Will China Pop the Global Everything Bubble? Yes

The line of dominoes that is already toppling extends around the entire global economy and financial system. Plan accordingly.

That China faces structural problems is well-recognized. The list of articles in the August issue of Foreign Affairs dedicated to China reflects this:

Xi's Gamble: the Race to Consolidate Power and Stave Off Disaster

China's Economic Reckoning: The Price of Failed Reforms

The Robber Barons of Beijing: Can China Survive its Gilded Age?

Life of the Party: How Secure Is the CCP? (Chinese Communist Party)

These are thorny, difficult issues: a demographic cliff resulting from the one-child policy, soaring wealth-income inequality, pervasive corruption, public health issues (diabesity, etc.), environmental damage and a slowing economy.

What the conventional analysts do not fully grasp, in my view, are 1) the existential threat to the CCP and China's economy posed by its unprecedented, metastasizing credit-asset bubble and 2) its incipient energy crisis.

As I explained in a recent blog post, What's Really Going On in China?, the CCP and the government informally institutionalized moral hazard (the disconnection of risk and consequence) as a core economic policy.

Every financial loss, no matter how risky or debt-ridden, was covered by the state (via bail-out, refinancing debt, new loans, etc.) as a "cost of rapid development," a reflection of the view that some inefficiency and waste was inevitable in the rapid development of industry, housing, infrastructure and a consumer economy.

What China's leaders did not fully understand was this implicit guarantee of bail-outs--the equivalent of "The Fed has our backs"--incentivized debt-funded speculation as the lowest-risk, highest-return "investment," especially when compared to low-profit, risky investments in low-margin export industries. (Recall the average profit margins of Chinese exporting enterprises is 1% to 3%.)

This is the hidden driver of China's sagging productivity and economy: debt in all sectors is skyrocketing to fund speculation, not productivity.

This institutionalization of moral hazard has incentivized the least productive and highest-risk gambles--not just for large conglomerates like EverGrande, but for middle-class households who've invested in the shadow-banking system (unregulated private-sector pools of capital lent out to risky borrowers at high rates of interest) and bought second, third and fourth "investment" flats.

The contradictions in this mass investing of savings in empty condos are systemic and dangerous: 1) once a flat is rented, it loses value due to being "used" and 2) the vast majority of the market for "investment" flats is illiquid, as most new buyers want a new flat, not an old one, so the market for old flats is extremely thin outside the most desirable inner rings of Beijing and Shanghai.

This mass investment in illiquid empty flats has generated social and financial perversities: now that flats in desirable areas cost 30-40 times an average white-collar salary, young people must vacuum up the entire extended family's savings in order to afford a flat. Those young men who are unable to buy a flat find their marriages prospects are dismal.

One result of the marriage of state control and private-sector Wild-West speculation is a truly vast wealth-income divide that is bound up with corruption in a mutually reinforcing feedback: the richer you become, the closer to power you get, and vice versa.

Since China's informal shadow-banking system is opaque even to state regulators, it's quite possible that China's leaders do not have a full grasp of the extent of systemic risk bound up in the excesses of shadow banking. To paraphrase Donald Rumsfeld's famous dictum, this is an unknown unknown for China's policy makers.

This truly monumental accumulation of debt and speculation is now an existential threat to the Party on two levels:

1) since all bubbles pop regardless of any other conditions, when this bubble pops, the economic blow will be severe enough to threaten the Party's control of the economy

2) the crushing of phantom wealth will cause people to seek a scapegoat, and the Party is Target #1 since it coddled the well-connected and wealthy but did not protect the 99% from the dire consequences of the bubble bursting.

Having engineered the bubble's expansion by creating mountains of debt and implicit promises of bail-outs, the CCP and government have backed themselves into a corner: there is no pain-free way to deflate a speculative bubble of such astounding proportions.

Considering the life history of President Xi (especially his first-hand experience of the Cultural Revolution 1966-1976), his writings and his consolidation of power, it is very clear to me that Xi understands the bubble is close to escaping his control and so time is short and the policy options are limited to triage, that is, saving the healthiest and letting Nature take care of those closest to expiring.

I also see evidence that Xi grasps the absolute need to break the near-universal confidence that the state will bail out everyone who borrows and speculates so wildly that their gambles go bad.

The general assumption is that "China can't afford to let Evergrande fail" because this enormous conglomerate will obviously topple many dominoes, generating great financial pain.

I think the that President Xi's view is the opposite: "we can't afford to bail out Evergrande" because that would open the floodgates of moral hazard that Xi is trying to close.

The state bailing out private-sector gamblers (and state-owned enterprises) is what led to the massive moral hazard-debt bubble that Xi is determined to pop now while he still can control the process.

