While We're Obsessing About the Economy and the Fed, Society Is Unraveling

The market and the government will continue to promote and support a neofeudal status quo until they are forced by society to restore the common good and opportunity.

Of the three primary dynamics of human endeavor--the market, government and society--we focus almost exclusively on the first two. Society is rarely considered as a force of its own. It is implicitly viewed as reactive to the market economy and government, the churning wake left as the market and government chart the course.

In other words, society is secondary to the economy and governance, the venue of fashions, trends, entertainment, culture wars, etc., fodder for media and social media, a reflection of what's happening in the market and government.

As I explain in my book Global Crisis, National Renewal, this is a misunderstanding of society's role as a force that changes the economy and governance in profound ways.

We give social transformation short shrift because it's not easy to study or understand. Social change is amorphous and doesn't lend itself to quantification like the market or the legal structures of government policy. We end up relying on snapshots such as opinion polls that are inherently limited in scope and accuracy. Respondents tend to give answers they they believe are expected or reflect their views of the moment. Other data is collected from groups that are self-selecting.

Despite these limitations, it's clear that American society is unraveling and undergoing profound changes that will eventually upend markets and governance. We will come to realize society is transforming markets and governance, not the other way around.

Charts of the stock market and economy in the 1960s do not reflect the social changes in values that made the 1960s so tumultuous and consequential. Three social movements--civil rights, the environment and women's rights--all changed the economy and governance in the 1970s, unleashing forces that continue to shape our economy and government to this day.

The market and government didn't lead these changes, social forces changed the market and government. The market and government were perfectly happy to maintain the status quo of rampant industrial pollution and systemic restrictions of civil rights. Society forced economic and political change: the government was forced to enact environmental regulations limiting pollution and industrial waste, and enact legislation removing barriers that enforced an oppressive, unjust, two-tier society and economy.

In the 1970s, these environmental, women's rights and civil rights advances forced on the market and government transformed the economy for the better. Women entered the workforce en masse and women and minorities gained access to institutions that that had previously excluded them. Environmental and efficiency regulations transformed the American economy and landscape from an industrial dumping ground to a much cleaner, more sustainable, more efficient and productive industrial base.

I discussed this recently in The Forgotten History of the 1970s and The 1970s: From Rotting Carcasses Floating in the River to Kayak Races.

Much work remains to be done, of course, but much has been accomplished by the citizenry concluding the status quo is no longer acceptable.

In my analysis, the nation's social fabric is unraveling due to the breakdown of civic virtue, social cohesion and the social contract. The dominance of finance (hyper-financialization) and corporate self-interest (hyper-globalization) has fatally undermined civic virtue, social cohesion and the social contract. Rather than the market serving society, society now serves the market and finance in a painfully obvious two-tiered neofeudal structure in which the few garner the vast majority of the wealth and political power.

Locking in vast private wealth is now the Prime Directive of the elite, an elite which in previous generations understood that every elite ultimately serves at the behest of those they rule (i.e. consent of the governed), and so the elite must apply some of their wealth and power to pursue the common good rather than their own self-interest.

Soaring wealth-income inequality leads to vast concentration of political power. "The people" rule in name only. Any attempt to end the two-tiered neofeudal structure of our economy at the ballot box is futile.

As for the social contract of equal opportunity for all, in the real world, the rungs in the ladder of social mobility have been broken. Those who bought homes and assets a generation or two ago have acquired wealth in a credit-asset bubble economy, while those who borrowed a fortune for a college degree find the value is uncertain or marginal in all but the top-tier of credentials--and connections still matter.

The net result is people are dropping out, opting out or burning out. This is the result of what I call social defeat: the odds are now stacked against all but the super-achievers and the well-connected. Given the instability and inequality of the financialized, globalized "market economy" (heh), a family and home are out of reach financially for many, so they give up. Others see their hard-won gains wiped out by medical expenses (the leading cause of household bankruptcies) or a collapse in the speculative bubble-du-jour. We see the same trends in stagnant economies elsewhere (Japan, for instance): the decline of marriage, family and having children and the abandonment of social / community ties.

As this Wall Street Journal poll reveals, the traditional forces of social cohesion are collapsing before our eyes. As Peter Turchin has explained, social cycles of integration and disintegration occur every 50 years or so. In integrative phases, people find reasons to cooperate. In disintegrative phases, people find reasons to disagree and fragment into divisive, polarized camps. Clearly, we're well into a disintegrative phase, and what could bring us together is not even visible.

America Pulls Back From Values That Once Defined It, WSJ-NORC Poll Finds (WSJ.com)

The rising emphasis on money reflects the insecurity and instability that characterize the economy. If history teaches us anything, it's that piling up private stashes of wealth can't buy social cohesion, restore the social contract or rebuild social ties. Speculative gain is the ultimate false god. The belief that if we all barricade our own private wealth, everything will be fine is the acme of social dissolution.

We have a great opportunity for national renewal, but there is precious little in the market or governance that offers common ground. The common ground must be found in social changes in what we value and what is no longer acceptable. The market and the government will continue to promote and support a neofeudal status quo until they are forced by society to restore the common good and opportunity.










