Sunday, August 09, 2020

The Economy Is Mortally Wounded

A fully financialized, totally debt and speculation-dependent economy is terminal once leverage and debt stop expanding exponentially.
We all know the movie scene in which the character is wounded but dismisses it as no big deal, and then lurches into the closing sequence where we discover the wound was not inconsequential, it was mortal, and the character expires.
That's a fair depiction of the economy--both the U.S. and the global economy. The rapt audience is assured it's just a flesh wound and the character will soldier on, teeth nobly gritted, and that sets up our surprise when he/she tragically expires in the climatic scene.
Financial-political authorities and their paid cheerleaders are sparing no expense in assuring us the pandemic-triggered Greater Depression is a mere bump in the road and the recovery will be record-breaking, and they lavish excessive optimism on the triggers of this astounding recovery that's just waiting in the wings: a covid-19 vaccine, a covid-19 treatment, herd immunity, etc.
What the cheerleaders and authorities cannot dare acknowledge is the extreme fragility and vulnerability of the pre-pandemic economy: the unprecedentedly excessive leverage, debt, speculation, wealth and income inequality, asset bubbles, etc. that had all started to roll over as gravity finally took hold in Q4 of 2019.
Also missing from the astounding recovery that's just waiting in the wings narrative is the recognition of second-order effects as the dominoes of fragility and vulnerability continue toppling.
Even super-duper covid-curing space rays beamed at our planet by helpful Martians couldn't stop the financial conflagration that is now raging, a conflagration that was inevitable given the monetary deadwood that was piled ever higher for 12 long years, a mountain of dry tinder awaiting a random lightning strike or careless match.
As a example of second-order effects, consider a sector we are all familiar with as customers: dining out: restaurants, cafes, bistros, brew-pubs, etc. We all understand that when these establishments close, the owners, managers and employees all lose their livelihoods.
But this isn't the full extent of the losses. Behind the visible facade of any industry is a long line of dominoes behind what the customer sees.
When 50% of all dining-out establishments close, that immediately causes equivalent losses in sectors that supplied those establishments with clean linens and uniforms, meats, vegetables, culinary supplies, accounting, advertising, marketing, consulting, specialty magazines, etc., in a nearly endless profusion of businesses dependent on the dining-out sector.
And then there's all the retail real estate landlords that depended on these establishments to pay high rents on costly commercial spaces, and those nearby businesses that depended on the foot traffic generated by concentrations of dining-out establishments.
The cheerleaders don't dare acknowledge the absence of any sectors that can absorb the 32 million workers drawing unemployment, or those who aren't in the unemployment system, for example sole proprietors who closed and those in the informal cash economy.
The dining-out sector was a haven for marginalized workers seeking the higher compensation of tips, and a major entry point for new workers entering the workforce. There is no substitute sector to absorb the millions of workers who lost their livelihood in the dining-out sector and all those whose jobs were dependent on providing the dining-out sector with goods and services.
A less financialized, less debt and speculation-dependent economy would be more resilient, but a fully financialized, totally debt and speculation-dependent economy is terminal once leverage and debt stop expanding exponentially.

source: Wolfstreet.com
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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Posted by Charles Hugh Smith at 8:00 PM

