Ben Hunt: Prepare To Get Burned

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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).

Other Ways To Listen: iTunes | Google Play | SoundCloud | Stitcher | YouTube | Download |

This is a companion discussion topic for the original entry at https://peakprosperity.com/ben-hunt-prepare-to-get-burned/

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I have recently had some interactions with younger [millennial] urbanites and I was struck very acutely by the impression that their grasp of reality is “tenuous” at best. Nonexistent would be a more accurate term, actually.
They are obsessed with “image”, how others see them. They are depressed over it, anxious over, and angry at how “unfair” everything is. They are cynical about everything. They don’t believe in anything, they don’t think anything is real.
Most of them believe that the person who makes the best argument is right…not the person who is actually right. Because there is no “right” or “wrong”, only the ability to make well crafted bullshit arguments.
Its sad because so much of what these kids grew up and live with everyday is fake. The news is fake, social media is fake, everything online is essentially a nonexistent virtual reality. Their parents are divorced so the family unit is fake. The monetary system is fake. Where once bright young people went to college to learn the facts of education they are now learning to pray to plants, learning how our history was bad, learning how to craft a list of grievances and profit from them through public whining.
Its all false. And no wonder so many of these kids are self destructing and taking innocent people with them. There’s nothing real in these young people’s experience. This is why I have made a point of having no cellphones in our family. We live in the country, grow our gardens, milk cows, cut hay, and cut wood to heat our home. These are the only things that I can think of as being so real, so base, so tangible, that my son can’t help but have his feet planted in them. Unfortunately, he’s going to be surrounded by an entire generation that, in my opinion, maybe literally insane.

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  1. Great dialog in this interview: “constant stimulus” is not “good” or “bad” but rather it just “IS”. Many have lots of angst re FED actions; myself, I treat it like the weather. It just IS. Wear a raincoat!
  2. Also: great point on how “Financialization” is money “squeezing” rather than money “creation”. Why risk productive activity when companies can borrow risk free & pay dividends? So we end up with zombie society/economy. But boy one can make a lot of $ on dividend paying stocks in this environ. This situation seemed an obvious endgame by 2009, and it’s now had a decade run. How much longer? So I keep my positions…and my hedges…
  3. Also: FED is now lender of “first” resort, of “constant support”. I don’t see how they exit this game. It’s FED Hotel California: they can start the game but never politically leave. So how high can housing and stocks go?
  4. Also: The 3-Body-Problem was a very good discussion. However, it blew right by what the 3BP represents: since VERY LITTLE IS PREDICTABLE in complex systems, all “data driven” claims (we see a lot of this at PP) are merely fiction or hope. In truth, nobody knows what that data means because in any complex system (like the economy driven by the FED) things are wildly unpredictable. Which doesn’t necessarily mean “unstable” over the course of a business cycle (or even a human lifespan). IOW, these things can play out for a very, very long time. Or change tomorrow. But using one’s “Spidey-Sense” as the interview explored is not the best tool.
  5. Also: The 3BP represents the fact we can’t predict much about the Environment nor Energy. Just like the discovery of oil changed energy forever, the discovery of fusion or something similar could do the same. Also for the environment; anything could happen and it’s nearly impossible to predict, either disasters or things just smoothing out. The price of oil is a good example: we can predict the weather better than the price of oil. In truth, we haven’t a clue about the economy, energy, or the environment.
    But it was a good interview, and just discovered “The Origin of Wealth” mentioned in the interview is now on Kindle (lost mine) and I saw “Knowledge and the Wealth of Nations” is not Kindle too. The latter is great at explaining how exponential growth of “wealth” can exist on a finite planet as ideas are not strictly material things.
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One of the things we fail to adequately explain in this whole mess is that we have no concept of what is quantifiable. In most or many situations the general populace is driven by nominal thinking and not by applied logic. The biggest offender is a significant reliance on magnitude and nothing more. Whether it be Facebook or any social media, “amounts” give meaning where literal interpretation give way to “piles”’ of data. As the old adage goes, “data, data everywhere and not a thought to think”. And so it goes with the information age. One may remember the old line; “I cut that 2 x 4 three times and it’s still too short”. Life is about living and not about the relative places we choose to spend our waking hours trying to put square pegs into round holes. Whether it be Galileo, Kepler, or Newton observation and application trump comparison in interpreting the world’s important relationships. After all, without relationships; what does it all mean? And when I say relationship, I don’t mean with your digitally extended hardware and software.
https://www.youtube.com/watch?v=Fo3ndxVOZEo
 

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brushhog,
I’ve had similar impressions of many of my fellow millennials. If I had to put a root cause to it, I would say we are products of the replacement of objective truth by subjective truth in our education, philosophy, and culture.
They might be “literally insane”, but what is sanity but the fixed reference point your mind can return to after it wanders? Our culture has effectively removed any fixed reference points. As you mentioned, the family, the media, morality, all of it. They are insane because there’s no other choice. They are completely atomized individuals wandering as they please with no fixed reference point to navigate by.
for some historical and philosophical background on how this came about, I highly recommend The Abolition of Man by C.S. Lewis and How Should We Then Live by Francis Schaeffer.

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What is “objective truth”?
take it rhetorically as it can’t be defined by a feeble, finite, fallen mind…or

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I would roughly define objective truth as external truth that exists regardless of your or my individual opinion about it.
Physical constants like gravity are a good illustration, but so is the recent Saudi oil refinery attack. Theories and sponsored narratives abound, some more plausible than others, but only one thing actually happened in time and space, even if you or I never find out definitively what that was.
I’m a Christian, so I would also argue there is a moral component to objective truth as well, and would agree with the assertion that our minds have a limited, finite perspective, but I don’t want to pull this discussion too far off the topics discussed in the podcast.