Sunday, August 25, 2019

The Benefits of a Profoundly Shattering Recession

Does anyone really think The Everything Bubble can just keep inflating forever?
What do I mean by a profoundly shattering recession? I mean, a systemic, crushing recession that can't be reversed with central bank magic, a recession that only deepens with time. The last real recession was roughly two generations ago in 1981; younger generations have no experience of a profound recession, and perhaps older folks have forgotten the shock, angst and bitterness.
profoundly shattering recession leaves tremendous damage and pain in its wake. Millions of people who reckoned their position was secure get laid off, businesses that looked solid melt into air, large corporations flip from hiring thousands to firing thousands, and everyone on the edge of insolvency gets a hard push over the cliff.
Profoundly shattering recessions feed on themselves in a self-reinforcing dynamic: the first domino could be a supply-shock, or a decline in demand due to credit exhaustion. Since businesses have cut everything to the bone in the past decade, there are no buffers left: layoffs begin immediately, and those layoffs further reduce demand as households have to tighten their belts to survive as even those who escape the first round of layoffs find bonuses and overtime have been slashed.
Since the problem isn't high interest rates, central banks reducing rates or pushing them into negative territory only reveals their impotence. If negative interest rates boosted the real economy, Europe and Japan would be experiencing rapid expansion instead of stagnation.
Layoffs, the failure of central banks and soaring fiscal deficits trigger a drop in consumer and investor sentiment which feeds back into declining sales and profits, which then trigger more layoffs as businesses must cut expenses as revenues crater.
Clearly, there is no benefit to households or enterprises to this self-reinforcing recession. The benefits are structural: financialization, the parasite that has eaten our economy from the inside, will collapse along with the mountains of debt that fueled it.
Zombie corporations and local governments that have been insolvent in all but name will finally go bankrupt, clearing the system of their dead weight. Economies supporting zombie entities are sacrificing their capital to keep insiders afloat, which leaves less capital to invest in increasing productivity, which is the only way to increase broad-based wealth.
The Everything Bubble will finally pop, stripping the system of phantom speculative wealth and fictitious capital. Price discovery will once again be possible, as all the central bank-inflated bubbles will deflate and real demand and supply will set the price of assets.
Once central banks have been revealed as powerless, the quasi-religious belief in their omnipotence will dissipate, and people will finally start dealing with the Gilded Age excesses of the past 20 years. Common sense limits on financial predation and trickery will gather support, and tricks like corporate buybacks will be outlawed or restricted.
If capital can't earn a low-risk return, then it can't flow to productive uses.Once central bank manipulation fails, capital might demand a yield, and in doing so, it will start a beneficial cycle in which speculation will no longer be enabled and rewarded by zero-interest rates or negative rates.
Only those enterprises and households with productive uses for borrowed capital will reckon the interest costs are worth the risk of taking on debt. The bloated, parasitic banking sector will implode, and what's left of it will return to its proper role, a thin, regulated sector of the economy stripped of political power.
All the cartels and monopolies that depend on debt will implode: banking, higher education, and ultimately national defense and sickcare, which depend on federal borrowing to fund their predatory pricing.
The U.S. economy needs a re-set if it is to lift all boats, and the sooner the re-set occurs, the sooner we can dispense with all the cronyist intervention, self-serving manipulation and exploitive distortion that's turned our economy and society into a speculative casino that only benefits a few insiders and those who know how to rig the game in their favor.
profoundly shattering recession requires patience, fortitude and an awareness that the sacrifices demanded will be worth the pain if we rid our society of at least the top layer of financial and political parasites and predators that have corrupted our economy, our governance and our society.
Does anyone really think The Everything Bubble can just keep inflating forever? Surely nobody's that deluded.
The global economy is destabilizing, and we're about to discover there is no way to halt a profoundly shattering recession. We have a once in 80 years opportunity to right the ship before it sinks into oblivion.


Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): 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.


