Thursday, July 09, 2020

You Are Now Leaving FantasyLand: The Losses Will Be Taken By Somebody

As the inverted pyramid collapses, the effects will be non-linear.
Round about late March, we entered a Financial FantasyLand in which all the sins and excesses of rampant financialization were going to be painlessly washed away. Mever mind the entire U.S. economy is an inverted pyramid of balance-sheet "value" and debt resting on a shrinking foundation of collateral; everyone would be made whole in the Federal Reserve's Financial FantasyLand.
You are now leaving FantasyLand: trillions of dollars of phantom value have already vanished, and these catastrophic losses will be taken by somebody. The question is: who will get the concrete overshoes? Whose balance sheets will collapse to negative numbers, erasing all their phantom wealth?
Everyone was delighted to suspend reality and entertain the fantasy that there was a cost-free way to bail out financialization's greed-soaked sinners: The Fed will simply print as many trillions as needed to make everyone whole. Since it doesn't cost the Fed anything to digitally print endless trillions, this "solution" is completely, totally free.
What an amazing moment of grace: all our sins washed away in a rising river of Fed-printed money. With endless trillions available, everyone can get bailed out forever. Collateral, actual earnings and profits, none of that matters. The Fed's grace is godlike in its infinite expansion.
This escape from karma, consequence and divine retribution was as temporal as the ride through FantasyLand. The wheel of karma has turned, The Tao is reversing, the banquet of asymmetric, non-linear consequences has been served and the Fed's godlike powers will be revealed to be as delusional as the "value" and "wealth" that's piled up in the balance sheets of the top 0.1%.
For there actually is a cost to digitally printing trillions to bail out all the predatory parasites of financialization. Put simply, every dollar that's digitally printed that isn't matched by an increase in the productive capacity of the economy, i.e. the means to generate goods and services with less capital and fewer hours of labor, is nothing but a hidden reduction in the purchasing power of every existing dollar.
The idea that the Fed or Treasury can print endless trillions and there will never be any consequence of this fraud is nothing more than a compelling Cargo Cult superstition. Just as South Pacific Cargo Cults painted radio dials on rocks to communicate their desire for the return of Uncle Sam's shiploads of freebies, the "we can print our way out of any problem" cargo cult paints low inflation numbers and arcane equations on rocks and declares the magic will work: the Fed/Treasury can print as many trillions as we need to bail out every greed-soaked sinner, and there will never be any consequences--never ever, because the painted rocks have magical powers.
Now that we're leaving Financial FantasyLand, a very hard lesson about non-linearity is about to be learned. In addition to the "we can wash away every sin with endless trillions" fantasy, there's the fantasy of linearity in non-linear, fragile systems.
The fantasy of linearity holds that a 10% decline in revenues, profits, rents collected, etc. will only cause a 10% decline in isolated parts of the economy. The believers in the fantasy acknowledge that the 10% decline will hurt, but only a bit, and soon Mommy and Daddy (Treasury and Fed) will apply the Band-Aid and it will all go away.
As the inverted pyramid collapses, the effects will be non-linear: a 10% decline may trigger dominoes that end up generating an 90% decline in "value" and "wealth" because the collapse of collateral to a non-fantasy valuation will implode all the phantom valuations piled on steadily more fragile and fantastic layers of phantom "capital."
The fantasy of the Neofeudal Aristocracy is that the losses can be painlessly transferred to the debt-serfs and taxpaying peasantry. Mommy and Daddy (Treasury and Fed) will load future generations of debt-serfs and taxpaying peasantry with the losses and the political-financial Nobility will have their fortunes preserved. Gee, thanks, Mommy and Daddy! You're swell!
The Neofeudal Aristocracy overlooks one terribly inconvenient fact: the debt-serfs and peasantry own next to nothing. The non-linear collapse of phantom capital will have asymmetric consequences: all the "assets" most likely to go to zero are owned not by the peasantry but by the Neofeudal Aristocracy.
Now that we're exiting Financial FantasyLand, reality will intrude. The Fed is not godlike and the sins of predatory, parasitic, exploitive financialization will be paid in full measure. The hubris-drenched punditry and Neofeudal Aristocracy who mock the notion that there was anything beyond the command of their conjured trillions will discover that The way of the Tao is reversal, and their child-like faith in their own perverse powers to shape the world to their liking will be destroyed along with their phantom wealth.
Recent Podcasts:
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.

