Saturday, July 30, 2011

Random Reflections About This Blog/Site

Somewhat-related ideas are bandied about:"idea sluts," the bipolar spectrum, and those famous deckchairs on the Titanic.

I'm going to say a bunch of stuff about this blog, and blogging in general, which I hope to weave into semi-coherent reflections. If I fail, then it will simply be semi-random reflections.

There may not be much apparent connections between these bits; hopefully the process of making the connections will be mildly interesting.

I'm a little tired of the blog right now. Part of that stems from the fact that I've written about 300,000 words of "unique content" in the past 7 months: about 35,000 words as a paid free-lance writer, about 20,000 in the Weekly Musings for the site's 360 subscribers/ major contributors, about 150,000 words in 180 blog entries (a few being guest essays), and 100,000 words of An Unconventional Guide to Investing in Troubled Times, which was pared down to 74,000 words.

I actually think 300,000 words is being conservative; maybe it's more like 325,000 words. Whatever the number, it's a lot.

I also wrote a few thousand emails, many of which were substantive.

Although I refer to this site as a blog out of convention, it is not really a blog; it is a website. I will say more about this later.

A reader recently pointed out that this is a Page Rank 6 site. Page Rank is Google's core algorithm; it essentially ranks the reach and influence of websites, including blogs. It is not a coarse measure of traffic (visitors) but of the "weight" of incoming links to the site. If your site has a lot of links from other influential sites, then your Page rank rises.

A lot of people try to game this algo but Google adjusts it constantly, and it's difficult to game. You can game traffic and the number of pages on your site, but you can't game the number of incoming links from influential sites.

So Page Rank is a pretty good measure of a site's reach and influence. The best way to understand PR is to do a search for the PR of the sites you frequent. Google itself is a 10, sites with few visitors and incoming links are 1. It is extremely difficult to reach a PR 6, especially if you're doing the whole thing alone. This may sound like self-congratulation but it simply a statement of fact. I do not really understand this site's reach and influence.

Another simple metric is to enter a unique string from the site into Google and see how many links come up. Entering "Charles Hugh Smith" (with quotes to make it a unique string, i.e. so links containing "smith" are excluded) returns 1.6 million results. I don't have any objective way to assess that, but it seems pretty high.

I recently had several very interesting conversations with my blogging colleagueGonzalo Lira. Gonzalo is a very engaging, witty, intelligent guy, and so it was easy to talk with him for a couple hours before and after his "Week in Words" webinar that he had graciously invited me to join as a guest.

(Gonzalo, please forgive me if my paraphrasing of your ideas is not quite accurate; they were of course filtered through my semi-coherent brain.)

Gonzalo said a number of things which I have been pondering. One was that he was not sure why he was blogging. Now I need to stipulate here that Gonzalo has built up a very influential blog; he has a high visitor count (10,000+ daily) and has established a high visibility. As noted above, this is not at all easy to accomplish. You don't just rush out and build a PR 5 site with 10K visitors; it takes a lot of engaging content and perseverance.

I suggested that perhaps blogging was a form of self-expression; he thought that was not quite it. I suggested creative outlet; that also didn't hit the mark. His refusal to accede to an easy answer struck me, for typically humans feel great unease with ambiguity and quickly choose a "boxed" answer to relieve the anxiety created by contingency and/or ambiguity.

Gonzalo was comfortable with an incomplete answer. That impressed me.

It turns out we share at least one commonality: we both have university degrees in philosophy. You need to know that to appreciate another thing he said, which I paraphrase thusly: It's not enough to have a conviction; you have to be able to explain the logic of your conviction, to build a case for it. Lots of people have convictions but few people are able to logically account for their convictions.

Based on the thousands of emails I have read--more like tens of thousands--I would agree. Humans prefer prefabricated "boxes" of ideas and convictions because it's easier to slip into a box with a herd of others inside. This is easier on two counts: humans are social animals, and the herd instinct is not only powerful, it offers selective advantages. The other is that it is irksome to think through an independent analysis with a coherent, fact-based internal logic. Our minds are not constructed to do this easily.

Ideologies are prefabricated boxes. They come with a ready-made self-referential internal logic: B follows from A because I believe in A. Facts are "cherry-picked" to support the internal logic, but the truly key component in any ideology, Left, Right or Libertarian, is magical thinking, i.e. wishful thinking.

I can illustrate this very simply.

The basic assumption of any ideology or "ideological "debate" (quotes explained in a moment) is that all problems would be resolved if only the "other side" came round to your conviction.

So let's follow that through: if all Republicans suddenly agreed with Paul Krugman and Robert Reich, would Peak Everything be resolved? Would the U.S.A.'s dependence on exponentially rising debt and imported oceans of oil magically go away? Would the consequences of The End of Work vanish? Would the consequences of 72 million (or 79 million counting legal immigrants) Baby Boomers retiring, fully 25% of the entire population, magically disappear?

Now repeat the question for the flip-side of the coin: if Democrats suddenly saw the light about free markets, low taxes, etc., and became die-hard Republicans, would any of these structural problems suddenly go away? No.

Though each ideology claims to have the "answers," the "answers" are all magical thinking: if only the wealthy would pay more taxes, if only taxes were lowered, if only those SUV drivers would buy a Prius, if only we cut Pentagon spending, etc. etc. etc. All of these ideology-generated "solutions" are just tweaking the parameters of internally doomed systems.

It's interesting what makes people angry enough to write me accusatory emails.Questioning that the U.S. dollar is heading straight to zero angers people, wondering if gold might drop a few hundred bucks per ounce angers people (even though such a drop would be well within its decade-long upward channel), and questioning the solvency of Social Security angers people.

Clearly, these are "hot buttons" within various ideological boxes.

Strangely enough, nobody gets angry when I discuss the structural changes termed "The End of Work" by author Jeremy Rifkin, a topic I have covered here many times. Nobody gets angry when I address the demographic realities of 79 million people retiring. Nobody gets angry when I talk about America's extreme dependence on the extreme leverage provided by oceans of cheap imported oil (roughly 12 million barrels a day). And nobody gets angry when I discuss America's addiction to low-interest debt.

But if you put these together, then the only logically consistent result is the implosion of the Savior State. And this angers people, because they have a stake in the Savior State, and its continuance, or even rightness, is a key component of the box they have chosen to inhabit.

What I write about on this site is not the world of today, but the world five years out and ten years out. That world does not yet exist, and its precise shape is of course unknown and contingent on a great number of causal factors. But the rough outlines are already predictable because the current consumption of oil and other resources, the dependence on ever-rising cheap-to-service debt, the End of Work and demographics are systemic, structural dynamics which cannot be reversed or addressed without the system collapsing. Tweaking parameters, a.k.a. rearranging the deck chairs on the Titanic, is not going to resolve any of these fundamental causal factors.

But it is psychologically appealling to nail down one's convictions and "solutions" and fill in the blanks with magical/wishful thinking.

A number of people write me to complain about the lack of a "comments" section that is a standard feature of 99% of all blogs. Some complain that I am merely a "preacher" who dares not "debate" them. Others claim they are so frustrated they are considering giving up reading the site.

My esteemed blogging colleague Jesse of Jesse's Cafe Americain recently explained why he has no comments section: it's too time-consuming and unrewarding.

I find it interesting that even though there are 10 million, or perhaps 100 million, blogs and sites which enable your comments, indeed, solicit them, the handful which do not enable comments draw some sort of special ire.

