Tuesday, November 30, 2010

Dow Jones Industrials 9,240, Here We Come

Six charts illustrate a weakening stock market.



Nobody knows what will happen in the future, but it's fun to predict anyway. With that caveat: Dow Jones Industrial Average (DJIA) 9,240, Here We Come. That's about a 16% decline from its current level around the psychologically important 11,000 level.


What is the basis of my foolhardy prediction of a 16% decline in the stock market?Let's start with a 10-day chart of the DJIA, which clearly shows the Plunge Protection Team's rapid backfilling of any decline. But alas, the downtrend is painfully obvious:


If we look at a 5-year chart of the DJIA, we see unmistakable signs of weakness. Despite a nominal new high in November, RSI and MACD are both showing major divergence, declining even as price hit new highs.


The bands of support and resistance are clear as well, and the 9,240 target is solidly within the lower band. The resistance-support between 11,000 and 11,300 goes back to 2006 and even earlier to 2001 (not shown).


If the DJIA busts through 11,000, it's look out below.


As I have noted here numerous times, the US dollar (DXY) and the US stock market have been on a see-saw: when the dollar drops, stocks rise, and vice versa. Here we see the US dollar in a breakout mode, with a bullish cross of the 20-day moving average through the 50-day MA:


Though the Volatility Index (VIX) has been muted compared to its rampage higher in the Eursozone Debt Crisis Part 1 in May, we can discern a rising MACD and other evidence that volatility may not stay low.


The megaphone pattern suggests an increase in uncertainty as the swings up and down get more violent: the volatility of volatility is rising.


The S&P 500 certainly looks like it's traced out a big fat double top, and the indicators are diverging massively from the "happy story" rally. Price won't stay trapped between the 20-day moving average and the 50-day MA for long, and thre probing below the 50-day that occurred yesterday looks like the skirmish line of a full assault.


Meanwhile, the QQQQ (ETF of the NASDAQ 100) has more gaps than a 5-year old's front teeth. Bulls may argue that the rally from September 1 is just so powerful and unique that all those pesky gaps around 44 will never be filled, but old-time chartists have seen too many euphoric rallies retrace to fill those multiple gaps left behind to believe the Bull's happy story of a market that will race ever higher even as corporate profits are set to roll over, China is tightening its bubblicious credit expansion and the Eurozone is in a controlled-demolition phase with no Hollywood ending in sight.


A return to 44 by the Qs works out to about a 16% decline--a number that aligns rather neatly with the lower band of support on the DJIA (9,240).


OK, so maybe the US market will suddenly reverse its polarity and start rising alongside the dollar. Maybe all those divergences will stay divergent. Maybe the VIX will simmer down to complacency again--and maybe lemmings will leap into the air and form a squadron of flying miracles.


Anything's possible, but not everything is probable.


DISCLOSURE: I am short the market via inverse ETFs and put options.



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Monday, November 29, 2010

Ireland, Please Do the World a Favor and Default

Ireland would save the world from much misery by defaulting now and driving the vampire banks into liquidation.



The alternative title for today's entry is: Ireland, please drive a stake through the heart of the vampire banks which have the world by the throat. The entire controlled demolition of the Eurozone's finances can be summed up in one phrase: privatize leverage and profits, socialize losses and risk.


The basic deal is this: protect the bank's managers, shareholders and bondholders from any losses, while heaping the socialized losses and risks on the taxpayers and citizens.


While there are murmurings of "forcing bondholders to share the pain," any future haircut will undoubtedly be just for show, while the Irish pension funds are gutted to bail out the banks.


EU Outlines Bond Restructuring Plan (WSJ.com)


Europe Goes "Completely Mad" At Suggestion Of Irish Default Demanded By 57% Of Irish Population (Zero Hedge)


Here is a chart which illustrates the dynamic at play in Greece, Ireland and indeed, the rest of the world as well: leveraged speculation and mal-investment lead to asset deflation and collapse.



Here is a chart which illustrates how asset deflation leads to taxpayer-funded bank bailouts and then sovereign default. It's fairly self-explanatory:



It's rather straightforward: as asset bubbles rise, they enable vast leveraging of credit and debt. Once mal-invested assets collapse in value, then the debt remains, unsupported by equity or capital.


As the Financial/Political Elites transfer these catastrophic losses onto the citizenry, they set off a positive (runaway) feedback loop: the Central State austerity required to pay the borrowing costs of the bailout sends the economy into recession, which reduces borrowers' incomes, triggering more defaults which further sink housing prices. As prices continue falling, bank capital declines, requiring ever-larger bailouts to provide the banks with a simulacrum of solvency.


Austerity measures must be tightened to channel more of the citizens' incomes to the banks, which further suppresses the economy, lowering tax revenues and incomes, which leads to more austerity to fund more bailouts, and so on, until the haggard remnants of a once-wealthy citizenry finally rebel against their Financial/Political Overlords and topple the government which arranged the bailout.


A new populist government announces a sovereign default, to widespread huzzahs from the unyoked citizenry.


The EU's bailout of Greece and Ireland will only hasten this dynamic. The Power Elites are rapidly losing their credibility; just compare the market's euphoric reaction to the Greek bailout in May and the openly negative response to the Irish bailout.


The money is lost, and Capitalism requires those who took on the risk to earn outsized returns must take the loss, come what may. When a nation such as Ireland is running a State deficit equal to 32% of GDP, austerity cannot generate the stupendous surpluses needed to make good the vast sums which are already lost.


And even if they could, why should the citizens save the banks and bondholders from the losses Capitalism requires? Mal-investments should be sold, for pennies on the dollar if need be, insolvent banks liquidated and bondholders handed 95% losses. Managers would be sacked, bonuses cancelled and shareholders wiped out.