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Wednesday, July 08, 2020

The American Economy in Four Words: Neofeudal Extortion, Decline, Collapse

Our society has a legal structure of self-rule and ownership of capital, but in reality it is a Neofeudal Oligarchy.
Now that the pandemic is over and the economy is roaring again--so the stock market says--we're heading straight back up into the good old days of 2019. Nothing to worry about, we've recovered the trajectory of higher and higher, better every day in every way.
Everything's great except the fatal rot at the heart of the U.S. economy hasn't even been acknowledged, much less addressed: every sector of the economy is nothing but one form of neofeudal extortion or another.
Let's spin the time machine back to the late Middle Ages, at the height of feudalism, and imagine we're trying to get a boatload of goods to the nearest city to sell. As we drift down the river, we're constantly being stopped and charged a fee for transiting one small fiefdom after another. When we finally reach the city, there's an entry fee for bringing our goods to market.
Note that none of these fees were payments for improvements to transport or for services rendered; they were simply extortion. This was the economic structure of feudalism: petty fiefdoms levied extortionate fees that funded the lifestyles of nobility.
This is why I have long called America's economy neofeudal: we pay ever higher fees for services that are degrading, not improving. This is the essence of extortion: we don't get any improvement in goods and services for the extra money we're forced to pay.
Consider higher education: costs are soaring while the value of the "product"--a college diploma--declines. What extra value are students receiving for the doubling of tuition and fees? The short answer is "none." College diplomas are in over-supply, and studies have found that a majority of students learn remarkably little of value in college.
As I explain in my book The Nearly Free University and the Emerging Economy, the solution is to accredit the student, not the institution. If the student learned very little, he/she doesn't get credentialed.
Were students to have access to the best classroom lectures online (nearly free), and on-the-job apprenticeships in the workplace, (nearly free or perhaps even paid), learning would be significantly improved and costs reduced by 80% to 90%.
In this structure, there's no need for costly campuses or administration; the entire structure of higher education could be largely automated with software, except for the workplace apprenticeships which focus on case studies and real-world projects that are creating value in the here and now.
Consider healthcare: has the quality of healthcare doubled along with costs? Are Americans significantly healthier as the costs of healthcare have tripled? The aggregate health of Americans has arguably declined, while the stresses placed on frontline care providers by the ever-heavier burdens of compliance and paperwork have increased.
What about the $200 hammers and $300 million F-35 aircraft of the defense industry? Once again, as costs have soared, the quality and effectiveness of the products being supplied has arguable declined.
How about state and local government services? Are they improving as taxes and junk fees rise? Once again, government services are often declining in quality as taxes and fees increase by leaps and bounds.
In sector after sector, the quality of the goods and services has declined while costs have soared. This is the acme of neofeudalism: insiders and the New Nobility are skimming fortunes as prices skyrocket and the quality of the goods and services provided plummet.
Look at the cost increases in higher education, healthcare and childcare and ask yourself if the quality of those services have risen in lockstep with price increases.
This is nothing but neofeudal extortion. The cartels raise prices and we're forced to pay them, just as feudal commoners were forced to pay.
But extortion isn't the only feature of neofeudalism that is leading to collapse. Just as important is the slow erosion of commoners' self-rule and ownership of meaningful, productive capital.
This dynamic is explored in depth in The Inheritance of Rome: Illuminating the Dark Ages 400-1000.
This gradual, almost imperceptible erosion is the essence of neofeudalism, a process of transferring political and economic power from commoners to a new Financial Aristocracy/Nobility.
If we examine the "wealth" of the middle class/working class (however you define them, the defining characteristic of both is the reliance on labor for income, as opposed to living off the income earned by capital), we find the primary capital asset is the family home, which as I have explained many times, is unproductive--in essence, a form of consumption rather than a source of income.
In a globalized, financialized economy, the only capital worth owning is mobile capital, capital that can be shifted by a keystroke to avoid devaluation or earn a a higher return.
Housing and pensions are "stranded capital," forms of capital that are not mobile unless they are liquidated before crises or expropriations occur.
I am also struck by the ever-rising barriers to starting or even operating small businesses, a core form of capital, as enterprises generate income and (potentially) capital gains. (The pandemic has only increased barriers that were already high.)
The capital and managerial expertise required to launch and grow a legal enterprise is significant, which is at least partly why a nation of self-employed farmers, shopkeepers, artisans and traders is now a nation of employees of government and large corporations.
What sort of capital can be acquired by the average commoner now? Enough to match the wealth and political power of financial Nobility?
As for political influence: a recent study found that voters had very little power in the U.S., which is effectively an oligarchy: Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens.
Summary: "The U.S. government does not represent the interests of the majority of the country's citizens, but is instead ruled by those of the rich and powerful, a new study from Princeton and Northwestern universities has concluded."
Neofeudalism is not a re-run of feudalism. It's a new and improved, state-corporate version of indentured servitude. The process of devolving to feudalism required the erosion of peasants' rights to own productive assets, which in an agrarian economy meant ownership of land.
Ownership of land was replaced with various obligations to the local feudal lord or monastery-- free labor for time periods ranging from a few days to months; a share of one's grain harvest, and so on.
The other key dynamic of feudalism was the removal of the peasantry from the public sphere. In the pre-feudal era (for example, the reign of Charlemagne), peasants could still attend public councils and make their voices heard, and there was a rough system of justice in which peasants could petition authorities for redress.
From the capitalist perspective, feudalism restricted serfs' access to cash markets where they could sell their labor or harvests. The key feature of capitalism isn't just markets-- it's unrestricted ownership of productive assets--land, tools, workshops, and the social capital of skills, networks, trading associations, guilds, etc.
Our system is Neofeudal because the non-elites have no real voice in the public sphere, and ownership of productive capital is indirectly suppressed by the state-corporate duopoly.
Our society has a legal structure of self-rule and ownership of capital, but in reality it is a Neofeudal Oligarchy. The decline is visible, and so is the trajectory to collapse.
I discuss these dynamics in greater depth in my books:
We got your neofeudal wealth inequality right here:
Recent Podcasts:
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, Christopher D. ($50), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.
 
