Friday, November 22, 2019

The Hollowing Out of America

Here is hollowed-out America, an economy of ever-greater financial wealth piling up in the hands of the few while tens of millions of wage-earners can't afford what was available to everyone, even the working class, in previous eras.
America is being hollowed out, but since we don't measure what actually matters, the decline has been deep-sixed by the government and media. As I explain in my new book Will You Be Richer or Poorer?, there are a number of reasons why what's important --social capital, for example--doesn't get measured.
The most obvious reason is that it's politically inconvenient for those in power for the hollowing out of America to be quantified. To conceal the decline, institutions only measure what can be massaged to appear positive. These statistics include inflation (Consumer Price Index, CPI),the unemployment rate, Gross Domestic Product (GDP), and hundreds of financial numbers: net wealth, bank loans and so on.
Everyone knows from experience that big-ticket expenses such as healthcare (see chart below), childcare, rent, college tuition, etc. have been rising at double-digit rates, while shrinkflation has reduced the quantity and quality of goods even as price has remained unchanged.
In other words, the official statistics are gamed to appear positive even as the nation is being hollowed out. People sense the disconnect but since what actually matters isn't measured, there are few objective indicators of the decline we all experience in everyday life.
The second reason is that it's difficult to measure intangible forms of capital such as social mobility and shared purpose. People are feeling increasingly insecure financially, but how do we measure this with any accuracy? We can track the number of people working second jobs in the gig economy, those with uncertain work schedules, etc., but even households with above-average incomes and conventional white-collar jobs are financially precarious in ways that don't lend themselves to easy quantification.
And so while we're constantly told the American consumer is in good shape, with manageable debt and rising incomes, in the real world auto loan defaults are soaring, 40% of those suffering from cancer are wiped out by the co-pays, and superficially middle-class households are one layoff away from default and insolvency.
As a result, we're like the blind men touching different parts of the elephant and drawing completely erroneous conclusions about the size and nature of the animal. Much of what we measure is misleading (i.e. cheerleading), and what can't be easily measured is dismissed as unimportant. Even worse, we conclude that since we can't measure it easily, it doesn't exist.
America is being hollowed out even as we're constantly hectored that all is well. We're told saving $10 on a pair of poorly made shoes is a tremendous benefit of globalization and neoliberal policies, but does a couple hundred dollars in savings on poorly made stuff (which is itself offset by an unmeasured decline in quality and durability) offset the fact that a huge swath of American households can no longer afford to rent their own apartment or house, much less buy a house?
Does this modest reduction in the cost of consumer goods offset the upward-spiraling cost of healthcare that is bankrupting small business and households? Does it offset the stagnation of wages for the majority of wage-earners? Does it offset the insecurity of work and benefits? Does it offset the decline of competition and the subsequent domination of profiteering monopolies and cartels in the American economy?
The U.S. Only Pretends to Have Free Markets From plane tickets to cellphone bills, monopoly power costs American consumers billions of dollars a year.
These are the forces hollowing out America: the relentless rise of the cost of big-ticket essentials while wages stagnate for the bottom 80%; the normalization of profiteering monopolies and cartels who buy tax breaks and regulatory capture in our pay-to-play political system; the decline of social mobility; the erosion of shared purpose and social capital; the silencing of dissent and independent thought; the erosion of financial security as everyone is forced into risky casinos of speculative financialization; the erosion of the rule of law as the super-wealthy are more equal than everyone else; the criminalization of poverty; the decline of small business formation; the erosion of well-being and health; and so on in a long list of landslides in everything that matters that we don't dare measure.
Most perniciously, America is being hollowed out as local enterprises that reinvested profits back into their own communities have been wiped out by monopolies and cartels drawing upon unlimited credit lines of cheap money supplied by the Federal Reserve and other central banks, a system that guarantees the top few will collect whatever "wealth" is being generated by globalization and financialization: The 1% grabbed 82% of all wealth created in 2017 (and 2018 and 2019...).
Here is hollowed-out America, an economy of ever-greater financial wealth piling up in the hands of the few while tens of millions of wage-earners can't afford what was available to everyone, even the working class, in previous eras: to buy a family home, however modest; to be able to afford to have children; to build meaningful capital; to have a positive social role in the community; to have a say in the political system; to have the opportunity to become self-employed without gambling the entire family's capital on the venture; access to the ladder of social mobility and access to the shared capital of a functional government and infrastructure.
The whole point my book Will You Be Richer or Poorer? is to contrast the happy story reflected by what we do measure-- an endless increase in financial wealth--with the disturbing account of what we're losing or have already lost that we don't dare measure lest it reveal how little is left of America's non-financial wealth.
Here's your 2% annual inflation:



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


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Wednesday, November 20, 2019

What's Been Normalized? Nothing Good or Positive

What's been normalized are policies and cultural norms that seek to enrich and protect the few at the expense of the many.
When the initially extraordinary fades into the unremarkable background of everyday life, we say it's been normalized. Put another way, we quickly habituate to new conditions, and rationalize our ready acceptance of what was previously unacceptable.
Technology offers many examples of extraordinary advances quickly becoming normalized as we habituate to new devices and behaviors, but my focus today is on policies and cultural norms that were radical departures from accepted norms at their introduction but which are now accepted as "normal."
This normalization of extreme policies conceals the often equally extreme unintended consequences of the new policies and norms.
Let's start with two examples which have unleashed unintended consequences that have completely distorted markets: allowing pharmaceutical companies to advertise directly to "consumers" and allowing corporations to buy back their own shares. Each of these activities had been banned for self-evident reasons, yet were allowed in the neoliberal rush to deregulate industries without regard for the long-term consequences.
Now Big Pharma dominates advertising in late-night TV and various print publications, directing "consumers" to "ask their doctor about".... The ads all feature a comical parody of disclosure, with a fast-talking voice talent listing all the horrific side-effects as quickly as possible in the hopes "consumers" won't hear the real-world consequences of the oh-so-pricey med being promoted.
I've long mocked this Big Pharma profiteering via my parody ads for imaginary meds such as Delusionol:
Meanwhile, enabling corporations to buy their own stocks has incentivized borrowing billions to buy back shares, boosting the earnings per share even as sales and profits stagnated. This trick pushed shares prices higher, enriching managers and major owners.
Rather than invest in risky new products, corporate managers have enriched themselves by blowing billions on stock buybacks, distorting valuations while creating fabulous wealth for themselves and major shareholders while crippling the company with debt. (For an example, consider GE.)
More recently, central banks' ceaseless interventions to prop up market valuations have been normalized to the degree that what was once unimaginable-- central bank balance sheets in the trillions of dollars and outright purchases of trillions of dollars in mortgages, bonds and stocks--is now accepted as "normal."
This flood of currency and credit has enriched private banks, financiers, super-wealthy families and corporations, vastly widening the wealth-income gap between the top 0.1% and the bottom 99.9% (see chart below).
The Federal Reserve's policy of giving trillions in low-cost credit to the super-wealthy in the absurd hope some tiny rivulets would trickle down to the bottom 99% has been revealed as the greatest engine of wealth-income inequality in modern history.
Unintended or not, this consequence cannot be "fixed" by issuing even more trillions to the financial Oligarchy. Rather, the Fed's favorite "fix" only makes the inequality more politically explosive.
Then there's the normalization of government-issued statistics that purposefully misrepresent reality for political purposes, with Exhibit #1 being the completely fabricated Consumer Price Index (CPI) inflation rate, which has been a laughable 2% or less for a decade while big-ticket expenses such as rent, healthcare, childcare and college tuition have registered in double-digit increases year after year.
An accurate admission of real-world inflation for the unprotected class would be political dynamite, so the corporate media plays along, announcing the Soviet-Propaganda like phony inflation numbers with a straight face.
The resulting loss of trust in government and institutions is eating away at the social contract and social order, with potentially disastrous consequences. There is no alternative (TINA) until the entire flim-flam collapses and takes the social order with it.
Guilty until proven innocent is another recent development. Completely fabricated charges are heavily promoted in the corporate media, based on outright lies, second-hand innuendo, unsubstantiated claims and carefully constructed narratives supported by thin tissues of cherry-picked tidbits.
A wide spectrum of alternative-media sites, progressive and conservative, have been gutted by just such guilty until proven innocent charges which are then instantiated in the platform monopolies of Twitter, Facebook and Google without any evidence or any avenue of redress / recourse.
That this is extra-legal suppression of free speech--who cares? The suppression of free speech that is politically inconvenient has now been normalized, hidden behind the faceless corporate monopolies of Twitter, Facebook and Google and the corporate media that insists non-approved websites are by definition fake news, an Orwellian reversal of their own role as Elitist purveyors of officially sanctioned fake news such as the bogus inflation rate, the bogus employment rate, and so on.
Put this in your pipe and smoke it: wealth and income inequality is driving social and political disorder on a global scale as the politically and socially disenfranchised are driven to extremes by extremely repressive policies that have been normalized, even as their unintended consequences stripmine the bottom 90% and fracture the social order.
What's been normalized are policies and cultural norms that seek to enrich and protect the few at the expense of the many. Unfortunately for the few, the unintended consequences are bringing down the entire status quo they depend on for their wealth and power.


