Stagnation as far as the eyes can see

Jesse, host of a very popular blog gave an excellent interview with Ilene of MarketShadows. The whole interview is worth a read and has nuggets of intelligent observations.

Some excerpts from the interview:

The Fed stabilized the patient, but the patient remains in the ICU because the doctors cannot agree on the treatment. And of course, the medical directors are stealing the medicine and selling it on the black market. So we have quite the dilemma.

The credibility trap is preventing genuine reform, and the financial system is continuing to distribute the bulk of all new income growth to the wealthiest few, which leaves the vast middle with little discretionary income to fuel demand and organic growth. It is a false equilibrium, but these can last for a decade or more. It really depends on what causes things to change. But change will come.

James Madison and the Credibility Trap

Justice is the end of government. It is the end of civil society. It ever has been and ever will be pursued until it be obtained, or until liberty be lost in the pursuit. 

But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government. 

 
 - James Madison, Federalist No. 51

A group of humans is a system of complex systems (each agent is a complex system of their own) and there are dynamic feedback loops to ensure the system does not disintegrate. Madison refers to these dynamic loops to ensure system integrity when he talks about the primary control on the Government.

Jesse talks about the credibility trap here:

A credibility trap is when the regulatory, political and/or informational functions of a society have been compromised by a corrupting influence and a fraud, so that they cannot address the situation without implicating, at least incidentally, a broad swath of the power structure including themselves. 

I think the checks and balances do not exist to ensure system integrity therefore increasing the risk of a catastrophe.