Has Capitalism Failed?

We all know socialism on the Soviet model has failed. But perhaps Capitalism is failing as well. Or perhaps only certain specific strains of Capitalism succeed--and the U.S. is now infected with the failed strains.

From time to time I will be addressing issues I have discussed with polymath/media maven Richard Metzger, who kindly interviewed me for boingboing.net a few months ago (An Interview with Charles Hugh Smith); I'll call these In conversation with Richard Metzger. The views presented here are mine alone unless otherwise noted; Richard's views will be presented via excerpts of our (voluminous) email correspondence.

Richard and I have discussed the possibility that the strain of capitalism which dominates the U.S. economy has failed, and the nationalization (either outright or cloaked) of entire industries such as autos and healthcare is now likely or perhaps even inevitable.

From one perspective, Capitalism in its dewy perfection of self-interest enriching us all via "the invisible hand" has had a stupendous run of propaganda since the early 1980s when the "command economy/welfare state" of nations such as the U.S.S.R. and 1970s-era Britain were so clearly in decline/collapse.

But just as various think-tanks and politicos were heralding the ascendancy of global Capitalism, a funny thing happened on the way to Capitalism's Uncontested Victory: Global Depression.
The propaganda machine of Capitalism (which does a nice business congratulating itself) likes to present the Bill Gates model of Capitalism in which a scrappy entrepreneur wrests code from a small company and then gets amazingly lucky as IBM stupidly hands him the keys to a money printing press... oops, I don't mean the "real story" of Microsoft, I mean the PR one that Bill Gates' maniacal drive for dominance of a growing industry via any means necessary has enriched the world and not just himself and his cronies.

(Why am I getting flashbacks to Mr. Rockefeller and Standard Oil ?)

The Steve Jobs story actually runs a little closer to the ideal/myth, and there's no denying that the heady mix of vulture capital--oops, I mean "venture capital"-- government funded research, top universities and entrepreneural zeal that form the backbone of Silicon Valley has worked Capitalistic miracles from Hewlett-Packard all the way to Google.

But let's not forget the other strains of Capitalism out there--like the one dominating West Africa. There, "entrepreneurs" see a market and well, they plunder it because there's nobody to stop them. (A ragtag "army" of AK-47-toting teens has certain persuasive powers, as do kidnappers and other assorted extortionists and thieves.)

But wait--you can't call "business" in West Africa Capitalism. Oh, really? Why not? It's certainly a free market--as free as you can get, because there's no heavy-handed government telling anyone what to do.

So let's draw a quick distinction: Capitalism requires a strong rule of law. Otherwise, your ideas get stolen (welcome to Capitalism 3.0, the Chinese version), goods are adulterated to boost profits even as they poison buyers (welcome to Chinese Capitalism as actually practiced), your products are pirated/copied (see above), roadblocks to profits like annoying air quality standards are removed or ignored via bribes (see above) and those empowered as "gatekeepers" of the public good can enrich themselves via said bribes and various profit-sharing deals.

If we consider the idea of Capitalism as an organism of sorts, we can easily see that it has mutated into a variety of different strains. The Japanese model of heavy government involvement in private enterprise, cross-ownership of shares, etc. has run into a 18-year patch of bother, and other than a brief Springtime caused by selling machine tools to China during its ascent, there is really nothing to suggest that this strain of Capitalism is self-healing. It seems to be slowly choking Japan.

So let's posit another distinction: government intervention and planning is good for certain strains of Capitalism--until it's not.

Here in the U.S., we've been congratulating ourselves most heartily for the past 28 years about how successful the "American model" of Capitalism has worked.

Uh, but some holes have appeared in the model recently--are they just holes, or is the entire fabric shredding? True believers will claim that the entire subprime mortgage mess was caused or enabled by government regulation. Really? If there were no banking regulations at all, then what's to stop a sharp entrepreneur from inventing derivatives and 100-to-1 leverage?

After all, the basic structures of credit, leverage and derivatives have been in place for hundreds of years, since Capitalism circa 1600 was stretching its trade tentacles around the globe.
Exactly how Capitalist is it for a government to:

1. buy shares in companies, whether the company approves or not
2. inject hundreds of billions of public funds into a private banking system
3. act as a lender of last resort for various enterprises and private homeowners
4. facilitate the bankruptcy of various private firms

What is the difference between these actions and a command economy? I submit that if you scrape away the flowery propaganda the answer is: fundamentally nothing.

So when did the U.S. government decide to "take command" of the economy? When Capitalism had failed so badly that the well-being of the citizenry and the nation were at risk.

The army of apologists for markets free of annoying government regulations are silent now that Bernie Madoff pillaged $50 billion from "free markets." Hey, caveat emptor; by the no-gloves rules of "real" Capitalism, the buyer has to beware. Under these ideals, all the investors who lost their money trusting Madoff simply got what the market dishes out: risk and losses. Nobody forced them to entrust their money with him, and nobody forced all those homebuyers to sign up for option ARM mortgages or agree to pay $600K for a house that sold for $150K a few years before.

So why is the U.S. government intervening to keep the market from working?

It's intervening because the entire system is at risk of unraveling, and those players with the most skin in the game are desperate not to lose their stakes. In certain ungovernable parts of the world, they'd hire a private army to set the markets in their favor--or simply take what they want. Here in the U.S., some subterfuge is required to get the same results.

Perhaps we're being distracted by the Kabuki Theater of "Bad Eggs" Corrupting Our Pristine Capitalism. Maybe the strain of capitalism we've nurtured has failed at far deeper levels than who's on stage.

For example, let's consider the "healthcare" (a.k.a. sick-care) system in the U.S. This industry is growing like, well, an out of control mutant, devouring about 20% of the entire GDP and producing less and less results in terms of longevity and well-being. In fact, the system is depriving an increasing number of citizens any healthcare at all except what can be provided by county emergency rooms--facilities which are teetering on the edge of insolvency.

Only paid flaks can claim the system is working seamlessly and efficiently, serving all 300 million citizens well via "the invisible hand" of self-enrichment. We all know the system is broken, and we're all waiting for something to finally crack.

If the government just got out of the business of regulating healthcare and funding it, would the free market resolve all the knotty dilemmas? Perhaps. But the free market involves risk, and therefore it leaves a lot of losers in its wake. As in, you got no money, the charity line is over there.

Am I against such a "pure" model of Capitalism? Not necessarily; it may well be that the only real solution is to let providers and consumers sort out prices and what will be offered and what will be paid for various services. But such a workout will take down the entire system because the number of citizens who can afford to pay $100,000 cash for an operation and a few days in a hospital is vanishingly small.