It's a little late to decide Capitalism is only fun when reaping gargantuan profits from highly leveraged mal-investment and fraud. Ireland, and indeed the world, will survive if all the vampire banks are liquidated. That is the end-state, and "buying time" just increases the misery of the citizens who have been yoked to save their "betters."


Ireland, please drive a stake through the heart of the vampire banks which have the world by the throat. By defaulting, you would be doing the world (and your own nation) an immense favor.


Hacked email update: Turns out it was my Comcast webmail account that was hacked, not my computer. A Windows-savvy techie friend helped me unravel the mystery. So it wasn't my PC that was hacked, it was the Comcast servers. Thank you, monopolistic parasite Comcast for allowing your loathesome corporate empire to be hacked so that your long-suffering customers end up burdened with the consequences of your high-cost incompetence.


Monopoly Capital, thy name is Comcast. Arrghh!



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Saturday, November 27, 2010

Four Insights on Resilience

Four readers share their insights on practical resilience.



The Holy Grail for most commentators who understand the end-game of resource depletion, exponential growth of debt and the culture of extinction is Resilience.Resilience is on the other end of the vulnerability scale from monoculture agriculture, monoculture work (one expertise, one employer) and a monoculture economy (consumerism).


Resilience relies on appropriate technology, low-vulnerability supply chains, a broad foundation of expertise and value creation/income streams, self-reliance and an acute understanding of "less is more" on both material and spiritual levels.


Here are four readers' insights into various aspects of resilience.


Eric A.:

If we take care of ourselves, who cares what happens to the big world?

Chris Martenson has started a new chapter on this, pointing out the one thing we should all focus on is resilience. Doing what works for us in a thousand surprising unimaginable, unforeseen ways--especially if independent of others--is the linchpin of this.


We used to do this pretty well when we didn't expect somebody else always to take care of us. Just have a pantry, a fruit tree, a job, a hobby, some friends, some family. Simple. If we are all independent, who can shake 110 million households that don't need anyone but themselves? Not even the third world war.


This helps go to the heart of being positive and taking action with what we can DO about it. I'm only too aware that if you write about how to plant tomatoes or build and stock a pantry, your readership will probably dwindle in short order. But this sort of thing is different. Everybody understands power. They understand Liberty and freedom from worry. Taking if for one's self is a universal, even as the execution of it is specific and unknowable.


Kevin G.:

I saw your comment about living closer to work as a conservation strategy vs. "magic tech-fixes" to create more fuel. There's a lot there that is spot-on. We can't win the battle against diminishing resources if we don't overcome sprawl (and rising population). In any case, here's an anecdote that's right to your point:

My wife drives a big vehicle that gets low gas mileage (15 mpg: a Jeep with a towing package). She drives to work every day (2 miles each way). That's 20 miles a week commuting and 1.33 gallons of gas. Meanwhile, I have a very "green" coworker that drives an older Prius (a very high-tech bit of "greenness"). He gets around 45 mpg.


However, my coworker lives 12 miles from work. At two trips a day that's 120 miles per week and 2.66 gallons per week. The inexorable mathematics of proximity means the Jeep's fuel consumption (not "per mile" but total) is HALF that of the Prius. It's carbon emissions are likewise about HALF that of the Prius.


Proximity beats technology. Besides, who wants to spend all that time in commuting every day?


Morris P.:

I recommend having an inverter on hand which turns your 12-volt direct-current (DC) vehicle battery electricity into household 120-volt alternate-current (AC) electricity.

You can purchase the inverter, cables and fuse at Amazon. I have provided the links to those items. In addition to the lamp, radio, and fan I have used the inverter to recharge my laptop and rechargeable AA and AAA batteries for flashlights. Overall, very good to have when the lights go off but one thing I have heard discussed is that one needs to be aware that if your house is the only one with a light burning, you may be targeted for a home invasion. Something to think about when night comes.

Inverter: Cobra CPI 1575 1500 Watt 12 Volt DC to 120 Volt AC Power Inverter

Heavy duty cables: Cobra CPI-A4000BC 4-AWG Heavy-Duty AC Power Inverter Cable Kit

The 150 amp fuse: DB Link ANL150 150 Amp ANL Fuses


Bart D.:

There needs to be a new aspirational paradigm that we don't need to 'Spend to Improve' ... which is very much the current ideology we are emersed in. The current ideology is very evident in advertising and marketing ... buy this cosmetic to improve your looks, buy this car to improve your social status, buy this excersise gadget to improve your health, buy this kitchen gadget to improve your cooking ...

Not until you start thinking with genuine objectivity do you realise we are (or have been) brainwashed into believing your existance can ONLY improve by spending as much as you can. I subscribe to thinking and acting being better than spending.


Thank you, Eric, Kevin, Morris and Bart for sharing your practical insights on resilience in the real world.



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I recently discovered my philosophy professor/mentor Frederic Bender is the author ofThe Culture of Extinction: Toward a Philosophy of Deep Ecology, a topic which resonates with my own Survival+ analysis.




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Thursday, November 25, 2010

My Thanksgiving: Five Things I Am Thankful For

A Thanksgiving offering: five things I'm grateful for.


My wife suggested I write down five things I'm grateful for today, and offer that as a suggestion to you. There is a power in the written word which is not accessible to the spoken word. The spoken word can arouse high feelings and communion, but the written word can readily and magically change lives. If something written is true, its impact is deep and long-lasting.


Writing down what we're sincerely grateful for is an act of truth--and truth may well be the unspoken essential for all gratitude.


It's always tempting to veer into pontificating when listing one's gratitudes ("I'm grateful for Nature, and the Universe, and for Bertrand Russell..."). Few would have the sincerity and strength to be honest about the gratitudes we actually experience--for instance, "I'm grateful for the NFL and the memory of watching Dwight Clark make The Catch."