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. New benefit for subscribers/patrons: a monthly Q&A where I respond to your questions/topics.

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

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Friday, August 23, 2019

Is the U.S. Becoming a Third World Nation?

This is a chart of an informal kleptocracy which cloaks itself in the faux finery of democracy and a (rigged) "market" economy.
Back in the day, nations that didn't qualify as either developed (First World) or developing (Second World) were by default Third World, impoverished, corrupt and what we now refer to as failed states--governments that were incapable of improving the lives of their people and the machinery of governance, generally as a result of corruption and self-serving elites, i.e. kleptocracies.
Is the U.S. slipping into Third World status? While many scoff at the very question, others citing the rise of homelessness, entrenched pockets of abject poverty and the decaying state of infrastructure might nod "yes."
These are not uniquely Third World problems, they're symptoms of a status quo that's fast losing First World capabilities. What characterizes Third World/Failing States isn't just poverty, crumbling infrastructure and endemic corruption; at a systems level these are the key dynamics in Third World/Failing States:
1. The status quo protects insiders at the expense of everyone else.
2. There is no real accountability; failure has no consequences, bureaucrats are never fired for incompetence, reforms are watered down or neutered by institutional sclerosis.
3. Pay-to-play is the most cost-effective way to influence policy or evade consequences.
4. The status quo is incapable of differentiating between complexity that serves the legitimate purposes of transparency and accountability and complexity that serves no purpose beyond guaranteeing insiders' paper-shuffling jobs. As a consequence, complexity that adds no value chokes the economy and the government.
5. There are two sets of laws: one for insiders and the super-wealthy, and another harsher set for everyone else.
6. The super-wealthy fear nothing because the system functions to serve their interests.
7. The super-wealthy and state insiders control the media's narratives and the machinery of governance to serve their interests. Reforms are in name only; the faces of elected officials change but nothing changes structurally.
8. Insiders, well-paid pundits and the technocrats serving the corporate and state elites believe the status quo is just fine because they're doing fine; they are blind to the soaring inequality, systemic corruption, stupendous waste and the impossibility of real reform.
Does America's status quo protects insiders at the expense of everyone else? Yes. As for the other seven characteristics: yes, yes, yes, yes, yes, yes and yes.
And lets' not forget #9: the vast majority of the economic gains flow to the elite at the very top of the wealth-power pyramid: is this true in the U.S.? Definitively yes. Just look at this chart: this is a chart of an informal kleptocracy which cloaks itself in the faux finery of democracy and a (rigged) "market" economy.
That's the very definition of a Third World failed state.
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.


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. New benefit for subscribers/patrons: a monthly Q&A where I respond to your questions/topics.