In other words, President Xi understands this is the do-or-die moment to regain control of an out-of-control moral hazard driven financial bubble, and the only way to do so is to push the losses onto everyone with exposure, the driver being the stark choice to either regain control by popping the bubble now or letting it expand and implode in an uncontrolled (and hence Party-threatening) fashion.

Xi concluded that the first step to being able to push the losses onto everyone with exposure to speculative bets was to consolidate power to such a degree that the usual self-interested factions that would use their power to evade the consequences could be forced to accept their share of the losses.

Given the history and structure of the Party, this required Xi to extend his control to levels not seen since Deng or Mao.

In my view, Xi correctly concluded the hour was getting late and the institutional resistance to the end of the implicit promises of state bailouts and endless debt expansion could only be overcome if his political power was near-absolute.

The popping of moral hazard and the debt-speculation bubble are necessary to preserve CCP and state power; half-measures that protected corrupt cronies would only increase the public's outrage when the bubble finally burst.

In this light, Xi's multi-year campaign against the most visible corruption and his recent touting of "common prosperity" have set the stage for his forcing the end of moral hazard and the controlled demolition of the excesses of debt and speculation that have harmed the economy and threatened the control of the CCP.

Now comes the grand ironies. China's ability to generate stupendous amounts of new debt basically bailed out the global economy in 2008-09, 2015-16 and 2020. Yes, the Federal Reserve bailed out the global banking sector (to the tune of $16 trillion in backstops and credit lines) in 2008-09 and inflated a speculative bubble in the U.S. by creating $3.5 trillion in quantitative easing, but China's expansion of debt was an equally important source of global demand, which is what stopped global economies from sinking into recession.

The cost of these "saves" were not understood at the time: the elevation of moral hazard to quasi-religious status in the U.S. and China and the expansion of debt-funded speculative bubbles to unprecedented heights.

There are only two policy options:

1) Grasp the nettle and refuse to bail out debt-funded speculative excesses, thereby popping the Everything Bubble, or

2) play the game of keeping the bubble expanding until it implodes on its own, an end-game made inevitable by the systemic instabilities intrinsic to bubbles.

Xi has correctly chosen Policy #1, and to do so has positioned the Party as the defender of the people, i.e. anti-corruption, shackling the Big Tech billionaires like Jack Ma, and announcing that the state will not bail out EverGrande.

The Federal Reserve and the political leadership of the U.S. have foolishly chosen Policy #2, inflating the bubble while letting the consequences of this moral hazard bubble--wealth-income inequality and corruption--explode higher, fatally undermining the credibility of both the Fed and America's political class.

As the supply chain disruptions have revealed, the global economy and financial system are tightly bound systems, and as such are extraordinarily exposed to the risks of cascading collapses as key nodes become chokepoints or break down.

While the Federal Reserve prints trillions to further inflate the bubble, the global energy shortages are already crippling key sectors in the economies of China and the EU. Reality is about to intrude on the Fed's fantasy that speculative bubbles can remain disconnected from the real-world economy forever.

In summary: the popping of the global Everything Bubble is not Xi's goal; it is the inevitable second-order effect (collateral damage) of China's debt-speculation bubble popping.

Given the tightly-bound financial system, the collapse of EverGrande is far more the story of dominoes toppling rather than direct losses: it's not the direct losses that will bring down the global financial system, it's the dominoes toppling as those who take the direct losses implode and become insolvent, missing their loan/bond payments, being unable to meet their counterparty obligations, and so on.

The consensus in the West is that China cannot afford to let its bubble pop because the pain will be so severe. Those who believe this have a poor grasp of Chinese history, especially in the 20th century.

If crashing China's bubble is the nuclear option, Xi has reason to be confident he can push the pain level to 11 and most will accept it, and those who don't will join Jack Ma in forced retirement.

I reckon Xi views ending moral hazard and popping the bubble in China as a situation that will only get worse the longer he puts it off.

The grand irony now is that rather than saving the global economy by expanding its own debt bubble, China will pop the global Everything Bubble. To state the obvious, being a linchpin in the global economy makes China a consequential domino. Anyone who thinks the Fed's speculative bubble in the U.S. can magically become immune to the collapse of tightly-bound dominoes is indulging in magical thinking.

China's extreme excesses of debt and speculation are already unraveling, and Xi is backed into a corner. There is no cost-free escape, only triage, and Xi has charted a path to preserve the Party's control by forcing everyone with exposure to absorb the inevitable losses when unprecedented bubbles pop.

The line of toppling dominoes extends around the entire global economy and financial system. Plan accordingly.

This essay was first published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($54/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.




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Santa's Revenge: Everyone Front-Running My Rally, You Get Nothing

Santa is generally a jolly fellow, but that doesn't mean he doesn't take pleasure in meting out well-deserved punishment to the greedy.