On the other hand, as important as small gratitudes are in our daily struggle against futility and ennui, it's also a worthy exercise to ground ourselves occasionally in what gives our lives meaning and purpose: the bedrock of happiness and a life well-lived.



Without a lot of forethought, here is my list of five things I'm thankful for. I guess it reflects the preoccupations of my daily life, which revolves around this weblog, my writing, shoring up my health and our uncertain and likely troubled future.


1. I am thankful for the Web and the Constitutional right to freedom of speech, which enables us to share our thoughts, emotions, ideas and information without interference (so far) from oppressive authorities. This freedom to exchange ideas and experiences, what works and what doesn't, is the foundation of my hope for the future. This weblog is my small contribution to this infinitely complex process.


2. I am grateful for the opportunity to fashion what I call hybrid work, a life that draws purpose and meaning from a variety of projects and work, some paid, some unpaid, some compensated by value other than money.


This is similar to the "Renaissance Man/Woman" lifestyle espoused by author Jacob Lund Fisker in his book Early Retirement Extreme: A philosophical and practical guide to financial independence. A "Renaissance" lifestyle develops functional expertise in a variety of fields, providing a broad foundation for self-reliance and multiple avenues for adding/creating value (something which others will pay/trade for).


In Survival+, I call this goal radical self-reliance.


I wouldn't be much of an advocate for hybrid work if I had a corporate monoculture job (i.e. one specialized skill, one employer, and thus a very high level of vulnerability to disruption). It's taken a long time to develop multiple sources of (modest) income and purpose, but it's been worth it.


3. Since a substantial part of my livelihood comes from being paid to write and from reader contributions, I am also very grateful to you, dear Reader, for investing your time in visiting this outpost on the Web and for reading my other work. Without readers, a writer has little to offer in terms of value.


4. Since I espouse an integrated understanding of our plight, then health is a key thread running through my life, and so naturally I am grateful for the health I have at 56 years of age. It is something that requires responsibility and work; I have a bunch of bad genes working against me as well as "carpenter's elbow" and a host of other consequences of lifting too much stuff over the decades. But I really am grateful for what I've got in the way of health; it is amazing that the body is designed to rejuvenate itself if given half a chance.


At this point, the urge to choose some daily gratitude is strong (red wine? Oranges? Natural gas?) just to avoid the dreaded state of pontification, but--


5. I am grateful to be alive now, when the industrialized world is poised to transition, whether it wants to or not, to another way of living/consuming/working. It may well play out badly, but perhaps not. The lifestyle that requires hundreds of barrels of oil (or equivalent) per person per year is certainly coming to an end, but a good life need not require hundreds of barrels of oil per year.


Nobody knows how the future will play out, so we will all play it as it lays. (The fancier phrase: Life is contingent.) That's pretty exciting.


I wish you all a safe, peaceful Thanksgiving.



If you would like to post a comment where others can read it, please go to DailyJava.net, (registering only takes a moment), select Of Two Minds-Charles Smith, and then go to The daily topic. To see other readers recent comments, go to New Posts.



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Wednesday, November 24, 2010

The Federal Reserve's VISA Card Statement

The Federal Reserve's VISA credit card account offers a rare glimpse into the inner workings of the secretive Fed.


This leaked transcript of the Federal Reserve's VISA credit card account provides a treasure-trove of insight into the Fed's recent actions. Nothing reveals a person or institution quite so indelicately as a list of credit purchases.




Federal Reserve
20th St. and Constitution Ave. NW
Washington, DC, 20551


VISA Credit Card Statement
Global Empire account


Minimum Payment Warning: If you make only the minimum payment each period, you will pay more interest and it will take you longer to pay off your balance.



VISA CARD POINTS SUMMARY


Previous points balance: 1,200,010,000,000
Points earned on Central Planning/Intervention in Capital Markets: 1,200,000,000,000
Points earned on entertainment and everyday purchases: 10,000,000


Choose from travel, gift certificates, magazine subscriptions and Global Empire perquisites. To redeem your points, go to VISA.com/global.empire.accounts/.



PURCHASES

10/30/10 JEKYLL ISLAND LODGE (Luxury suites)

$24,000.00

10/30/10 HOLLOWEEN SPECIALTIES INC.
("Frightful Economists" package of masks: Friedman, Marx, Ricardo and Keynes)

$120.00

10/30/10 TED's WOOD SUPPLY (one cordwood bonfire plus starter)

$500.00

10/30/10 HOUSE OF EFFIGIES (one effigy of Ron Paul, flammable model)

$900.00

11/5/10 U.S. TREASURY
(U.S. bonds, Mixed selection of maturities, POMO-ready package)

$600,000,000,000.98

11/7/10 FANNIE MAE
(Junior tranches of defaulted mortgages, priced at nominal value)

$200,000,000,000.00

11/7/10 CAPITAL PHARMACY (12 prescriptions of Hopium)

$179.31

11/8/10 DEPAUL HOSPITAL
(Emergency room services, treatment of Hopium overdose)

$1,888.17

11/9/10 HOUSE OF VOODOO
(one Ron Paul doll, 13 voodoo pins and book of incantations)

$39.95

11/10/10 ORACLE BONES DIVINATION SERVICE
(one consultation on the global economy)

$600.00

11/12/10 SWINDLE, BOOZ AND SYCOPHANT, PUBLIC RELATIONS
(one "Blame China" global media package)

$1,175,000.00

11/12/10 K STREET SERVICES, LLC
(lease of 125 members of Congress, with option to purchase)

$4,250,000.00

11/13/10 CONFLICT RESOLUTION COUNSELING, INC
(Irreconcilable Differences package, for groups of 12 or less)

$6,000.00

11/15/10 NEW DAWN PSYCHIATRIC SERVICES
(continuing treatment of severe Napoleonic Complex, disassociation from financial realities syndrome and chronic stress)

