spent constructively. It's only after the heart attack, the divorce, the backing over the family dog while drunk—moments of extreme pain—that most people will begin to actively face the idea that they need to make different decisions in life.

But it doesn't have to be that way. Part of the beauty of being human is that we can learn from observation, reflection and experience, and can adapt. Critical thinkers have this ability to change by insight. They use new information to put new behaviors into practice until those practices become new habits. And with better habits, we achieve better destinies.

So which route will you choose? Pain or insight?

The story told by the Three Es is loaded with the potential for plenty of painful moments over the next few decades. Sadly, a lot of people will not take precautionary steps far enough in advance to matter. They're just not focusing on the risks right now. As a result, much of the world will be forced to change its behavior via the pain route.

Use this awareness as a sense of urgency to prepare now. To secure your future prosperity, as well as to help those regretting that they didn't follow your lead.

In Part 2: Steps For Changing By Insight, we lay out our prescriptive guidance what what to do now, in a world saddled with record debts, and a debt-based system of money that itself is utterly and completely dependent on infinite expansion, where something's got to give

If you believe in eternal infinite growth, then sure, stay invested in stocks and bonds and go ahead and buy the dips.

But if you don't, take steps today to change your life by insight, secure your future prosperity, and serve as a model for others.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

Here's a question unique to our times: "Should I tell my father 'Happy Father's Day,' even though he (she?) is now one of my mothers?"

Father's Day was four days ago, yes, but this story is just weird enough to report on. One enjoyable line to read was this gem from Hollywood Gossip: "Cait is a woman and a transgender icon, but she is also and will always be the father of her six children."

RELATED: If Bruce was never a he and always a she, who won the men's Olympic gold in 1976?

Imagine reading that to someone ten — even five — years ago. And, honestly, there's something nice about it. But the strangeness of its having ever been written overpowers any emotional impact it might bring.

"So lucky to have you," wrote Kylie Jenner, in the Instagram caption under pre-transition pictures of Bruce Jenner.

Look. I risk sounding like a tabloid by mere dint of having even mentioned this story, but the important element is the cultural sway that's occurring. The original story was that a band of disgruntled Twitter users got outraged about the supposed "transphobic" remarks by Jenner's daughter.

But, what we should be saying is, "who the hell cares?" Who cares what one Jenner says to another — and more importantly and on a far deeper level — who cares what some anonymous Twitter user has to say?

When are we going to stop playing into the hands of the Twitter mob?

When are we going to stop playing into the hands of the Twitter mob? Because, at the moment, they've got it pretty good. They have a nifty relationship with the mainstream media: One or two Twitter users get outraged by any given thing — in this case Jenner and supposed transphobia. In return, the mainstream media use the Twitter comment as a source.

Then, a larger Twitter audience points to the article itself as proof that there's some kind of systemic justice at play. It's a closed-market currency, where the negative feedback loop of proof and evidence is composed of faulty accusations. Isn't it a hell of a time to be alive?

These days, when Americans decide to be outraged about something, we really go all out.

This week's outrage is, of course, the Trump administration's "zero tolerance" policy toward illegal immigration along the southern border. Specifically, people are upset over the part of the policy that separates children from their parents when the parents get arrested.

RELATED: Where were Rachel Maddow's tears for immigrant children in 2014?

Lost in all the outrage is that the President is being proactive about border security and is simply enforcing the law. Yes, we need to figure out a less clumsy, more compassionate way of enforcing the law, but children are not being flung into dungeons and fed maggots as the media would have you believe.

But having calm, reasonable debates about these things isn't the way it's done anymore. You have to make strong, sweeping announcements so the world knows how righteous your indignation is.

That's why yesterday, the governors of Maryland, Massachusetts, New York, Rhode Island and Connecticut declared they are withholding or recalling their National Guard troops from the U.S.-Mexico border until this policy of separating children from their parents is rescinded.

Adding to the media stunt nature of this entire "crisis," it turns out this defiant announcement from these five governors is mostly symbolic. Because two months ago, when President Trump called for 4,000 additional National Guard troops to help patrol the border, large numbers of troops were not requested from those five states. In fact, no troops were requested at all from Rhode Island. But that didn't stop Rhode Island's Democratic governor, Gina Raimondo, from announcing she would refuse to send troops if she were asked. She called the family separation policy, "immoral, unjust and un-American."

There's so much outrage, we're running short on adjectives.

The governors of Connecticut, Massachusetts, and New York all used the word "inhumane" in their statements condemning the Trump administration policy. There's so much outrage, we're running short on adjectives.

In a totally unrelated coincidence, four of these five governors are running for re-election this year.

