Tuesday, February 19, 2019

Let's Face It: The U.S. Constitution Has Failed

Elections provide the bread-and-circuses staged drama that is passed off as democracy.
Despite the anything-goes quality of American culture, one thing remains verboten to say publicly: the U.S. Constitution has failed. The reason why this painfully obvious fact cannot be discussed publicly is that it gives the lie to the legitimacy of the entire status quo.
The Constitution was intended to limit 1) the power of government over the citizenry 2) the power of each branch of government and 3) the power of political/financial elites over the government and the citizenry, as the Founders recognized the intrinsic risks of an all-powerful state, an all-powerful state dominated by one branch of government and the risks of a financial elite corrupting the state to serve their interests above those of the citizenry.
The Constitution has failed to place limits on the power of government, on the emergence of unaccountable states-within-a-state agencies and on the political power of financial elites.
How has the Constitution failed? It has failed in three ways:
1. Corporations and the super-wealthy elite control the machinery of governance. The public interest is not represented except as interpreted / filtered through corporate/elite interests.
2. The nation's central bank, the Federal Reserve, has the power to debauch the nation's currency and reward the wealthy via issuing new currency and buying Treasury bonds in whatever sums it deems necessary at the moment. The Fed is only nominally under the control of the elected government. It is in effect an independent state-within-a-state that dominates the financial well-being of the entire nation.
3. The National Security State--the alphabet agencies of the FBI, CIA, NSA et al.--are an independent state-within-a-state, answerable only to themselves, not to the public or their representatives. Congressional oversight is little more than feeble rubber-stamping of the Imperial Project and whatever the unelected National Security leadership deems worthy of pursuit.
The Constitution's core regulatory element--the balancing of executive, legislative and judicial power--has broken down. The judiciary's independence is as nominal as the legislative branch's control of the central bank and National Security state: the gradual encroachment of corporate and state power is rubber-stamped and declared constitutional.
The secret power of the National Security agencies was declared constitutional early in the Cold war, when unleashing unaccountable and secret agencies was deemed necessary.
The bizarre public-private Federal Reserve was deemed constitutional at its founding in 1913, and the Supreme Court famously declared that corporations have the same rights to free speech (including loudspeakers that cost millions of dollars) as living citizens.
The powers of the Imperial Presidency also continue expanding, regardless of which party is in office or the supposed ideological tropisms of Supreme Court justices.
Every step of this erosion of public representation and the elected government's power is declared fully constitutional, in classic boiled-frog fashion. The frog detects the rising temperature of the water but isn't alarmed as the heat is increased so gradually.
Since the rise of unaccountable states-within-a-state are constitutional, as is the dominance of corporate / private-wealth elites, on what grounds can citizens protest their loss of representation?
Elections provide the bread-and-circuses staged drama that is passed off as democracy. The key goal of the corporate/state media coverage, of course, is to foster the illusion that elections really, really, really matter, when the reality is they don't. The National Security State grinds on, the Federal Reserve grinds on and the dominance of corporate-wealth elites grinds on regardless of who's in office.
Every emergency is met by the ceding of more power to unelected elites in positions to serve their own interests. The Cold War, financial panics, Cold War Redux--every crisis is an excuse to expand the powers of the unaccountable, opaque states-within-a-state.
The media is already gearing up with 24/7 coverage of the 2020 elections. The constant churn of drama-trauma serves to mask the impotence and powerlessness of the citizenry and the unaccountability of the states-within-a-state that rule the nation.
My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.


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Monday, February 18, 2019

Which One Wins: Central Planning or Adaptive Networks?