$12,000.00

11/16/10 AMAZON, INC.
--Reinventing Collapse: The Soviet Example and American Prospects
--Central Planning for Dummies (The Lenin Institute)
--Coup d'√Čtat: A Practical Handbook
-- The (Mis)behavior of Markets
--Obedience to Authority: An Experimental View
--Propaganda
--Buying Fortified Caribbean Enclaves (Elites Survival Press)

$160.00

11/16/10 UNIVERSITY OF ORLANDO (Disneyland campus)
(PhD in Economics, 3-month online program)

$36,000.00

11/17/10 CARIBBEAN ISLAND PROPERITES (Cayman islands)
(Private island with secure compound, communications and hardened bunker)

$18,000,000.00

11/18/10 TEDDY BEARS ONLINE
(12 supersoft "I need a hug" toy bears, made in China)

$260.00



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Tuesday, November 23, 2010

Please, Santa, Let This Be the Last Christmas in America (that's supposed to "save" the U.S. economy)

Santa, please, please, please strangle the idiotic fantasy that Americans buying a bunch of junk (or gift cards for after-Christmas purchases of junk) will "save" the imploding U.S. economy.


My Christmas wish to Santa: please let this be the last Christmas in America that is dominated by the propaganda that holiday retail sales have any more impact on the $14.7 trillion U.S. economy than a moldy, half-eaten fruitcake left over from 2007.


Fact: the 2010 GDP of the U.S. is projected to be about $14.7 trillion. (CBO estimate) The Federal Budget Primer.


Components of Government spending within U.S. GDP.



Fact: total holiday retail sales were $504 billion in 2009. Holiday sales--National Retail Federation.


That means holiday retail sales are a mere 3.4% of the U.S. GDP.


Despite the Financial and Mainstream Media's pathological obsession with holiday retail sales numbers as proxies for the "health" of the entire U.S. economy, holiday sales don't really change much:


2007: (pre-recession) Holiday sales: $516 billion
Holiday sales as percentage of annual retail sales: 19.5%


2008: Holiday sales: $495.5 billion
Holiday sales as percentage of annual retail sales: 18.6%


2009: Holiday sales: $504.8 billion
Holiday sales as percentage of annual retail sales: 19.4%


So the start of the 2008-09 recession saw a drop of $21 billion in holiday sales:statistical noise in a $14.7 trillion economy and a modest 4% decline from pre-recession levels. 2009 saw sales rise by about $10 billon (about 2%), so a rise of 2% from 2009 would return holiday sales to pre-recession levels.


Now the propaganda machine is cranking up to announce that a 2% increase in holiday retail sales means the U.S. economy is off and running. Santa, please, please, please order your reindeer to stomp the life out of the idiotic fantasy that Americans buying a few billion dollars more needless junk from China is any sort of evidence that the U.S. economy is "growing at a healthy clip."


The entire retail sector is 7.9% of the GDP compared to a 21.4% share for the FIRE tranch (finance, insurance and real estate) of the economy.


Does anyone seriously believe that 3.4% of the economy can possibly leverage up the entire GDP with a razor-thin increase of $10 billion in holiday sales?


Santa, you have my deep gratitude if you could jam the propaganda machine so that this is the last Christmas in America where trivial retail sales are hyped as the bellwether for the $14.7 trillion U.S. economy.



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Monday, November 22, 2010

The Key to Understanding "Recession" and "Recovery": The Wealth Pyramid

The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of "recovery" that masks the insecurity and decline of the bottom 80%.


There is statistical and anecdotal evidence supporting both a "we never left recession" and "the economy is recovering" interpretation. The key to making sense of the conflicting data is to understand that there are Two Americas.


Roughly speaking, we can divide the U.S. economy into "Wall Street"--the financialized part of the economy which encompasses the FIRE (finance, insurance and real estate) economy and its bloated partner in predation, the Federal government--and "Main Street," the looted, overtaxed remainder of the "real economy" which isn't a Federally supported corporate cartel (i.e. the military-industrial sector, the "healthcare"/sickcare sector, Big Agribusiness, etc.)


Main Street is small business, entrepreneurs, shopkeepers, small property owners (independent motels, vineyards, truck farms, etc.) and local service providers (dentists, accountants, etc.). This class of small business and their employees is in decline: Few Businesses Sprout, With Even Fewer Jobs (WSJ.com)


Needless to say, the Federal/financialized/corporate cartel tranch of the economy is doing very, very well, thank you. The number of Federal employees pulling down $150,000 annually is skyrocketing, hundreds of billions in revenues slosh into National Security and sickcare cartels, and Wall Street bonuses are in the tens of billions.


A thin, overhyped tranch of the tech economy is also doing well--Google employees just got a 10% raise, for example--but this overhyped tranch includes a razor-thin share of the 130 million person U.S. workforce. Google's global workforce is about 23,000, Twitter has a staff of roughly 300 and Facebook employs about 1,500 people.


There are two Americas in terms of wealth and income: In terms of income, the top 10% earn about half the total income, and in wealth, the top 5% own roughly 70% of all financial wealth.


I have prepared a Wealth and Income Pyramid of the U.S. to illustrate this reality.Notice that the "middle class" is mostly a figment of nostalgia and/or political illusion. Only the top quintile (top 20%) are really doing well in terms of income, and only the top 5% are prospering in terms of assets and unearned income (non-wage income).



This goes a long way to explaining how "consumer spending" can be "recovering" even as the incomes of the bottom 80% stagnate or fall. The top 5% of Americans by income are responsible for 37% of all consumer spending-- about the same as the entire bottom 80% by income (39.5%).