So in a truly free, unfettered market, every hospital, every HMO and every provider will go bankrupt. Malpractice insurance will simply vanish, because if all people can pay is $30 for a visit with a doctor then that certainly won't leave millions of dollars floating around to spend on attorneys' fees and/or malpractice.

About all that government might do in this "unfettered competition/free market" Capitalism is require care providers to post the verifible statistical results of their care and their posted prices for various services on a public forum, i.e. the Web. Then consumers could pick and choose based on some relevant facts, just as they now pick vehicles based on mileage and other features.
But what are the costs of such a "market solution"? Financially, all the players in the current system will lose, and those without resources will have little access to care.

Few will accept these two conditions, and so a full-court press to maintain the present "partly government-subsidized, partly not" system will be made. But as the economy frays further and government funding becomes squeezed by interest payments and lower tax revenues, then the internal political logic for complete nationalization becomes ever more evident.

For instance: as counties go bankrupt, who will pay to keep their emergency medical services open? The Federal government; there is no other source of funding. Is that de facto nationalization? Rather clearly, the answer is yes. It's not too hard to see the same pressures to buy/prop up/fund being applied to hospitals and HMOs as they go bust.

Various forces will work to "save" private profit in such an awkward alliance of public funding and a high-cost-structure private sector, but the opportunities for private profit will be slim in a Depression. Ideologically, Americans have been trained to see command-economy ownership and control as failed Socialism; and it's certainly true that as in Capitalism, Socialism has various strains, too.

So the U.S. may end up with a peculiarly bloated and inefficient system which is nominally "private" in certain areas for ideological reasons but which for all intents and purposes is run and regulated on a command-economy nationalized basis.

Will this work better than the system we have now? It would be difficult to design a worse system than the one we have now--inefficient, clogged with paperwork, beholden to special interests, and unable to offer care to some 40 million citizens even in flush times--so perhaps it will be an improvement.

Will it be Capitalism? Maybe in some Orwellian fashion, some will insist on that label for various small pieces; but as a whole system, the more accurate description would be "command economy." Capitalism in healthcare--at least the strain dominating the U.S. economy-- has failed, and will be replaced by either a nationalized system or a Capitalism which will necessitate the almost complete destruction of the current ownership of healthcare assets and a re-ordering of entitlements and funding on a vast scale.

Which one we end up with will be decided by how much purchasing power the government will be able to muster with its bonds (debt) and paper money.

28 new reader comments --selected from the flood of comments sparked by the 12/15 and 12/16 entries.


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Asymmetric Risk, Bicycles and SUVs


Many who felt invulnerable enough to demand ever larger salary and benefit packages are discovering risk is not as asymmetric (i.e. "we're protected") as they thought: auto workers and financial-sector employees were Wave One, in 2009 municipal and local government employees will be a gigantic Wave Two.

Here is my metaphor for asymmetric risk: bicycles and SUVs. Both share the same street, both are transport--but the risks inherent in each are very asymmetric. The bicyclist (I know because I ride over 1,000 miles a year on city streets and bogus "bike lanes" which are merely white stripes on busy streets) must be alert at all times because a 1-ton vehicle can do a lot of damage to a 35-pound bike and a 175-pound rider.

I've been knocked off my bike by other bicyclists, hit huge potholes, skidded on loose gravel--the list of risks a bicyclist faces every moment on city streets is long and varied. A risk-free world is an illusion no bicyclist can afford.

The SUV driver is the exact opposite. Comfortably seated in a large vehicle of steel and safety glass, warmed by the vehicle's heater and soothed by its sound system, the driver is easily lulled into a false sense of security.

Our nation's financial situation is roughly akin to driving an SUV while sitting on the front bumper. Oh, and the brakes are iffy, the shocks are shot, the fuel tank is almost empty, and the electrical system's erratic at best. Have fun driving.

Various groups have, via massive political contributions and lobbying, attempted to sequester themselves from real-world risk. This includes government contractors, of course, and shadowy financial/banking players who were pleased to beg for relaxed oversight and regulation of their little paper games.

But the average urban dweller doesn't see these well-cloaked beneficiaries of asymmetric risk--the ones they see as protected from the risks they themselves face are city, county and state employees.

When you have either fake healthcare coverage (such as a $5,000 deductable) or no coverage at all, and you just got your hours cut, you tend to look at articles like this with a slightly jaundiced eye: Cities pay huge salaries despite fiscal crises (S.F. Chronicle)

Sure, maybe the public employees drawing $200K+ a year work long hours, but then so do tens of millions of people earning $40,000 or less in "the real world" (i,.e. private employment).

Here is how city department heads deal with threats to their perks, like their own private drivers: they reshuffle the budget as needed to keep their drivers. According to some MSM reports, local government employees are shocked by the animosity they feel from the general public. Hmm, I wonder why? Perhaps if they read the above article and this one, they would understand how asymmetric risk (i.e. we face risks squarely while you're protected by our tax payments) strikes the taxpaying public as supremely unfair: Wage freeze proposed for S.F. unions (S.F. Chronicle)

"The city currently has a $6.5 billion budget and a shortfall of up to $125 million. Next year's deficit could reach $575 million - or nearly half of the city's $1.2 million discretionary spending account.
"I don't think any of us, myself included, have really grasped the enormity of this problem," Peskin said at the meeting's start. "We are facing a truly catastrophic financial disaster."

Peskin's proposals to eliminate 22 jobs for drivers of battalion chiefs in the Fire Department and take four fire engines out of rotation have been tabled because Chief Joanne Hayes-White came up with alternatives.

Instead, she has laid off civilians, frozen vacant positions, and moved firefighters doing special projects and desk work back into the firefighting rotation to save on overtime pay."

So the city is facing an unprecedented fiscal crisis, and the battalion chiefs are moving Heaven and Earth to save their private drivers. Nice work if you can get it, eh? I would strongly suggest that the battalion chiefs consider that the asymmetries in risk are about to equalize, and as a result they maybe seeking to staff a largely volunteer fire department by 2014. In fact, they may be no battalion chiefs at all; there will only be an actual paid firefighter or two at each station; the rest of the firefighters will be volunteers.

Now that's driving from the bumper of the SUV, not from inside.

The latest news in San Francisco is that Apple is dropping out of the MacWorld trade show--the death knell to the city's fat $25 million revenue it pulled in from the show. Now subtract all the other trade shows which will be cancelled as pointless in 2009, the steep reduction in foreign tourism as the depression guts economies from the U.K. to China, and you get a city which will soon be facing not a 50% cut in discretionary spending ("only" $1.2 billion for a city of 800,000 residents-- then there's $5 billion more in non-discretionary tax-paid expenses) but a 100% cut in discretionary spending--there won't be any at all.