Those who are betting on Central Planning do not understand the essential role of adaptation.
The global economy is in the midst of a grand experiment pitting centralization (Central Planning) against the evolutionary model of adaptive, self-organizing networks. Centralization is the dominant dynamic of the Status Quo everywhere: the economies of China, Japan, Europe and the U.S. are all dominated by Central Planning: central banks, central state agencies, and Deep State / private sector nodes of wealth and power that pull the systemic strings.
Central Planning--the concentration of power and wealth in the hands of the few--is presented as the "solution": in China, the "solution" is a Total Information Awareness Social Credit Score system of centralized control of the populace. In the U.S., Medicare for all-- the PR term for centralized cartel-state profiteering on a vast scale--is just one of many Central Planning "solutions" being touted by the "Progressives."
Geopolitically, American "Progressives" and neoconservatives alike are enamored of the centralized Imperial Project as the go-to "solution" to any and every challenge.
As I explain in my latest book (now out as an audiobook), Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic, there's one fatal flaw in Central Planning "solutions": they run completely counter to the principles of evolution which guide all systems, natural and human.
That which is rigid and inflexible cannot adapt to rapid change, and thus it fails to adapt and vanishes from the Earth. That is the essence of evolutionary dynamics.
Central Planning is a monoculture that incentivizes self-serving corruption and propaganda. Central Planning is by its very nature opaque, as transparency is its mortal enemy. Propaganda is necessary to mask the true nature of the self-serving elites who benefit from central Planning, as their primary task is to convince the commoner sheep being sheared that being sheared is the best of all possible worlds--and that dissenting sheep will be led off to slaughter.
The essence of Central Planning is coercion: skepticism and dissent are dangerous and thus must be suppressed; everyone must consent to the control of elites and agree with the rigid ideology that provides cover for Central Planning's blatant inequality, as the few insiders reap the benefits at the expense of the many--the classic definition of systemic corruption.
Central Planning works until it doesn't, and that moment of failure is at hand.Central Planning is in essence a vast machine of mal-investment of irreplaceable capital. Capital--financial, human and social--that's squandered on unproductive graft, embezzlement, bridges to nowhere, Imperial misadventures, ghost cities, student loans, grossly overpriced, ineffective medications, monuments to Central Planning, etc. cannot be replaced by creating currency out of thin air, or borrowing it into existence.
Eventually, the fantasy that we can replace capital that has been lost to mal-investment with freshly printed/borrowed capital dies: borrowing from our future eventually runs out of rope when the future arrives and can no longer sustain the fast-accumulating mountain of debt.
Central Planning strips out the all the core dynamics of adaptation as dangers:dissent, experimentation, decentralization of power and capital, and a diversity of competing narratives. These are all mortal threats to Central Planning, which is by its nature rigidly hierarchical.
Whether we acknowledge it or not, the world is placing its bets on which system will survive the coming era of destabilizing non-linear change:inflexible, opaque Central Planning or flexible, self-organizing networks of decentralized autonomy and capital.
Those who are betting on Central Planning do not understand the essential role of adaptation: what cannot adapt will die, and Central Planning is by its very nature incapable of true adaptation. Central Planning exists in a self-defining world in which shuffling the facades of PR passes for adaptation: nothing actually changes structurally, the rigid power hierarchy remains untouched.
Adaptation can't be faked. Organizations that cannot adapt quickly and efficiently implode. This is a scale-invariant dynamic: the organizational size doesn't matter. Size and scale do not provide magical protection. Households, corporations, governments and empires that fail to adapt will collapse.
There is a real solution: decentralize, diversify, open the economy and society to dissent, experimentation and self-organizing networks of peers. Rapid adaptation requires radical decentralization, autonomy, transparency, flexibility and experimentation.
Mark Jeftovic and I discuss these topics and more in our new podcast (YouTube, 43:27).
I address these topics in greater depth in my book Pathfinding our Destiny: Preventing the Final Fall of Our Democratic RepublicNow available as an audiobook. You can read the first section for free in PDF format..
My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.