David Stockman, director of the Office of Management and Budget under President Reagan, recently noted in an editorial that the top 1% of Americans received two-thirds of the gain in national income from 2002 to 2006.


Over the past 25 years since 1985, the top 1 percent's share of national income has doubled; in 2007, it netted 23 percent of the nation’s total income. The income of the wealthiest Americans--the top 0.1 percent—has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million people.


Out of 113 million households, 1/100 of 1% rake in $10 million or more annually. As consumers, the top 5% carry the same weight as the bottom 80%. The top 10% take in 50% of the income. (The sources are listed in Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens August 18, 2010.)


This explains how Nordstroms' earnings can rise by a healthy 43% while Wal-Mart's sales in the U.S. can decline. Frequent contributor Cheryl A. reported that on a trip to Wilmington, DE, the shopping mall was packed with shoppers and people dining out: "It's like there never was a recession."


Meanwhile, I took an old friend who was visiting the San Francisco Bay Area to a restaurant in San Francisco that has never failed to be busy in the past 10 years, and the place had more empty tables than customers. The sidewalks were crowded with people, but how many were spending money?


I think the answer is obvious: the top 20% are spending money lavishly, as per their consumerist lifestyle, while the bottom 80% are taking the kids to Costco for entertainment.


The top 20% pay the vast majority of the taxes: According to the Congressional Budget Office (CBO), the top 20% paid 86.3% of all Federal income taxes, 43.6% of Social Security, 87.8% of corporate taxes and 34.1% of Federal excise taxes. After including earned-income tax credits, the bottom 60% of households paid less than 1% of all Federal income taxes, and the households between 60% and 80% paid 13%.


But the top quintile's share of national income rose despite th tax burden. In other words, income disparity has widened even though the wealthy pay the bulk of Federal taxes.


The notion that American households are paying down debt is simply unsupported by the facts. According to the Fed Flow of Funds report, consumer credit (credit cards, auto loans, etc.) has declined a paltry 7% from $2.59 trillion in 2008 to $2.4 trillion--and most of that was not debt paid off but uncollectible debt written off by banks.


In other words, the households with substantial incomes may not be adding to their debt load but they certainly aren't paying it down much either--they're spending freely in the malls and in "fine dining restaurants" just like they did in 2007.


The top 20% of U.S. households are spending, so "recovery" is in the air. Those with household incomes of $100,000 or more are buying new vehicles (which explains why vehicle sales are rising) and spending freely, while the bottom 80% scrape by.


That's how you get a statistical "recovery" that masks the recessionary misery of the bottom 80%--the "real economy" left to rot as the Federal government channels the national income into politically powerful corporate cartels, Federal fiefdoms and Financial Elites.


For more on the Two Americas, please read:


Income Disparity in the U.S.


Entitlements, Taxes, Inequality and Three-Way Class Warfare (September 20, 2010)


The Super-Rich (NYT)


Household income in the U.S.


Why We Keep Getting Poorer: High-Cost Housing (February 4, 2010)



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Saturday, November 20, 2010

End Game: Why the Status Quo Is Unsustainable

The s

tatus quo models of "growth" and credit expansion inevitably lead to collapse.

The status quo models of "growth" and credit expansion inevitably lead to collapse.


Frequent contributor Harun I. has captured the essence of why the status quo is intrinsically unsustainable. Readers often do a better job than I can in explaining a profound feature of our world, and Harun's commentary is devastating in its logic and clarity. (CHS: Emphasis is mine.)

Our problems began in 1913 when the Fed and therefore de facto centralized planning was established. And every generation that ignored the fact that counterfeiting money and lending it at interest is a scheme that has catastrophically failed in all previous attempts deserves what eventually befalls them -- results equal intentions.

The problem with maintaining inflation at 3% is that it compounds until the curve approaches vertical. This exponential growth will eventually outpace real productivity and therefore, at some point, fake prosperity has to be created through expansion of fiduciary media (credit). What this implies is that what is happening today could have been and probably was predicted well before 1913. But once again politics trumped reason.


The effects being experienced today had to materialize. Mathematically there is and can be no other outcome. Ceteris paribus, as real productive activity decreased, credit (fiduciary media) had to be expanded at exponentially increasing rates until exhaustion. Exhaustion occurs at the point where the curve approaches vertical where infinite credit or money has to be injected infinitely. This is impossible and is why all efforts thus far have failed.


Mish is absolutely correct when he observes that credit is being destroyed faster than it can be created.


Those demanding that you tender solutions do not understand that: 1) The 106 trillion dollar gorilla in the room cannot be satisfied. What is so egregious is that the Boomer generation saw or should have seen it coming. Instead of tackling a very difficult problem they chose distraction by bread and circuses.


That the most technologically advanced country in history could conceive that sending worthless pieces of paper to China so that they could buy worthless Treasuries so that we could continue to purchase "things" that required real human effort and natural resources is either collective insanity, rank stupidity, desperation, or just plain old greed.


And now that we have engaged in this type of activity for decades and the comeuppance is upon us we demand solutions to avoid the inevitable consequences of ineptitude and apathy.


Means testing will cost billions we do not have, will be implemented ineffectively, and, on scale, will prove ineffective at deflecting the 53 trillion dollar asteroid the size of Rhode Island hurtling at us at a few hundred-thousand miles per second.



The situation is untenable. That an insolvent government (starting from a 106 trillion dollar deficit) and facing global peak resource utilization, will somehow effectively manage to administer to a huge retired population whom have no savings, assets that they will only be able to sell at a loss and pensions denominated in a worthless currency, as a line of thought, is at best, imprudent. I take no pleasure in stating, and do so without any hyperbole, that you are about to forget about Katrina.


2) This Grand Cycle top is unlike any other faced by mankind. We are at peak everything; peak oil; peak food; peak water; peak industrialism; peak credit; but not peak population. There is and will be no excess capacity for growth. The very mechanisms that have allowed homo sapiens to reach such high levels of population density are at or near exhaustion.