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Monday, July 06, 2020

What Will Be the Most Desirable Status Symbols in the Greater Depression?

Virtue-signaling texts from your $100 million yacht no longer impress, they enrage.
For the past five decades, celebrities and other wealthy folks have sought conventional status signifiers / symbols: a couple hundred thousand acres of ranchland, a luxe bug-out bunker in New Zealand, a private islet in the Caribbean, a winery, a mega-million dollar yacht, a hip bistro in Manhattan or Santa Monica, a sprawling mansion, and so on.
The more civic-minded mega-millionaires donated enough dough to a university to get a building named after them (modesty is my middle name, etc.), funded a children's hospital or donated some of their couple hundred thousand acres of land to the Nature Conservancy or equivalent mainstream environmental group.
Now that the bogus "prosperity" of past 20 years has imploded, the nation is slip-sliding into the Greater Depression, and one consequence is that all these signifiers of obscene narcissism and ahem, privilege, will increasingly be viewed with extreme prejudice. (Look it up, along with the film Apocalypse Now.)
Put another way, all these signifiers of obscene narcissism will be, at a minimum, declasse, veering perilously close to gauche embarrassment.
Those $100 plates at the celeb's bistro and $90 bottles of wine at the celeb's winery may be chump-change to the top-5-percenter customers anxious to be seen in your establishment, but they're a whole day's pay or more to those with real jobs in the real American economy.
In the Great Depression, fantasy films about debonair, witty millionaires were viewed as escapist fare. (For example, The Thin Man who-dunnits). In the far more brittle and polarized Greater Depression we're entering, extremes of wealth and privilege will be more likely to spark outrage.
Once the tone-deaf celebs and super-wealthy awaken to this change in the zeitgeist, they will stage a land-rush into socially approved signifiers that will be designed to win the praise of social-media influencers while subtly distancing the celebs and super-wealthy from merely wealthy wannabe's. (Creating that class distinction is of course the entire point of status symbols: only the truly wealthy can afford it.
Merely donating cash or land and showing up once a year to fake participation will no longer cut it. Celebs and the wealthy who want to score status points are going to have to actually get involved, not to run the world or generate philanthro-capitalist propaganda, but actually do something real that locals appreciate as genuine.
In other words, ditch the winery, private island and the named campus building and start running a homeless hotel, upscale soup kitchen, etc., where regular people will see you doing something useful, not once a year but regularly and with sincerity.
The ante will go up to set oneself apart from the run-of-the-mill narcissistic wealthy. Virtue-signaling texts from your $100 million yacht no longer impress, they enrage.
Recent Podcasts:
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, Alan H. ($50), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.
 