It seems there is an implicit assumption that having a public site requires one to host a forum available to all. This has made me realize is not a blog; it is a website. There is no agreement, implicit or otherwise, that a website is also a public forum.

Here is an alternative perspective: there is a public forum available to all called free blogs. It takes about 3 minutes to set up your own blog on Blogspot or other free blogging sites. Everyone is free to open their own blog and post whatever content they wish. They can "debate" whatever they want, as often as they want.

I put "debate" in quotes because it seems the vast majority of people who want to "debate" me actually want to persuade me of the rightness of their convictions, and they prefer to do so without having to build a public readership of their own.

The vast majority of these convictions are prepackaged, self-referential ideologies. Thus these "debates," when stripped down to their essence, are chiding someone for their wrong-headedness. They are simulacrum debates, as no ideas are truly built upon a fact-based internal logic, and there is no contingency or ambiguity in the mind of the "debater." He is right by virtue of his conviction, and you are wrong.

I have also noted that it is virtually always men who are angry with something I've written--female readers disagree, but do so politely and with a degree of contingency. Males seem prone to getting locked into convictions of one sort or another, and if they perceive that you might have one foot in the wrong box, they get angry.

Gonzalo said something which (with a bit of witty vulgarity) captures living outside these prepackaged ideological boxes: being an "idea slut." That is, embracing various ideas and getting to know them intimately, not with a single-minded fury to discount them because they threaten one's established convictions, but with a desire to understand their assumptions and internal logic.

Being an idea slut flummoxes, confuses and infuriates everyone firmly lodged in their respective boxes. I am often reamed out as "leftist" and "right-wing" in the same week. People literally cannot make sense of independently assembled thinking. If you remove the self-referential aspects of convictions, i.e. "I believe in A which is the basis of my belief in B," then each topic loses the emotional baggage which is the essential coin of ideology.

Gonzalo related that he infuriates one slice of readers by seeing nothing intrinsically unworkable with fiat currencies; since he is a big proponent of owning physical gold and hyperinflation, this seems to contradict what he "should" believe, i.e. everyone who values gold as "real money" must also dismiss fiat currency of any kind as fundamentally flawed.

What if all ideologies have failed, completely and utterly? This is unacceptable to ideologues; we simply need to do more of what isn't working, and then it will magically start working.

There was an exccedingly interesting article on about the value of what psychologists call the bipolar spectrum: Depression in Command: In times of crisis, mentally ill leaders can see what others don't Their weakness is the secret of their strength.

The basic idea of the article is that conventional leaders do OK in conventional times, but fail miserably in uniquely troubled times. In those eras, then leaders from somewhere on the bipolar spectrum--manic-depressives, to use another term-- excel, because their internal worlds and perceptions lie outside conventions. They also tend to be far more empathetic than conventional "normal" people, which qualifies them for leadership above and beyond politics as usual.

I am not a leader, and have no desire to be one, but I am manic-depressive, and that spot on the bipolar spectrum certainly powers this site. Manic-depressives tend to be very productive and then crash; they are prone to debilitating depression. Maintaining some sort of balance requires a lot of self-management.

It has been estimated that about 6% of the populace is somewhere on the bipolar spectrum. Some require medication to lead "normal" lives, others are disagreeable and difficult to be around, and others are quirky charismatics. There are no generalizations which fit the entire spectrum, other than the commonly observed one that madness and genius are two sides of a single coin.

It isn't all "good" or "bad," but a mix of contingencies, uncertainties and ambiguities. A great many poets, writers, musicians, etc. have been manic-depressives, as well as the unconventional leaders mentioned in the article: Lincoln, Churchill, et al.

Some on the spectrum have trained themselves to interact seamlessly with "normal" people, to the degree that their "normal" friends are shocked to discover they are prone to severe depression. Others self-administer drugs such as alcohol, usually to poor effect.

I suspect General and President Ulysses S. Grant was bipolar; when he was depressed about his post in the remote northwest, he drank, and the reputation haunted him from then on.

But he was also able to switch from being a mediocre has-been shop-clerk to a brilliant general in a few months. He was unable to translate his military brilliance into his presidency, which shows the limitations of the bipolar spectrum.

I suspect the last "non-normal" president was Richard M. Nixon, and his gifts and sins were both outsized. No one who knew him would reckon him conventional, and his attempts to mimic "normal" behavior came across as stilted and phony.

The presidents since Nixon have been "normal" in the sense that whatever you think of them or their politics and decisions, they were outside the bipolar spectrum. The current crop of leaders are all remarkably conventional. This may explain their inability to provide leadership in uniquely challenging times.

Unconventional leaders are generally unelectable; if we cannot grasp the value of unconventional leaders, that is ultimately a choice of self-destruction.

You can't "choose" to be manic-depressive; you are, or you're not. If you are, then you manage it more or less successfully or unsuccessfully. Manic-depressives cannot stop doing what comes naturally to them, and some are remarkably creative. A "normal" person will learn an instrument and find pleasure in learning songs and other pieces. In contrast, new songs will come to these troubled creative types from nowhere, lyrics and melodies plucked as if from the air itself. We know these creations spring from their brains, yet they experience then as spontaneous discoveries.

As the article notes, the bipolar mind works differently from the "normal" mind. I suspect that Nature generates the 6% on the bipolar spectrum as a selective advantage for the species, as these few generate the preponderance of the intellectual and social mutations that provide the diversity of ideas needed in times of profound change.

These people tend to pay a high price for their role as unconventional generators of ideas, art and leadership.

OK, here's the wrap-up. There is no way to arrive at an unambiguous answer, but I suspect this website has an influential audience precisely because my goal is always independent thinking and independent journalism. I suspect that we understand, perhaps in the collective unconscious, that conventional "solutions" and thinking are failing at a profound level, and that our only hope is independent, unconventional ideas and thinking. Such thinking is flexible, unattached to emotional certainty, unafraid of contingency and ambiguity, and revels in embracing new ideas and exploring their inner workings.

If this site isn't part of that, then I have no other explanation for its reach and influence. As an individual, I am boringly conventional; as a "Channel of Me," I don't even rate a Page Rank 1.

If there is a central irony to this site, it's that living the life I promote here takes up most of my time, and so the site is a very part-time endeavor. Some readers seem miffed that I'm not in front of a computer 12 hours a day to enable and read their comments, but nobody pays me to do that, and I would refuse that "job" if offered it. That is not the "job" I do here. A generous reader maintains the forum on his own; anyone is free to respond to anything they read here on that reader-moderated forum or on their own blog.

I have some other things to do over the next few months, so I'll be posting perhaps 10 entries a month rather than 25 per month. I will oft-times be unable to read or reply to emails.

Thank you for your readership and support of the site. I have learned a lot from you, and that's the value of the site to me--a value I try to share.

Readers forum:

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Friday, July 29, 2011

The Coming Global Instability, Part II

Systemic causes of global financial instability include the "normalcy bias," super-low interest rates, central-bank induced inflation and loss of faith in institutions.

Some causal factors of global financial instability are mental constructs, others are pernicious policies. Money is the ultimate mental construct, of course; it is our faith in the promises issued by central banks and governments that gives paper money its value.

The same can be said of markets: it is our faith in their transparency which makes them "free markets." Once we discern that a market is manipulated, then we lose trust in it and exit that market for good.

The most pernicious policy is central-bank engineered inflation, which rewards debtors and punishes capital accumulation, a.k.a. savings. Push these incentives to debt hard and long enough, and you get a crippled, top-heavy economy like the U.S. economy, crushed by debts so staggering that the only way to service the debt is to borrow more money at insanely low rates of interest.

