Tuesday, June 30, 2020

The New Normal: Extremes of Neofeudalism, Incompetence, Authoritarianism and Relocalization

The pendulum swung to an extreme of globalization, financialization, centralization and monopoly, all of which created extreme systemic fragility.
Here's what to expect in the rapidly evolving New Normal: extremes become even more extreme as the status quo attempts to force compliance with its last-ditch schemes to preserve what was always unsustainable while painting a happy face on the stock market, the one thing they can push higher as the global economy unravels.
Mark, Jesse and I discuss this dynamic in Salon #10: Remember when Maximum Pessimism and Irrational Exuberance were mutually exclusive? (54 minutes): realistic pessimism is lashed to the mast with the irrational exuberance of stock market soothsayers, central bank cheerleaders and the organs of propaganda (Wall Street) and control of the narratives (social media and search monopolies).
Cognitive dissonance? Yes. Schizophrenia? Sure. Crazy-making? Undoubtedly. So the default "solution" is petty Authoritarianism to ensure we only see approved narratives, that we focus on the happy-happy signal of the glorious stock market (best rally ever!), that we pay higher taxes without complaint, and so on.
And of course, buy, buy, buy and borrow, borrow, borrow, lest the flimsy house of cards collapse.
As I explain in my book Why Our Status Quo Failed and Is Beyond Reform, the only possible output of central bank monetary stimulus is financialization, and the only possible output of financialization is unprecedented wealth and income inequality.
As Max Keiser, Stacy Herbert and I discuss in Fractals of Incompetence (15:30), the problem with pushing extremes is the system is incompetent at every level, from school boards to the Federal Reserve. Rather than solve problems, our institutions have devolved into mechanisms to protect clerisy / insiders from transparency and accountability.
In the New Normal, systemic incompetence isn't going to magically transform into competence, it's going to reach new extremes of incompetence and self-serving hubris.
My term for servitude via debt and taxes is neofeudalism, and neofeudalism is the default setting of the New Normal as the super-wealthy can buy even more of the nation's assets thanks to the Federal Reserve's free money for financiers, leaving the peasantry the owners of debt rather than assets.
The only way to escape neofeudal servitude is to figure out some way to live on a fraction of what the conventional lifestyle requires, i.e. radical frugality. Radical frugality will also be a permanent part of the New Normal, either voluntary or imposed by circumstances.
The silver lining in all this is the potential to relocalize essential elements of our economy, a subject Richard and I discuss in The New Normal (37 minutes). The pendulum swung to an extreme of globalization, financialization, centralization and monopoly, all of which created extreme systemic fragility.
In the New Normal, the pendulum will finally start moving away from globalization, financialization, centralization and monopoly to decentralized, relocalized economic activity, which is the core dynamic in doing more with less and regaining agency.
The New Normal has yet to fully impact the global financial system, which is still in the eye of the hurricane, magnificently confident that the Federal Reserve's money-printing is the most powerful force in the Universe. The stock market's hubris is begging the gods for retribution, and we may not have to wait too long for the karmic hammer to crush the hubris and the irrational exuberance, as Adam, Mike, John and I discuss in Three major risks the markets are not pricing in yet (39 minutes).
The winds are picking up, and the flimsy shacks of the Fed and Wall Street are no match for the real world.
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, James B. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.
 
Thank you, Paul M. ($75), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.

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Posted by Charles Hugh Smith at 9:19 AM