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

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Wednesday, August 21, 2019

Our Wile E. Coyote Federal Reserve

Whatever the Fed chooses to do, it's already failed..
Wile E. Coyote has gotten a bad rap: in all fairness, his schemes are ingenious, if overly complicated, and it's not his fault that the Acme detonator misfires or the Road Runner doesn't respond as predicted. Every set-up to nail the Road Runner should work. That it fails and leaves him suspended over the cliff for a woefully brief second to intuit his impending doom really isn't his fault.
Wile E. Coyote and the Federal Reserve share a lot of similarities. Just as Wile is always trying to catch the Road Runner, the Federal Reserve and other central banks have been trying for 10 years to trigger a self-sustaining economic expansion, i.e. an expansion based on the self-reinforcing dynamics of increasing productivity driving increasing wages which then fuel consumption and investment in productivity, and so on.
In a self-sustaining expansion based on fundamentals, central banks can "normalize" (raise) interest rates relatively painlessly to levels that are at least 3% above official inflation, so pension funds and other institutions that need low-risk yields can survive.
Official inflation in the U.S. is about 3% (real-world inflation is running between 8% and 13% in urban America, as per the Chapwood Index, but that's another essay), so the Fed Funds Rate should be at 6% minimum, which would set mortgages and other long-term loans at 7% or so.
A Fed Funds Rate of 6% (600 basis points) would give the Fed 500 basis points of leeway in a recession to lower rates to 1% to goose borrowing, investing and spending in a recession.
But all the central banks' intricate plans have failed, and so they are having a Wile E. Coyote moment of impending doom. The Acme Brand detonator they counted on-- negative interest rates--has failed to spark a self-sustaining expansion, and all the Fed's convoluted schemes--Operation Twist, buying a trillion dollars in sketchy home mortgages, etc.--failed to catch the prize.
And so the Fed was only able to raise rates, more or less at the last minute, by 2%-- a pathetic admission that even after a decade of central bank-dependent expansion, the Fed couldn't even raise rates into positive territory, i.e. above the official rate of inflation.
While the other central banks are falling into the abyss, the Fed is clinging to the edge of the cliff by its fingertips. Having failed to spark a self-sustaining expansion, now the Fed is left with two dismal choices: either let go and fall into the abyss of negative interest rates--doing more of what's failed miserably--or cling on and keep rates at 2% so there's some policy response left when the global recession inevitably washes up on America's shores.
Whatever the Fed chooses to do, it's already failed. The Road Runner of self-sustaining expansion got clean away, and the Fed is left holding the ominously ticking Acme Brand detonator.
Recent podcasts: I was blessed to be invited to two terrific podcasts:
Parallels Between The Decline of the Roman Empire and America (46 minutes)
Host: Patrick Vierra of SilverBullion.com.sg
Market Huddle Episode 41 (guest: Charles Hugh Smith)
Hosts: Patrick and Kevin
(I am the first guest, then I get to do the last half-hour informal free-for-all.)


Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): 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.


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. New benefit for subscribers/patrons: a monthly Q&A where I respond to your questions/topics.

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, Teresa W. ($50), for your marvelously generous contribution to this site-- I am greatly honored by your support and readership.
 

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Sunday, August 18, 2019

A Wobbling Stock Market

A third period of heightened volatility shouldn't surprise us.
Consider this chart of the SPX (S&P 500) over the past two years: take a look at the relative steepness of each of the red lines (rallies), the duration of each rally (purple lines), the blue boxes (volatile spots of bother) and the green line (market has gone nowhere for 19 months as every rally to new highs drops back to or below the high of January 2018).
As the saying goes, a market topping is not an event, it's a process. There are a handful of historically useful characteristics of topping markets:
1. Declining volume / liquidity
2. Increasing volatility--major swings up and down that increase in amplitude and frequency
3. Inability to break decisively above previous resistance (i.e. make sustainable new highs in a stairstep that moves higher).
We see all these elements in the S&P 500 over the past few years. A healthy, stable advance in 2017 led to a manic blow-off top that crashed in February of 2018, setting off a period of high volatility.
This set up another stable advance that was shorter than the previous advance, and also steeper. This led to the multi-month period of instability that concluded in a panic crash in December 2018.
Since then, advances have been shorter and steeper, suggesting a more volatile era. Three advances to new highs have all dropped back to (or below) the highs of January 2018. In effect, the market has wobbled around for 18 months, becoming more volatile after every rally.
Notice how the duration of each advance is getting shorter even as each advance is steeper, i.e. more manic. Notice also that the amplitude of each volatile plummet from new highs increases.
What happens next? No one knows, but a third period of heightened volatility shouldn't surprise us--nor should a further increase in the amplitude of the move during the next volatile spot of bother.
Recent podcasts: I was blessed to be invited to two terrific podcasts:
Parallels Between The Decline of the Roman Empire and America (46 minutes)
Host: Patrick Vierra of SilverBullion.com.sg
Market Huddle Episode 41 (guest: Charles Hugh Smith)
Hosts: Patrick and Kevin
(I am the first guest, then I get to do the last half-hour informal free-for-all.)


Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): 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.


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. New benefit for subscribers/patrons: a monthly Q&A where I respond to your questions/topics.