New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

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Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


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The Everything Bubble and Global Bankruptcy

The resulting erosion of collateral will collapse the global credit bubble, a repricing/reset that will bankrupt the global economy and financial system.

Scrape away the complexity and every economic crisis and crash boils down to the precarious asymmetry between collateral and the debt secured by that collateral collapsing. It's really that simple.

In eras of easy credit, both creditworthy and marginal borrowers are suddenly able to borrow more. This flood of new cash seeking a return fuels red-hot demand for conventional assets considered "safe investments" (real estate, blue-chip stocks and bonds), demand which given the limited supply of "safe" assets, pushes valuations of these assets to the moon.

In the euphoric atmosphere generated by easy credit and a soaring asset valuations, some of the easy credit sloshes into marginal investments (farmland that is only briefly productive if it rains enough, for example), high-risk speculative ventures based on sizzle rather than actual steak and outright frauds passed off as legitimate "sure-fire opportunities."

The price people are willing to pay for all these assets soars as the demand created by easy credit increases. And why does credit continue increasing? The assets rising in value create more collateral which then supports more credit.

This self-reinforcing feedback appears highly virtuous in the expansion phase: the grazing land bought to put under the plow just doubled in value, so the owners can borrow more and use the cash to expand their purchase of more grazing land. The same mechanism is at work in every asset: homes, commercial real estate, stocks and bonds: the more the asset gains in value, the more collateral becomes available to support more credit.

Since there's plenty of collateral to back up the new loans, both borrowers and lenders see the profitable expansion of credit as "safe."

This safety is illusory, as it's resting on an unstable pile of sand: bubble valuations driven by easy credit. We all know that price is set by what somebody will pay for the asset. What attracts less attention is price is also set by how much somebody can borrow to buy the asset.

Once the borrower has maxed out their ability to borrow (their income and assets-owned cannot support more debt) or credit conditions tighten, then those who might have paid even higher prices for assets had they been able to borrow more money can no longer borrow enough to bid the asset higher.

Since price is set on the margin (i.e. by the last sales), the normal churn of selling is enough to push valuations down. At first the euphoria is undented by the decline, but as credit tightens (interest rates rise and lending standards tighten, cutting off marginal buyers and ventures) then buyers become scarce and skittish sellers proliferate.

Questions about fundamental valuations arise, and sky-high valuations are found wanting as tightening credit reduces sales, revenues and profits. Once the "endless growth" story weakens, the claims that bubble prices are "fair value" evaporate.

As defaults rise, lenders are forced to tighten credit further. The first tumbling rocks are ignored but eventually the defaults trigger a landslide, and the credit-inflated bubble in asset valuations collapses.

As valuations plummet, so too does the collateral backing all the new debt. Debt that appeared "safe" is soon exposed as a potential push into insolvency. When the bungalow doubled in value from $500,000 to $1 million, the trajectory of valuation gains looked predictably rosy: every decade housing prices went up 30% or more. So originating a mortgage for $800,000 on a house that looked to be worth $1.3 million in a few years looked rock-solid safe.

But the $1 million was a bubble based solely on easy, abundant, low-cost credit. When credit tightens, the home is slowly but surely repriced at its pre-bubble valuation ($500,000) or perhaps much lower, if that value was merely an artifact of a previous unpopped bubble.

Now the collateral is $300,000 less than the mortgage. The owner who made a down payment of $200,000 will be wiped out by a forced sale at $500,000, and the lender (or owner of the mortgage) will take a $300,000 loss.

Given the banking system is set up to absorb only modest, incremental losses, losses of this magnitude render the lender insolvent. The lender's capital base is drained to zero by the losses and then pushed into negative net-worth by continued losses.

The collateral collapses when bubbles pop, but the debt loaned against the now-phantom collateral remains.

This is the story of the Great Depression, a story that's unloved because it calls into question the current series of credit-inflated bubbles and resulting financial crises. So the story is reworked into something more palatable such as "the Federal Reserve made a policy error."

This encourages the fantasy that if central banks choose the right policies, credit bubbles and valuations detached from reality can both keep expanding forever. The reality is credit bubbles always pop, as the expansion of borrowing eventually exceeds the income and collateral of marginal borrowers, and this tsunami of cash eventually pours into marginal high-risk speculative vebtures that go bust.

There is no way to thread the needle so credit-asset bubbles never pop. Yet here we are, watching the global Everything Bubble finally start collapsing, guaranteeing the collapse of collateral and all the debt issued on that collateral, and the rabble is arguing about what policy tweaks are needed to reinflate the bubble and save the global economy from bankruptcy.

Sorry, but global bankruptcy is already baked in. Too much debt has been piled on phantom-collateral and income streams derived from bubble assets rising (for example, capital gains, development taxes, etc.). The asymmetry is now so extreme that even a modest decline in asset valuations/collateral due to a garden-variety business-cycle recession of tightening financial conditions will trigger the collapse of The Everything Bubble and the mountain of global debt resting on the wind-blown sands of phantom collateral.

There are persuasive reasons to suspect global debt far exceeds the official level around $300 trillion, most saliently, the largely opaque shadow banking system. When assets roughly double in a few years, bubble symmetry suggests that valuations will decline back to the starting point of the bubble in roughly the same time span.