Sunday, June 28, 2020

Forget the V, W or L Recovery: Focus on N-P-B

The only realistic Plan B is a fundamental, permanent re-ordering of the cost structure of the entire U.S. economy.
The fantasy of a V-shaped recovery has evaporated, and expectations for a W or L-shaped recovery are increasingly untenable. So forget V, W and L; the letters that will shape the future are N, P, B: there is No Plan B.
All the hopes for a recovery were based on a quick return to the economy that existed in late 2019. All the bailouts and stimulus programs were based on this single goal: a quick return to The Old Normal. This was Plan A.
For all the reasons that have been laid out here over the past six months, The Old Normal is gone for good. The Old Normal economy was too precarious, too brittle and too fragile to survive the toppling of any domino, as the only Plan A "solution" was to push destabilizing extremes to new extremes, i.e. doing more of what failed spectacularly and increasing the fragility of precariously fragile systems.
A short list of what's been irreversibly destabilized due to a systemic collapse in demand, exponential rise in risk and uncertainty, dependence on over-indebtedness, imploding global supply chains, structural decline in income and employment and the rapid emergence of new business models that obsolete high-cost, inefficient, sclerotic, bureaucratic monopolies include:
1. Healthcare
2. Higher education
3. Commercial real estate
4. Tourism
5. Restaurants / live entertainment
6. Business travel / conferences
7. Office parks, commutes, urban work forces, etc.
8. High-cost urban lifestyles
We could also include entire sectors that have yet to recognize the tsunami that's about to wash away their Old Normal: marketing, finance, local governance, etc.
The problem is there's no Plan B for anything in the U.S. economy. There is only Plan A, a return to 2019 / The Old Normal. If that's no longer possible, there is literally nothing left on the policy / response plate.
What nobody dares even ask is: what businesses and industries will still be financially viable running at 50% capacity? How many cafes, restaurants, resorts, airlines, etc. will turn a profit operating at 50% capacity? How many can not just survive half of the seats being empty, but turn a profit?
The short answer is very few, because the operating costs of most businesses are unbearably high. The likely survivors are those enterprises with low fixed costs and low operating costs-- enterprises that own their facilities in locales with low property taxes, and enterprises that can be run by the owners without employees.
How many enterprises have these kinds of barebones cost structures? Very few.
For most enterprises, the only way they can lower their costs to a level that enables their survival is to cut costs by half: cut rent, mortgages, debt service, property taxes, fees, utilities, insurance, etc. by half.
That would mean everyone down the line would have to survive on half of their previous revenues: landlords, banks, local municipalities, service providers, and so on.
How many of these institutions and enterprises could survive on 50% of their previous revenues?
The only realistic Plan B is a fundamental, permanent re-ordering of the cost structure of the entire U.S. economy. Call it DeGrowth, or creative destruction, or disruption if you prefer, but whatever name we use, the reality will be extraordinarily disruptive, uncertain, risky and unpredictable.
As many of us has explained over the years, unstable, brittle, fragile systems characterized by soaring inequality, pay-to-play political corruption and dependence on debt, leverage and speculative bubbles were unsustainable.
Plan B can be a chaotic mess of denial and failed half-measures that only make all the problems worse, or it can be a positive transformation that results in a society that does more with less. The choice is ours.
Unfortunately, the pandemic chart I composed on February 2, 2020 is still playing out, increasing uncertainty.
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Bob O. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.
 
Thank you, Kent ($100), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.

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Posted by Charles Hugh Smith at 12:02 PM

Wednesday, June 24, 2020

The Depression Dominoes Are Toppling

Once you allow your economy to become dependent on extremes of debt, leverage, inequality, legalized looting, monopoly, pay-to-play politics and speculative asset bubbles, a depression is inevitable.
The pandemic lockdown will be blamed for the Greater Depression, but the lockdown only toppled all the dominoes that were already lined up. The lockdown would have been survivable if the economy hadn't been over-indebted, over-leveraged, burdened by insanely high costs, stripmined by greedy monopolies, dependent on stock market fraud, destabilized by extreme inequality, corrupted by political pay-to-play and addicted to speculation.
The apologists always blame depressions on central banks not printing money fast enough, while overlooking the real drivers: debt, high costs and dependence on speculative bubbles. As noted here many times, revenues and income can quickly slide lower, but debt must be serviced regardless of revenues and income.
Once debt payments dominate expenses, any wobble in revenues / income / cash flow triggers default.
Regarding unbearably high costs that only go higher, year after year: as noted here many times, Sickcare Will Bankrupt the Nation all by itself, never mind soaring higher education / student loan debt serfdom, skyrocketing rents, junk fees, taxes, etc.
The truth is the cost of living is unaffordable but we can't even acknowledge this obvious fact because even acknowledging it would threaten the entire house of cards. So instead we play-act as if we believe the bogus "inflation is dead" narratives.
The top 5% technocrat/managerial class have done very well for themselves in the speculative run-up of destabilizing inequality, and since they run the narrative machines, we're swamped with happy stories about the economy, all of which boil down to this absurd fantasy: since I'm doing so well, everyone else must be doing well, too.
Since the top 5% own the lion's share of the nation's productive assets--stocks, bonds, business equity, investment real estate, etc.-- the enormous asset bubbles have greatly boosted their wealth and income. This has enabled the wealthy to service their debt or pay it off. The bottom 95% aren't quite so well-placed to survive a decline in income.
Everyone who was barely keeping their head above water in making their debt payments is already in default or will soon be in default. Since the banks and shadow-banking lenders have gorged on the profits skimmed by loaning huge sums to marginal borrowers, now that these marginal borrowers are defaulting en masse the banks and lenders are about to be crushed by one wave of catastrophic losses after another.
Student loans--already in mass default. Credit cards--the wave is rolling in as we speak. Auto loans--looking like Waimea Bay on a big day. Mortgages--better not to look.
Corporate debt has exploded to unprecedented levels, and this is what will break the financial system. Zombie corporations are rushing to borrow billions of dollars (thanks to the Federal Reserve) but increasing their debt is only doing more of what created their fragility in the first place.
Being able to borrow more to service your old debts is not solvency, it's merely the semblance of solvency. We're in the eye of the hurricane right now, as everyone holds their breath and hopes some sort of magic will make all the debt that has to be serviced every month vanish.
It's worth recalling that every dollar of debt is someone else's asset and the source of their income. So when the defaults and bankruptcies sweep through the financial system, they'll obliterate all the "wealth" of those holding bundled student and auto loan securities, mortgage backed securities, corporate bonds, and destroy the income streams these trillions in debt generated.
All the linked fragilities and dependencies of our economy are like lines of dominoes: one default topples the entire line of dominoes of debt, leverage, derivatives, counterparty risk, credit default swaps and most devastating of all, any certainty that borrowers won't default in the future.
If banks and lenders can't lend with a high degree of certainty, lending dries up and profits collapse, along with the consumer spending that was enabled by the borrowing.
Despite their high incomes and net worth, some consequential percentage of top 5% households bringing in $300,000 a year are one layoff away from default: never mind their pristine 830 credit score; that was last month. Next month,next quarter, next year--all bets are off.
Once you allow your economy to become dependent on extremes of debt, leverage, inequality, legalized looting, monopoly, pay-to-play politics and speculative asset bubbles, a depression is inevitable. The only question is "when," and that's been answered, though nobody wants to hear it: 2020 and beyond.
It didn't have to end this way. If our leadership / Power Elites had acted to reduce all these painfully obvious speculative extremes, dependencies and fragilities and made even modest efforts to limit the exploitation of predatory parasites that generated unprecedented inequality and corruption over the past 12 years, the economy would have been much less brittle / fragile.
Unfortunately, the pandemic chart I composed on February 2, 2020 is still playing out, increasing uncertainty.
What's the price of systemic fragility and uncertainty? I fear it will be steeper than we're prepared to pay.
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Mike G. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
 