And there is no Plan B. Those depending on technology to the rescue do not understand that by the time the Trident Submarine was put into production its design was 20 years old -- and obsolete. This type of government performance is not encouraging. Very long term there will be no return to what has become to be known by the Boomer and current generation as status quo.



What will have to happen is a return to using precious resources not for consumerism with all of its built in waste (planned obsolescence, disposable everything) but for producing absolute necessities.

This may all sound grim but if you remove the adjective, it simply is.

I have not read Mr. Kunstler's book but the title cuts to the heart of the matter -- we have entered a long emergency.

Thank you, Harun, for summarizing our shared situation.



Here are a few books which address the intrinsic limits of the status quo:


The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century


Early Retirement Extreme: A philosophical and practical guide to financial independence


13 Bankers: The Wall Street Takeover and the Next Financial Meltdown


The (Mis)behavior of Markets


The Fourth Turning


The Great Wave: Price Revolutions and the Rhythm of History


The Shock Doctrine: The Rise of Disaster Capitalism


Overshoot: The Ecological Basis of Revolutionary Change


The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization


Manufacturing Consent: The Political Economy of the Mass Media


Collapse: How Societies Choose to Fail or Succeed


The End of Work


Survival+: Structuring Prosperity for Yourself and the Nation


The Collapse of Complex Societies


Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy


ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism


Greed, Fraud & Ignorance: A Subprime Insider's Look at the Mortgage Collapse


Planet of Slums


Reinventing Collapse: The Soviet Example and American Prospects


Depletion and Abundance: Life on the New Home Front


Coercion


Globalization and Its Discontents


The Coming Anarchy: Shattering the Dreams of the Post Cold War


When Giants Fall: An Economic Roadmap for the End of the American Era


Fiasco: The Inside Story of a Wall Street Trader


The Dollar Crisis: Causes, Consequences, Cures


The Party's Over: Oil, War and the Fate of Industrial Societies


The Coming Generational Storm: What You Need to Know about America's Economic Future


The Sovereign Individual: Mastering the Transition to the Information Age


Who Rules America? Challenges to Corporate and Class Dominance


Financial Armageddon: Protecting Your Future from Four Impending Catastrophes


The Long Descent: A User's Guide to the End of the Industrial Age


Horsemen of the Red Hand: Book Two of the Operation SERF Trilogy


Governing the Commons: The Evolution of Institutions for Collective Action


Deschooling Society


War Is a Force that Gives Us Meaning


Empire of Illusion: The End of Literacy and the Triumph of Spectacle


Cornered: The New Monopoly Capitalism and the Economics of Destruction


Radical Homemakers: Reclaiming Domesticity from a Consumer Culture


Dirt: The Erosion of Civilizations


False Dawn: The Delusions of Global Capitalism


Get Ready!: Preparing for the Coming Catastrophe


Peak Everything: Waking Up to the Century of Declines


China's Trapped Transition: The Limits of Developmental Autocracy



If you would like to post a comment where others can read it, please go to DailyJava.net, (registering only takes a moment), select Of Two Minds-Charles Smith, and then go to The daily topic. To see other readers recent comments, go to New Posts.



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Friday, November 19, 2010

America Is Just Going Through the Motions

Going through the motions for PR purposes only fools yourself. Reality isn't swayed by propaganda.


A profound realization hit me last night: America is just going through the motions now--of reform, of healthcare, of everything. America's leadership--both its elected and appointed officials, and its "shadow" Financial Power Elite leadership (the corporatocracy of crony Capitalist cartels and rentier/speculative parasites) are just going through the motions of financial reform. And the American public is resigned to just going through the motions of accepting the travesty of a mockery of a sham that is called "reform," too, even as they understand in their bones that nothing has been fixed and the next financial crisis has already been cooked into their future.


One of our few reliable voice of reason in the world of finance, Simon Johnson, has already laid bare how the the next financial crisis and inevitable bailout of the banking parasites will unfold. His article in The New Republic Way Too Big To Failreveals how the "too big to fail" banks have shredded the wet paper bag of "reform" Congress went through the motions of conjuring up: they are quickly expanding globally, beyond the reach of any mere nation-state's grasp.


When the liquidity/speculation/leverage/toxic-asset bubble bursts again--and I think a strong case can be made that we are seeing the incipient signs of that bubble bursting in emerging markets, commodities and elsewhere--then the only nation-states with enough borrowing power to bail out the global banks will be the American Empire-- or more correctly, the shocked and dazed taxpayers of the Empire--the EU and Japan.


Unfortunately, all three have already socialized staggering bank losses, shifting the burdens of future meltdowns to the State itself.


Let's be honest, shall we? There never was any fire for real reform of the financial sector. It was all rote, a foul, stupid play-act, a passionless pantomime of "caring" and fake-"progressiveness" displayed for propaganda purposes.


Real reform occurs when the political class of toadies, sycophants, leeches and cowards is forced by a near-universal public outrage to pass simple, powerful legislation and the budgetary resources to enforce that legislation. For example, the landmark environmental laws of the 1970s. Rivers in America used to catch fire before this Federal legislation; now they don't. There was a true passion and desire in the nation to clean up the industrial pollution that was destroying the nation's commons.


Even some politicos were driven by conviction that this was necessary for the good of the nation. Ideologues of both parasitic parties dropped their preening and demogoguery and passed what the nation demanded, over-riding the political powerful industries which saw profits pinched as a result.


There was no real fire for financial reform in the politico class. All they had to do was wait out the public's outrage over TARP and then get down to the business of collecting contributions from financial players and their armies of toady-lobbyists.