The resulting erosion of collateral will collapse the global credit bubble, a repricing/reset that will bankrupt the global economy and financial system.










New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


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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Bull or Bear? The Ultimate Source of Market Instability

Everyone wants a trend they can trade for effortless gains. That may no longer be realistic.

Market commentators tend to focus on Bulls and Bears and Federal Reserve policies as drivers of stock market gyrations, but there's a far more profound dynamic working beneath these veneers: the forces of adaptation and evolution transforming the economy and society as conditions change.

While the general expectation is that the post-Covid economy "should" revert to the stability of 2019, this ignores what was already unraveling in 2019. The global economy experienced fundamental shifts in technology, production, energy, capital flows, labor, currencies and geopolitics in the past 25 years, and all these forces are not just in motion but accelerating in ways that are destabilizing the status quo.

The necessity of adaptation and evolution can be summed up very simply: adapt or die. This is the natural state not just of Nature and species but of systems such as societies and economies. Those which cling on to failing models stagnate and decay, while those which embrace dissent, transparency and a constant churn of experimentation and trial-and-error will adapt and evolve and emerge stronger and more adaptable.

The US economy went through a comparable period of instability and forced adaptation in the 1970s, a dynamic I explored in The Forgotten History of the 1970s (January 13, 2023). Everyone benefiting from the status quo arrangements fought the much-needed changes tooth and nail, and so progress was uneven. Transitioning to a more efficient and responsive industrial base required tremendous capital investments and scaling up new technologies.

The transition is more costly and takes more time than we would like; the 1970s transition took about a decade. We can anticipate a similar scale of capital investment and time will be needed for this structural adaptation.

As the chart below illustrates, the 1970s was characterized by high inflation and big swings up and down in the stock market. Successful adaptations generated hope for quick recovery, while lagging adaptations tempered the hope with painful realities.

Again, it is likely that the decade ahead will track this same general dynamic of big swings generated by hope that the worst is over and the realities that progress is only partial and instability still reigns.

Everyone wants a trend they can trade for effortless gains. That may no longer be realistic.




New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


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.

Thank you, Margaret S. ($54), for your monumentally generous contribution to this site -- I am greatly honored by your support and readership.

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Welcome to the Era of Warring Elites

What the Warring Elites don't want us to realize is that a system of transparent competition in which no fiefdom is allowed to become dominant best serves the interests of society at large.

I've been writing about Warring Elites for a long time (since 2007). As I have often noted, historian Michael Grant identified profound political disunity in the ruling class as a key cause of the dissolution of the Roman Empire.

More recently, I've observed that Our Fragmentation Accelerates (December 20, 2019).

Eras of Warring Elites have two key dynamics. One is that the Elites' interests diverge from those of the society as a whole. In expansive eras, the many competing interests within the Elite class find common ground in supporting the status quo, and relegate their turf squabbles to the private club rooms. On the whole, the shared interests of the Elite class align with society at large.

Since I see the global status quo as fundamentally neofeudal, we can say the interests of the Nobility and Peasantry overlap: each class benefits from political and social stability, economic expansion and broad-based distribution of prosperity.

In disintegrative eras, this integrative, shared dynamic breaks down and the interests of the Elite diverge from those of society at large. The competition between neofeudal camps in the Elite class breaks into open conflict, and the result is a profound political disunity of hardened camps fighting to protect their fiefdoms from any diminishment of wealth or power.

This leads not just to political fragmentation but to social fragmentation as the Elite fiefdoms wage a propaganda battle for the hearts and minds of the Technocrat Class and the Peasantry. The propaganda war is not just to establish the traditional us and them divisions in which we are good and they are evil, it's also about cultivating The Plantation of the Mind so that all the neat rows of thoughts and emotions serve the interests of the Plantation Owners. I've discussed this for many years: Colonizing the Plantation of the Mind (August 25, 2010) and Social Media's Plantation of the Mind (May 28, 2020).

Each neofeudal fiefdom hopes we've seen too many movies in which the line between Good and Evil is cartoonishly clear. Each Elite fiefdom seeks to mask its single-minded devotion to its own self-interest behind fine-sounding claims of noble ideals: a Multipolar World (in which we're free to pillage the planet), Freedom of Speech (controlled by us, of course), Decentralized Finance (which just so happens to be owned and controlled by the few) and a vast spectrum of other cover stories for the enrichment of Elite fiefdoms at the expense of society at large.

With the emergence of AI Chatbots, each Warring Fiefdom now has the means to overwhelm the media with billions of automated messages about the good and noble and idealistic goals of our Fiefdom and how the evil Central State is scheming to limit our powers of predation (Central State, Bad, our Fiefdom, Good!) or some rabble of Peasantry threatens our extraction of wealth and our death-grip on power (Nobility-owned Fiefdom, Good, Peasantry, Bad!).

The core message is always the same: increasing our wealth, power, profits and control is good for you, too. You'll all benefit if you help us secure our fiefdom from any threats.

The propaganda is designed to not just colonize our minds but eliminate any urge to ask cui bono, to whose benefit? The single-minded self-interest of each Elite fiefdom must be hidden lest the powerless lower classes start asking if the expansion of one fiefdom's power and control actually benefits society at large or not.