Thank you, Robert J. ($50), for your magnificently generous contribution to this site -- I am greatly honored by your support and readership.

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Posted by Charles Hugh Smith at 8:15 PM

Tuesday, June 23, 2020

Is Data Our New False Religion?

In the false religion of data, heresy is asking for data that is not being collected because it might reveal unpalatably unprofitable realities.
Here's how every modern con starts: let's look at the data. Every modern con starts with an earnest appeal to look at the data because the con artist has assembled the data to grease the slides of the con.
We have been indoctrinated into a new and false religion, the faith of data. We've been relentlessly indoctrinated with the quasi-religious belief that "data doesn't lie," when the reality is that data consistently misleads us because that is the intent.
Nobody in the False Religion of Data ever looks at what we don't measure because that would uncover disruptive truths. My latest book Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World looks at everything consequential that we don't measure, and since we don't measure it, we assume it doesn't exist. That's the end-game of the False Religion of Data: what's actually important isn't measured and therefore it doesn't exist, while what is measured is artfully packaged to support a narrative that enriches those behind the screen of "objective data-based science."
The data-based con can be constructed in any number of ways. A few data points can be cleverly extrapolated to "prove" some self-serving claim, a bit of data can be conjured into a model that just so happens to support the most profitable policy option, inconvenient data points can be covertly deleted via "filtering out the outliers," statistical trickery can be invoked (with a wave of this magic wand...) to declare semi-random data "statistically significant," and so on, in an almost endless stream of tricks.
Exhibit #1: the official rate of inflation. Here is the data con elevated to artistry. As I explained in Burrito Index Update: Burrito Cost Triples, Official Inflation Up 43% from 2001 (May 31, 2018), apples-to-apples unmanipulated data shows inflation is dramatically reducing the purchasing power of wages, a dynamic that is unevenly distributed: Inflation Isn't Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs (May 25, 2017).
While the official statistics on inflation claim an annual rate of 2.5%, unmanipulated estimates (the Chapwood Index for example) find inflation is north of 10% in major U.S. urban areas.
The official data soothsayers' bag of tricks include completely bogus, made-up "hedonic adjustments" which magically lower the price of real-world goods and services. Autos are supposedly "cheaper" now because they're so much safer and reliable. Perhaps, but can we be honest and admit they cost a lot more than they did a generation ago?
The poor fools giving hundreds of millions of dollars to the con artists of Big Data Marketing apparently don't understand the flimsiness of the "science." As Mark, Jesse and I discuss in our latest Salon, Algorithmic Guerrilla Warfare, a few purposefully misleading data points turn the entire Big Data Marketing "science" into the familar "garbage in, garbage out."
And so here we are in the midst of a pandemic, and the battles over "what the data tells us" sound more like religious wars than science. Everybody's in such a hurry to conjure up a profitable con or make grandiose claims for their narrative that what we aren't measuring is ignored.
Here's the raw data I'd like to see collected:
1. What percentage of people under the age of 50 who do not have chronic health conditions who test positive end up with severe symptoms that incapacitate them for weeks or months?
2. What percentage of these younger, healthier people who exhibit severe symptoms have organ damage that doesn't heal in a few months?
3. What percentage of people who had antibodies for the virus end up coming down with the illness again a few months later?
Collecting this data is non-trivial, and so it may never be collected--partly because the results might not support the approved narratives: whatever data we don't collect doesn't exist and can't disrupt our models, profit centers, narratives, policies, etc.
In the false religion of data, heresy is asking for data that is not being collected because it might reveal unpalatably unprofitable realities. Much safer to burn heretics at the stake than let them question the cons.
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Don S. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
 
Thank you, James A. ($50), for your magnificently generous contribution to this site -- I am greatly honored by your support and readership.

Read more...
Posted by Charles Hugh Smith at 9:24 AM
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