Nothing is more predictable than a stock market rally starting in early November and running into mid-January--Santa's rally. And since it's so predictable, why not front-run the rally by loading up on stocks in October?

Here's the problem: Santa doesn't take kindly to punters front-running his rally. It's like opening your presents in October, and that's the equivalent of sucker-punching Santa. Santa's revenge will be served cold: no rally for you, front-runners. And nothing in your stocking or under your tree, either.

Rather than give front-runners a lump of coal (that's been bought up by China), Santa will deliver trillions of dollars in losses, much to the surprise of the front-runners counting on glorious gains galore.

A funny thing happened on the way to Santa's 2021 rally: a disintegrator beam swept through the entire global supply chain. Everything is now scarce except euphoric confidence in more stock market gains and more central bank stimulus, NFTs, quadrillions in cryptos, and users who hate Meta, which I'm guessing is an acronym for me eat the addicts.

What's absolutely out of stock are 1) stability and 2) the means to restore global supply chains to their previous working order. Unbeknownst to the vast herds consuming the goodies stuffed in those 8,000 containers per ship, the entire supply chain has been optimized to function within a very narrow band. Once it veers out of than band, it unravels very quickly and cannot be restored to its previous optimization.

There are a number of reasons for this inability to put Humpty-Dumpty back together again.

1. Everything that's needed to restore stability has been stripped out by optimizing profits. Redundancy, excess capacity, stockpiles, multiple sources, domestic sources--all those cost money and are therefore the mortal enemies of increasing profits, so they've all been stripped out of the system long ago.

2. There is just enough of everything to function in the optimized band, and adding more capacity quickly is impossible. There are just enough gasoline/diesel tankers to make the optimal deliveries, and no surplus tankers to add to the network. And even if there were super-costly tanker-trucks gathering dust in a lot, there wouldn't be any surplus drivers with the credentials and experience to drive them.

When a solvent runs out because one of the only two producers goes down for any reason, everything that depends on that solvent shuts down. As for adding capacity to produce more solvent, forget it: the machinery is specialized and has to be ordered with lead times measured in months, the means to transport more petrochemical feedstocks to the plant don't exist and cannot be conjured out of thin air, workers who know how to operate the plant are scarce, and so on.

These multitudes of intermediaries generate long dependency chains which break if even one link goes down. Every intermediary is a potential disruptor, and the more intermediaries there are, the more opportunities for one link in the chain to snap. With excess capacity kept near-zero to maximize profits, there's no slack, no pool of expertise to tap, no production capacity that can be turned on with a flick of a switch.

3. The instinctive human response to scarcity is to stockpile what's scarce or even threatening to become scarce. For wholesalers and enterprises, this means over-ordering to insure enough inventory to maintain production / sales. This quickly exacerbates shortages as the fortunate few grab far more of the dwindling supply than they need, starving everyone else down the chain.

Consumers also buy more and stuff it safely in closets, pantries, garages, etc. Stockpiling is not only rational when faced with scarcities, it's also rational when price increases are guaranteed: better to buy more now before the price goes up.

But since the global system is optimized for narrow ranges of supply and demand, this panic-buying strips the system of what little wiggle-room it had. Consider gasoline and diesel supply systems. They're optimized for average drivers to maintain less than half a tank of fuel. So when everyone starts topping off their tank every time they see an open gas station, the modest excess supply is quickly drained and shortages start cascading through a system with near-zero excess capacity, storage, personnel, tanker-trucks, etc.

Count the intermediaries between the source of the stuff you need and your house and you'll have a decent grasp of your vulnerability to global supply chain breakdowns. Very few of us know enough to count the intermediaries, and we might reckon there's a few dozen at most. In many cases, the true number is in the hundreds once we count the components, specialty materials, glues, solvents, packaging, delivery, etc. in every part of the production and shipping chain.

If you make your own Christmas presents with materials you have on hand, there are no intermediaries between the giver and the recipient. That's a secure system. Depending on hundreds of intermediaries to all function perfectly as the entire chain disintegrates, that's considerably less secure.

Santa is generally a jolly fellow, but that doesn't mean he doesn't take pleasure in meting out well-deserved punishment to the greedy. All gains are guaranteed by the Federal Reserve until the magical belief in the Fed's hocus-pocus encounters the disintegration beam. Oops, sorry about your Santa rally. You got greedy with the wrong guy.




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My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

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Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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Skimpflation, Shrinkflation and the Rising Rebellion of Workers and Consumers

While Corporate America is focusing on preserving its precious profits, its customers and workforce are rebelling by walking away.

We all see shrinkflation on a daily basis: the 16 ounce container is now 13 ounces, the breakfast cereal box is now so narrow it topples over, and so on.

More subtly, the quality of ingredients is also diminishing: sharp-eyed consumers note that salt, sugar and "artificial flavors" are increasingly used to mask the decline of quality as producers scrape the bottom of the barrel to eke out a profit.