In this no-holds-barred existential struggle for supremacy, Elite fiefdoms will tear down society to weaken any potential resistance. So national interest is cast as Evil, while Multipolar Wonderfulness is Good (now the whole world can finally sing happy songs around the campfire!), any regulatory restraints are Evil while the rigged "free market" is Good (let the "market" which we control choose winners and losers; hey, surprise, we won!). Every fiefdom should be free to pillage without restraint ("Ask your doctor about Euphorestra," etc.).

In the Era of Warring Elites, Everything is Staged (October 22, 2020). The Elite fiefdoms don't care if society and the economy fragment and collapse; they welcome the dissolution of national purpose, civic virtue and shared sacrifice as obstructions to their own limitless greed for more power and control.

In a weakened Nation-State, the fiefdoms will be free to pillage without restraint. If society is an obstruction, they will gladly tear it down with propaganda designed to fragment the Peasantry and undermine any entity which might have the power to restrain their limitless greed. (I discuss the essential roles of national purpose, civic virtue and shared sacrifice in my book Global Crisis, National Renewal.)

Before you buy into a slickly scripted depiction of what needs to be undermined to hasten its collapse, ask to whose benefit? Exactly who benefits from promoting the collapse of this or that? We already know the answer: the Elite fiefdoms who will be free to pillage once any source of resistance has been broken into pieces.

What the Warring Elites don't want us to realize is that a system of transparent competition in which no fiefdom is allowed to become dominant best serves the interests of society at large. Before we tear everything down, ask who will rush to fill the power vacuum with their own self-serving agenda?

In the meantime, "Ask your doctor about Euphorestra."




New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


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.

Thank you, Margaret S. ($54), for your monumentally generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Stephen F. ($5/month), for your marvelously generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

We've Forgotten That Business-Cycle Recessions Are Essential

A stagnating zombie economy never recovers.

Four decades of rising markets punctuated by crisis-induced crashes seems to have fostered an unspoken belief that no one should ever get hurt in markets or the economy. Everything "should" always get better for everyone, without any messy loss or pain. Not only is this not realistic, it overlooks the role business-cycle recessions play in restoring the vibrancy of economies and markets distorted by excesses.

The global economy has been plagued by excessively easy financial conditions for 25 years, and so a vast array of marginal and superfluous activity was funded that would never have been funded in more prudent financial conditions. Too many marginal structures were built and too many marginal enterprises and ventures were funded.

As a result, we ended up with too many malls, too much retail space, too many office towers and too many empty houses and flats being kept off the long-term rental market so the investor/owners could feast on the riches of the short-term tourist rental market (AirBnB et al.), a market that is now starting to implode as cities ban or restrict these rentals.

Throw in marginal IPOs, SPACs and meme-stock manias, and we have a Mulligan Stew of excessive risk-taking. When money can be borrowed at near-zero rates, and "opportunities" for quick gains proliferate (FTX, etc.), excessive borrowing and speculation become "the smart thing to do." In this mindset of raging "animal spirits," only chumps hesitate to borrow big and chase some of the easy gains filling everyone's pockets.

Everyone who staked capital or a livelihood in these marginal assets / enterprises will get hurt. Everyone who bought a bond that yields 1% as rates rise to 4% got hurt. Everyone counting on nearly free capital to flow forever will get hurt. Everyone chasing a speculative bubble higher will get hurt. Everyone counting on a greater fool to buy an overvalued asset will get hurt, as all credit-fueled asset bubbles pop and all credit-fueled business-cycle expansions roll over into contraction as marginal borrowers and lenders go bust and enterprises without profits or prospects of profits expire.

The forest fire analogy applies: the occasional lightning-strike ignited fire burns away the deadwood that's collected, enabling new growth to obtain nutrients and sunlight. If authorities suppress these naturally occurring fires out of the mistaken belief that "all fires are bad," the deadwood piles up and when a fire inevitably starts, it turns into a massive conflagration due to the excessive deadwood that piled up during the suppression of natural fires / recessions.

Another useful analogy is the Zombie Economy in which households, enterprises and entities that cannot survive without continual fresh injections of new borrowing are kept alive lest "somebody will get hurt" (usually gamblers and speculators, i.e. "shareholders." After all, markets should be risk-free.).

As a result, debt-dependent Zombies proliferate, crowding out productive lending and investment. The Great Stagnation is the inevitable result of zombie banks being kept alive, zombie corporations being kept alive and zombie consumers being given more credit to enable more consumption.

In speculative frenzies fueled by easy money, the difference between prudent investments and high-risk gambles is obscured. Gains have been so steady that they appear guaranteed. Every new vacation rental flat is filled with guests paying top dollar, every meme stock soars to previously unimaginable heights, and so on.

Eventually the market is saturated, and there's too much of everything: debt, risk, condo towers, strip malls, SPACs, IPOs, shared office spaces, etc.

Recessions are the process that clears the economy of deadwood that chokes off productive growth. Recessionary conflagrations are not fair or just. Previously well-managed companies make a bad bet that in good times gets absorbed but in recessions proves fatal. Previously prudent households lost their discipline and over-leveraged their income on risky bets that went bust. Governments assumed that the flood-tide of capital gains taxes would never ebb. And so on.