This is an excerpt from my new book An Unconventional Guide to Investing in Troubled Times which has just been issued in Kindle ebook format; a print edition will follow in September. (You can read the ebook now on any computer, smart phone, iPad, etc.--see below. The 30% discount expires tonight.)

Here are six systemic causes of global financial instability. (Here is yesterday's list:The Coming Global Instability, Part I.)

1) The human mind has a number of default settings which have proven advantageous as "short cuts" in most circumstances, one of which is called "the normalcy bias." As events spiral out of control and dangers rise exponentially, our tendency is to underestimate the risks and potential losses. As long as a few shreds of normalcy remain intact, we view these as evidence that “it’s really not so bad.”

Most of the time, this trait pays off as most systems are self-correcting and catastrophe is avoided. But when self-reinforcing negative trends take hold, this complacency is ultimately self-destructive.

2) The financial Status Quo, already discredited in the eyes of most well-informed observers, will eventually lose all credibility, and global stock markets will languish as participants abandon them.

If this sounds farfetched, recall that 70% of all shares traded in the U.S. stock market are exchanged in opaque “dark pools” operated by Wall Street and “too big to fail” banks, and high-frequency trading executed by “black box” algorithms account for the majority of the remaining 30% of publicly traded shares. This means that some 90% of stock market activity is hidden from non-insider investors.

The idea that we can rely on opaque markets for our financial security will increasingly be discredited. As heavy-handed interventions fail to restore stability, public faith in these institutions will decline. This delegitimization will further destabilize global markets, and those who accepted the implicit guarantees of stability, transparency and liquidity may find instead that their financial security has vanished in a cloud of “impossible” disruptions and dislocations.

This loss of faith is already evident. As the U.S. stock market doubled from its March 2009 lows, U.S. households withdrew hundreds of billions of dollars from domestic equity mutual funds, and quadrupled their holdings of “safe” U.S. Treasury bonds. If you look at a 10-year chart of volume in U.S. stocks, you will see a steady erosion of participation in the stock market. These are the actions of people who have lost faith in the stock market, the nation’s financial and political institutions and the official “story” of permanently rising prosperity.

Once trust is lost, it cannot be won back easily or quickly.

As the financial authorities attempt to keep the system from crumbling beneath their feet, they will take increasingly drastic actions as markets destabilize: investment rules that were presumed to be eternal will be changed overnight, without warning, and then changed again. Decades of low volatility that encouraged people to buy long-term bonds, annuities and dividend-paying stocks will be upended by unprecedented financial and political volatility. Seemingly permanent low interest rates that lured investors to pile into high-risk gambles will suddenly leap up, wiping out gamblers who weren’t even aware they were playing a game rigged in favor of the “house.”

Such expectations are well-grounded in history. Most investors have forgotten that the U.S. stock market was summarily closed for months during World War I, and that in 1933, the Federal government seized “hoarded” privately held gold. These actions were, at the time, considered necessary and prudent by the authorities. More recently, in 2008 speculating that banking stocks would decline (that is, shorting banking stocks) was summarily banned. The rules governing the market were changed to defend the Status Quo, and speculation was only allowed if it flowed in one direction—the one favored by the financial authorities.

3) Stripped of mumbo-jumbo, central banks and States have only two buttons to push: Keynesian fiscal stimulus, i.e. governments borrowing and spending vast sums in an effort to stimulate demand and the “animal spirits” that drive private borrowing, and monetary easing, i.e. lowering interest rates to near-zero, and printing or creating credit electronically to flood the economy with “liquid,” easy-to-borrow money.

Central banks and States are hitting these two buttons like frenzied laboratory rats, but the machine is out of cocaine-laced pellets. In effect, central banks and Central States are both addicted to exponential expansion of credit, intervention and Central State borrowing and spending. Each is only exacerbating the system’s risks, and as the authorities ratchet up these interventions to ever-higher levels, they’re insuring an even greater collapse.

There is a pernicious agenda at work in setting interest rates near zero while boosting money supply and deficit spending to create inflation. By robbing savers of any return on their savings and sparking “sustainable, orderly” inflation of around 4%, central banks are in effect transferring 4% from the owners of cash to reduce the debt of the central bank/State by this same amount every year. In a decade of this monetary scheme, savers’ wealth will be reduced by roughly 50% while the debt created by the central bank/State will decline by 50%.

“Purchasing power” is a concept while helps us understand the results of low interest rates and “politically benign” inflation: the owner of cash will find their money buys only half of what it did ten years before, while the government debt has also fallen in half. The net result of this slight-of-hand is that government debt that was crushing becomes manageable again as savers’ wealth was invisibly transferred via carefully engineered inflation.

The key phrase in this sub rosa agenda of transferring private wealth to reduce government/central bank debt is “politically benign:” since the loss of wealth and the rise in consumer prices is “only” 4% a year, the consequences are not severe enough to trigger political resistance. Financial and political authorities know that people quickly habituate to an “orderly” reduction in wealth and an “orderly” inflation in prices; that is, this erosion of purchasing power soon becomes “the new normal” and people plan around it.

The purpose of this central bank/State agenda is to avoid the two endgames that would destabilize the Status Quo: outright default on the Status Quo’s staggering debts, and hyperinflation, or loss of faith in a paper (fiat) currency. Either of these events would destroy the credit markets that form the foundation of the global economy.

We can see how successful this strategy of engineering orderly, “normal” inflation has been: 30 years ago, a Federal debt of $15 trillion would have unimaginable. Today, it is accepted as “sustainable” because it will never be paid back in today’s dollars, and low interest rates insure that the carrying costs of that debt remains small enough that no other government spending need be sacrificed to pay the annual interest.

This agenda has worked like magic for the past 30 years, but beneath the apparent success, the foundations of the current system-- cheap energy, globalization, financialization, monetary expansion, fiscal stimulus, opaque markets and constant State/central bank intervention--are all eroding. As they dissolve then so too will the Status Quo’s implicit promises of permanent stability, low interest rates and limitless growth.

The point here that the levels of intervention required to create inflation in a deflationary, deleveraging-of-debt era are not just stupendous-- they must ratchet up to ever higher levels to maintain superficial stability as the system becomes increasingly precarious. Ironically, increasing the heavy-handed centralized interventions only increases the system’s precariousness—the exact opposite of the Central Planners’ intentions. This is the result of trying to manage non-linear systems with linear-system tools: all that manipulation can achieve is to extend surface stability at the cost of a more severe system crash later on.

4) The investment world is keen on probabilities as reliable guides to the future.But low-probability events occur with remarkable regularity, so it’s prudent not to put too much faith in statistical or probabilistic reassurances. All such models are based on the idea that the recent past is a reliable guide to the future. But if the thesis that the next 20 years will necessarily be very different from the previous 60 years, then this faith that the recent past offers a roadmap of the future is dangerously misleading.

5) The uneven, unpredictable process of destabilization and devolution will play out over many years as periods of apparent stability are punctuated by the re-emergence of crises which were supposedly resolved in the previous cycle of central bank/government intervention. Every era of stability will be less enduring than the last, and come to rest at a lower level of security and prosperity than the last. Every intervention will be larger, more desperate and more intrusive than the last, and much less effective.

6) Periods of creative destruction are inherent to Capitalism, indeed, essential to its long-term success. Just as we cannot fool Mother Nature for long--for example, by reckoning we can eliminate forest fires--we cannot manipulate the global economy to eliminate creative destruction. All the unprecedented efforts of central financial authorities to eliminate risk and instability are simply piling up more deadwood in an already tinderbox forest.

