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Hypernormalisation

Hypernormalisation
Profile photo of Bryce McBride
bank_failure
Reprinted from the Pembroke Daily Observer

This past November, the filmmaker Adam Curtis released the documentaryHypernormalisation. The term comes from Alexei Yurchak’s 2006 book Everything was Forever, Until it was No More: The Last Soviet Generation. The book argues that over the last 20 years of the Soviet Union, everyone knew the system wasn’t working, but as no one could imagine any alternative, politicians and citizens were resigned to pretending that it was. Eventually this pretending was accepted as normal and the fake reality thus created was accepted as real, an effect which Yurchak termed “hypernormalisation.”

Looking at events over the past few years, one wonders if our own society is experiencing the same phenomenon. A contrast with what economic policy-makers term “normalisation” is instructive.

Normalisation is what has historically happened in the wake of financial crises. During the booms that precede busts, low interest rates encourage people to make investments with borrowed money. However, even after all of the prudent investment opportunities have been taken, people continue borrowing to invest in projects and ideas that are unlikely to ever generate profits.

Eventually, the precariousness of some of these later investments becomes apparent. Those that arrive at this realization early sell up, settle their debts and pocket profits, but their selling often triggers a rush for the exits that bankrupts companies and individuals and, in many cases, the banks which lent to them.

In the normalisation which follows (usually held during ‘special’ bank holidays) auditors and accountants go through financial records and decide which companies and individuals are insolvent (and should therefore go bankrupt) and which are merely illiquid (and therefore eligible for additional loans, pledged against good collateral). In a similar fashion, central bank officials decide which banks are to close and which are to remain open. Lenders made freshly aware of bankruptcy risk raise (or normalise) interest rates and in so doing complete the process of clearing bad debt out of the system. Overall, reality replaces wishful thinking.

While this process is by no means pleasant for the people involved, from a societal standpoint bankruptcy and higher interest rates are necessary to keep businesses focused on profitable investment, banks focused on prudent lending and overall debt levels manageable.

By contrast, the responses of policy-makers to 2008’s financial crisis suggest the psychology of hypernormalisation. Quantitative easing (also known as money printing) and interest rate suppression (to zero percent and, in Europe, negative interest rates) are not working and will never result in sustained increases in productivity, income and employment. However, as our leaders are unable to consider alternative policy solutions, they have to pretend that they are working.

To understand why our leaders are unable to consider alternative policy solutions such as interest rate normalization and banking reform one only needs to understand that while such policies would lay the groundwork for a sustained recovery, they would also expose many of the world’s biggest banks as insolvent. As the financial sector is a powerful constituency (and a generous donor to political campaigns) the banks get the free money they need, even if such policies harm society as a whole.

As we live in a democratic society, it is necessary for our leaders to convince us that there are no other solutions and that the monetary policy fixes of the past 8 years have been effective and have done no harm. Statistical chicanery has helped understate unemployment and inflation while global cooperation has served to obscure the currency depreciation and loss of confidence in paper money (as opposed to ‘hard money’ such as gold and silver) that are to be expected from rampant money printing.

Looking at unemployment figures first, while the unemployment rate is currently very low, the number of Americans of working age not in the labour force is currently at an all-time high of over 95 million people. Discouraged workers who stop looking for work are no longer classified as unemployed but instead become economically inactive, but clearly many of these people really should be counted as unemployed. Similarly, while government statistical agencies record inflation rates of between one and two percent, measures that use methodologies used in the past (such as John Williams’ Shadowstats measures) show consumer prices rising at annual rates of 6 to 8 percent. In addition, many people have noticed what has been termed ‘shrinkflation’, where prices remain the same even as package sizes shrink. A common example is bacon, which used to be sold by the pound but which is now commonly sold in 12 ounce slabs.

Meanwhile central banks have coordinated their money printing to ensure that no major currency (the dollar, the yen, the euro or the Chinese renminbi) depreciates noticeably against the others for a sustained period of time. Further, since gold hit a peak of over $1900 per ounce in 2011, central banks have worked hard to keep the gold price suppressed through the futures market. On more than a few occasions, contracts for many months worth of global gold production have been sold in a matter of a few minutes, with predictable consequences for the gold price. At all costs, people’s confidence in and acceptance of the paper (or, more commonly, electronic) money issued by central banks must be maintained.