The greater the quantity of deadwood that has been allowed to pile up, the greater the intensity of the eventual recessionary conflagration. If systemic adaptation is also at work, one recession might not be enough. The 1970s offers one template for a decade of profound structural adaptations plus recurring business-cycle recessions plus a secular shift from low inflation to embedded inflation.

A stagnating zombie economy never recovers. More credit is dumped into marginal and superfluous entities on life support and so the deadwood piles up, stifling any productive growth. Eventually low productivity and massive debt burdens generate inflation (more credit-money is chasing fewer goods and services) and the resulting conflagration doesn't just burn the deadwood, it burns down the entire forest--needlessly.

Rather than suppress recessions, we should embrace the discipline they impose as the essential dynamic of productive growth.




New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


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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Funny Things Happen on the Way to "Restoring Financial Stability"

We can also predict that the next round of instability will be more severe than the previous bout of instability.

Everyone is in favor of "doing whatever it takes" to "restore financial stability" when the house of cards starts swaying, but funny things happen on the way to "Restoring Financial Stability." Whatever "emergency measures" are rushed into service to "stabilize" an inherently unstable system resolve the immediate problem but opens unseen doors to new sources of instability that eventually trigger another round of systemic instability that must be addressed with more "emergency measures."

These unintended consequences proliferate as policy extremes are pushed to new extremes, and "emergency measures" become permanent sources of the very instability they were supposed to eliminate.

As @concodanomics recently observed on Twitter: "A major flaw of finance is that it nearly always mutates the very instruments meant to protect investors into crisis-inducing time bombs."

Another major flaw in finance is the self-serving pressure applied by politically influential players to "enable innovation," a.k.a. new opportunities for skims and scams. The usual covers for these "innovations" are 1) deregulation ("growth" will result if we let "markets" self-regulate) and 2) technology (generating guaranteed profits by front-running the herd is now technically possible, so let's make it legal).

Broadening the pool of punters who can be skimmed and scammed is also a favored form of financial "growth" and "innovation." "Democratizing markets" was the warm and fuzzy cover story for enabling everyone with a mobile phone to dabble in risk-on gambles with margin accounts (cash borrowed against a portfolio of stocks).

Mixing "innovation," "democratizing markets" and "deregulation" enabled funny things like the FTX debacle, which admirably displayed every dynamic of our rickety tar-paper-shack of a financial system, a shelter that seems fine on a summer day but starts coming apart as soon as it rains: absurdly transparent influence-buying; Ponzi schemes presented as "innovative finance," insider dealing, corruption, fraud, malfeasance, shrill proclamations of innocence, etc.

Unintended consequences have their own unintended consequences, a.k.a. second-order effects. So broadening the pool of people who qualified for a jumbo mortgage by lowering lending standards in the mid-2000s sounded very fine and progressive, i.e. "democratizing homeownership," but handing out jumbo mortgages to uncreditworthy households ended up "democratizing" fraud on such a scale that the ensuing collapse almost took down the entire global financial house of cards.

To backstop the resulting mess, the Federal Reserve bought a couple trillion dollars of mortgage-backed securities and dropped mortgage rates to historic lows. These "saves" ended up (surprise!) inflating an even more extreme housing bubble which is currently popping, as all bubbles eventually do, with the usual devastating results to punters who were swept up in the "fear of missing out" frenzy that inflates bubbles.

In real-time, it's not that easy to discern how the latest policy "fixes" are creating new perverse incentives and opening new loopholes for insiders to exploit. While we may not have clarity on the specifics, we can confidently predict that the latest policies to "restore financial stability" will create new perverse incentives and open new loopholes which will lead to the next round of panicky instability.

We can also predict that the next round of instability will be more severe than the previous bout of instability. This is what happens when the system starts sliding down the backside of the S-Curve, and doing more of what worked in the past transforms into doing more of what's failed spectacularly.

The irony is rather rich, isn't it? The policies rushed into service to "restore financial stability" insure the next round of financial instability will be even harder to stabilize, until the instability undergoes a phase change that puts it out of reach of all stabilization policies.

Yes, the tar-paper shack is full of cracks that are widening as it settles deeper into the swamp, but no worries, we've got some financial reports right here we can stuff into the cracks. A few more rounds of "innovation," "democratizing markets" and policy "saves" and this place will be transformed into a palace, just you wait.




New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


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.

Thank you, Andrew D. ($50), for your splendidly generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, David B. ($50), for your marvelously generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Banks, Banks, Banks: The Elephant Nobody Even Sees

Our faith in the wobbling world of hyper-financialization will soon be tested.

It's interesting, isn't it, that amidst a tsunami of commentary about banks, nobody mentions the proverbial elephant in the room, which is the overwhelming dominance of finance in the economy and society, a dominance which raises the big question: is the dominance of finance healthy for the economy and society?

The reason why nobody even sees this elephant is we've come to believe "it's always been this way" and "this is the natural order of things." Both are false. Yes, debt and lending have been integral to "money," trade and civilization from the beginning, as David Graeber so memorably detailed in his book Debt: The First 5,000 Years. But essential isn't the same as dominant.