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


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
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Monday, November 18, 2019

Political and Social Conflict Is Accelerating: Here's Why

All the status quo "fixes" only hasten the collapse of the status quo.
That economic, social and political conflict is accelerating is self-evident. What's open to debate are the core drivers of conflict / disorder /unraveling.
Here's the core self-reinforcing dynamic in my view:
1. The status quo elites can no longer mask soaring costs of essentials nor soaring wealth / income inequality between the top .01% (Oligarchs), the top 9.99% who enrich the Oligarchs with their discretionary spending and technocratic/managerial labor, and the bottom 90% who are rapidly losing ground on all fronts: economic, social and political.
2. The elites' "fixes" to the social / political conflicts unleashed by the rigged financial system and winner take most economic order are politically expedient, meaning they don't actually address the sources of conflict, they merely paper them over with PR as a means of preserving the elites' wealth and power.
3. The elites' fundamental financial "fix" is to create trillions in newly issued currency and distribute it to the banks, financiers, super-wealthy families and global corporations-- the top .01% Oligarchs.
4. This "fix" accelerates the asymmetric distribution of wealth by enabling the already-wealthy to buy more productive assets, fund stock buybacks, etc., while forcing the bottom 90% to borrow money from the Oligarchs to make ends meet: the rich get richer, the poor get more indebted.
5. The only possible output of these inputs (political expediency to preserve the elites' wealth and power, the creation and distribution to the Oligarch class of trillions in new currency) is the acceleration of the very erosion that fueled social / political conflicts in the first place. In effect, the elites' "fixes" are accelerating the conflicts that will ultimately lead to their downfall.
This is why the unraveling cannot be reversed or stopped: all the enormous efforts being expended by the elites to maintain the status quo exactly as it is now, with the vast majority of wealth and power in their hands, preclude the structural changes needed to re-set the status quo onto a more sustainable (i.e. more transparent, productive, efficient and decentralized) and less rigged-to-benefit-the-few path.
All the status quo "fixes" only hasten the collapse of the status quo. My longtime colleague Gordon T. Long has laid out the stages of this inevitable descent into conflict and collapse in a series of charts which we discuss in our latest video conversation Coming Era of Political & Social Conflict (29:13).
These stages are predictable because human nature is predictable. That elites will follow a pathway of expediency to preserve their wealth and power is predictable, and this pathway includes the debauchment of currency (printing ever greater sums to add to their wealth and placate the masses), the substitution of credit for capital, the political disenfranchisement of the masses, increasingly oppressive financial repression and social / political conflicts that spiral out of control as the inherently unstable financial house of cards collapses.
Since the elites won't allow an orderly re-set that reduces their wealth and power, the re-set will result from spiraling conflicts and the collapse of all that is viewed as permanent, i.e. the financial and political status quo.
Don't think it won't happen just because it hasn't happened yet.


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


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
Thank you, Brenda W. ($50), for your marvelously generous contribution to this site-- I am greatly honored by your steadfast support and readership.
 

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Sunday, November 17, 2019

If Not-QE Is QE, then is Not-a-Blowoff-Top a Blowoff Top?