Financial risk is like water in a closed system: it cannot be compressed. As pressure mounts, the risk builds up and eventually escapes, often through whatever part of the system was considered “safe.”

Periods of great transition in which existing systems are consumed by creative destruction and a new paradigm emerges offer great opportunities as well as great risks.

If I had to summarize this book in a few sentences, it would be this: Money is a tool; make it work for you. Don’t invest in Wall Street’s false promises, invest with an unblinking eye on systemic risk. Invest in your own life and in the lives of others.This book explores how to do just that.


My new book An Unconventional Guide to Investing in Troubled Times is available in Kindle ebook format. You can read the ebook now on any computer, smart phone, iPad, etc.--see below.

Sale ends Friday, July 29, 2011, and price reverts to retail price of $9.85.

You do not need a Kindle Reader to read it, you can easily download the free Kindle app and read it on virtually any device or computer. Get the links, read the Intro, Table of Contents and Chapter One, and buy the ebook of An Unconventional Guide to Investing in Troubled Times on the info page. As a modest thank-you to loyal readers, the ebook is discounted 30% ($6.85) through this Friday, July 29, 2011; On July 30, the price reverts to retail price of $9.85.

Readers forum:

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

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Thursday, July 28, 2011

The Coming Global Instability, Part I

The root causes of global financial instability cannot be wished away or "solved" with modest policy tweaks: they are systemic.

Systemic financial instability is spreading rapidly around the globe. Nobody knows the precise timing, of course, but if we consider the systemic causal forces at work, it seems the future is now: the next few months could see unstable markets gyrate wildly and unpredictably as the latent instability breaks out and plays out into the 2012-2013 timeframe.

This is an excerpt from my new book An Unconventional Guide to Investing in Troubled Times which has just been issued in Kindle ebook format; a print edition will follow in September. (You can read the ebook now on any computer, smart phone, iPad, etc.--see below.)

Here are a few of the structural causal factors behind the coming global financial instability:

1) What was once considered “impossible” has been normalized to the point that truly unprecedented imbalances are now accepted as "normal." But the normalcy is illusory.

For example, it is now considered “normal” that the Federal government borrows $1.6 trillion every year to prop up the Status Quo, fully 11% of America’s Gross Domestic Product (GDP) and 40% of all Federal expenditures. This stands in stark contrast to the traditional view that deficits in excess of 3% of GDP a year are inherently destabilizing. Now we borrow roughly four times that much (including the off-budget “supplemental appropriations” that run into the hundreds of billions of dollars every year) and the political and financial Elites evince a complacent faith that these extremes are benign and sustainable.

Those who believe unprecedented central bank and State interventions in global markets are not just necessary but positive point to Japan, a nation that thus far is untroubled by debts far in excess of 200% of its GDP. They also point to the rapid growth in developing countries as the engine which will grow the world’s financial pie so everyone’s slice gets bigger every year.

But the fundamental problems in the global economy have not been addressed--they’ve just been papered over with trillions of dollars in printed or borrowed money. Behind the paper-thin façade of “extend and pretend” normalcy, the foundations of the financial Status Quo in China, Japan, the European Union and the U.S. rest on shifting sand. By avoiding structural reform in favor of facsimiles of reform and by “fixing” over-indebtedness with more debt, the political and financial Elites have simply increased the height the world will have to fall to correct the imbalances.

In the forest fire analogy, fixing debt crises by adding more debt is like putting out a small fire: that suppression of a healthy cleansing of the system only guarantees a monstrous fire later.

2) The global economy is now based on a widespread trust that central banks and governments will never let assets fall in value. This insulation from risk is known as moral hazard, as those who are insulated from risk will have an insatiable appetite for risky bets because any gains will be theirs to keep but any losses will be covered by the central bank.

The financial authorities’ success in propping up assets like stocks in the U.S. and real estate in China over the past three years has strengthened this moral hazard into a dangerous quasi-religious faith that central banks and governments have essentially unlimited power to keep asset prices aloft via printing money and easy credit.

3) This isn’t just a failure to reform an opaque and broken financial system: conventional economics has failed. This Grand Failure of Conventional Economics has gone unnoticed, as all those wedded to the Status Quo keep applying “lessons learned” during The Great Depression of the 1930s. They are pursuing the magical-thinking hope that the old rules still apply, even though the fundamentals have changed dramatically.

The Grand Failure of Conventional Economics is more than failed policy: it is a profound blindness to the resource limitations of our planet. Not one of the many strands of conventional economics recognizes the limits on growth in production and consumption as measured by GDP (Gross Domestic Product).

When the planet's human population reached 500 million, there were sufficient resources to enable a doubling to 1 billion. Then 1 billion tripled to 3 billion, which has doubled to 6 billion. Now, as China, India and other nations are industrializing, the 600 million high-consumption "middle class" of the developed economies is expanding four-fold to 2.4 billion.

There simply isn't enough oil and other resources on the planet, in any remotely plausible scenario, for 600 million of China's 1.3 billion people to live on an American scale of consumption, not to mention 600 million of India's 1.2 billion, and another billion avid consumers in other developing economies.

4) Conventional economics is also incapable of grasping the profound consequences of disruptive technologies that are creatively destroying the old foundations of centralized economies and replacing them with decentralized models of much greater efficiency. These new technologies are resistant to controls imposed by concentrations of power such as central banks and governments. Centralization—what I call the “factory” model—reaped enormous gains in the industrialization era; now centralization is increasingly counter-productive, as coordinated monetary manipulations have destabilized the global economy.

Industries that were once mainstays of the economy have been destroyed by irresistibly efficient Internet, communications and digital technologies: long-distance telephony, travel agencies, musical recordings, print media and retailing, to name a few. Next to be disrupted: education, healthcare, finance and government, precisely those industries widely considered immune to creative destruction.

5) These forces are incomprehensible to conventional economics partly because they are triggering simultaneous effects such as deflation and inflation which have been understood as linear and sequential. Disruption of old industries is deflationary to price and employment even as massive government money printing and support of moral hazard is inflationary. As “hot money” flees old industries and seeks higher returns from speculation, asset bubbles expand and pop as capital is misallocated into overcapacity. As money is devalued by these monetary policies, bizarre analogs of money such as derivatives, mortgage-backed securities and tulip bulbs arise and then implode in what I term the speculative supernova model.

6) This dynamic intersection of disruptive new decentralizing technologies, resource depletion and the grand failure of conventional economics is unprecedented in human history; we would have to look back to the era that was transformed by the invention of the printing press, the explosive rise of Renaissance commerce and the discovery of the New World for historical precedents. The difference is the accelerated pace of transformation in our digital era: changes that took 200 years to unfold between 1500 and 1700 will likely be compressed into the next 20 years. The predictability of this process of creative destruction is low; nobody knows what will happen five years hence, much less 20 years hence.

Francis Bacon wrote in 1620 that the printing press "changed the whole face and state of things throughout the world." The same can be said of the Internet and other digital technologies, and the transformation of the global economy is far from complete.

7) From the long view, conventional economics developed in the era of ever-cheaper, ever-more abundant energy and the miraculous "low hanging fruit" productivity gains made possible by cheap energy and centralized mass production. Like a creature born in the morning that has only seen daylight, conventional economics has never experienced night and so it has no conception of darkness.