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Sunday, July 05, 2020

What Makes You Think the Stock Market Will Even Exist in 2024?

Given the extremes of the stock market's frauds and even greater extremes of wealth/income inequality it has created, tell me again why the stock market will still exist in 2024?
When I read a financial pundit predicting a bull market in stocks through 2024, blah-blah-blah, I wonder: what makes you think the stock market will even exist in 2024, at least in its current form?
Given the current trajectory of the real economy into the Greatest Depression while the Federal Reserve's entire raison d'etre is to send stocks soaring to the moon forever and ever, what are the odds that this disconnect leads to a political rebellion against the Fed and its wealth inequality machine, the stock market?
Just as Communism was a god that failedfinance capitalism is also a god that failed, an extreme version of crony-capitalism that is nothing more than a mechanism for concentrating wealth and power at the expense of everyone toiling in the real-world economy.
And if we understand this, then we also understand that with its stock buybacks, high-frequency trading and after-hours manipulation, the stock market is nothing more than finance capitalism's mechanism for increasing the concentration of wealth.
Should this awareness move from the few who currently understand the depravity and unsustainability of finance capitalism to the general public, why would they allow the skimming machine of the stock market to continue pillaging the nation?
(The appeal of the stock market as a casino game amateurs can easily win is part of its marketing, but like the casinos in Las Vegas, the number of punters who reap consistent gains and hold onto their newfound wealth for five years or longer is near-zero. That's the plan, of course; win a few bucks today and lose everything over time.)
Once the novelty of toppling symbols of oppression (statues, etc.) wears thin, people might start showing some interest in the actual sources of real-world oppression, which will lead them to the Federal Reserve and finance capitalism's primary skimming machine, the stock market.
Recall that when a corporation spends $10 billion on stock buybacks, it creates zero jobs, zero productive capacity, zero goods and zero services: all it does is supercharge the wealth of those who already own most of the corporation's stock.
This is why stock buybacks were illegal until finance capitalism conquered the political machinery of governance.
People who look into this fraud will discover the $10 billion was printed up by the Federal Reserve and made available to an elite of financiers and corporations. You might have noticed that your share of the $6.2 trillion the Fed has printed and given away as free money for financiers since 2008 is, well, zero. This was not an oversight; this asymmetry is the core feature of American central banking and finance: 100% for us, none for you.
High-frequency trading is another massive crony-capitalist fraud in which financiers, hedge funds and other pay-to-play nabobs of finance capitalism skim billions of dollars by manipulating the flow of stock market trade orders. Since they own the regulators and political class (and paid good money for them, too), this fraud is of course entirely legal.
Should the Fed's baby, the stock market, ever experience a flutter, the Fed's proxy manipulators goose the market higher in after-hours or pre-market trading, where the low volume is tailor-made for manipulation.
All this fraud and manipulation has given the Fed's skimming machine a veneer of omnipotence, as if the Fed is eternal. It isn't. Like the Bastille, the Fed can be torn down once the populace traces their impoverishment and powerlessness to the Fed and its wealth-concentrating skimming mechanisms, starting with the stock market.
While the take-home earnings of the bottom 90% have stagnated for two decades, the wealth and income of the top 0.1% has skyrocketed. The top 5% of speculators, technocrats and insiders have done very well, and the next 5%--the apparatchik/professional class--have been thrown enough crumbs that they labor under the illusion that they're "sharing the wealth"--a very convenient delusion for the top 0.1%.
Given the extremes of the stock market's frauds and even greater extremes of wealth/income inequality this skimming operation has created, tell me again why the stock market will still exist in 2024? The aristocrats in France reckoned the Bastille was eternal as well. It wasn't, and neither is the looting machine known as the stock market.
Recent Podcasts:
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, George R. ($50), for your sumptuously generous contribution to this site -- I am greatly honored by your support and readership.
 
Thank you, Clark T. ($10), for your most generous contribution to this site -- I am greatly honored by your support and readership.

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