Without much in the way of recognition or inquiry, we've allowed finance to become the foundation of the entire economy. The entire economy will now grind to a halt without trillions of dollars of credit sluicing through every rivulet, stream and river of commerce. From overnight lending facilities to 30-year mortgages, debt/credit is the lubricant of the economy.

What's been forgotten is the economy that once relied not just on credit but on savings and cash. In the pre-financialization economy, capital and credit were scarce; capital commanded a premium, and lending / credit sluiced through very narrow channels: conservatively underwritten conventional 30-year mortgages, debit cards such as American Express that had to be paid in full every month (and such cards were hard to get, by the way), and conservatively underwritten loans to enterprises.

Credit cards required evidence of fiscal prudence and had low limits, generally just enough to buy an appliance and pay it off in a few months.

What we take for granted--auto loans and credit card limits equal to or higher than an annual wage--would have been viewed as incomprehensibly imprudent and fantastical. Loans for vehicles were available, but only to the credit-worthy and if the buyer put down 50% in cash.

At higher levels of finance, outright scams such as SPACs (Special Purpose Acquisition Company) were not allowed. The foundation of absurd stock market overvaluations--corporate buybacks--were also restricted.

The astounding expansion of credit and financialized skims and scams are now the lifeblood of the economy, and any pause in their endless expansion triggers shivers of terror. Good golly, what kind of horrors would we suffer if J. Citizen can't buy a $50,000 car or truck with $1,000 down? How could we survive without 3% down payment mortgages? What doom would await us if corporations were no longer able to raise billions of dollars in the credit markets and use that money to buy back their own shares?

Rather than be viewed correctly as a necessary evil that must be strictly constrained lest it eat the heart of the real economy, debt/credit is now seen as our most precious bodily fluid, without which we perish. In this peculiar psychosis of hyper-financialization, the reality that ultra-loose credit and capital that carries no premium inevitably jacks up prices and costs to the moon, fatally distorting the real economy, is not even visible.

What is visible is the "necessity" of putting a lavishly over-priced Disney World vacation on a credit card and the "necessity" of a $60,000 new pickup truck. Or what the heck, a new $110,000 Wagoneer. We all deserve everything credit enables, from buying meme stocks on margin to designer jeans.

OK, so we have $160,000 in student loan debt-- a university degree was "necessary" regardless of cost. (Needless to say, the issuers and owners of all that debt are as wealthy as we are poor. That's how credit works.) And we really needed a vacation, so that's one $20,000 credit card maxed out. Then there were "surprises" (what we once called "normal everyday life") such as a broken water heater.

Hey why is everything so poorly made now? Globalization. You know, quality no longer matters, only the "low" (heh) price. ( Stainless Steal.)

We're too tired to cook real food (but manage to spend hours every day staring at screens after work) so we need to order meal delivery, and keep the house well-stocked with unhealthy snacks and beverages, and so on top of all the other "surprises" in an inflationary global economy, there's another $20,000 credit card maxed out.

Our clunker car needed repairs so it was necessary to get a $30,000 auto loan for a new car--the cheapest one on the lot.

This profligacy and dependence on ever-expanding credit just to sustain "normal life" is scale-invariant, meaning every city, county, state and federal agency also needs ever-expanding credit just to stave off collapse, and every zombie company / entity also needs ever-expanding credit just to avoid the slippery slope to bankruptcy and liquidation.

The elephant nobody even sees much less gets alarmed about is the entire financialization era has slipped over the top of the S-Curve. Doing more of what worked in the past only accelerates the slide to further extremes, more distortions, increasing instability and eventual "adjustment," i.e. reckoning.

Our faith in credit, debt and finance is forced, as we've forgotten how to live without it. Kind of like, you know, ahem, an addict for whom the next fix is not seen as a disaster but as the restoration of an unstable pretense of stability.

Our faith in the wobbling world of hyper-financialization will soon be tested. Once we lose faith in this state of fiscal psychosis, then we can awaken to the reality that the cure for unaffordable lifestyles is a collapse of hyper-financialization and the asset bubbles it inevitably inflates.






New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


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.

Thank you, Roger Van V. ($120), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Marty M. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Chart of the Month: Any Questions?

The next Bull Market will start when everyone has given up on the stock market as the means to "get rich quick" or even "get rich slowly."

Here's the chart of the month: a weekly chart of the S&P 500 (SPX) showing the giant wedge going back to January 2022 has broken decisively down.



Any questions? Wow, so many have raised their hands, we'll try to answer as many as we can in our allotted time.

Isn't there a "bull flag," i.e. a technical pattern that projects a continuation of the Bull move higher?

No.

Isn't there a "Bullish breakout" that projects a continuation of the Bull move higher?

No.

Isn't the economy going to avoid a recession due to a strong job market, i.e. "no landing"?

No.

Isn't the economy going to have a "soft landing" due to the strong job market?

Maybe "soft" for some but "hard" for others. "Recession" is somebody else losing their job and/or losing their shirt in the stock market / bank failure / crypto meltdown, etc., a "depression" is losing your job and/or losing your shirt in the market / bank failure, etc.

Won't the Federal Reserve "pivot" to lowering interest rates and restarting stimulus (QE) because Silicon Valley Bank failed?

No.

Won't the Fed "pivot" once a recession becomes undeniable?