Welcome to life on a bicycle.

The S.F. Fire Depertment battalion chiefs are obviously willing to steer their luxury SUV from the front bumper, but as small businesses are decimated, once-plump charity endowments are slashed and corporations flee the high-tax environs of S.F., the battalion chiefs will find the steering's getting a little squirrely on their luxury SUV and they might run into a fiscal ditch.
It's been a nice gig, sequestered in the plush comfort of "safe" tax revenues, but as businesses wither and die, so do tax revenues; and the general public-- overtaxed, hours cut, benefits slashed, laid off, pissed off--may not take kindly to municipal or state "revenue enhancement" schemes whose sole purpose is protecting the benefits (i.e. dodging the risks of the real world) of public employees.

Longtime correspondent Albert T. checks in from New York City with a related story: raising fares in a recession to cover pension shortfalls:

"Here in NYC there is a proposal to (ahem) lift fares for metro/bus etc from $2 per ride to $3. nbcnewyork.com. to close a $1.2 billion dollar gap...
www.mta.info. The reasons are really very simple in this half-year report from the MTA. For the six-months of this year their operating revenues were $2.918 bil (not counting the grants and basically taxpayer subsidy of $3.060 bil) and expense were $6.446 billion, ergo the MTA is running on a constant gap basis with the bulk of the money coming from taxpayers in grant form.
Most of the money gets spent on (for the same period mind you, only a 6 month budget):
Salaries and wages $2.268 billion
Retirement and other employee benefits $697 M
Postemployment benefits other than pensions $828 M
ergo $3.793 goes to people with about 2/5 going to people whom are no longer working-- isn't that wonderful. (page 11 of the link)

So in essence they run a perpetual deficit with rate hikes when they need to because, hey, they have the city by the balls, if they strike everything ceases. A guaranteed pension and benefits after retirement, wonderful, wish I had the same thing. Except this comes not only from operating business but directly from the taxpayer... They could always issue more bonds short-term to cover the deficit until they bleed the money out of the taxpayer through hikes or otherwise like an extortion mob.

Not even mentioning the gross overstaffing and inefficiency of labor and other resources. Ergo 10 electricians per light bulb and full office buildings of workers doing "EFFICIENCY STUDIES".

If 10-20% of the city left or boycotted the MTA for a prologued period of time they would go bankrupt and there would be no pensions or post-retirement obligations. I find the audacity of people saying we should raise taxes on alcohol, cigarettes, taxpayers who own cars, taxpayers in general, just to keep the MTA subsidized and fat without absolutely any cuts on its side, because hey they deserve it. Right... It's appalling that these officials call on taxes to be raised just so their budgets could balance to continue robbing the public.

In other words, like an extortion mob.

Since the MTA is essentially a monopoly it is odd that we have to fork over $5 billion dollars a year to subsidize their pensions/post-retirement benefits.

Also the assumptions their pension plan makes are insane, whereby its guaranteed they will be short each and every year... (p 41 of the above report) Investment return of 8% is assumed... with projected salary increases of 3.5% - 36.2% and inflation of 2.5%

Assuming the median (3.5+36.2)/2 = 19.85% median projected salary increase projected in the plan. (kind of funny how it ends up in that 20% range almost like private equity ROIs)
Not sure if its 23 yrs ergo after 23 years you get it but it used to be 20 so that might be true.

The only people I see deserving pensions are the bus drivers and the train machinists those whom actually drive the bus/train during the day. All the other people are freeloaders in my view. Even people whom repair tracks because there is usually a crew of 20 when you only need 2 or maximum 4 people. Yes even those whom monitor the system to make sure it's running because their salaries which are above what a median bus driver/machinist makes to such a degree they shouldn't get a pension."

Thank you, Albert. Public employees will undoubtedly feel the fare increases are absolutely justified, and the disgruntlement of the public will be dismissed. Yes, the public employees were "promised" benefits, but the promises were unrealistic. Now risk is no longer asymmetric--it's spreading everywhere.

Those riding bicycles will resent those still locked inside their toasty-warm luxury SUVs, seemingly impervious to risk--and when the SUV flips over and crashes, as it most surely will, the occupants--corporate chiefs and battalion chiefs alike--shouldn't expect much sympathy.

27 new reader comments --selected from the flood of comments sparked by the 12/15 and 12/16 entries.

Here is Part III of Chris Sullins' strategic action thriller, Operation SERF: Operation SERF, Part III


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A Look at U.S. Bonds

With the Federal Reserve lowering its Fed funds rate to near-zero and speculators-- oops, I mean "investors"--fleeing commodities and stocks, bonds have skyrocketed. Is it a new long-term trend or yet another bubble?

Super-low Fed rates and a flight to safety (i.e. the market is still expecting the U.S. Treasury to repay its bonds and interest due) have pushed U.S. bonds to the stratosphere. Recall that bonds' yield and face value act as a teeter-totter; a drop in yields raises the face value, and a rise in yield pushes down face value.

I asked frequent contributor Harun I. for some charts and commentary on the 10-year bond. While these charts look to me very much like a round, fragile object floating a few feet above the ground--i.e. a bubble--as Harun takes pain to note, we have to respect any breakout.
As always, please read the HUGE GIANT BIG FAT DISCLAIMER below which states that nothing here should be mistaken for investment advice; this is a free site and you get what you pay for, (heh) i.e. my observations and opinions. Harun's opinions are his own and they too should not be mistaken for investment advice.

Here are Harun's notes on the charts:

Please go to www.oftwominds.com/blog.html to view the 3 charts:

"By examining the three charts, one must accept without equivocation that a valid breakout of a major multiyear formation has occurred at the primary level. Momentum and trend indicators are just beginning to register but this is typical in fast markets.

On the monthly chart, a push to the top of the SE channel may be at hand. The confluence of the upper channel line and the 100% extension makes this a likely target. But the measuring implications of the formation indicate much higher prices. Which will prevail? We will have to wait and see.

The weekly chart with COT (Commitment of Traders) data indicates that while price movement is explosive, the mechanisms that are needed for sustainable price advancement are lacking. Open interest has all but dried up. Relative to times past, Commercial and Large Traders are noncommittal. While I did not include a Volume indicator, 25-week average volume is hovering around 30% below 50-week average volume. In short, capital flows and trader participation do not support price acceleration.