A recent NPR article proposes another form of untracked inflation: Skimpflation, the decline of services as prices march higher. Meet Skimpflation: A Reason Inflation Is Worse Than The Government Says It Is (via C.A.).

The article notes that skimpflation isn't just a reflection of greedy corporations squeezing consumers to fatten profits (cough, Disney, cough)--Skimpflation is a direct result of the workforce declining to take jobs in which they are treated as chattel.

The article mentions the wholesale decline of service that traces back to the shortage of labor: long waits, spotty maid service (hey pal, you try lifting those super-jumbo mattresses to tuck in sheets all day long for garbage-level pay), the demise of breakfast buffets and Disneyland's still-defunct tram service (entry prices have soared, but never mind--you have to come here, right, because we brainwashed your kids, so pay up and shut up because you have to pay, there is no way out.)

As I have been saying for some time, labor has been devalued and denigrated for decades, most recently in my conversation with Max Keiser.

In an economy obsessed with measuring money, economists focus on pay and benefits, as if those metrics are all that matters. What about being valued, having some say about one's work, being respected for one's efforts and earning dignity, not just rapidly depreciating dollars? None of those realities ever enter mainstream economics, but that doesn't mean they don't exist.

It's not just low pay that makes work wretched, it's being treated as an object owned by the employer. Exploitation comes in many flavors, and they all taste bad.

There's another factor left out of economists' obsession with counting dollars: the public is increasingly unhinged, and those having to deal with the public are paying an increasingly steep price. Flight attendants are being assaulted, workers are being threatened, cussed out, etc. Who wants a job where someone seeking to vent their rage can unload on an employee?

Labor's quiet rebellion is feeding a self-reinforcing feedback loop of collapse: Corporate America, so accustomed to treating its workforce like donkeys--just load on more work--has responded to labor shortages by increasing the workload of those still on the job, burning out the remaining employees in the process.

This Darwinian feedback--those willing to stay on the job are soon crushed by overwork and screaming customers-- increases the pressure on managers to cut services and load more work on whomever is left as the sole means of meeting management's relentless demands for more sales and profits as the means to do so fall off a cliff.

The Financial Nobility's answer--give the super-wealthy more trillions--isn't trickling down to the real world. Conjuring money out of thin air while changing absolutely nothing in the real-world economy is not going to force workers to take chattel jobs which only get more oppressive with each passing day.

Imagine the berobed noble being driven down from the castle to address his army of indebted serfs and you have a snapshot of Corporate America: oh how sweet and endearing the noble's false phrases of appreciation, and then the whip comes out.

It's not just the workforce that's rebelling--consumers will eventually rebel, too. The solution to corporate scrimping on service is to simply stop giving them money. Don't wait in line for diminished products, don't book the room or flight, do something better (and more satisfying) with your time and money.

The returns on trying to make all this go away by giving another trillion or three to the super-rich are diminishing fast. Quiet Rebellion leads to mass exodus which leads to a death-spiral of diminishing spending, debt and the quantity and quality of goods and services, because the Prime Directive is increase profits or you're gone.

While Corporate America is focusing on preserving its precious profits, precious stock market bubble and even more precious billionaires, its customers and workforce are rebelling by walking away. Good luck wooing them back with declining quality in both jobs and products. While we glorify self-glorifying, supremely arrogant billionaires, the economy is quietly collapsing beneath the rah-rah cheerleading narrative. Reduce the purchasing power of wages for 45 years as you load on more work and eventually the banquet of consequences is served: Hey Mr. Billionaire, take this job and your rocket and shove it.




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The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on the Failure of the Federal Reserve and Rising Secular Inflation (31:16) (with Richard Bonugli, FRA Roundtable)

four monster waves that are about to crash onto the Fed's beach party (with Gordon Long, 40 min.)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


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Doing 90 MPH on Deadman's Curve: A Few Thoughts on Risk

When the wreck is recovered, witnesses will wonder why they took such heedless, foolish risks.

You're in the back seat wedged between tipsy revelers, the driver is drunk and heading into Deadman's Curve at 90 miles per hour. Nobody's worried because the driver has never crashed. Before they slid into euphoric incoherence, the other passengers answered your doubts with statistics and pretty charts showing that the driver had never had an accident, so there was nothing to worry about.

They also said that the driver's Uncle Fed had rigged the vehicle with an anti-accident device, so a crash was impossible. One passenger blurted out that a fellow named Goldy Sacks said the driver could easily "melt up" and take Deadman's Curve at 120 miles per hour without any trouble.

You see the problem here: the risk of crashing and expiring is soaring but the giddy occupants are completely confident there's no risk, and this confidence is the source of the danger. If you're sure Uncle Fed's device can protect the vehicle from any crash, then why not take Deadman's Curve at 90 miles per hour?