Thus the current failure of conventional economics is not the failure of individuals or policies--it is a profound conceptual failure. Conventional economics, based on limitless “growth,” globalized financialization, and ever-greater central bank-Central State intervention in markets, is incapable of understanding a world of resource limits and a financial system that is increasingly vulnerable to unpredictable cascades.

Behind the present rose-tinted façade, the only limitless resources are paper money and propaganda. Everything else is limited by real world constraints. An economy that consumes ever-greater quantities of real-world resources such as oil, and harvests renewable resources such as timber and wild fisheries at rates far in excess of their renew rates, will soon encounter shortages and higher prices as those with paper or electronic money bid for the remaining reserves.

8) The markets now depend on massive State and central bank intervention for their veneer of stability. The “ratchet effect” is in full force: every crisis requires ever greater State borrowing and ever larger interventions by central banks. If this vast machinery of intervention were withdrawn, the system’s fundamental instability would be revealed.

This intervention is not limited to monetary policy; official statistics have been gamed to support the Status Quo assertions of a return to prosperity. This legerdemain has two unintended consequences: it discredits the statistics and the government that issues them, and it undermines market correlations that had been valid for decades. Investors and speculators alike are rushing to the lifeboats to find they’re only paper mache stage props.

Part II will be published tomorrow.


My new book An Unconventional Guide to Investing in Troubled Times is available in Kindle ebook format. You can read the ebook now on any computer, smart phone, iPad, etc.--see below.

Sale ends Friday, July 29, 2011, and price reverts to retail price of $9.85.

You do not need a Kindle Reader to read it, you can easily download the free Kindle app and read it on virtually any device or computer. Get the links, read the Intro, Table of Contents and Chapter One, and buy the ebook of An Unconventional Guide to Investing in Troubled Times on the info page. As a modest thank-you to loyal readers, the ebook is discounted 30% ($6.85) through this Friday, July 29, 2011; On July 30, the price reverts to retail price of $9.85.

Gonzalo Lira has graciously invited me to join his Week in Words Webinar #4Thursday, July 28, 9 pm EST (6 pm Pacific) as his guest. As many of you know, Gonzalo is well-informed and articulate, so it should be fun. Register here--it's quick and free.

Readers forum:

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

Thank you, Mike in San Diego ($40), for your outstandingly generous contribution to this site (via mail) -- I am greatly honored by your support and readership. Thank you, James P. ($60), for yet another splendidly generous contributions to this site (via mail)-- I am greatly honored by your ongoing support and readership.


Wednesday, July 27, 2011

In the Land of Self-Interested Pygmies, No One Advocates for the Nation


My new book is available in Kindle format. You do not need a Kindle Reader to read it, you can easily download the free Kindle app and read it on virtually any device or computer. Get the links, read the Intro, Table of Contents and Chapter One, and buy the ebook of An Unconventional Guide to Investing in Troubled Times on the info page. As a modest thank-you to loyal readers, the ebook is discounted 30% ($6.85) through this Friday, July 29, 2011.

Gonzalo Lira has graciously invited me to join his Week in Words Webinar #4Thursday, July 28, 9 pm EST (6 pm Pacific) as his guest. As many of you know, Gonzalo is well-informed and articulate, so it should be fun. Register here--it's quick and free.

Does slavishly pursuing narrow self-interest benefit the nation? Clearly, the answer is no; a nation of self-interested pygmies leaves no one to advocate for the national interest.

The great cold lie at the heart of present-day America is that the nation will magically benefit if we each single-mindedly pursue our self-interest to the exclusion of all else. The idea has a sleek quasi-free-market sheen, as it borrows the market's "invisible hand" and applies it to social, fiscal and environmental policies.

That is a magical-thinking fantasy. If I pursued only my own self-interest, I would dump the toxic effluent from my factory right into the river ( a la China's very laissez faire economy) while I lived far away in an exclusive community far from the stench and poisons. Why pay for costly remediation when the "free" river beckons? After all, it all works out wonderfully if we each pursue our own self-interest with methodical, nay maniacal, single-mindedness. (Recall that rivers in America caught fire in the 1960s, before environmental regulations limited corporate self-interest.)

"The good of the nation" is now a code-phrase for "good for me, and to heck with the country at large." Every self-serving fiefdom, every self-serving cartel and every self-serving constituency (a.k.a. special interest) claims that its pathetically obvious self-serving lobbying "serves the national interest." It's all lies, blatant emotional manipulation of the vilest, crassest sort. Yet we as a nation have sunk so low that the entire notion of a national interest which doesn't benefit a powerful lobby or constituency has been lost.

We are now a nation of self-interested pygmies, blind to any national interest that isn't devoted to enriching us personally. If we ask cui bono-- to whose benefit? (the first question in the Survival+ critique), then the answer is always self-evident: some lobby, cartel, corporation, special interest or class of citizens who hope to stripmine the assets of the less-protected citizenry to line their own pockets with swag.

We are a nation slavishly devoted to feeding our herd of fattened sacred cows by any means necessary. The National Security State, a profit machine of Federal contractors stretching all the way back to LBJ contributors Brown & Root, who built bases in Vietnam for hefty profits? Untouchable: "we're fighting the global war on Terror." I guess that's why it's always an average citizen onboard who actually stops the bad guy.

The military industrial complex, which takes ten years to start building anything, by which time it's so costly we can't afford it? Untouchable: "we're keeping our military strong." More like weakening it to the breaking point by stripmining all the resources in bloated weapons programs.

Social Security, a.k.a. generational wealth transfer? Untouchable: "I paid in, there's this lockbox with my money in it...." It was always "pay as you go," not a "lockbox." Demographically, it's broken. It worked when there were 10 workers for every retiree, and even with 5 workers for every retiree; now with millions drawing disability benefits from the SSA (and hiring specialists to help them qualify for it--good ole self-interest at its best) and only 2.5 workers for every retiree--soon to be 2-to-1--the system is unsustainable.

Medicare, the Savior State arm of the sickcare cartel complex? Untouchable: "we have the best healthcare in the world." Yeah, if you're one of the select few who have gold-plated coverage. How is it in the national interest that we devote 17% of our vast GDP to sickcare and yet 40 million people aren't even covered, millions more have simulacra coverage (nothing is covered except 80% of catastrophic care, and the remaining 20% will bankrupt all but the wealthy), and other developed nations provide better care for all their citizens for half the cost per capita?

And of course there's the "too big to fail" banks and Wall Street: Untouchable: "if you mess with us we'll bring the country to its knees!" What a nice bunch of pygmies. They have nothing but self-interest, so they must be serving the national interest.

The core problem with President Obama and the political class in Washington is that they think governance boils down to placating the most powerful self-interested pygmies. To the Demopublicans, politics is not about the national interest-- whatever that is, since the concept has lost all meaning--it's about carving up the swag so all the powerful self-interests don't upset the Status Quo apple cart.

This explains Obama's blindness to the opportunity to break the grip of the "too big to fail" banks and Wall Street, and the current inability to actually cut any sacred-cow budgets. There literally is no national interest left in the land of self-interested pygmies; all those think tanks are just dumping out agitprop to serve one bloated, entrenched self-serving fiefdom or another behind a facile claim of "national interest." Oh, really? Cui Bono?

When politics has been debased to the point that it is all about placating self-serving monopolies and "interest groups," then there is no mind or heart left in the nation; it is a money-burning robot, blindly borrowing however much cash is needed to placate the piranhas and parasites.