With that said, one must never argue with price. Traders may wake up and get on board this rally.
US 10-year notes are outperforming gold but the disparity between nominal value and real value is still quite significant. (No chart)

Finally, the daily chart indicates a successful assault on the R1 monthly pivot point with the major histogram of MACD overbought and the minor histogram declining toward equilibrium indicating a loss of short-term acceleration. Volume has strengthened from a very weak reading to parity with average 50-day volume. Even at the short-term level volume has not confirmed this rally.

As I have stated, it is never prudent to argue with price. If on the trend, stay on the trend but be mindful of the quality of price movement. Large interests can push around thin markets and clearly this market is thin.

If you have been whipsawed, don’t feel bad, Jim Rogers was forced to cover his shorts in bonds last week. If he was forced to cover I suspect many others were as well, which helped fuel this rally.

Is this a bubble? Of course it is; by now this should not be news. The Bond/Gold ratio is proof enough of the degree of distortion in US Treasury markets.

Is this the final blow off? I do not know, it could be. The current run-up is undoubtedly irrational. The fundamentals in the American debt markets, private and public, are severely impaired. The belief is that the US government will print money until collapse rather than repudiate its debt. The fallacy of this is evident; collapse is repudiation.

Referring back to the monthly (primary level) chart, if price stalls at the upper channel line and falls through the lower trend line of the wedge then the formation will have failed and a rapid descent can be expected.

On the other hand, the normal cycle is for bonds to top, then stocks, then commodities. Conversely, bonds typically bottom first, then, stocks, then commodities (e.g., US Treasuries topped in 1998, equities topped in 2000, commodities topped in 2001). If this were to hold true, regardless of the why or how impossible one may think it, at some point a rally in stocks and commodities is inevitable.

As stated earlier, the quality of the rally in the 10-year note is dubious. Traders in all classes are non-committal and volume on a relative basis does not confirm. That these divergences are occurring at all levels of trend should indicate caution.

January may prove pivotal as we go into the New Year overbought. This year, price could not close solidly below the January low, and a major rally is underway now that the January high has been solidly penetrated."

Thank you, Harun, for the knowledgeable commentary. In a side note, I want to note that the (Bear-Market) stock market rally that I anticipated in my December 1 entry appears to be underway.

Thank you, readers for the many excellent comments. With holiday-related work in full swing, I am hoping to post your comments tomorrow. Thank you for your patience.


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First Step: Triage

The solution to our present problems is triage: understand the context of the problems, prioritize what can be saved, live within our means and strip away all the perverse incentives, borrowing and financial legerdemain which currently dominate our economy, government and society.

Reader Jeff C. made an excellent suggestion: focus on solutions, not just the problems:

I really appreciate how you point out all of the problems with the current economic system and the possible future problems it has/will create. In addition, I think that most of your ideas are valid and very reasonable. However, I would respectfully request that you do more to be a solutions-based website.

If you have better ideas, now is the time to put them forward in a meaningful way. The collective "we" knows that things are dicey at best and horrifying at worst. Charts showing where you think we are going are instructive, but, they only solidify what is now blatantly obvious to all of us - we are in very dire times and they will get worse. You may have some type of insight this country (and this world, indirectly) is in need of. It is easy to point out the problems, it much harder to point out the real/right solutions."

Thank you, Jeff, for this important challenge. So here we go with the solutions which seem transparently obvious to me. But first, I have to provide the context for these conclusions.
I should start by saying: the chances that any of these ideas will gain any traction whatsoever are essentially zero. The number of readers who will agree with all of these points is essentially zero because every one gores some sacred ideological cow: Libertarian, Progressive, Conservative, etc.

The fundamental idea I present here can be summarized thusly: we as a nation must live within our means, i.e. spend less than the actual surplus we create. Anything else is an illusory, temporary "fix" which simply forestalls the collapse of our debt-castle a few years.
The second fundamental idea is this: strip away all the borrowing, financial legerdemain and perverse incentives which currently dominate our bloated, dysfunctional economy, government and society, and create positive incentives in their place.

This won't happen until we slam into the wall of insolvency, because very few will let go of their entitlements and political advantages. We will instead argue until we actually slam into the wall about "fairness" and "free markets" and bailouts, blah blah blah--all ideological "talking points" which have virtually nothing to do with the simple but horrendously difficult task of living within our means, restoring positive incentives and prioritizing what to do with our dwindling surplus of capital/labor.

The most important context is the one I described yesterday: the U.S. no longer creates enough surplus to fund its stupendous government expenditures and private consumption. To mask this reality, the nation collectively borrowed trillions of dollars in the past 8 years, at every level: government, private and corporate.

This orgy of debt is unsustainable, and has crippled the economy and thus our society.
There is simply no getting around this. If the U.S. was so productive, then why did we have to borrow trillions to support the "American lifestyle" and Empire? If the economy had been truly productive, we would have been able to pay for everything with cash and spin off trillions in surplus.

The second context is: the incentives built into our economy and culture are self-destructive and dysfunctional. Why take responsibility for your own health and well-being when the government has promised to fix whatever's wrong with you? We want some miracle drug and we want the government (or somebody, we don't care who) to give it to us for free. It's our "right," it's what's "fair," etc.

If no one can be fired for incompetence, then guess what, incompetence flourishes.

Why create new energy sources or other real, productive wealth when it's so much easier to play around with "financial innovations" and rake off $600 million (the average "earnings" of the top hedge fund managers in the go-go years)? Why bother persuading voters when you can just hire an army of 41,000 lobbyists to sway the elected officials directly? Why not steal via white-collar crime when the pay-offs are huge and the chances of being caught and actually punished are so low?

The third context was also addressed yesterday: risk has not been eliminated, it's simply been cloaked by artifice, propaganda and borrowed money. The reason why many are drawn to Survivalist strategies is that they've grasped that the risks we have collectively dismissed as "in the past"--national fiscal insolvency, a near-worthless currency, widespread hunger, a breakdown of the medical system, etc. are either possible or increasingly likely.

In triage, we need to identify the highest systemic risks and then prioritize our national spending to lower those risks: of widespread crop failure/hunger, of disruptions in energy supplies, of fast-spreading diseases (either bioweapons or bird-flu type pandemics), etc. We need to realize that all the ideologically inspired shouting matches over gay marriage, abortion, CAFE standards, and all the rest of the propaganda-fed "news" and "debates" are essentially distractions.

When you're hungry and there's no gasoline and the lights are flickering--oops, another blackout--and you're family is sick with God knows what but they're not getting better, you won't give a dang about all the "issues" which we've been brainwashed into thinking are so important.