So Washington went through the motions of "reform" and the regulatory agencies went through the motions of "enforcing" existing regulations. But nobody was indicted, no RICO suits filed on behalf of the defrauded, no billion-dollar penalties slapped on those who carted off tens of billions in embezzled, ill-gotten gains, and no perps forced into bankruptcy.


In other words, nothing got done except another layer of useless, overpaid bureaucracy was added to the bloated, overstuffed Federal payroll.


The exact same dynamic is visible in the "healthcare" (a.k.a. sickcare) "reform."2,300 pages of mind-numbing slicing and dicing of the vast flood of national treasure that flows to the sickcare cartels, and nary a single word on the actual health of the American public, which continues to deteriorate on multiple fronts.


The "reform" is to add multiple layers of bureaucracy and additional costs on a bloated, out-of-control system in which 50% of the money is already wasted on fraud, needless procedures/meds and paper shuffling.


It was all about going through the motions of reforming a system everyone knows is beyond dysfunctional.


So the net-net of "reform" is to slash the Medicare payments to primary-care physicians, the lowest-paid doctors in the system and the ones which actually provide the care to patients. So what incentive does anyone have to stay in primary care medicine, or to become a primary care doctor in the future, when the already low pay (an average of $136,000 annually, far less than unionized subway train drivers, airport staff who game overtime--one gent in San Francisco International Airport skimmed $233,000 a year by gaming OT and paid time off--and tens of thousands of do-nothing state and Federal paper-shufflers) is set to be slashed by a quarter?


The net result of a mindless, PR-dominated "going through the motions" reform is systemic collapse. But that won't occur in this election cycle, so haw-haw-haw, not our problem.


Correspondent "Ishabaka" (a U.S.-based M.D. despite his Japanese nickname) recently provided a daily-life example of the futility of just going through the motions. Ishabaka noted that some members of his gym didn't really come to do a real workout; they showed up to simply go through the motions of a workout so they can say they work out at the gym three times a week.


The net result of this simulacrum of exercise is a simulacrum of fitness and health. So when the GTTMer (going through the motions) keels over from a heart attack then everyone can shake their heads, tsk, tsk, he worked out three times a week at the gym, guess that doesn't do any good after all.


GTTM is not just the dominant paradigm in policy--it's also present in education. Many people are going through the motions of getting a Masters Degree, not to master a field of study they are passionate about pursuing but in the vain hope that another gatekeeper-stamped document will get them a high-paying, secure job.


The same dynamic is at the heart of many diets. Look, we are socialized to get fat and unfit by thousands, if not millions, of messages, cues and prompts, and by a packaged "food" and fast-food industry which ceaselessly markets unhealthy fare.


So people go through the motions of dieting: they sign up for costly programs (Weight Watchers, etc.), they buy an armload of fad-diet cookbooks, they start walking before going to work, and so on.


Yet they eat their tofu and brown rice with tears of self-pity, wearing a hair-shirt of deprivation, dreaming all the while of French Fries and pork chops smothered in gravy.


Going through the motions doesn't cut it. People who approach dieting and fitness with this approach lose a few pounds and then crack, and soon enough they are back to their unhealthy weight and tiring of their doctor's pleas to lose 30 or 40 pounds.


Here are two good easy-to-digest (heh) articles on the physics of weight loss by a UC-Berkeley physicist who lost 30 pounds:


The Physics Diet


On Gluttony


Basically, it comes down to eating less, eating better food, building/ maintaining muscle mass and doing some aerobic exercise that gets your respiratory rate up. That's it. Nothing fancy. For a variety of health reasons I realized I had to lose some fat from my 56-year old frame and so I've peeled off 8 lbs of lard that was not doing me any good. MyBMI is now 21.6 and I feel better. I feel fuller sooner, too, at mealtime.


You have to have a positive passion for a goal, a belief in its goodness and necessity that fires a commitment, for anything to come of it. The program and goal have to be simple.


In the case of the "too big to fail" banks, we as a nation have failed, completely and utterly. In the case of "healthcare," we as a nation have failed completely and utterly. The same can be said of tax reform, a national energy policy, election finance, "national security," restraining the Savior State's oppressive reach, reversing the ever-increasing concentration of wealth and political power in the top 1/10th of 1%, and in reducing the needless burdens of Global Empire.


We as a nation have accepted a "going through the motions" President, Treasury, Federal Reserve, Congress, regulatory system and judiciary, and the net result will be systemic collapse. That sounds "impossible," of course, just as it was "impossible" that Enron, Lehman Brothers, Countrywide, etc. etc. etc. all went belly-up.


When all you're doing is going through the motions for self-deception and public relations, then collapse isn't just possible, it become inevitable.



If you would like to post a comment where others can read it, please go toDailyJava.net, (registering only takes a moment), select Of Two Minds-Charles Smith, and then go to The daily topic. To see other readers recent comments, go to New Posts.



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Thursday, November 18, 2010

The Federal Reserve and the Pathology of Power

The Federal Reserve is an example not just of run-of-the-mill hubris but of the far more profound Pathology of Power.


The rule of law has been supplanted in the U.S. by self-serving propaganda campaigns serving State and financial Elites: this is the Pathology of Power. The Federal Reserve is an instructive example because it is so blatant.


Despite the dearth of evidence that goosing the stock market actually generates a "wealth effect" which "trickles down" from the top 10% who own the vast majority of equities to the bottom 90%, the Fed has waged a ceaseless propaganda campaign claiming this policy goal is now essential for the nation's well-being.


As Ben Bernanke recently made clear: "Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending (that) will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."


No mention of its positive effect on Wall Street; cui bono (to whose benefit?) indeed. To better understand the pathology of power, we should turn first to Pathology Of Power by Norman Cousins, published in 1988.