And if Goldy Sacks says you could actually take it at 120 miles per hour, then taking it at 90 MPH is actually quite prudent and cautious.

This confidence inspires tremendous risk-taking that eventually ends very badly for all the revelers. The irony is rich: the greater the confidence, the greater the risk, the greater the risk, the greater the odds of a crash. The greater the risks being taken, the greater the odds that the crash will be fatal to all occupants.

The confidence in Uncle Fed's safety device is delusional because it's never been tested. The fact that the driver hasn't crashed doesn't mean the risk is low or Uncle Fed's device works perfectly, it simply means luck has been on the driver's side.

It also doesn't mean the driver can take Deadman's Curve at 90 MPH without any risk. It simply means the driver hasn't taken on more risk than he can handle until now.

When the wreck is recovered, witnesses will wonder why they took such heedless, foolish risks. What they couldn't know is the occupants were all giddily confident that a crash was impossible no matter how great the risks. So why not take more risk?

Indeed. This makes perfect sense: if a crash is impossible, then by all means take Deadman's Curve at 120 MPH.




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on the Failure of the Federal Reserve and Rising Secular Inflation (31:16) (with Richard Bonugli, FRA Roundtable)

four monster waves that are about to crash onto the Fed's beach party (with Gordon Long, 40 min.)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.

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A Nation of Imposters

That's how we've become a nation of imposters: our imposter stock market hits a new high and the imposters cheer because it proves the scam is still working.

You've read the warnings about the proliferating imposter scams: scammers posing as "officials", representatives of utilities or "a close friend of a family member" all exploit the fast-draining reservoir of trust in America to extract financial information out of the unwary marks.

I'm not sure what's more remarkable: the depths of scammer perversity or the fact that some people can still be conned by claims of authority or friendship. Most are seniors, of course, as the elderly still retain an easy-to-scam trust in institutions and officialdom as a holdover from an era before trust was unraveled by wholesale self-serving deception.

The deeper problem is that America is now a nation of imposters. Everything that is presented as august and trustworthy is an imposter organization designed to enrich the few at the expense of the many via deception and the cloaking of self-serving skims and scams.

A useful tool to uncloaking imposters is to ask: cui bono, to whose benefit? Take the nation's central bank, the Federal Reserve. It claims to be serving the public and the common good, but who actually benefits from its policies?

1. Insiders frontrunning the Fed's public pronouncements to enrich themselves. Here's looking at you, Chairperson Powell and the rest of your self-serving imposter cronies.

2. The top 0.1% who own the majority of productive assets goosed ever higher by Fed policies.

3. Billionaires.

4. The top 10% who own 89% of all stocks: The wealthiest 10% of Americans own a record 89% of all U.S. stocks

If we strip away the PR, the Fed is an imposter, a self-enrichment scheme for the already-wealthy and the super-wealthy. Its claims to serve the public are just the imposter's deceptive mumbo-jumbo to exploit the naive trust of the marks.

Next up: our imposter judicial system: white-collar financial criminals get wrist-slap fines, if that, while hundreds of thousands of people rot away in America's Drug War Gulag, the fruit of a judiciary obsessed with locking people up even as the War on Drugs enriches drug cartels and has completely failed to reduce drug use.

Rich people can plunder without any fear of our imposter judiciary. Bernie Madoff's fatal mistake was ripping off other rich people, and that made him the perfect stooge for a Soviet-style show-trial in which one fall-guy is convicted as a PR stunt to mask the systemic rot of an imposter judiciary.

Then there's our imposter media, virtually all of which is owned by a handful of quasi-monopoly corporations. This imposter media/social media exemplifies the appeal to authority via "objectivity" and "expertise", while the real action is in what's off limits to serious journalistic digging, what's buried and what's touted as the dominant narrative to explain away what is risibly questionable. ("Let's go Brandon," etc.)

Unfortunately, even the scientific media is riddled with imposters: Medical Journals Are an Extension of the Marketing Arm of Pharmaceutical Companies (journals.plos.org).

Once again, the imposters exploit one of the last remaining pockets of trust, in this case, the trust that "research" that makes it into an academic journal is trustworthy, i.e. the results can be replicated by other researchers, the data hasn't been massaged to reach highly profitable results, dosages haven't been adjusted to skew the results in favor of special interests, and so on.

Lastly, consider our "democracy," which is now little more than an invitation-only auction of favors: $10 million in "auction bids" (campaign contributions, Super-PAC funds, etc.) and some grease in the lobbying machinery can easily garner $100 million in private gains via tax subsidies, no-bid contracts, Medicare limitations on monopoly pricing, etc.