That such trivial "issues" are front and center reveals how we as a nation are living in a fantasy world in which risk has supposedly been banished. This fantasy has so distorted our view of reality that we've lost sight of the government's essential role: to preserve liberty and protect the citizenry against catastrophic risks: a nuclear exchange, a public health pandemic, mass hunger, a collapse of our currency, etc. Only a nation convinced of its invulnerability could be so deluded as to spend its waning days of wealth arguing about how the borrowed trillions should be divided, as if they were the spoils of conquest rather than the outright theft of our children's future.

The fourth context is demographic. Two workers cannot generate enough surplus to fund a third person's retirement for 30 years and hundreds of thousands of dollars on costly medical treatments. That is a demographic reality. Oh, and the two workers also have to create enough surplus to pay for the world's mightiest, costliest military and all the other costs of government beyond pensions and healthcare.

The fifth context is the cheap, plentiful energy source which has powered the Industrial Revolution --petroleum--is in decline. We have one generation to build new sources of equivalent kilocalories/kilowatts of energy, or there won't be enough oil left to do so. That's simply reality.

The sixth context is the unparalleled sophistication and reach of marketing and propaganda. The government has massaged data into Orwellian misrepresentations and then passed them off as "reality," and the Mainstream Media absorbs the manipulated data whole, feeding it to a mass audience as "fact." "Change" has been reduced to tweaking the various bailouts and stimulis packages (all paid for with borrowed money or money created out of thin air), all designed to keep the status-quo debt/deficit machine creaking along.

The Mainstream Media has followed Marx's prediction into monopoly concentration perfectly, with some six or so global corporations controlling much of the Western world's media: broadcast, radio, cable TV, publishing, print and web portals. Yes, the web is breaking down the monopoly, but let's not underestimate the incredible concentration of media ownership and control of what most Americans watch and read.

The seventh context is that in the financial realm, government's key responsibility-- law enforcement (i.e. regulation, investigation, oversight, etc.)--has been botched. This is so obvious it cannot even be challenged. The reasons are myriad, but the politically inconvenient truth is the "watchdog" agencies have all had their budgets cut and their roles eviscerated/proscribed/limited. Ask yourself, why? Then ask: cui bono? Who benefitted from the gutting of regulatory agencies?

The eighth context is that "capitalism" in the U.S. is itself largely a propaganda construct. The propaganda machine of "the free market" presents capitalism as a fairy-tale wonderland in which Madoff's $50 billion Ponzi scheme, Apple and the corner hardware store all operate in the same ideologically pure space.

This heavily hyped "model" masks the reality that the vast majority of the nation's productive wealth is held and controlled by a relative handful of citizens (and non-citizens). You can look through my archives for the statistics, but basically 2/3 of all productive assets and investment income are owned by 1% of the populace.

The End of the Washington Consensus:
But the effect has been for the richest 1 per cent of the population to increase its share of interest extraction, dividends and capital gains from 37 per cent ten years ago to 57 per cent five years ago, and nearly 70 per cent today. Savings remain high, but only the wealthiest 10 per cent are saving – and this money is being lent out to the bottom 90 per cent, so no net saving is occurring."

This is a pretty good definition of "The Powers That Be" (TPTB). Who benefits from the status quo? Well, those benefitting most from the status quo. Capital can buy political policy to protect itself. Very simple.

Michael Hudson has drawn a key distinction between the classic "capitalism" of putting capital at risk in entrepreneural enterprises to create wealth and "rentier capitalism" which risks no capital, launches no new enterprises and which skims off rents (interest is the "rent" from capital) and non-productive gains from "financial innovations." It has more in common with feudalism than with capitalism.

That key distinction is precisely what the propaganda machine of TPTB strives to blur. Any attack on the rentier class is fended off with wrapped-in-Old-Glory appeals to the beauty and wonder and rightness of free market capitalism, as if Madoff and Steve Jobs are equivalent players. Protect one "capitalist," and you protect them all--even the ones who aren't truly capitalists.

OK, so there's the context. Now we make a key distinction between solutions: some are macro (national), some are micro (personal).

Ideologies are wonderful propaganda tools--witness Fox TV, Communist dictatorships, religious zealots, etc. So let's start with:

1. Dump the ideologies and ideological purity contests. Capitalism isn't some pure sweet academic model concocted in the Chicago School; it's messy, Darwinian, and always in play with political forces and human nature, i.e. greed, avarice, tribes, deception to protect advantages, etc. The same can be said of Socialism and Communism or religion-controlled systems. So #1, dump the ideologically pure models. All fail to capture what is essential in triage: what's practical and affordable.

2. Accept that we have two choices, and only two choices: muddle through/play with the edges of the situation, keep borrowing trillions/depreciating our currency, and face the eventual collapse of the entire system--i.e. systemic insolvency-- or perform triage: re-orient the system's incentives, lower what risks we can cheaply and effectively, and let go of what's hopelessly unsustainable/unaffordable.

As voters, we still control the political process and thus, indirectly, the spending of taxpayer's money and the regulations and laws of the land. If we passively do nothing, demand no change and re-elect the same old tired parrots of the Party Line ("borrow and spend, borrow and spend, brawk!") then those who benefit most from the status quo will buy as much political protection from the winds of change as they can.

3. Lose the entitlement attitude. Regardless of whether you love it or hate it, the Nanny State is unaffordable. Refugees from war-torn and poverty-stricken countries like Sudan, and in previous generations, Vietnam, come to the U.S. and forged a life of success based on opportunity, not entitlement.

All we are entitled to as American citizens is: life, liberty and the pursuit of happiness, freedom of speech and religion, the right to bear arms ("A well regulated militia being necessary to the security of a free State, the right of the People to keep and bear arms, shall not be infringed"), the rest of the rights provided by the Bill of Rights, a U.S. passport and as adults, a vote (unless we're convicted of a felony or don't bother registering to vote) and the right to own property. Everything else is not a right, it's a privilege or an entitlement.

Americans all too often have adopted an entitlement based worldview in which "somebody owes me something." Actually, they don't. The solution is "get real" and realize you won't be getting what is unaffordable and unsustainable, i.e. Medicare, Social Security or any other government-funded "guaranteed" pension or medical benefit as currently promised.

We all want it both ways. Guys want the "freedom" to ride motorcycles without helmets, but when they crash they expect to be taken to the emergency ward and have their cracked skulls patched up, on the taxpayer's dime. Time to grow up and accept we can't have it both ways.

4. The U.S. is essentially insolvent, so don't count on receiving the entitlements you've been promised. Interest on the national debt will soon exceed the Pentagon budget as interest rates rise, and that means staggering sums of our nation's wealth will be going to nothing but paying interest on past debt, never mind actually paying it down.