Thursday, August 06, 2020

If the "Market" Never Goes Down, The System Is Doomed

The reliance on "good news" narratives dooms our financial system and economy to a death spiral once reality breaks through the induced euphoria.
"Markets" that never go down aren't markets, they're signaling mechanisms of the Powers That Be. Markets are fundamentally clearing houses of information on price, demand, sentiment, expectations and so on--factual data on supply and demand, shipping costs, cost of credit, etc.--and reflections of trader and consumer emotions and psychology.
If markets are never allowed to go down, the information clearing house has been effectively shut down. Whatever information leaks out has been edited to fit the prevailing narrative, which in this moment is "central banks will never let markets go down ever again, so jump in and ride the guaranteed Bull to easy gains."
The past 12 years offer ample evidence for this narrative: every dip draws a near-instantaneous monetary-policy response that reverse the dip and gooses markets higher.
That permanent monetary intervention distorts markets doesn't matter to participants. Who cares if markets have become "markets," simulacra of real markets that are now nothing but signaling mechanisms that all is well so buy, buy, buy? If gains are essentially guaranteed, who cares that markets are not longer information clearing houses?
Indeed. There's no reason to care until the fatal spiral downward surprises us all. Here's an analogy of what happens when real information gets edited to fit a convenient narrative.
Unfortunately, the patient has cancer which is starting to metastasize, i.e. spread to other organs in the body. But unbeknownst to the patient, this accurate information is considered "bad news," so the test results and other information is carefully edited to show the cancer is actually shrinking--the exact opposite of what the actual facts reflect.
The patient is naturally delighted with this false data because it appears he's on the mend and doesn't need any surgery or other drastic treatments.
If participants don't have information that reflects actual conditions, they cannot help but make disastrous decisions. Falsified or heavily edited information is misleading, and so all decisions made on the assumption this information is accurate will be fatally skewed.
Symptoms of the fatal spread of the disease are masked by stimulants that not only mask the spread but give the patient a sense of euphoric power and supreme confidence.
Imagine the patient's terrible dismay when symptoms break through the euphoria and he learns his cancer is now terminal. Increasing the tragedy is his awareness that had the authorities in charge of his care given him the real-world data instead of the carefully edited "happy story" version, treatments could have been undertaken that might have extended his life. Now those options have been lost forever.
That's the situation in our economy and financial system. The information cleared in markets has been suppressed, distorted and edited for 12 long years of permanent and ever-increasing monetary interventions, as the "doses" of intervention required to maintain the cocaine-like euphoria and supreme confidence in central bank manipulation of "markets" so they always signal the "good news" of guaranteed gains ratchets higher on every intrusion of reality.
The reliance on "good news" narratives dooms our financial system and economy to a death spiral once reality breaks through the induced euphoria. Our last chances to clear the financial cancers eating away at our economy are slipping away forever, masked by the "market's" cocaine-like euphoria and supreme confidence in central-bank guaranteed gains.
If the stock market is never allowed to go down, this is the equivalent of telling the cancer-riddled patient that their cancer has disappeared, even as the disease is leading inexorably to the patient's needless demise.
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
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Posted by Charles Hugh Smith at 12:50 PM