Despite these efforts people nonetheless sense that something is wrong. The Brexit vote and the election of Donald Trump to the White House represent to a large degree a rejection of the fake reality propagated by the policymaking elite. Increasingly, people recognize that a financial system dependent upon zero percent interest rates is not sustainable and are responding by taking their money out of the banks in favour of holding cash or other forms of wealth. In the face of such understanding and resistance, governments are showing themselves willing to use coercion to enforce acceptance of their fake reality.

The recent fuss over ‘fake news’ seems intended to remove alternative news and information sources from a population that, alarmingly for those in charge, is both ever-more aware that the system is not working and less and less willing to pretend that it is. Just this month U.S. President Barack Obama signed the Countering Disinformation and Propaganda Act into law. United States, meet your Ministry of Truth.

Meanwhile, in India last month, people were told that the highest denomination bills in common circulation would be ‘demonetized’ or made worthless as of December 30th. People were allowed to deposit or exchange a certain quantity of the demonetized bills in banks but many people who had accumulated their savings in rupee notes (often the poor who did not have bank accounts) have been ruined. Ostensibly, this demonetization policy was aimed at curbing corruption and terrorism, but it is fairly obvious that its real objective was to force people into the banking system and electronic money. Unsurprisingly, the demonetization drive was accompanied by limits on the quantity of gold people are allowed to hold.

Despite such attempts to influence our thinking and our behaviour, we don’t need to resign ourselves to pretending that our system is working when it so clearly isn’t. Looking at the eventual fate of the Soviet Union, it should be clear that the sooner we abandon the drift towards hypernormalisation and start on the path to normalisation the better off we will be.

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  • theredpillnetwork

    Very interesting video by Adam Curtis and article. But there are various issues are being distorted by accident or on purpose. For BREXIT and countries moving towards Nationalization. Most people are aware they can not fix the world but they can fix their own country, but the political class are destroying not only their own countries they are destroying the world. As for Terrorism, the video fails to address the issue of not doing anything which is seems to be espousing. So we are too ignore Terrorism, at what point do we get involved to stop it? It is wishful thinking that if we ignore reality and had facts about the situation the world is in would be closer to Utopia. All these problems are not new, they have been part of Human History from the beginning. Fake News, Terrorism, Slavery, War and not Anglo Saxon ideas only. It goes back to the first civilization. What is Truth? Truth is subjective, the Right and the left both take the same stories and spin it to fit their idea of truth. Fact however is very different, both the so called legit news and alternative news are both devoid of fact. Climate Change for example, first it was Global Cooling in the 70s, than it was Global Warming, and now its Climate Change. Climate Change is natural to an extent, the real question is how much man has contributed to it and whether man can make a difference, so far no knows for a fact either of these answers yet they are willing to transform the world on a scale never seen before using this as the excuse. If you do not know what I am speaking about than look up Agenda 21 now called Agenda 2030. This United Nations agenda is the very agenda Adam Curtis and the left are pushing as the answer to the worlds problems. Ever think that all these problems are part of the Hegelian Dialect to transform the World in the direction the elite want. They want a world withput borders, but what many do not know is they want a World with Multiculturalism, Religion, they want Conformity. When the left talks about Diversity and Multiculturalism they really wanted the opposite. Immigration is one thing, open borders is destructive to culture no matter how you want to spin it. Just look at Europe.

  • http://www.futuredanger.com/ @FutureDanger6

    Posting this to FD

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  • http://www.patrickbarron.blogspot.com/ Patrick Barron

    One of the best articles I have read recently. It clearly explains the situation; i.e., the REAL situation.
    Another reason that hypernormalization has occurred is that the Keynesians running the world’s central banks and their supporters just plain cannot accept that their policies will not work. Paul Krugman is a prime example. If the policies aren’t working, then they have not been applied vigorously enough. In the Keynesian view there just is no other possible answer.

Articles
Profile photo of Bryce McBride

Bryce McBride is an economics teacher and writer currently living in Ottawa. He has published two books - Economics for Canadians and Workbook for the New I.B. Economics.

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