It's like a national credit card which keeps ballooning, until the "family budget" will be dominated by paying interest, squeezing out all other spending.

At some point, the U.S., states and local government will be forced to default on all their financial obligations such as interest on bonds, pensions, medical care, etc. This will happen in one of two ways: either insolvency will be announced, i.e. we can no longer pay our obligations, or the dollar will be devalued to 10 cents (or less), thus reducing everyone's Social Security pension of $1,000 down to $100 (or less). Magically, all debt and interest due gets cut by 90%, too.

Since the populace prefers artifice to reality, then this 90+% reduction in purchasing power will most likely come via dollar devaluation than outright bankruptcy--though I wouldn't count out the possibility that a future sacrifical president would fall on his/her sword and announce the bankruptcy of the U.S.A.

Either way, plan now for the elimination or reduction in all entitlements. The macro way to stave off total collapse for awhile would be to means-test all entitlements; if someone's making $3,000/month or more in other pensions, then their Social Security would be reduced to near-zero.
Is that fair? Well, we don't have enough
money to be fair. So maybe we should return to the original idea which was to lower the risk of retirees being subjected to absolute poverty.

Medicare will implode even sooner than Social Security, so the triage will have to be even more brutal. Care paid for by the government/taxpayers will have to be rationed, and it boils down to choosing the rationale behind the rationing. One way is to do it by age; beyond X age, taxpayers will provide only pain management. Beyond age X, we're on our own so we better start saving or buying our own insurance coverage.

Remember the context here: the actual surplus we have available to spend on medical care is shrinking. There is no more "free money" so we have to make do with what we have. Should the 40-year olds get replacement hips before the retirees, since they're still working and have kids to support? That seems fair to me. If there's any money left over, then we hold a lottery to divvy up what's left in the pot.

That's not anyone's ideal solution but again, the alternative is the collapse of the entire system: insolvency, in which the government can no longer sell off worthless debt to raise worthless dollars to pay real bills.

5. Take responsibility for your own healthcare. Medicare is toast, on its way to oblivion or lotteries or restrictions which limit care to Third-World standards (i.e. what you get now if you don't work for the government or have gold-plated coverage or sky-high private insurance.)
Actually, Second-World care in Thailand, India, China etc. is as good or better as care in the U.S. and it's much, much cheaper. If you absolutely need surgery, start researching hospitals in Mexico, China, India, Singapore and Thailand.

The most important step in taking responsibility for your own health is to completely ditch the standard American diet of junk food, prepared food and high-salt, high-fat, high-sugar "food." I have a fast-food burger maybe once or twice year; I really don't miss it because my slogan is: "You don't miss what you no longer want."

I want health, not sickness, so there is no packaged food, white bread, etc. in our home and I don't miss what I no longer want. Our diet is Asian/mediterranean/ common-sensial: meat and fish in small portions, lots of fruit, vegetables, beans, lentils, etc. Nothing new or fancy here, just what we all know makes up a healthy diet.

Many readers of this blog eat "home cooked" meals only, and as another slogan of mine has it: forget the "revolution" of barricading the streets: "A healthy homecooked family meal and a home garden are revolutionary acts."

Take the power away from a failed and unsustainable "sick-care" based not on prevention but on exploiting your chronic diseases for profit by changing your diet and exercise habits. Remember: You don't miss what you no longer want. If you change the goal from sickness and ill-health (i.e. what you get with the standard American diet) to health then you no longer even want or miss the garbage passed off as "food" in America.

Exercise. Even if you are disabled, do whatever you can within your limitations. Exercise is even more important than diet--it is the one true "health miracle". An active life is what we're selected for, just as we are selected for an omnivorous diet of many food sources, mostly raw or slightly cooked, and heavy on seeds (nuts), fruits, edible plants (vegetables) and occasional meat/fish.

You don't need to go to the gym; any 6 ft. by 6 ft. space is a gym. Learn yoga, dancercise, marital arts, etc., ride a bike in seasonable weather, walk a couple miles a day, dig up a garden with a pickaxe and shovel-- there are many ways to stay active and therefore fit.

Nobody is going to save you from your bad habits; every other belief is illusion. If you need an operation, then you better start saving now and planning your flight to India. Dental care is available across the border in Mexico for very reasonable fees, as correspondent Jim Twamley has described in depth on his blog RV Now.

6. Learn to hedge. As I have repeatedly decribed here (often calling upon Harun I. for commentary), there is no "magic bullet" in retaining or building your wealth in the coming decades; you will need to be flexible and seek opportunities to hedge against rising costs or a depreciating dollar as they arise. "Buy and hold" won't work; even when buying gold and silver, there are better times to buy than others. Those who bought gold at $800/ounce in 1980 have lost staggering sums in the ensuing 28 years; adjusted for inflation, gold will have to exceed $3,000 before they "break even."

Rice and wheat are cheap again? Stock up on them as a hedge against higher prices in the future. gasoline is cheap again? Buy a gasoline futures hedge to lock in low prices. Or maybe buy oil/gas ETFs or stocks, which will likely offset your rising fuel costs by appreciating.

Concerned the dollar may well depreciate? then buy some physical gold, or via BullionVault where your gold will be stored in Europe if you reckon the U.S. government might confiscate privately held gold as it did in 1934.

7. Learn a side-skill/business which either creates surplus food or energy or tradable goods. Grow some food, however small in quantity, if you can; it's not just saving money, it's about appreciating where real food comes from and what it tastes like. Learn to cook real food.

8. Build networks based on reciprocity, generosity and mutual aid. Since our government cannot provide all that's been promised (based on a much higer worker-to-retiree ratio), then we have to build alternative support networks of the traditional types: family ties, church, neighborhood, craft guilds, etc.

9. Be skeptical of "news," "statistics" and "received wisdom." Instead ask: Cui bono--to whose benefit?

10. Understand that our economy and government will have to be re-ordered so that the incentives are positive rather than perverse. Someone's sacred benefits/advantages will be eliminated at every turn. If we don't insist on wiping the political slate clean occasionally, then the usual perverse incentives will return as capital buys protection via policy and regulation--cloaked, as always, as "benefitting the little people" or "national security" or what have you.

If we slam hard enough into the wall, then the resulting triage might offer some wonderful opportunities. For instance, the 100,000-page tax codes could be tossed out and a 5-page FAIR (consumption-based) tax system put in place.

If I had to summarize the solutions, I would say this: the promises our governments (Federal, state and local) have made are unsustainable and unaffordable because our economy cannot generate the real surpluses needed to fund the promises made, given the demographic and financial realities.