Wednesday, August 05, 2020

The Bogus "Recovery," Stress and Burnout

We have three basic ways to counter the destructive consequences of stress.
We have all experienced the disorientation and "brain freeze" that stress triggers. The pandemic and the responses to the pandemic have been continuous sources of stress, i.e. chronic stress, which is the pathway to burnout, the collapse of our ability to cope with the burdens pressing on us.
Authorities keep promoting a bogus "recovery" narrative. The disconnect between what the authorities are claiming and what people are actually experiencing is widening, and these unbridgeable contradictions lead to meltdown. No wonder more and more people are "losing it" as their neural circuitry melts down under the strain of synthesizing what they experience (crisis) and what they're told (the "recovery" is already glorious and getting better every day).
In Survival+ I call this process derealization as our lived experience is derealized (dismissed as not real) by official spin and propaganda.
Research has illuminated how stress disrupts the default hierarchy of the brain. In the absence of stress, the neocortex-rational-mind functions suppress the more primitive subconscious signals of aggression, hunger, etc. in order to concentrate our effort to complete some planned activity.
Everyday Stress Can Shut Down the Brain's Chief Command Center. Neural circuits responsible for conscious self-control are highly vulnerable to even mild stress. When they shut down, primal impulses go unchecked and mental paralysis sets in. (Scientific American; subscription required)
This helps explain the natural "fight or flight" response we feel when suddenly confronted with danger or potential danger, but more importantly it illuminates how we lose the ability to analyze circumstances rationally when we are "stressed out." Once our rational analytic abilities are shut down, we are prone to making a series of ill-informed and rash decisions.
This has the potential to set up a destructive positive feedback loop: the more stressed out we become, the lower the quality of our decision-making, which then generates poor results that then stress us out even more, further degrading our already-impaired rational processes. This feedback loop quickly leads to "losing it" and/or burnout.
In pondering human development over the past 20,000 years of the transition from hunter-gatherer groups to modern life, it seems self-evident that stress was likely to be resolved in relatively short order in the hunter-gatherer lifestyle: everyone was known to everyone else, conflicts had to be resolved simply because the group survival depended on it, and most threats could be fended off with vigilance, weapons or left behind by a few hours of fast walking.
Contrast the ancient environment that selected for this stress/conscious self-control feedback with modern life: in the modern urban life and work environment, stress is more or less constant and our ability to resolve stressful situations is limited because we control very little about the macro social-economic waters we're navigating.
Though this particular article focuses on short-term stress, there is growing body of evidence that chronic stress has a number of subtle and destructive consequences. In addition to the common-sense connection between chronic stress and hypertension, there is evidence that obesity is also related to stress-caused conditions such as inadequate sleep and chronic inflammation. This makes sense as the stress hormones erode the immune system's responsiveness.
Behaviorally, stress breaks down self-control, so it is no surprise that stress leads to bingeing, addictive behavior, impulse buying, etc.--all "knock-on" effects with negative consequences.
Chronic stress permanently degrades our ability to rationally analyze and plan, and so we act irrationally or erratically, as we are no longer able to stick to a conscious plan of coherent action. With the rational mind and self-control centers permanently suppressed, we are prone to withdrawal and passivity, "sleepwalking" though life. This may help explain Americans' remarkable passivity as their civil liberties are taken away and their financial insecurity increases.
Many of the features of post-traumatic stress disorder (PTSD) are now visible in "everyday Americans," and an understanding of how stress erodes rational thought and self-control helps explain why.
Even before the pandemic, over half of Americans reported that their stress level was usually high. (see chart below) We can guess that this already high percentage is now considerably higher, given that 32 million people are receiving some form of unemployment and thousands of small businesses have closed.
Medical professionals were already burning out before the pandemic. (see chart below) What the status quo must cover up is the reality that the structure of our winner-take-most socio-economic system makes it unlivable, even for professionals (or especially for professionals, in many cases).
We have three basic ways to counter the destructive consequences of stress:
1) Develop positive physical and mental responses via discipline, habit and practice (for example, regular exercise, gardening, etc.).
2) Turn off the mainstream media and social media (i.e. eliminate deranging, destructive distractions).
3) Stay focused on our plans. The simpler and more positive the plan, the more likely it is we can stay focused on it in stressful circumstances.
I laid out a context for my own planning in May.
Why Assets Will Crash May 4, 2020
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Jessica S. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.
 
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Posted by Charles Hugh Smith at 11:01 AM