I think the most apt metaphor for present-day America is the leaky lifeboat. All the single-mindedly self-interested pygmies are swimming over to the one lifeboat, pursuing their wondrously golden self-interest as the highest good. They all try to save themselves--it's only self-interest, and that will magically serve us all--and as a result of their frantic thrashing to preserve themselves, the lifeboat sinks and they all drown.

A nation of self-interested pygmies leaves no one to advocate for the national interest. The lifeboat is already taking on water, but everyone climbing on board is loudly announcing that they're "serving the national interest." The irony is rather rich: by sinking the entire Status Quo, then they truly will be serving the nation.

There is another shore nearby; it's called self-reliance and a personally disinterested national interest.

Here's a photo of the concrete slab I helped a buddy pour and finish earlier this month. He was kind enough to honor me with my name imprinted for all time in the slab--right about where the trash cans will be stored. What is the significance of this photo?

Just this: I am a practical guy. I have little use for ideologies, wishful thinking, false reassurances, empty promises, media double-speak, official obfuscation, simulacra reforms, soaring rhetoric, bogus statistics, shadow Elites, or blatant self-interest masquerading as policy. That practicality is the heart of this book.

Read the Intro, Table of Contents and Chapter One of An Unconventional Guide to Investing in Troubled Times.

Sale ends Friday, July 29, 2011. After sale ends, price reverts to retail price of $9.85.

Readers forum:

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

Thank you, Leann R. ($100), for your stupendously generous contribution to this site (via mail) -- I am greatly honored by your support and readership. Thank you, Phil B. ($100), for your outrageously generous contribution to this site (via mail)-- I am greatly honored by your support and readership.


Tuesday, July 26, 2011

Complexity and Collapse

Adding complexity offers a facsimile of "reform" that actually serves the Prime Directive of fiefdoms and cartels: self-preservation.

The most obvious features of recent political and financial "solutions" are their staggering complexity and their failure to fix what's broken. The first leads to the second. Consider the healthcare "reform," thousands of pages of mind-numbing complexity which slathers on thick layers of bureaucratic control on a system which already costs twice as much per capita as competing developed-world systems.

Sadly, the "reform" simply solidifies the Status Quo fiefdoms and cartels that control the U.S. sickcare system.

The healthcare reform fixes nothing, while further burdening the nation with useless complexity and cost. The same can be said of the Dodd-Frank "reforms" of the embezzlement-based U.S. financial system. The original Glass–Steagall Act separating investment banking from depository banking was a few pages in length; by one count, Dodd-Frank requires that regulators create 243 rules, conduct 67 studies, and issue 22 periodic reports.

Meanwhile, back in reality, the Financial Elites of Wall Street and the "too big to fail" banks still have the nation (and Europe) by the throat.

Complexity is itself a tax; the maintenance cost of complexity is high, and can only be justified when the added complexity solves a critical problem of the society as a whole.

Adding ineffectual complexity leads to diminishing returns, as the complexity itself crushes the system supposedly being "improved" or "reformed."

Here is the "problem" which complexity "solves": it protects Savior State fiefdoms and private-sector cartels from losses. State fiefdoms and cartels have one goal: self-preservation. Once sufficient power and wealth (or control of wealth) is concentrated in a fiefdom or cartel (generally the two are partnered, as each supports the other), then the power can be devoted to limiting losses or encroachment.

That becomes the raison d'etre of the agency or enterprise.

Complexity works beautifully as self-preservation, because it actually expands the bureaucratic power of fiefdoms and widens the moat protecting cartels. Once the fiefdom expands to manage all those new rules, only a handful of corporations can possibly afford the regulatory reporting burdens. They are thus free to exploit the populace as an informal cartel.

I addressed some of these issues in The Cycle of Dependency and the Atrophy of Self-Reliance (July 2, 2011).

Put another way: in the competition with the private sector for scarce capital, the State and corruption always win. That's why kleptocracies and banana republics are characterized by bloated, unaccountable State bureaucracies and systemic corruption: sweetheart deals, no-bid contracts, shadow banking, shadow governance by Elites, inefficient workforces that cannot be fired or held accountable, and so on.

Real solutions require radically simplifying ossified, top-heavy, costly systems.Complexity serves to protect the existing constituencies and cartels; it allows those with the most to lose the cover of "reform." But the reform is only a simulacrum; it claims reform along with its expanded powers, but the result is system that is so complex that it loses all accountability. Complexity is the perfect moat.

This is the idea, of course: banana republics and other kleptocracies always manage to support vast State bureaucracies which enable and support private cartel stripmining of the national wealth.

Note that the Status Quo always supports complex "reforms" and dismisses radical simplification as "impractical." What "impractical" means is that various fiefdoms and cartels would lose swag and power, and that would be painful; thus it is verboten.

The single goal is preserving the revenue and reach of concentrated power centers: State fiefdoms with large constituencies and headcounts, and cartels with no competition and stupendous profits. The two are hand in glove.

But complexity does have an eventual cost: collapse. Keep adding decks to the ship and eventually it capsizes and sinks. One the ship is sufficiently top-heavy, all it takes is a small wave.

Readers forum:

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

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Monday, July 25, 2011

The Dynamics of Doom: Why the Eurozone Fix Will Fail

The only way out of the Eurozone end-game is massive debt forgiveness and a return to national currencies. The first will destroy the banks, the second will destabilize the German export economy. "Extend and pretend" is an endgame, not a fix.

Despite having described why the Eurozone is doomed on numerous occasions, I missed certain dynamics of the EU's endgame. At the risk of overwhelming you, here are a few of my Eurozone-related stories over the past two years:

The European Model Is Also Doomed (February 7, 2009)
When Debt-Junkies Go Broke, So Do Mercantilist Pushers (March 1, 2010)
Why the Euro Might Devolve into Euro1 and Euro2 (March 2, 2010)
Why the Eurozone Is Doomed (May 10, 2010)
Ireland, Please Do the World a Favor and Default (November 29, 2010)
Why The European Union Is Doomed (March 28, 2011)
Greece, Please Do The Right Thing: Default Now (June 1, 2011)
Why the Eurozone and the Euro Are Both Doomed (June 23, 2011)
Greece Is a Kleptocracy (June 28, 2011)
500 Million Debt-Serfs: The European Union Is a Neo-Feudal Kleptocracy (July 22, 2011)

Let's dig into the dynamics of doom:

1. The consequences of austerity. The kleptocratic "fix" is to divert more of the debtor nations' national incomes to debt service. In other words, money that once went to labor (wages) and social services now goes to debt repayments and interest.

What are the consequences of this massive diversion of income? The economy shrinks. Less income means less spending, which means negative growth.

The Eurozone's "happy story" counts on debtor economies "growing their way out of debt." If labor's share of the national income is falling, and both private and government spending and income are falling, precisely where is the "growth" supposed to come from? As private income falls, tax revenues fall, causing the government to raise taxes and junk fees. This further reduces private income, and so on in a self-reinforcing feedback loop of contraction.

Austerity sets up a positive feedback loop of less income and less spending. The people in these debtor economies can look around and see the consequences: everyone has less money, and less confidence that the "austerity fix" will do anything but put debt-junkies into fatal withdrawal.

Once an economy becomes dependent on debt that rises faster than the resulting "growth," then that economy is set on an unwavering path to implosion. (The Cycle of Dependency and the Atrophy of Self-Reliance).

As belief in the system fades (When Belief in the System Fades March 12, 2008) and institutions lose their legitimacy ( The Three Ds: Delegitimization, Definancialization, Deglobalization July 1, 2011), then people naturally save more as insurance against an uncertain future. Fewer people are willing to risk their capital in new ventures, and as the economy loses vitality then these trends reinforce each other.