There are no fiscal solutions except to live within our means. Borrowing money or creating it out of thin air merely papers over this reality, and these tricks will inevitably lead to the collapse of the entire debt-castle.

We like the concept of personal responsibility more than we like the reality. The solution is to take full responsibility for one's own health and retirement (or old age might be more accurate). That requires saving capital (surplus) and actively conserving it/growing it, reducing debt by whatever means are necessary/practical, and conserving/nurturing one's health.

Triage requires prioritizing, and I myself would focus on conserving/protecting/ nurturing three essential treasures: our liberties as granted by The Bill of Rights, our health and our networks of mutual support: family, friends, neighbors and colleagues.

Politically, I would focus on three core concepts: strengthening the government's essential responsibility: law enforcement, oversight, enforcement of regulations, etc. especially of those with the capital to buy political protection; re-orienting our economy, government and society to positive incentives via the elimination/restriction of perverse incentives and borrowing/debt, and making the sacrifices necessary to build a new energy complex capable of generating the energy content of 15 million barrels of oil a day--a complex, inherently risky multi-trillion dollar enterprise.

Food is wealth, health is wealth, energy is wealth; all else is illusion.

If I had to recommend a few books which outline the contexts of the triage we will be forced to undertake, I would choose these titles (please look at the hundreds of books and films on my recommended list for more):
Fewer: How the New Demography of Depopulation Will Shape Our Future
The Coming Generational Storm: What You Need to Know about America's Economic Future The Future of Life
Beyond Oil: The View from Hubbert's Peak
The Solar Economy: Renewable Energy for a Sustainable Global Future
The Dollar Crisis: Causes, Consequences, Cures
The Fourth Turning
The Great Wave: Price Revolutions and the Rhythm of History
Cue the self-promotion. . . and go! Weblogs & New Media: Marketing in Crisis

Here is Part III of Chris Sullins' strategic action thriller, Operation SERF:
Operation SERF, Part III

Holiday gift announcement: maximum two signed books per customer: Signed copies of Claire's Great Adventure (perfect for that impossible teen on your "gotta get them something, arggh" list) are limited to two per customer: $12 for one (includes $2.58 postage), $22 for two.
The regular price on amazon.com is $16.99; the $12 (incl. shipping/postage) is a special offer I am making to readers. Please send $12 via check (email me for an address) or via my Paypal account with instructions on how to inscribe the book, and I will mail the book(s) directly to you.

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Risk, False Productivity and the Ecology of Starvation

Much of the resources of the U.S. economy are expended on limiting risk--a costly enterprise. Yet this costly effort depends on a highly productive economy for funding. Unfortunately, real productivity in the U.S. has been largely replaced by a False Productivity based on borrowing money. By depreciating our currency and borrowing from future productivity (deficits must be paid by future generations' productivity), we have built a top-heavy castle doomed to collapse.

As long-time readers know, I try to address "long-wave" causal mechanisms which operate beneath the surface noise of financial and fiscal "news". The next few days will be devoted to ideas which receive little or no exposure in the MSM (mainstream media).

Let's begin with an appropriate analogy: a hunter-gatherer tribe. The lifestyle of gathering and hunting is what we as an organism have been selected to do well. Of the 7 million year history of our particular mammalian lineage, fully modern humans (homo sapiens sapiens-- the Mark 1.0 model) have been around for about 50,000 years. For all but the past few thousands years, all genetic and cultural modifications over the past 7 million years were selected to improve our hunting and gathering skillsets. Agriculture and urban settlements arose so recently that their impact on our genes has been slight.

That's why the analogy is appropriate.

Productivity is rather easy to measure in hunter-gatherer groups: the tribe either gathered enough food in its wanderings to survive or prosper, or it starved. Surpluses were needed to feed the children and perhaps supplement the diets of the few who made it over 60 years of age (evidence suggests about 5% of the populace were elders--a higher percentage than later agricultural communities).

Some surplus could be stored or transported, but the basic survival mechanism of humanity was to live within the means of the local ecology by moving about, thus avoiding overtaxing any one locale's "carrying capacity" for a group of large omninvores.

Though we do stockpile essentials, how small the stockpiles are might surprise most Americans. The oil markets hang on the weekly stockpile numbers released Wednesdays, moving on a few million barrels added or subtracted.

The total oil in commercial storage amounts to 17 days of U.S. consumption. (320 million barrels divided by 19 million barrels a day.) An increase of 2 million barrels may move the market, but in reality it amounts to about one hour's daytime consumption.

Even the nation's Strategic Reserve amounts to little more than a month's supply of oil. So in a very real sense, we are still a species with limited supplies of essentials. If we overtax our environment, we can starve now just as we starved then.

What most of us live on is the surplus generated by a relatively few members of the tribe. If we were to cast the entire 300 million citizens of the U.S. as a hunter-gatherer tribe, we would find that perhaps as few as 10-20% of the people are actually gathering and hunting up the "surplus" which the rest of us then consume.

In a strict accounting, "surplus" is truly only food, energy and goods which can be traded at a profit to other tribes. Every other activity is living off the excess food, energy and goods created by the few productive members.

If we were to characterize the U.S. as a tribe, 80% of the members are consuming surplus; they do no hunting or gathering or making of tradable goods. Some 80% of us do non-surplus generating things like write blogs, hold meetings, facilitate this or that, field complaints, mediate conflicts, care for children and the elderly, carry the chiefs around, plan our next raid on neighboring tribe's resources, etc.

This is fine as long as the productive members are astoundingly productive. A strong currency helps. When a dollar bought 300 yen, then if a U.S. worker made a dollar, that buck could buy quite a bit of Japanese-made goods. Now that the USD buys only 92 yen, then the dollar buys less than a third of what it once bought. As wages have doubled, the U.S. worker is given the illusion of higher income; but when measured by purchasing power, his/her wage has dropped in value.

What we as a nation have done recently is eat the seeds and kill off the game which is necessary to regenerate surplus in the future. We have consumed our future surplus. This is essentially why the Coming Depression will not end in 2009 or 2012--we as a nation have consumed our future surplus via stupendous deficits and the stupendous interest payments which must be paid out of future surpluses.

By leveraging massive amounts of debt and borrowing from our future, we created an illusion of productivity. Now that illusion has been revealed; borrowed money is not surplus.

Much of our spending is frivolous--the fruit of a deep denial that risk is still present. The sense of entitlement which is overpowering and ubiquitous among Americans who are not first-generation immigrants boils down to this: we are entitled to a low-risk society which guarantees pensions and healthcare for all retired citizens, and many other benefits for all citizens.