Tuesday, August 04, 2020

TikTok and our Last-Ditch Desperation for Social Mobility

Social media offers hope of achieving higher social status, something that is increasingly out of reach in our winner-take-most economy.
I've often addressed the decline of social mobility and the addictive nature of social media, for example, Why Is Social Media So Toxic?
I have long held that the decline of social mobility--broad-based opportunities to get ahead financially and socially--is part of a larger dynamic I call social depression: the social decay resulting from economic stagnation and the decline of social mobility and financial security. America's Social Depression Is Accelerating.
Japan offers a real-world 30-year lab experiment in the negative social consequences of economic stagnation, a topic I've addressed since 2010: The Non-Financial Cost of Stagnation: "Social Recession" and Japan's "Lost Generations"
The conventional explanation of social media's addictive hold is that it activates the human brain's reward circuits much like an addictive drug: in effect, we become addicted to being "liked" and to checking our phones hundreds of times a day to see if we received any "likes".
FOMO, fear of missing out on some emotion-stimulating "news" or a "like" from someone in our network also feeds the addictiveness.
The innate addictive appeal of social media is pretty clear, but that's not all that's at work here. Being social animals, humans naturally seek to identify their status in the pecking order and improve their position by whatever means are available as a way of increasing their reproductive success and their relative share of resources.
Traditional societies were bifurcated into a small elite and a much larger mass of commoners. As a general rule, social mobility was limited to those extraordinary commoners who were especially valuable to the ruling elite as soldiers, scribes, etc.
From its inception in the early 1800s, the American Dream was to acquire the "good life" via mass produced luxury goods via conventional employment or entrepreneurial drive--two avenues available to the masses. This access to the social mobility of higher earnings enabling the purchase of status symbols that boosted one's social status has been the mainstay of the modern consumer economy.
The downside of mass-produced luxury items (status symbols) is that in a credit-based economy, just about everyone can afford to own them. Thus just about anyone can qualify for a mobile phone plan that offers a status-symbol iPhone as part of the multi-year contract.
As a result, the upper classes have been forced to greater extremes in cost and scarcity to differentiate themselves from the masses. For example, now that exotic travel is a affordable to anyone with credit, travel has little status value, unless it's extremely costly or difficult to duplicate.
The same is true of the arts and other cultural status markers, along with the traditional markers such as yachts and second (or third) homes.
As the underlying economy has stagnated, access to higher social states via earned income has decayed, and so commoners have been forced to find some other non-financial means to improve their social status.
Social media fits the bill perfectly: it's essentially free (since everyone has to pay for Internet service anyway) and the only "investment" is in time: time snapping and posting photos on Instagram and Facebook, time posting comments and links designed to attract tribal "likes" and so on.
A commoner with essentially zero social status economically can with enough effort become a "big shot" in some social media platform.
The bar is low enough to attract millions of players: a few dozen "likes" is still a potent reward to most people, as are having a couple hundred followers / readers.
Social media superstars with millions of followers on YouTube have cult-like groupies and all the other social status rewards of recognition and fame.
Social media offers hope of achieving higher online social status without having to succeed financially in a winner-take-most economy or having any of the conventional attributes of becoming famous: physical beauty, extraordinary talent, etc. These attributes are of course helpful in attracting a social media following, but they are not essential.
As a result, everyone wonders "how did so-and-so get hundreds of thousands of followers?" The answer varies, of course: a viral video, a high level of marketing moxie, an engaging style, charismatic presence on camera, a knack for something others admire, etc.
If we understand social media as a new and accessible-to-everyone way to improve our social status, its tremendous grip becomes less of a mystery.
As Jesse explains in our Salon #15 podcast, Toxic Tech Platforms and Disposable Social Media Stars, TikTok's explosive popularity is the direct result of its ease of access and promise of social mobility. TikTok's model bypasses the laborious process of gaining social status via collecting masses of followers/friends and offers an instantly accessible version of semi-celebrity via the number of people viewing one's videos-- a semi-celebrity that can be monetized once the numbers get big enough.
Achieving social status through social media is the last-ditch desperation of a society that has lost all other meaningful social mobility ladders. Conventional wages have stagnated for decades and unconventional wages (gig economy, etc.) are generally low and insecure. Credential pathways that once led to secure, high paying, high-status jobs have crumbled; legions of PhDs who were told their years of sacrifice and effort would lead to tenure-track faculty positions or secure positions in government or industry are academic ronin, wandering from temporary position to temporary position, in effect highly credentialed gig-economy workers.
The rungs of the ladder of entrepreneurial drive have decayed as the costs and risks of starting a business have soared, crowding the get-rich-quick hopefuls into the insanely over-crowded casinos of venture-capital funded tech start-ups, all of whom hope to reach the pinnacle of going public and skimming instant wealth--the tech version of a kid dreaming of becoming an NBA star.
A winner-take-most economy is the only possible output of our corrupt financial/political system which has systematically stripmined all sources of social mobility, leaving the masses with little hope of escaping debt-serfdom / just getting by. In this bleak landscape in which the masses constantly lose ground, TikTok and other social media platforms offer a rare beacon of hope to those who have little chance of winning recognition or riches in our winner-take-most economy.
TikTok and other social media reflect the last-ditch desperation of a society stripped of economically meaningful social mobility and positive social roles. Unfortunately the social media platforms are toxic to both their enthralled users and society at large.
Of related interest:
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, James C. ($10/month), for your outrageously generous pledge to this site -- I am greatly honored by your longstanding support and readership.
 
Thank you, James Y. ($10/month), for your outrageously generous pledge to this site -- I am greatly honored by your steadfast support and readership.

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Posted by Charles Hugh Smith at 11:02 AM
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