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Five Things: The Increasingly Intangible Crisis


As the clash between the tangible and the intangible intensifies, the destruction will become more widespread.

One social manifestation of debt revulsion and anti-consumption is a conscious attempt to revolt against what Jean Baudrillard called the precession of the simulacra. Simulacrum, for Baudrillard, is a copy of an original that displaces the original as a sign and becomes real in its own right.

The precession of simulacra that Baudrillard outlined is as follows:

1. Era of the Original.
2. Era of the Counterfeit.
3. Era of the Produced, Mechanical Copy.
4. Era of the Third Order of Simulacra, where the reproduction displaces the original.

In September 2006 I looked at how this precession of simulacra applies to pricing structure in securities markets. At that time, it seemed we were seeing the culmination phase in securities markets where pricing structure breaks, literally:

From the standpoint of the final phase of the image (price), we now witness securities markets that have no relation whatsoever to anything -- they are solely existent as a pure simulacrum from which higher and lower are relations to something without meaning; in other words a hyperreal market.

We can see this progression in what Baudrillard formulated as the Successive Phases of the Image. After all, securities prices begin as nothing if not representations, images, signifiers of some "thing."

Successive Phases of the Image
(with price relation in parentheses)

  • The image is the reflection of a profound reality (price "means" something profound with respect to the security)

  • The image masks and denatures a profound reality (price disguises a profound reality -- the value investor's dream)

  • It image masks the absence of a profound reality (2000 Dotcom Bubble, for example)

  • It has no relation to any reality whatsoever; it is its own pure simulacrum, a copy without a model (the continuous supply of credit to market participants with no underlying attachment to any "thing" real, pure transaction that supercedes the act of exchange itself).

The credit crisis that followed was one "break point" in that precession.

Okay, someone might ask, "It happened, but so what? What difference does it make now?"

This is where linear thinking begins to interfere with how complex systems transition. It's similar to the errors that occurred in 2007 when many viewed the "subprime credit crisis" as the beginning and end of an isolated, "well contained," event.

A better way to think about what's happening is to view the credit crisis itself as one symptom of the larger crisis we're facing, of which the debt crisis -- and I consider debt crisis versus credit crisis to be separate crises -- is a larger manifestation. It might be easier to think of it as a systemic buckling, a lurching stagger.

That's why the short-term conclusion of the credit crisis is not the conclusion of the larger crisis. And by all measures, the credit crisis has largely passed.

The credit rally in financials -- everything from JP Morgan (JPM), Well Fargo (WFC) to even Citigroup (C) -- was massive and historic. It dwarfed the credit rally that began in the second quarter of 2002. While this credit rally does have positive intermediate-term implications for stocks, it's important to recognize that it only has negative implications in the context of our larger crisis -- The Crisis of the Real -- because it means the tension between the two sides (the tangible vs. the intangible) will eventually increase and their split become more destructive.

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