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Five Things: The Increasingly Intangible Crisis

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

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The Tangible vs. The Intangible

"In order to be on this treadmill, to stay ahead of the diminishing returns, we have to keep going faster and faster..."
- Woody Tasch, author of Inquiries into the Nature of Slow Money: Investing as if Food, Farms, and Fertility Mattered, speaking in this interview about the sustainability of global food production.

The most striking thing about this statement from Woody Tasch is it applies equally well, and with equal force, to both global food production and global finance. This may seem accidental, perhaps coincidental, but it isn't.

Over the past 30 years both food production and finance unwittingly became addicted to modes of growth that required an ever-increasing velocity to maintain. And nowhere has the de-stabilization that occurs when velocity reaches its limits been as evident as it has been in finance.

If the precipitating event in the credit crisis was subprime lending, then it was for this singular reason: The ability to increase the velocity of money in that segment of the economy reached its limits.

In other words, it wasn't something unique to subprime lending because the explosion in subprime lending itself was simply the result of the market's reach for ever-increasing velocity.

Without the need for that velocity as an engine for growth, subprime lending on the scale seen between 2005 and 2007 would never have existed. Subprime lending was a symptom, not a cause.

Similarly, we could make the following paradigmatic conjecture, applying the lessons learned in finance to global food production: The coming crisis in global food production will begin with an event linked to low-cost, low-quality food. The kickoff point won't be the cause of the crisis, it will simply be a symptom of it.

Conjectures aside, in the video linked above, Tasch's "slow money" is less about the actual speed of money and more about the physicalization of it; turning it into some "thing." He's talking about "slow money" in the context of sustainability, the investment benefits of turning money into something tangible.

As we'll see, this is directly related to debt deflation and the larger social clash, sometimes characterized as a culture clash, between the intangible and the tangible, between the real and the simulacra.

Indeed, no matter where we turn we're being confronted with this clash; finance, politics, art, media. In finance, the opposing sides can be identified in this way: On one side, those who want to boost fast money, literally, by stimulating risk appetites and thus increasing the velocity of economic transactions which, by definition, means expanding money into digitizable intangibles; on the other side, those who are revolting against the intangible, turning money back into some physical thing.

If it "feels" antagonistic, it's probably because these two sides are exactly opposed. The engine of our economic growth is dependent on the free-flow of digitizable capital and the expansion of risk appetites. And economic growth is good, right? At least that's what we've always told ourselves.

But as Tasch points out, economic growth is not actually synonymous with human well being. This is a debatable point, but the debate over that point isn't what interests me; it's that the point is being debated at all. That is what is interesting.

On a large scale, almost everything right now is about this clash between tangible and intangible; finance, debt and credit, media, music, fashion, food, just about everything. Several years ago, I characterized it a slightly different way, as The Crisis of the Real.

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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