2. This loss of faith and confidence triggers hoarding and capital flight. As Ludwig von Mises noted long ago, the only way to organically "grow" an economy is for capital to accumulate faster than the population, that is, capital increases on a per capita basis. Capital means savings/cash, not debt, that is invested in productive assets and enterprises.

So what happens when you skim more of a nation's income to service debt? There is less capital accumulated, and thus less capital available for investment.

What happens when people lose faith in the financial institutions and their coercive "fixes"? They move their capital to less-risky, more productive climes. In other words, capital flight is another positive feedback: as people move their capital out of the country, then there is less available per capita for productive investment. Toss in a kleptocratic government which increases taxes while misallocating precious capital on crony Capitalism and corruption, and you get a death-spiral of capital flight and risk avoidance.

The irony of a loss of faith is people instinctively place their capital in non-productive savings: in gold, Swiss lock boxes, and so on. This instinct removes capital from the pool of investments in productive assets.

3. Taxes must be raised to fund higher debt service. There is no other way to service sovereign debts, so taxes must rise, adding another positive feedback to the contracting economy: higher taxes reduce net income, create disincentives to earning more via productive enterprises and incentivizing tax avoidance and capital flight.

4. The frantic rush by the EU and European Central Bank (ECB) into a domino-like series of short-term "fixes" effectively destroys the possibility of long-term solutions. Injecting more debt into debtor nations is like "fixing" the debt-junkie's withdrawal symptoms with massive doses of euro-denominated smack: the "fix" dooms the "patient" in the long run, even as it "makes everything better" for a brief interlude of faux "normalcy."

But like any other addiction, resistance to the "fixes" rises and the interludes diminish in length.

The dynamics of austerity without massive debt renunciation doom the EU, and the dynamics of using taxpayer-funded debt to "fix" over-indebtedness also dooms the EU. Massive debt renunciation will doom the big European banks, and of course those banks are the raison d'etre for the entire project: it's all about saving the banks, isn't it?

5. These dynamics set up a double-bind endgame. The EU Overlords and the ECB can busily move their last knight around their king, but the game is already lost. Austerity triggers a positive feedback of economic contraction, debt fixes to over-indebtedness launches a cycle of diminishing returns, and the reliance on short-term fixes over long-term solutions sets off self-reinforcing losses of legitimacy and faith in the system's sustainability.

The only real solution to the Eurozone end-game is massive debt forgiveness and the resulting destruction of "too big to fail" banks, and a return to national currencies, which will enable structural imbalances to be resolved via currency devaluations. This will of course destabilize the German export economy; but that is inevitable.

"Extend and pretend" is an endgame, not a fix.

Readers forum:

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

Thank you, Gary S. ($25), for your most-excellently generous contribution to this site -- I am greatly honored by your support and readership. Thank you, David T. ($20), for yet another splendidly generous contribution to this site-- I am greatly honored by your ongoing support and readership.


Saturday, July 23, 2011

I Dig Dirt: The Remedy for Derealization

I dig dirt, not so much in the literal sense but in the sense of liking it. It is one cure for the derangements created by our culture of derealization.

I don't know about you, but I can only stand so much "news," i.e. derealization. Beyond that threshold, it is completely deranging. In Survival+, I used the wordderealization to describe the inner disconnect between what we experience and what the propaganda/marketing complex we live in tells us we should be experiencing.

This derealization derangement plays out in many ways: obesity, difficulty sleeping, passivity, lack of engagement with real life, inability to maintain meaningful relationships, reliance on medication and/or drugs, inability to concentrate, low-intensity rage and frustration, depression, and so on.

I addressed the derealization-food-obesity connections in More Food for Thought: What's Behind the Obesity Epidemic? (May 13, 2009).

The entry includes this fascinating personal account from correspondent A.R.:

I wanted to share with you (and your readers, if you think my message worthwhile) my experience with food and weight.

The long and short of it is that I used to exercise very vigorously (200 miles per week of bicycling year-round) and yet struggled with weight, food cravings, binges on carbs and sweets. I was an unhappy, very fidgety person who couldn't sit still or concentrate, even though I was a vegetarian, who developed lactose intolerance, so I cut out dairy products a few years before:

A decade ago we moved to a farm and began growing our own organic vegetables on a grand scale. We supplement our home-grown with store-bought organic rice and other grains, olive oil, spices and a few condiments (avoiding HFCS and anything with potential GMO, such as soy). I cut out almost all sugar. (My spouse still eats sweets and I occasionally eat one of his home-baked cookies.) We have our own chickens, so I eat eggs and chicken sparingly as a condiment.

Due to time constraints I stopped cycling and get little exercise beyond gardening and farm maintenance. My BMI is a steady 19, cholesterol well under 200. I have no food cravings at all and eat only when hungry. I still think about food a lot, but only because I am planning and managing my garden and meal preparation. I am no longer fidgety, and can concentrate, even when reading technical blogs about economics!

A.R.'s experience suggests that diet is perhaps even more critical than exercise in maintaining a healthy mind/body (recalling the ancient Asian wisdom that the mind and body are one.)

Her report also suggests that total caloric intake is less important than the kinds of food one is eating or not eating; it also draws a distinct line between a "normal" American diet, even a vegetarian one, and the presence of cravings/binges and a fidgety lack of concentration--the very traits reported nowadays as ADD (attention deficit disorder) or similar "clinically approved" syndromes.

Here is an advert for a typical "facsimile-food" in the American diet which I have "re-realized":

If we eat facsimile-food, is it any wonder our society is deranged?

I titled this entry "I dig dirt" as a poor pun, because I do dig dirt literally, but not much. The "dig" is mostly in the "hip" sense of liking dirt, enjoying dirt and studying dirt, along with the rest of our garden.

In 40 years of gardening, I have become a very lazy gardener. I don't strive for neatness, nor do I disturb the dirt much. It is a complex ecosystem, and it doesn't like being dug up and disturbed. So I leave it alone, and heap the compost on top in Spring, where it more or less soaks into the soil.

I do pull or skim off weeds, but leave plenty of alyssum and poppies for the pollinators and for color. If you keep very still in a small garden with many flowering plants, you will observe an amazing array of pollinating insects at work. The bugs that favor the tiny alyssum flowers are quite different from the bees that like the poppies, and various moths are active at different times of the day, as well as wasps and bumblebees.

There's at least one group of urban racoons active in the neighborhood, so we leave water out for them, and bury our eggshells and other non-smelly compost where they can root around at night without harming the garden. We started leaving the water out after we noticed the old wine bottle we keep around as an outdoor flower vase was being knocked over every night. We finally figured out the racoons were toppling the bottle to get the water inside. So now we leave the bowl of water out for them.

We have been gardening this small urban plot for about 18 years, so maintaining the soil is essential. The garden wouldn't do well if I didn't really dig dirt.

Here are a few photos of my messy, unkempt garden. Here are the scarlet runner beans, outgrowing the trellis. They have the most amazing flowers.

Here are some of the first green beans, stir-fried and ready to eat:

Baby bok-choy, with dripline and alyssum:

And delivered to the table:

Right now our small organic garden, no bigger than a postage stamp in a nation of vast lawns, has the scarlet runners, Russian kale, lettuce, Swiss chard, zucchini, cucumber, parsley, sunflowers, garlic, an onion (weird and wonderful flower), the peach tree, and some seedlings whose identity I've already forgotten: possibly amaranth. We'll see soon enough.