Sorry, but this is an imposter form of democracy, a PR facade fabricated to mask the invitation-only auction of favors. If you don't have the money, your vote doesn't count. If you doubt this, please read:

Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens (www.cambridge.org)

Monopoly Versus Democracy: How to End a Gilded Age (www.foreignaffairs.com)

No one wants to admit we're a nation of imposters because that's a confession of just how deep the rot has penetrated. The systemic rot of imposters exploiting the last reserves of trust starts at the top and then filters down into every nook and cranny as everyone looks at how the rich get richer and learns from the top-level imposters.

That's how we've become a nation of imposters: our imposter stock market hits a new high and the imposters cheer because it proves the scam is still working.






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Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on the Failure of the Federal Reserve and Rising Secular Inflation (31:16) (with Richard Bonugli, FRA Roundtable)

four monster waves that are about to crash onto the Fed's beach party (with Gordon Long, 40 min.)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


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America Is Now a Kleptocrapocracy

I hope everyone here is hungry because the banquet of consequences is being served.

I've coined a new portmanteau word to describe America's descent: kleptocrapocracy, a union of kleptocracy (a nation ruled by kleptocrats) and crapocracy, a nation drowning in a moral sewer of rampant self-interest in which the focus is cloaking all the skims, scams, rackets and bezzles in some virtuous-sounding garb, a nation choking on low-quality junk ceaselessly hawked by robocalls, spam, phishing and Big Tech manipulation.

It's little wonder trust has collapsed in America: the only thing we can trust is whatever's being pitched is deceptively packaged to mask the self-interest and profiteering of the perps.

The stench from the decomposing carcasses of once-trusted institutions is everywhere. Insiders and the marketers they pay to cloak their grifting are banking bennies at the expense of hapless debt-serfs who fell for the scam. You need these three costly medications, and then when the side-effects kick in, you need six more to counteract the first three, and so on. But trust us; your "health" (heh) is our only concern. Uh, sure.

Why do state universities need to market themselves like a roto-rooter service? Maybe because they're both working the sewers: state universities are exploiting the student loan sewers, desperate to recruit another batch of debt-serfs who fell for the 3-card monte game in which a lifetime of debt is exchanged for a credential of dubious value.

The competition for the remaining pool of debt-serfs is heating up, so like everything else in America, the game is now all about marketing, virtue-signaling, exploiting Big Tech manipulation, and so on.

Doing something useful is now for chumps. The opportunities in America are all about getting rich by doing, well, nothing: skimming 20% "guaranteed" returns in DeFi, mining cryptos, trading stablecoins, selling volatility, etc.--getting rich and then living large on the sweat of the chumps who are still working (poor deluded fools!).

The obvious goal here is for everyone to get in on trading stablecoins, buying rentals with DeFi, churning meme stocks, etc. Why should anyone lower themselves to doing something useful anymore? Why bother?

Labor has been degraded for decades in speculative-frenzy America. Why work when the Fed has our backs and all those newly issued trillions are up for grabs? Doing something useful is for chumps.

Nobody seems to ask what happens when we're all minting fortunes off speculative churn and there's nobody filling potholes, stocking shelves or carrying bags of QuikCrete to customers' trucks.

And while we're on the subject of sewage: if America's security services and Big Tech oligarchies track everything and everyone, why are we drowning in robocalls, spam, SMS-spam (smishing), etc.? Couldn't the NSA/CIA track the spammers and robo-callers down and rendition them (warrantlessly, of course) to a hellhole camp in an unnamed country?

Of course they could. But the ruination of everyday life is of no concern to the kleptocrats (fly with me to the stars!) or our dysfunctional government, which has become nothing more than an invitation-only auction of favors that elevates the relentless pursuit of self-interest and profiteering to new kleptocratic heights.

Please don't make the mistake of expecting anything to work properly in America. The components are garbage, the parts are on back-order, the people who knew how to make the kludgy mess function just quit in disgust, and we'll have to get back to you about your request, as our service staff just left to launch an OnlyFans site.

I don't want to work, I'm minting money speculating, but gol-darn it, I want everyone else to wait on me and meet my needs for low, low quality goods and services at not-so-low prices, and if I'm not treated well enough by everyone earning chump-change, then I'll freak out, and if that doesn't pan out, I'll blame it all on my meds. Accountability is like work--only for chumps.

Trust me, everything's going great and we're all going to get wealthier and wealthier until we won't be able to take it any more, it will be so great. I hope everyone here is hungry because the banquet of consequences is being served.




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on the Failure of the Federal Reserve and Rising Secular Inflation (31:16) (with Richard Bonugli, FRA Roundtable)

four monster waves that are about to crash onto the Fed's beach party (with Gordon Long, 40 min.)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.

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Software Ate the World and Now Has Indigestion

As for all those automated systems we have to navigate--do any of them work so well that those profiting from them actually use them? Of course not.