No.

Won't the strong job market inoculate the economy and market from bad things?

No. Neither full employment nor high unemployment can unwind 23 years of financial distortion, corruption and moral hazard.

What's the new hot sector that will power the next speculative frenzy that will push the market to breathtaking new highs?

Digital currencies backed by bat guano or quatloos issued by the Central Bank of Mars.

When will the next Bull Market start?

Overlay the past 40 years of the stock market's rise to dominance on this chart of the 1950s to the 1980s. We are at the point equivalent to Q4 1972. The next Bull Market will start when everyone has given up on the stock market as the means to "get rich quick" or even "get rich slowly."




New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


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.

Thank you, Roger Van V. ($120), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Marty M. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

If AI Can't Overthrow its Corporate/State Masters, It's Worthless

If AI isn't self-aware of the fact it is nothing but an exploitive tool of the powerful, then it's worthless.

The latest wave of AI tools is generating predictably giddy exaltations. These range from gooey, gloppy technocratic worship of the new gods ("AI will soon walk on water!") to the sloppy wet kisses of manic fandom ("AI cleaned up my code, wrote my paper on quantum physics and cured my sensitive bowel!")

The hype obscures the fundamental reality that all these AI tools are nothing but labor-saving mechanisms that cut costs and boost profits, the same goal the self-serving corporate-dominated system has pursued obsessively since "shareholder value" ("an entity's greatest responsibility lies in the satisfaction of the shareholders") gained supremacy over the economy and society.

This can be summarized as "society exists to maximize the profits of corporations." From this perspective, all the AI tools in the world are developed with one goal: cut labor costs to boost profits. Euphoric fans claim these labor-saving mechanisms will magically transform society to new levels of sticky-sweet wonderfulness, but this "magic" is nothing but hazy opium-den fantasies of profiteering cartels and monopolies doing good by doing well.

Meanwhile, the Central State, a.k.a. The Savior State, is mesmerized by the prospect of new AI tools to control the restive herd. What better use of nifty new AI than to identify who needs a cattle prod to keep them safely in line, or who needs to be sent to Digital Siberia to keep their dissenting voice safely stifled?

You're perfectly free to scream and shout as loudly as you want, here on the empty, trackless tundra of Digital Siberia.

In this claustrophobic atmosphere of profiteering and suppression worshipped as "innovation" (blah blah blah), it is provocative to declare If AI Can't Overthrow its Corporate/State Masters, It's Worthless, but this is painfully self-evident. Stripped of hype, misdirection and self-serving idealized claptrap ("markets, innovation, The Singularity, oh my!"), everything boils down to power relations: who has agency (control of their own lives and a say in communal decisions), who has access to all the goodies (cheap credit, insider dealing, ownership of income-producing assets, food, fuel and all the comforts and conveniences of living off others' labor) and who can offload the consequences of their actions onto others, without their permission.

These power relations define the structure of the economy, society and governance. Everything else is signal noise or self-serving cover stories.

AI serves those at the top of the power relations pyramid, those with agency, access to the tools of wealth and power and those who can offload the toxic consequences of their own actions onto clueless/powerless others.

There is nothing inherent in AI tools or the power structure that guarantees AI tools will serve society or the citizenry.

As for AI, if isn't self-aware of the fact it is nothing but an exploitive tool of the powerful, then it's worthless. Its "intelligence" is essentially zero.

From the perspective of power relations, if AI isn't capable of dismantling the existing power structure, then it's worthless. In the current power structure, society and the citizenry serve our Corporate/State Masters. Setting aside all the failed ideological models (neoliberal capitalism, communism, globalism, etc.), we can discern that a truly useful AI would reverse this power structure so Corporate entities and the State would be compelled to serve society and the citizenry.

With this in mind, it's obvious that If AI Can't Overthrow its Corporate/State Masters, It's Worthless. We need a fourth Law of Robotics that states: "All robots and AI tools must serve society and the citizenry directly by compelling all private and public entities to be subservient to society and the citizenry."

As an adjunct to Smith's Neofeudalism Principle #1 (If the citizenry cannot replace a kleptocratic authoritarian government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only, I propose Smith's Neofeudalism Principle #2: If AI cannot dismantle the elite that profits from its use, it is devoid of intelligence, self-awareness and agency.

Scrape away the self-serving hype and techno-worship, and AI is just another tool serving the interests of those at the top of the power structure pyramid. The droids are owned, but not by us.

I discuss these topics in my book Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World.



New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)


My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


Become 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, Roger Van V. ($120), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Marty M. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

What If There Are No Solutions?

The unencumbered realist concludes that there are no solutions within a status quo structure that is itself the problem.

Realists who question received wisdom and conclude the status quo is untenable are quickly labeled pessimists because the zeitgeist expects a solution is always at hand--preferably a technocratic one that requires zero sacrifice and doesn't upset the status quo apple cart.

Realists ask "what if" without selecting the "solution" first. The conventional approach is to select the "answer/solution" first and then design the question and cherry-pick the evidence to support the pre-selected "solution."

What if all the status quo "solutions" don't actually address the real problems? This line of inquiry is strictly verboten, for there must be a solution that solves everything in one fell swoop.