It's not too late to plant; check out the Everlasting Seeds catalog. (Our cucumbers are Everlasting stock.)

Readers forum:

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

Thank you, Joseph E. ($10/mo), for your wondrously generous subscription to this site -- I am greatly honored by your support and readership. Thank you, Harry R. ($5/mo), for your marvelously generous subscription to this site-- I am greatly honored by your support and readership.


Friday, July 22, 2011

500 Million Debt-Serfs: The European Union Is a Neo-Feudal Kleptocracy

The banks of Europe are the new Feudal Manors and Masters. All Europeans now serve them as debt-serfs in one way or another.

If we knock down all the flimsy screens of artifice and obscuring complexity, what we see in Europe is a continent of debt-serfs, indentured to the banks under the whip of the European Union and its secular religion, the euro.

I know this isn't the pretty picture presented by the EU Overlords, of a prosperity built not just on debt, but on resolving the problem of debt with more debt, but it is the reality behind the eurozone's phony facade of economic "freedom."

What else can we call the stark domination of the big banks other than Neo-Feudalism? In one way or another, every one of the 27-member nations' citizens are indentured to the big international banks at risk in Europe, most of which are based in Europe.

Amidst the confusing overlay of voices and agendas, there is really only one agenda item: save the big European banks. Everything else is just mechanics. The banks are the new feudal manor houses, the bankers are the new feudal lords, and the politicians of the EU and its influential member nations are the servile vassals who enforce the "rule of law" on the serfs.

Here is the fundamental fact: there are trillions of euros of debt which can never be paid back. In a non-feudal system, one in which the banks were not the Masters, then this fact would be recognized and acted upon: something like 50% of the debt would be written off in one fell swoop, all the banks whose assets had just been wiped out would be declared insolvent and liquidated, the remaining debt would be sized to the economic surplus of each debtor nation, and a new, decentralized banking sector of dozens of strictly limited, smaller banks would be established.

To the degree that is "impossible," Europe is nothing but a Neo-Feudal Kleptocracy serving its Banker Lords.

The Greek worker whose pay has been slashed in the "austerity" demanded by the banks serves the Banker Lords, as does the German worker who will be paying higher taxes to bail out Germany and France's Banker Lords. Though the German is constantly told he is bailing out Greece, the truth is Greece is just the conduit: he's actually bailing out the EU's Banker Lords.

We can clear up much of the purposeful obfuscation by asking: exactly what tragedy befalls Europe if all the sovereign debt in the EU was wiped off the books? The one and only "tragedy" would be the destruction of the "too big to fail" banks, not just in Europe but around the world. As the big European banks imploded, then their inability to service their counterparty obligations on various derivatives to other big banks would topple those lenders.

While the political vassals call that possibility a catastrophe, it would actually spell freedom for Europe's 500 million debt serfs. From the lofty heights of the Manor House, then the loss of enormously concentrated power and wealth is indeed a catastrophe for the Lords and their political lackeys. But for the debt-serfs facing generations of servitude for nothing, then the destruction of the banks would be the glorious lifting of tyranny.

Just as a refresher, here is a definition of kleptocracy:

Kleptocracy, alternatively cleptocracy or kleptarchy, from the Ancient Greek for "thief" and "rule," is a term applied to a government subject to control fraud that takes advantage of governmental corruption to extend the personal wealth and political power of government officials and the ruling class (collectively, kleptocrats), via the embezzlement of state funds at the expense of the wider population, sometimes without even the pretense of honest service. The term means "rule by thieves".

Extracting the wealth of 500 million people via the EU's central governance machinery to serve a handful of big banks is definitely a form of systemic embezzlement. As for corruption: where are the politicians who speak to the enormous benefits of writing off these debts and destroying the power of the big banks, utterly and completely, as the only way to free the people from debt-serfdom?

While the European Central Bank (ECB) and the vassals' favorite form of oppression, the European Financial Stability Facility (EFSF), print or borrow more euros into existence to fund the illusion of solvency, the cold reality is that the only way to service these trillions in impaired debt is to skim the surplus from the labor of the debt-serfs.

Since the political vassals control the means of taxation, then it is their job to squeeze hundreds of billions of euros out of the labor of their nation's debt-serfs.

There is a fatal weakness in the Grand Scheme of European Neo-Feudalism, and the lackeys in the EU are desperately trying to fix it under the banner of "integration." The fatal flaw is that the political union of the EU vassal states did not include fiscal union in which the EU could impose and control taxation within all member states.

This flaw means that the Banker Lords lack the necessary means to impose serfdom directly through the "laws" of the EU itself; instead, they must coerce the vassal political class within each member state to impose debt-serfdom on its citizenry.

This has proven cumbersome, as some nation's debt-serfs are threatening to refuse to submit to serfdom. Such a rebellion would of course bring down the entire house of cards that is Neo-Feudal Europe, and so the lackeys in Brussels and elsewhere are frantically trying to sell "fiscal integration" as the "necessary step" to centralizing the power of the banker Lords over the citizenry of all 27 EU member states.

The euro was intended to be the enforcement mechanism, but alas, voluntary agreement is not a solid foundation for neo-feudalism. At its heart, the euro currency was ultimately a Grand Arbitrage for the big European banks: they could loan essentially unlimited sums to citizens and sovereign member-states in a stable currency,and be guaranteed that they would be repaid in that same currency regardless of the weaknesses of the debtors.

That was a very sweet deal, an essentially risk-free license to generate monumental profits, all backstopped/guaranteed by the EU and ECB.

In the old, horribly risky system of independent states and currencies, any bank foolish enough to loan vast sums to weak states and its citizenry would soon find the currency in which their loans were paid would weaken to the point that even if the loans were repaid in full, their losses would be crushing.

For example, say a bank loaned Greece 1 billion drachma when the drachma was equal in value to the U.S. dollar. The loan would thus be worth $1 billion. But let's say that by the time the loan was repaid, the drachma had fallen to 50 cents. Measured in dollars, the bank suffered a loss of 50%, even when the loan was paid in full.

The euro removed all that nasty risk, and created a massive vassal class of EU bureaucrats to enforce the rules and make good any defaulted debt via the European Central Bank (ECB), the supra-national lender that served the big banks as guarantor. Ultimately, the ECB was funded by the member states' taxpayers, which spread the costs of the arbitrage over such a large number of citizens that it seemed impossible that the guarantee could be broken.

But the Banker Lords got greedy, and they overshot the carrying capacity of the EU's economy by a trillion euros; the debt loads are now so enormous that the surplus skimmed from the debt-serfs isn't enough.

That is the core dilemma of the Banker Lords and their political vassals. Since the Banker Lords lack the legal mechanism to impose new taxes via the EU itself, they must rely on the cumbersome processes of illusion and propaganda, of "extend and pretend" extensions of debt and harsh "austerity" to skim as much cream as possible.

The cloak has been removed, and the bloodied whip is now visibly in hand. In a household analogy: your mortgage has been rolled over into a new form of servitude, and your wages have been cut even as your taxes have been raised to service your debt to the Banker Lords. The vassals are bowing and scraping before their Lords, promising deeper cuts and higher taxes; yes, Master, we will obey.

But this isn't enough, of course; the Lords are demanding the rings off the fingers of the debt-serfs, and the rights to sovereign assets; they are casting a covetous eye on the comely daughter as well, and we can fully expect a discreet demand to exercise droit du seigneur, a right befitting the Lords of the new Feudalism.

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