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

Read more...

Wednesday, August 14, 2019

The Road to Hell Is Paved with Virtue-Signaling

The idea that everything will be solved if we borrow a couple more trillion and give it away is the dominant paradigm.
Here in the decay phase of Imperial Pretensions, The best lack all conviction, while the worst are full of passionate intensity. It's a line from Yeats' poem The Second Coming, and it speaks to our current stumbling descent toward the abyss, where the worst invest their energies in virtue-signaling and the best retreat from the hopelessness of actually addressing our real-world problems.
The road to Hell is paved with virtue-signaling: rather than actually solve the knotty problems that are dragging us toward the abyss, we substitute self-righteousness for problem-solving. That is virtue-signaling in a nutshell.
Virtue-signaling goes hand in hand with the only "solution" that's politically correct: throw a borrowed trillion dollars at the "problem", dance the humba-humba around the bonfire at midnight and hope that magic will resolve the underlying issues.
Hence the calls for Medicare for All, Universal Basic Income, and free college for all, all paid with borrowed money, despite the virtuous bleatings that "taxes on the rich/robots" will magically pay for trillions of additional dollars to be squandered on corrupt, self-serving cartels.
The well-being of the American populace is broken, with well-being including mental and physical health, financial security and access to all forms of capital, including education, infrastructure and functioning institutions.
Throwing more money at the cartels that have failed--defense, governance, healthcare and higher education--won't solve anything. The health of the American populace is in long-term decline for structural reasons: our diet has deteriorated, our fitness has deteriorated, our educational inputs regarding diet, fitness and health have deteriorated. Popping another $1,000 a month pill doesn't restore health or well-being, yet that's what the healthcare cartel profits from: managing our sickness.
As for the "defense" industry, a.k.a. the military-industrial-intelligence cartel:rather than do the hard work of redefining America's role in the world (declining to pursue wars of choice and policing the world) and then right-sizing the armed forces for the emerging realities of automated warfare, cyber-warfare and asymmetric warfare, we spend trillions of dollars on a jumble of horribly costly legacy weaponry with a sprinkling of pixie-dust "innovation."
This also describes the higher education cartel, a horribly costly legacy jumble that's failing students while enriching insiders and lenders. It also describes the standard institutional response to knotty issues such as homelessness: the conventional legacy "solution" is to insist on building "affordable" housing at $400,000 per unit, which means we can build 1,000 units rather than the 100,000 units of super-low-cost housing we need.
In a climate where passionately intense self-righteousness is substituted for actual problem-solving, anyone willing to consider real-world knotty problems is shouted down. It's impossible to even discuss issues of citizenship and immigration as they relate to the long-term impact of devaluing citizenship, or the impact on aging infrastructure designed for a much smaller population.
It's impossible to even discuss systematically downsizing America's role and military footprint without being accused of treason, as virtue-signaling support for the Imperial Project is necessary to broadcast your membership in the politically correct camp.
It's impossible to even discuss the connection between the high-profit snacks and sugar-water beverages that fill supermarket shelves and diabesity and metabolic disorders, or the connection between the decline of community and the rise of the Savior State.
The idea that everything will be solved if we borrow a couple more trillion and give it away is the dominant paradigm. We all understand why: solving difficult real-world problems in a fraying society riven by shrill "advocacy" (i.e. give "us" the free money rather than giving it to "them") is immensely more challenging than passionately intense self-righteousness (virtue-signaling) and borrowing as many trillions as needed to keep a bloated, ineffective, corrupt status quo glued together for another quarter or another year.
The best lack all conviction, while the worst are full of passionate intensity. The road to Hell is paved with virtue-signaling, and we are about to discover that virtue-signaling, self-righteousness and indignation are not substitutes for the difficult task of completely restructuring failing institutions, modes of production and governance.
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.
 
Thank you, William P. ($25), for your splendidly generous contribution to this site-- I am greatly honored by your steadfast support and readership.

Read more...

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