In Marc Andreessen's memorable phrase, "software is eating the world." Unfortunately, it now has indigestion. Software is running into limits that (non-engineer) promoters either deny or downplay. Meanwhile, back in the real world, software has a limited role in filling structural scarcities of physical goods and many services.

Consider all those apps which are supposed to be the epitome of automated productivity: if software is so great, then why do the apps need thousdands of ghost workers to keep the kludgy mess semi-functional? Hidden behind the shiny happy facade of automated software wonderland, thousands of poorly paid humans have to do the hard bits that software fails to do or fails to do properly.

The Ghost Workers in the Machine: Companies devalue them, and consumers rarely know they exist. But the apps and companies that millions of us depend on, like Uber and Amazon, couldn't function without the invisible, low-wage labor of "ghost workers."

Silicon Valley's Shadow: The Ghost Workers Behind Amazon, Google, and Microsoft: An invisible, on-demand workforce supports everything from Facebook to Uber and beyond with project-based tasks--and has little to show for it.

The vision of software eating the world is part and parcel of the compelling fantasy that humans will soon be free from the drudgery of work and scarcity and bask in near-infinite abundance due to techno-magic. Those most taken by this vision are never the ones trying to keep the software and robotics from failing, because those laboring to keep the whole mess from collapsing know the limits are far more real than the magical-thinking ehthusiasts understand.

The list of problems that have been "close to being solved" year after year is rather lengthy. Automated oversight of social media content by the loving care of AI (artificial intelligence)? Well, yes, sure--but then what are those tens of thousands of humans scanning millions of posts and images doing for Facebook et al? Getting paid low wages for a hellish job for no reason? No, the AI (whatever that catch-phrase actually means) can't solve the really difficult problems, despite claims to the contrary.

Self-driving cars are here! Well, almost, kind of, with a few exceptions... Other than failing in novel situations where bad weather or other common occurrances manifest, it works great. Well, sort of, but we're close, very close... and so as long as the Internet never goes down, and the sensors never fail, and the creek doesn't rise--it works great.

The vast infrastructure required to make all this function is rarely discussed. It's not just a matter of the onboard sensors and equipment never failing; the Internet, GPS, electrical grid, etc., all have to function perfectly for all the software to work. This is known as a dependency chain and software is at the very end of a long and intrinsically fragile chain.

As for all those automated systems we have to navigate--do any of them work so well that those profiting from them actually use them? Of course not. Do you think the mega-millionaires raking in the profits from stripping out costs and offshoring ghost-work actually use the wretched software systems their monopolies and cartels impose on the rest of us? Of course not; they have their PA, nanny, driver, gig workers, etc. take care of whatever they need done in real time in the real world. It's the rest of us to are forced to put up with their dysfunctional, frustratingly inept software "paradise."

So when the grid goes down for lack of real-world energy, let's all cheer how software is going to deliver us endless abundance. But we'll have to do all the cheerleading in person because the Web went down, too.




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on the Failure of the Federal Reserve and Rising Secular Inflation (31:16) (with Richard Bonugli, FRA Roundtable)

four monster waves that are about to crash onto the Fed's beach party (with Gordon Long, 40 min.)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.

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Are We Really Crazy Enough to Believe This Is Going to Work?

Unbeknownst to the giddy participants, they're not just betting on the omnipotence of the Fed Politburo, they're also making a max-leverage bet that "the madness of crowds" will never end.

Imagine an economy so dominated by its central bank that all markets hang on every word of its priesthood as life or death. You know, like the Federal Reserve and the American economy.

Now imagine this central bank issues enormous sums of new money which supercharges speculative activity such as hundreds of billions of dollars in stock buybacks, special purpose acquisition casinos, oops, I mean companies, and so on. You know, like the Federal Reserve's trillions in nearly free money for financiers.

Next, imagine that the central bank makes barely concealed promises that should any big gambler lose money in the casino, the bank will flood the financial system with even more nearly free money for financiers and bail out the loser.

Since flooding the system with nearly free money for financiers keeps the speculative frenzy going, the bank has implicitly promised that assets driven higher by speculative frenzy will never be allowed to drop. This promise naturally incentivizes even more speculative borrowing, leverage and risk, generating a titanic Everything Bubble in which risky assets skyrocket from pennies into dollars and dollars into fortunes.

Now imagine that this speculative frenzy spreads into every nook and cranny of the economy such that everyone is drawn into one casino or another, and previously sober, cautious people are seized by a quasi-religious fervor in which they become convinced that their gambling chips on NFTs, SPACs, meme-stocks, obscure alt-coins, homes, collectables and pretty much anything within the manic swirl of speculative frenzy is now a can't lose path to carefree permanent wealth because the central bank guarantees it and anyone who questions this is in league with the Devil (or worse).