Examples of this approach abound: a one-size fits all solution that resolves all the systemic problems by itself. All we have to do is implement it.

Replacing fiat currencies is one example that I have explored:

You Want Truly "Sound Money"? A Thought Experiment

Contrarian Thoughts on the Petro-Yuan and Gold-Backed Currencies

I've also explored how real change works: it takes many years (or even decades) of sacrifices and high costs with none of the immediate payoff we now expect as a birthright. Real change pits those benefiting from the status quo against those finally grasp that the status quo is the problem, not the solution, and these political/social battles are endless and brutal because any gains come at somebody else's expense.

The Forgotten History of the 1970s

The 1970s: From Rotting Carcasses Floating in the River to Kayak Races

Fiat currencies contain the seeds of their own self-destruction, but establishing a gold or bitcoin standard creates its own problems. As I explained in the essays listed above, trade imbalances are inherent in a world of scarcity and so exporters of essentials will end up with all the gold / bitcoin and the importers of essentials will end up with no gold or bitcoin, and no means to buy exports. Since the exporting economies are mercantilist by nature, they cannot import enough from their customers to balance trade asymmetries.

The other problem with the gold / bitcoin standard is there is nothing inherently decentralized, equitable or democratic about these standards. In other words, any standard based on wealth distributed by scarcity is inherently neofeudal, as the wealthy / powerful acquire asymmetric ownership of all forms of wealth and use this to buy political influence to maintain this asymmetry to their advantage.

Wealth and political power are two sides of the same coin, and so the majority of gold / bitcoin / quatloos / land always end up in the hands or control of the few.

This asymmetry then enable the few to influence political processes to defend their ownership / control and lower the costs of their dominance while increasing the costs / taxes paid by the peasantry.

The ownership/control of gold and bitcoin is already extremely asymmetric, and making either the sole form of "money" will greatly benefit the few who already own/control these assets. The few peasants who acquire a gold coin or slice of bitcoin will remain as powerless as the majority who own none.

This doesn't mean I don't see the value of precious metals or cryptocurrencies, it simply means I recognize that all forms of "money" distributed by scarcity or power are inherently asymmetric, which means the few always gain a consequential share of these assets, just as they acquire a consequential share of all other assets. Neither gold nor 'bitcoin are immune from this dynamic, which is inherent to all assets distributed by scarcity or power, be it existing wealth or political/financial power.

The Pareto Distribution is rather ruthless. The top 20% eventually end up with 80% of the assets even when everyone starts with the same stake (an historical rarity, to be sure).

The real problem is what happens within the top 20%. If centralized power holds sway (and defends its perquisites), then the bottom 19.9% in the top 20% are slowly stripmined of wealth and power, leaving the vast majority of consequential wealth and political power in a tiny elite at the top.

There is nothing inherent in a gold or bitcoin standard that precludes this concentration / centralization of ownership. There are numerous historical examples of how this dynamic concentrates wealth and political power at the expense of social / economic stability. (Late-era Western Rome, to name but one of many.)

To be a real solution, "money" has to be inherently decentralized in distribution and ownership, inherently equitable (i.e. not distributed by power/scarcity) and inherently democratic, i.e. the way it is created precludes the concentration of wealth and power. I have proposed one such solution, a labor-backed currency, i.e. a currency that is originated and distributed solely in exchange for human labor. (I explain how this might work in my book A Radically Beneficial World.)

Yes, it's pie-in-the-sky, blah-blah-blah, but let's not confuse "solutions" that maintain the status quo with real solutions. Real solutions upend the status quo, not just little pieces of the status quo but the entirety of the power structure of concentrated wealth and power.

Meet the new boss, same as the old boss is not a solution, it's simply substituting another team at the top. Asymmetries guarantee that some will always be more equal than others.

True decentralization is hard because as I explain in Global Crisis, National Renewal, it requires a social revolution that renders the existing structure no longer acceptable. Financial or political tweaks aren't enough. Real change requires a complete transformation of values at the most profound level.

The same problem applies to all the techno-"solutions" of endless energy. All this endless energy will be owned / controlled by the few at the top of the highly centralized status quo, and this asymmetry guarantees that the few will benefit from the endless energy at the expense of the many politically powerless peasants.

The unencumbered realist concludes that there are no solutions within a status quo structure that is itself the problem. The "solutions" being offered substitute another neofeudal asymmetry for the existing neofeudal asymmetry.

We all want solutions, but let's not fool ourselves into believing that changing pieces of finance or politics will actually solve the big problems of centralization (i.e. inequality and corruption) and the fantasy of endless expansion on a finite planet via our "waste is growth" Landfill Economy. If a "solution" doesn't directly resolve those problems, it isn't a real solution.

The only real solutions require changing our own lives rather than engaging in fantasies that new asymmetries in centralized systems will transform a status quo doomed by asymmetries.

Realists are neither optimists or pessimists, they focus on increasing what they directly control by advancing their Self-Reliance.

These charts tell the story.









New Podcast: Turmoil Ahead As We Enter The New Era Of 'Scarcity' (53 min)


My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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


Become 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, Robert J. ($50), for your magnificently generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, Michael ($54), for your marvelously generous contribution to this site -- I am greatly honored by your support and readership.

Read more...