I've made my position clear — separating these children from their parents is a bad policy and we need to stop. We need to treat these immigrants with the kind of compassion we'd want for our own children. And I said the same thing in 2014 when no one cared about the border crisis.

If consistency could replace even just a sliver of the outrage in America, we would all be a lot better off.

I think we can all agree, both on the Left and the Right, that children who have been caught up in illegal immigration is an awful situation. But apparently what no one can agree on is when it matters to them. This past weekend, it suddenly — and even a little magically — began to matter to the Left. Seemingly out of nowhere, they all collectively realized this was a problem and all rushed to blame the Trump administration.

RELATED: These 3 things need to happen before we can fix our border problem

Here's Rachel Maddow yesterday:

I seem to remember getting mocked by the Left for showing emotion on TV, but I'll give her a pass here. This is an emotional situation. But this is what I can't give her a pass on: where the heck was this outrage and emotion back in 2014? Because the same situation going on today — that stuff Maddow and the rest of the Left have only just now woken up to — was going on back in July 2014! And it was arguably worse back then.

I practically begged and pleaded for people to wake up to what was going on. We had to shed light on how our immigration system was being manipulated by people breaking our laws, and they were using kids as pawns to get it done. But unlike the gusto the Left is using now to report this story, let's take a look at what Rachel Maddow thought was more important back in 2014.

On July 1, 2014, Maddow opened her show with a riveting monologue on how President Obama was hosting a World Cup viewing party. That's hard-hitting stuff right there.

On July 2, 2014, Maddow actually acknowledged kids were at the border, but she referenced Health and Human Services only briefly and completely rushed through what was actually happening to these kids. She made a vague statement about a "policy" stating where kids were being taken after their arrival. She also blamed Congress for not acting.

See any difference in reporting there from today? That "policy" she referenced has suddenly become Trump's "new" policy, and it isn't Congress's fault… it's all on the President.

She goes on throughout the week.

On July 7, 2014, her top story was something on the Koch brothers. Immigration was only briefly mentioned at the end of the show. This trend continued all the way through the week. I went to the border on July 19. Did she cover it? Nope. In fact, she didn't mention kids at the border for the rest of the month. NOT AT ALL.

Do you care about immigrant kids who have been caught in the middle of a broken immigration system or not?

Make up your minds. Is this an important issue or not? Do you care about immigrant kids who have been caught in the middle of a broken immigration system or not? Do you even care to fix it, or is this what it looks like — just another phony, addicted-to-outrage political stunt?

UPDATE: Here's how this discussion went on radio. Watch the video below.

Glenn gives Rachel Maddow the benefit of the doubt

Rachel Maddow broke down in tears live on her MSNBC show over border crisis.

Progressives think the Obamas are a gift to the world. But their gift is apparently more of the metaphorical kind. It doesn't extend to helpful, tangible things like saving taxpayers money. Illinois has approved $224 million to pay for street and transportation upgrades around the planned site of the Obama Presidential Center. The catch is that Illinois taxpayers will have to cover $200 million of that cost. For a presidential museum.

Eight years of multiplying the national debt wasn't enough for Barack Obama. Old fleecing habits die hard. What's another $200 million here and there, especially for something as important as an Obama tribute center?

RELATED: Want to cure millennials' financial woes? Reform the payroll tax.

That's all well and good except Illinois can't even fund its pension system. The state has a $137 billion funding shortfall. That means every person in Illinois owes $11,000 for pensions, and there is no plan to fix the mess. Unless Illinois progressives have discovered a new kind of math, this doesn't really add up. You can't fund pensions, but you're going to figure out a way to milk the public for another $200 million to help cover the cost of a library?

It's hard to imagine who in their right mind would think this will be money well spent. Well, except for maybe Chicago Mayor and former Obama Chief of Staff Rahm Emanuel who said, "The state's… investment in infrastructure improvements near the Obama Center on the South Side of Chicago is money well spent."

Some presidential overreach lasts longer than others.

The spending has already been signed into law, even though the Obama library has not received construction approval yet. Part of the holdup is that the proposed site is on public land in historic Jackson Park. That doesn't seem very progressive of the Obamas, but, you know, for certain presidents, you go above and beyond. It's just what you do. Some presidential overreach lasts longer than others.

Here's the thing about taxing the peasants so the king can build a fancy monument to himself – it's wrong. And completely unnecessary. The Obamas have the richest friends on the planet who could fund this project in their sleep. If the world simply must have a tricked-out Obama museum, then let private citizens take out their wallets voluntarily.

As the Mercury Museum proved this weekend, it is possible to build an exhibit with amazing artifacts that attracts a ton of visitors – and it cost taxpayers approximately zero dollars.