Next, imagine that as a result of this vast expansion of "wealth" in the Everything Bubble, the entire economy is now dependent on this bubble never popping as speculation is driving incomes and a wealth effect without precedent as every participant feels newly empowered to borrow and spend more because their bubble-wealth just keeps rocketing higher.

The problem here is all speculative bubbles pop and so the central bank's inflation of a speculative Everything Bubble has backed the entire economy into a corner from which there is no escape: either the bubble must keep inflating to ever dizzier heights of delusion and risk or the bubble pops and lays waste to all the phantom wealth.

Lastly, imagine that the enthralled participants in the speculative orgy truly believe the central bank has the power to keep the Everything Bubble expanding forever, or at a minimum, bubbling along at a permanently high plateau that guarantees everyone's phantom wealth will be forever available for tapping and spending.

This is where we are, and it raises one question: are we really crazy enough to believe this is going to work? That the Federal Reserve can keep the Everything Bubble expanding essentially forever, or bubbling along at a permanently high plateau?

Are we really crazy enough to believe that conjuring trillions of dollars out of thin air and then leveraging this into tens of trillions of dollars and dumping all this money into assets which don't increase in utility so that their "value" rises 10-fold even as their utility remains unchanged is sustainable and a solid foundation for our economy?

Unbeknownst to the giddy participants, they're not just betting on the omnipotence of the Fed Politburo, they're also making a max-leverage bet that the madness of crowds will never end.

Are we really crazy enough to believe this is going to work? The answer appears to be a resounding "yes" because everyone knows the Fed has our backs and so permanently expanding wealth is guaranteed. (And if it isn't, no problem, I'll jump off the merry-go-round before the music stops. And of course, 99.9% of all punters succeed in doing so.)

In this blissful moment of speculative confidence in a) the music will never stop or b) I'll jump off just before the music stops, fortune fully intact, feast your eyes on these charts of guaranteed permanently high plateaus.


















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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on the Failure of the Federal Reserve and Rising Secular Inflation (31:16) (with Richard Bonugli, FRA Roundtable)

four monster waves that are about to crash onto the Fed's beach party (with Gordon Long, 40 min.)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.

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Everything Solid Melts into Air

That the neofeudal lords and their lackeys offer the debt-serfs "choices" of forced labor would be comic if the results weren't so tragic.

We know we're close to the moment when Everything Solid Melts into Air when extraordinary breakdowns are treated as ordinary and the "news" quickly reverts to gossip. So over 4 million American workers up and quit every month, month after month after month, and the reaction is ho-hum, labor shortage, blah, blah, blah, toy shortage for Christmas, oh, the horror, blah, blah, blah.

These are large numbers. Over 10 million job openings and 6 million hires and 6 million "separations," i.e. layoffs and the 4.3 million voluntary quits.

The happy story promoted by the corporate media is that this enormous churn is the result of shiny, happy people moving up the work food chain to better paying jobs. We know we're close to the moment when Everything Solid Melts into Air when every breakdown is instantly reworked into a happy story in which everything is getting better every day, in every way.

The reality nobody in power wants to acknowledge, much less address, is that millions of workers are opting out or burning out and they're not coming back. Another happy story promoted by the corporate media is that once all the gummit freebies ended, the lazy no-good workforce would be forced to take whatever wretched job the billionaires need done at low pay and zero benefits. (But hey, you qualify for food stamps, so it's all good!)

A substantial share of the workforce has declared "up yours" and another share has been so burned out by overwork and constant pressure that they're done: they can no longer work at this pace and for that many hours.

This enrages the lackeys, toadies, apparatchiks and apologists of the billionaires: how dare you escape from forced labor! The whole economy is based on the bleak choice of take the job we offer or starve.

The "innovation" (pay attention, neofeudal lords) from SillyCon Valley is to offer an illusion of "choice" in this forced labor system: in the gig economy, you get to "choose" between Gulag Camp One (low pay, long hours, zero benefits and zero security) and Gulag Camp Two (low pay, long hours, zero benefits and zero security).

Wow! Who knew "choice" was so life-changing? In a similar fashion, when you can no longer afford rent, utilities, etc., then you get a "choice" of living in your car, if you have one, or fashioning a crate-tent "home" or taking over the ruined camper left by the guy who made the one-way trip to the morgue.

That the neofeudal lords and their lackeys offer the debt-serfs "choices" of forced labor would be comic if the results weren't so tragic. The neofeudal status quo is so busy chasing down escapees from the forced-work Gulags that it won't notice its Wile E. Coyote moment when Everything Solid Melts into Air.








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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on the Failure of the Federal Reserve and Rising Secular Inflation (31:16) (with Richard Bonugli, FRA Roundtable)

four monster waves that are about to crash onto the Fed's beach party (with Gordon Long, 40 min.)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.

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NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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