Cousins was particularly concerned with the National Security State, a.k.a. the military-industrial complex, which at that point in U.S. history was engaged in a Cold War with the mighty Soviet Empire.


In a classic case of structural decay and destabilization (including failed coups), the Soviet Empire dissolved in December 1991. Nonetheless, Cousins' description of the pathology of power is an uncannily accurate account of the Fed and all the Central State fiefdoms.

"Connected to the tendency of power to corrupt are yet other tendencies that emerge from the pages of the historians:

1. The tendency of power to drive intelligence underground;

2. The tendency of power to become a theology, admitting no other gods before it;

3. The tendency of power to distort and damage the traditions and institutions it was designed to protect;



4. The tendency of power to create a language of its own, making other forms of communication incoherent and irrelevant;

5. The tendency of power to set the stage for its own use.


In broader terms, we might add: the tendency of power to manifest hubris, arrogance, bullying and the substitution of rule by Elites for rule of law.


Thus we have a Federal Reserve in which:


-- PhD economists declare that only PhD economists are qualified to critique Fed policy, even as the Fed's grandiose failures suggest that PhD economists are the least qualified citizens to set economic policy (see items 1 & 2).


-- A Fed that bullies domestic and international critics and attempts to impose its "save American Financial Elites at all costs" goals on the rest of the planet.


-- A Fed that claims transparency in its balance sheets and actions would undermine its actions, meanwhile its actions have undermined democracy and the Republic by remaining secret and unaccountable.


-- A Fed that is a private bank acting as the central bank for the Republic, pursuing policies and manipulations which are not accountable to the public's elected representatives.


-- A Fed which defends its failures and responds to criticism with evocations of magical thinking ("step aside, little people, we are the Fed..." see item 3)


-- A Fed which has overstepped its mandate, which is limited to "maintaining monetary and credit aggregates commensurate with the economy's potential to increase production, so as to promote the goals of maximum employment, stable prices, and moderate long-term interest rates."


In other words, the Fed is supposed to manage the nation's supply of money and credit, not its economy or stock market. Yet that is precisely what the Fed is explicitly pursuing by goosing the stock market.


There are two fatal errors in this policy: one is a fundamental misunderstanding of capitalism, and the other is a misunderstanding of the stock market.


Capitalism operates on a "business cycle" in which expansion leads to increased credit, borrowing, investment and consumption, until credit-based speculation based on future growth extends beyond borrowers' ability to service debt. Investment become mal-investment, and the credit cycle reverses into contraction: credit shrinks as bad debt is written off and leveraged borrowers and lenders go bankrupt. Assets are written down and sold off for a fraction of their previous worth.


This squeezing out of excess credit and capacity sets up the solid foundation for the next cycle of expansion and investment.


After the deep 1981-82 recession, the Fed decided to revoke the painful part of the business cycle, and leave only the "happy part" of expanding credit, rising speculation and endless credit-fueled investment in new plant and buildings.


This is a catastrophic misunderstanding of Capitalism. Yet fully intoxicated with the pathology of power, the Fed has an institutional belief that it can revoke the business cycle by inflating serial assets bubbles.


This is hubris, ignorance and arrogance writ large.


The stock market is not a public-relations device, it is a transparent market where price is "found" and capital is raised. Yes, speculation is part of the game, but that is part of providing liquidity.


In constructing its Palace of Pathology, the Fed has extended its mandate to manipulating the stock market via injections of "free" cash, bidding up of futures contracts pre-market via proxies, and any number of other manipulative techniques.


By gaming the stock market as a tool in its propaganda campaign to convince the American public and the world at large that U.S. equities are the leading indicator of the U.S. economy, the Fed has eroded trust in the market as an open market.


I addressed this in The Loss of Trust and the Great Unraveling To Come (October 18, 2010).


The reason, of course, is not to create the "virtuous cycle" Bernanke mentioned, but to protect the financial Power Elites which have the most to lose should reality and/or democracy wrest power away from the Federal Reserve.


Ultimately, the Fed's Pathology of Power is like any other psychopathology: self-absorbed, unable to differentiate between an inner world in which the Fed is all-powerful and reality, and obsessed with retaining and extending its powers, regardless of the cost to others.


Like all other sociopaths, the Fed's policy makers are unable to accurately discern others' emotions and intentions, instead ascribing them whatever motivations fit the inner world in which an all-powerful Fed "knows best."


Thus Congressional oversight of the Fed--a necessity if the word Democracy has any meaning left in America--is "meddling with the Gods" that will bring the nation to ruin. This psychological bullying, braggadocio and supreme arrogance also typifies a dangerously unstable, aggressive and unpredictable sociopathology.


The Fed has the ability to create limitless Hubris along with unlimited credit. For more on the Fed's (and the entire financial sector's) sociopathology and grandiose failures of imagination and policy:


The Rot Within: Our Culture of Financial Fraud and the Anger of the Honest
(October 15, 2010)


The Normalization of Sociopathology in America
(October 16, 2010)


Are the Fed's Honchos Simpletons, Or Are They Just Taking Orders?
(November 1, 2010)


Dependency, The Fed and the Market
(November 8, 2010)


The Banality of (Financial) Evil
(November 9, 2010)


Fed's QE2 Misadventure Costs U.S. Households $4.6 trillion
(November 10, 2010)


Fraud and Complicity Are Now the Lifeblood of the Status Quo (Banality of Financial Evil, Part 2)
(November 12, 2010)


If you would like to post a comment where others can read it, please go toDailyJava.net, (registering only takes a moment), select Of Two Minds-Charles Smith, and then go to The daily topic. To see other readers recent comments, go to New Posts.



Order Survival+: Structuring Prosperity for Yourself and the Nation and/or Survival+ The Primer from your local bookseller or from amazon.com or in ebook and Kindle formats.A 20% discount is available from the publisher.


Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle



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