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Sunday, February 17, 2019

Credit Exhaustion Is Global

Europe is awash in credit exhaustion, and so is China.
The signs are everywhere: credit exhaustion is global, and that means the global growth story is over: revenues and profits are all sliding as lending dries up and defaults pile up.
What is credit exhaustion? Qualified buyers don't want to borrow more, leaving only the unqualified or speculators seeking to save a marginal bet gone bad with one more loan (which will soon be in default).
Lenders are faced with a lose-lose choice: either stop lending to unqualified borrowers and speculators, and lose the loan-origination fees, or issue the loans and take the immense losses when the punters and gamblers default.
Europe is awash in credit exhaustion, and so is China. China's situation is unique, as credit expansion has been propping up the entire economy, from household wealth to corporate speculation to the export sector.
As this article explains, The China Story That Is Far Bigger Than Apple, China's trade balance--trade surpluses for decades--is close to slipping into trade deficits.
At the same time, China's once-mighty pool of savings has diminished as consumption has risen. As a result, China now needs foreign investment more than it did in the previous era.
Chinese businesses have borrowed around $2 trillion in US dollar-denominated debt, requiring the acquisition of dollars to service the debt.
So far this sounds like a typical case of a fast-growth economy maturing into a trade-deficit, debt-dependent consumption economy.
What the article misses is the staggering rise in the cost of living in China over the past two decades. Some services are still affordable to the masses--subway fares are extremely cheap--and private healthcare is a mere fraction of healthcare costs in the U.S.
But other costs--housing, food, clothing, etc.--have shot up to the point that our on-the-ground correspondents report that many living expenses aren't much different than in the U.S.
Officially, inflation is low in China, but the reality is not so cheery. "Domestic sentiment is definitely very bad, perhaps even worse than during the 2008 global financial crisis," said Fred Hu. Chinese Professor Censored After Admitting Real GDP Growth Is Below 2%
Recall that wages for college graduates are around $1,100 per month (7600 RMB), with $1,500 per month (10,000 RMB) being an above-average salary.
While white-collar wages are $13,000 annually, apartments in first and even second tier cities are similar in cost to desirable U.S. cities. Rent for a small flat is $800 USD in Shanghai, more than half the average salary, and typically cost hundreds of thousands of dollars to buy.
As I've noted before, roughly 3/4 of all household wealth in China is tied up in real estate, where it is effectively dead-money, earning no yield and completely illiquid.
Reflecting a broad malaise, China's stock market has dropped by 25% in 2018 while its currency weakened against the USD (by official design, of course).
Echoing Tolstoy, every economy in a credit-fueled boom is happy in a similar way, but every economy in a credit-exhaustion decline is unhappy in its own way. The euro's internal contradictions and the EU's political "irreconcilable differences" are about to manifest in a unique way, and China's credit bubble bursting is about to deflate bubbles in shadow banking, housing, speculation and confidence in China's central planning model.
My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.


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Saturday, February 16, 2019

Sometimes the Best Solution Is To Leave Things As They Are

We must distinguish between the oft-lauded creative destruction of what is obsolete and destruction in pursuit of fleeting fashion.
I recently received an insightful email from a reader who had come across my archives of free-lance articles and essays on home and urban design. I wrote dozens of articles for S.F. Bay Area newspapers from 1988 to 2006, and a handful are listed here.
The one the reader is responding to is Best Remodel Might Be None At All (2006). Here are the reader's comments:
"I thoroughly enjoyed the articles you penned for the SF Examiner that you've linked to on your website, these being written close to two decades ago.
Especially noteworthy was your response to the homeowner inquiring about a kitchen remodel where you recommended that the best course of action might be no course of action. This was an wonderful response and it caught my attention because it belies the common sales oriented suggestions generally offered by those writing about remodeling, and especially about kitchens. Usually you see writers busy extolling the gutting and replacement of a kitchen with wild zeal talking about how wonderful it will be to pour coffee or to butter toast once the kitchen area has been refurbished... and how in the sheer pleasure of a new kitchen you might even choose to drink two cups of coffee just for the fun of it!
In the old craftsman style house or bungalow it would mean new plumbing and upgrading the electrical wiring to go with new appliances and new cabinetry. In the era when that house was constructed the cabinets were typically built on site, matching the cabinetry to the design and work flow of the kitchen.
Kitchen cabinetry today is highly decorative with expensive hardware and finishes, but hardly as suitable as kitchen cabinets were once intended; that being to provide an unobtrusive and utilitarian storage and work area for the laborious processes involved in the preparation of food. Areas for preparing food were never intended to be decorative with expensive countertops and as a show-off space for the espresso machine, it was rather the equivalent of a laundry room or a home workshop, a place to do work on surfaces that were large and solid enough to take some abuse and that could be easily cleaned.
Instead of suggesting a complete remodel you appealed to the homeowners aesthetic appreciation for the unique design elements in maintaining the symmetry of the older house that would be destroyed with a new fashioned kitchen. That is the best advice I have ever read offered to someone that was apparently under the thralls of the renderings of the soulless antiseptic modern kitchen most of which are only suitable for microwave cookery or a place to unpack the delivery of fast food. Hopefully this individual took your advice to heart."
Thank you, Dear Reader, for the high compliment. It seems to me that this advice--appreciate what is, and leave it as it is rather than seek a frenzied make-over as a "solution"--can be applied to far more of life than remodeling.
As the reader so eloquently observes, mindless herd-like pursuit of the fashion of the day drives out practicality as well as destroying the integrity and aesthetics of the structure.
Ours is a commerce-and-credit society and economy. In an economy whose lifeblood is borrowing money to squander on consumerist pursuits of status, the tropism is always to rip out and demolish the old in favor of a faddish make-over.
We must distinguish between the oft-lauded creative destruction of what is obsolete and destruction in pursuit of fleeting fashion: how much of irreplaceable value has been demolished in favor of low-quality, brazenly superficial and instantly dated "new designs"?
The default "solution" in America now is to 1) borrow immense sums of money and 2) squander it heedlessly on self-serving cliches and false assumptions.Corporations, governments and entire populaces hurry after a chimera of "transformation" that transforms nothing of importance or value, but that generates vast revenues for lenders, profiteering shucksters and the government that depends on a frenzied pursuit of commerce-based status for its revenues and power.
My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.