Can $300 billion, or $600 billion, or even $1 trillion continue to prop up an increasingly risk-riddled, fragile $330 trillion global bubble in overvalued assets?
When is "Not-QE" QE? When Federal Reserve Chairperson Jerome Powell declares QE is not QE. We can constructively recall the story that Abraham Lincoln famously recounted in 1862: 'If I should call a sheep's tail a leg, how many legs would it have?'
'Five.'
'No, only four; for my calling the tail a leg would not make it so.'
Calling QE not-QE doesn't make it different than QE, but it does communicate the Fed's panicky desire to mask its stupendous injection of financial cocaine into the financial system. The Fed's level of panic is noteworthy, as is the absurd transparency of its laughable attempt to conceal its panic.
In the same fashion, the financial media is loudly declaring the current blowoff top in stocks is not a blowoff top. The delicious irony here is these denials are reliable markers of blowoff tops: the louder the denials, the greater the odds that this is in fact the blowoff top that many pundits have been expecting for some time, but always in the future.
Garsh darn it, maybe the future has arrived. The financial media denied the Q4 1999 - Q1 2000 blowoff top was a blowoff top, and it repeated its denial of a blowoff top in housing in 2006-2007. The pundits of 1929 also denied the Q3 blowoff top in stocks was a blowoff top.
If you want a reliable signal that the blowoff top has peaked, listen to the screechy adamance of the deniers. The list of reasons why blowoff tops can't be blowoff tops is practically endless: sentiment isn't bullish enough, there's a Wall of Worry for stocks to climb (overlooking the inconvenient reality that there is always a Wall of Worry), the consumer is still looking good, corporate earnings will rebound, the soft patch is behind us, the Internet will grow for decades to come, they're not making any more land, capital flows favor higher asset prices, we owe it to ourselves (paging Paul Krugman--the Keynesian Cargo Cult is about to dance the humba-humba around the campfire and you're needed...), debt doesn't matter (it never matters until it does), price-earning ratios have plenty of room to move higher, and everyone's favorite, don't fight the all-powerful Fed (and we command you not to look behind the curtain while we worship false gods and wave dead chickens).
But nonetheless, blowoff tops in asset bubbles remain a feature of asset overvaluation, which by the way has once again reached historic extremes (GDP to equity valuation, etc.)
This introduces the other reliable indicator of blowoff tops: this time it's different. It's always different at blowoff tops, but not in the way that proponents of eternally rising asset valuations imagine.
Even geniuses misread blowoff tops. Popular culture has it that Isaac Newton made money in the South Sea Company bubble, sold for a handsome profit and then re-entered at a much higher price, losing a fortune when the blowoff top collapsed. Some historians have argued that this account is not accurate, but new research verifies that Newton did miscalculate and lose a fortune: Newton's financial misadventures in the South Sea Bubble:
This paper presents extensive new evidence that while Newton was a successful investor before this event, the folk tale about his making large gains but then being drawn back into that mania and suffering large losses is almost certainly correct. It probably even understates the extent of his financial miscalculations.
Which brings us to the present blowoff top that is widely presented as not-a-blowoff-top because of XYZ, with XYZ boiling down to the omnipotence and omniscience of the Federal Reserve. The implicit belief currently holding sway (just as various implicit beliefs enabled the South Sea Bubble in 1720 and the bubbles in 1929, 2000 and 2008, to name but a few of a rogue's gallery of blowoff tops) is the Fed has complete control of interest rates and the stock and bond markets, and the evidence for this belief is the Fed's unparalleled success in inflating asset bubbles in stocks, bonds and real estate for a decade, a managerial feat now in its 11th year.
The possibilities that the Fed's manipulation--oops, management--of markets might suffer from diminishing returns, or that markets might still be prone to nonlinear events generated by emergent properties of complex systems are dismissed as so unlikely that there's no point in even discussing them.
All of which brings us to the Fed's painfully obvious panic and pathetic attempt to conceal their panic, factors that are illustrated on this chart of the Fed balance sheet, which has suddenly exploded higher by $300 billion.
If everything's just peachy in global banking and the U.S. economy, why the sudden mainlining of $300 billion of financial cocaine into the collapsing veins of the financial system?
Just for context, that $300 billion is more than the entire GDP of Chile and a host of other nations. While the Fed's $4 trillion balance sheet (up from a mere $800 billion prior to the Global Financial Meltdown in 2008) has jaded us to large numbers, $300 billion is still a monumental sum of "money" (i.e. currency created out of thin air by the Fed to distribute to banks, financiers, the super-wealthy and corporations.)
We might want to recall here that the global asset bubble the Fed is attempting to keep inflating is several orders of magnitude larger: well north of $300 trillion in 2018. (It's also worth recalling here that the Fed is not just the central bank of the USA, it's also the central bank of last resort for the entire global economy. Much of the $23 trillion in loans, guarantees and backstops the Fed issued in 2008-2009 propped up non-U.S. banks and institutions.)
Can $300 billion, or $600 billion, or even $1 trillion continue to prop up an increasingly risk-riddled, fragile $330 trillion global bubble in overvalued assets? Just as a matter of scale, the answer is "not likely." The key variable here the belief of participants in the omnipotence and omniscience of the Fed.
If the Fed can no longer keep the global bubbles inflating, then the bubble-sustaining belief that the Fed is in effect a new god will lose its self-predictive feedback loop: stocks go up because we believe the Fed will push them higher, so we buy stocks and our buying pushes stocks higher, doing the Fed's work for it.
Blowoff tops are rarely identified in the present. Even geniuses get fooled. But if we look at one simple indicator--the number of financial types denying this is a blowoff top and the number calling this the blowoff top of the entire 11-year Fed-induced frenzy of over-valuation-- we have to conclude that the odds favor this being the blowoff top nobody expected until some far-off moment in the future. Well just maybe the future has arrived, but nobody noticed.


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


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
Thank you, Abel G. ($10/month), for your outrageously generous subscription to this site-- I am greatly honored by your support and readership.
 

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