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Thursday, February 14, 2019

What Happens When More QE Fails to Reverse the Recession?

The smart money is liquidating assets, paying off debt and moving capital into collateral that isn't impaired by debt or speculative valuations.
The Federal Reserve's sudden return to "accommodative" dovishness in response to the stock market's swoon telegraphs its intent to fire up QE once the recession kicks into gear. QE (quantitative easing) are monetary policies designed to ease borrowing and the issuance of credit, and to prop up assets such as stocks and real estate.
The basic idea is that the Fed creates currency out of thin air and uses the new money to buy Treasury bonds and other assets. This injects fresh money into the financial system and lowers the yield on Treasury bonds, as the Fed will buy bonds at near-zero yield or even less than zero in pursuit of its policy goals of goosing assets higher and increasing borrowing/spending.
This is pretty much the Fed's only lever, and it pulls this lever at any sign of weakness in stocks or the economy. That sets up an obvious question that few seem to ask: what happens when QE fails? What happens when the Fed launches QE and stocks fall as punters realize the rally is over? What happens when lowering interest rates doesn't spark more borrowing?
What happens is the smart money sells everything that isn't nailed down, a process that is arguably already well underway.
Why sell assets when QE has guaranteed gains in the past? Answer: exhaustion. There are limits to everything financial, and once those limits are reached, no amount of goosing will push the limits higher. Rather, further goosing only increases the fragility and vulnerability of the system.
Price-earnings ratios only go so high before reversing, rents only go so high before reversing, and so on. Once the trend has visibly stagnated, smart money sells out because the gains are minimal while the risk of reversal is rising by the day. Why wait for losses to pile up? Sell now and avoid the self-reinforcing decline as everyone starts selling.
The smart money is careful to mask the selling so as to avoid panicking the market. Smart money sells out slowly, in pieces small enough to avoid banging the bid lower. Alas, the Smart Money strategy is to count on greater fools to believe the shuck and jive of QE and the rest of the flim-flam: real estate never goes down, the economy will grow strongly through 2040, the next target for the S&P 500 is much higher, and so on.
Take a look at these charts of total liabilities/debt and federal income tax collected and ask yourself: are these trends sustainable in an economy growing by a few percent a year?
Federal income taxes collected have practically doubled from the recessionary nadir of 2009: does anyone really think they can double again in the next 9 years?
These geometrically rising trendlines are the acme of unsustainability. The limits have been reached and reversal looms. Ask yourself why multiple bids for real estate have vanished and why the Fed is so anxious to publicly trumpet its dovishness. If the limits were far from being reached, why the tone of desperation?
As I noted yesterday, every injection of stimulus weakens the response of the following dose. After a decade of never-ending stimulus, the positive effects of stimulus have been exhausted. Increasing the stimulus is toxic to an exhausted system pushing its intrinsic limits.
As I observed yesterday, the smart money is liquidating assets, paying off debt and moving capital into collateral that isn't impaired by debt or speculative valuations. The Smart Money has secured the good seats at the banquet of consequences, the seats reserved for those with no debt, unimpaired collateral and little dependence on central bank stimulus or central state statistical legerdemain.


Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print): Read the first section for free in PDF format.


My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)
My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.

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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