How many trees are being cut down to print stories of people who put money into a scheme which was visibly too good to be true and are now whining about the injustice of investing in the inherently risky stock market and actually losing money?

We as a people embrace the mythology of risk but adamantly reject its reality outside of narrow niches like Silicon Valley startups. Our propaganda machine spews endless praise for entrepreneurs like Steve Jobs, yet the fact that thousands of would-be Steves bet everything on a company or idea or technology and lose everything receives little mention. We like to read about the gamblers who embrace risk and win, not those thousands who take a risk and lose. Most small businesses fail within five years, and Silicon Valley is littered with the ghostly bones of once-prosperous companies.

But then Silicon Valley's credo is risk is part of the game, and losing carries no stigma; it is even viewed as having "earned your stripes" as an entrepreneur.
Auto industry executives, investors and UAW workers are stunned to realize
that their business actually retains some measure of risk. Correspondent Michael Goodfellow sent in this link to the marginal revolution blog, which ran this photo of the UAW-Ford contract: all 2,200 pages of it:

This is a document whose loudest subtext is: "I was negotiated in an era of no risk." When there is no risk, then you can argue over minutae, and be concise to the Nth degree; in a known high-risk environment, trust is, well, a matter of trust. Agreements are recognized as boilerplate to keep the attorneys at bay long enough to see if the enterprise succeeds. Nobody has enough surplus capital or labor to prepare 2,200 pages of legalese, never mind pore over each page and negotiate every niggling detail.

We as a nation have expended the surplus of decades to reduce risk--often a noble enterprise. The risk of families going hungry: food stamps. The risk that elderly retirees will not get adequate medical care: Medicare. The risk that the elderly will be poverty-stricken: Social Security. The risk that industry will knowingly or unknowingly poison the Commons we all share/breathe/drink: the EPA. And so on.

Now we come to the ecology of starvation. In any ecosystem, any fast-reproducing creature can, once freed of predators and disease, eat its way through the entire available food supply. It then starves to death in great numbers, reducing the load on the ecological system to the point the "carrying capacity" of the environment rises from near-zero to a restored balance.
Every creature will exceed its environment's carrying capacity if given the opportunity, and we as a nation have long exceeded our financial resources. Rather than re-scale our promised benefits and government to our true surplus, we have borrowed money from our children and grandchildrens' future surpluses to fund our own risk-abatement/benefits. Now like rats proliferating on an island, our promises to ourselves far exceed the carrying capacity of our real economy; we must now tighten our belts for a generation or two, or starve as we consume the last morsels of future productivity.

In a financial sense, we are eating the seeds needed for the next generation and stripping the fiscal ecology of assets, reducing its future carrying capacity.

As noted here many times before, demographics and rich promises of future pensions and medical care guarantee the insolvency of every pension and healthcare plan in the U.S., regardless of its size or management. No economy can generate enough surplus from two workers so that a third can be paid a retirement pension and given medical care to the tune of hundreds of thousands of dollars each.

Rather than face the fact that the risk-mediation programs we have promised are unsustainable, we have borrowed from future generations to maintain an illusory surplus. We as a nation have stripped the environment which supported us and eaten the seeds and lifestock which were needed to generate surpluses for future generations. Now we face a desert of our own making, and we're fulminating about the re-emergence of risks we thought were banished for all time.

But the risks could only be mitigated by the husbanding and careful investment of real surpluses. Once the surpluses shrink or disappear, there is nothing left to mitigate risk.

Statistics make it abundantly clear that the purchasing power of the average American household has been in decline since the mid-1970s. Some of this can be attributed to globalization (i.e. capitalism outside the tribal borders making goods and materials cheaper than the tribe can), some to the rising costs of government and healthcare, and some to the depreciation of the dollar.

This decline was masked by the financial legerdemain of two great asset bubbles: the late 1990s dot-com era and the 2000-07 real estate bubble. Behind the apparent "wealth" created by IPOs and flipping houses lay the stark reality that such paper transactions created no new tradable products, services or real surplus. Even as an illusory surplus was fashioned out of thin air, the actual productive surplus of the nation declined via the dramatic loss of the dollar's purchasing power.

Even as people were reaping paper profits in the millions, the value of the dollars being created by government fiat and fractional lending was dropping. You can't fool the productivity/surplus gods for long. Every billion in illusory wealth was offset by the loss of purchasing power for the trillions of dollars in circulation.

Those unable to cream off millions in "new" wealth simply borrowed money to support the pensions, medical care and frivolous spending. The Federal government borrowed trillions, local governments borrowed tens of billions via municipal bonds and consumers and businesses borrowed hundreds of billions more via HELOCs, mortgage extractions, corporate bonds and credit cards.

All of this money was borrowed to fill the deep and growing gap between the surplus generated by productive labor/capital and the desire to alleviate risk with costly programs.

We can be sure the 2,200-page labor contract between Ford and the UAW was forged in an unspoken consensus that the U.S. auto industry was a well which would never run dry; it was timeless, forever, a creature capable of fending off predators and therefore impervious to risk.
It doesn't take much imagination to see that an industry which failed to make money even as it sold millions of vehicles cannot survive as vehicle sales fall in half. Global overcapacity is so stupendous that unprofitable/outdated factories will have to be shuttered. The auto industry will survive in some form, but one capable of profitably making 8 million vehicles a year in North America (total demand) when it once made 16 million vehicles a year will be a very different industry.
Global Auto Contraction Ahead (Wall Street Journal)

A financial system which enabled one money manager to destroy $50 billion in wealth without any regulator sniffing even the faintest foul odor is a system in which risk was simply masked, not ameliorated.

A system which covers the lack of actual surplus with trickery, debt and phony statistics is a system doomed to a rude awakening. The U.S. no longer generates enough real surplus to pay for its own pensions, healthcare, energy system, consumer fripperies, etc. The staggering debts accumulated in the past 8 years are proof of that.

So we face a choice in 2009: either re-scale and re-size our risk-offsetting obligations to our actual surplus, or shift capital and labor from non-productive work to work which generates surpluses in food, energy and tradable goods others want, or starve as the carrying capacity of our economy collapses.

Here is Part III of Chris Sullins' strategic action thriller, Operation SERF: Operation SERF, Part III
"This is an illegal assembly!" proclaimed the man wearing a slate gray uniform, black boots, olive drab web gear and carrying a submachine gun.
The uniformed man walked down the center aisle between the rows toward the altar area where a young man stood at the head of the assembled group. Two other men dressed in a similar manner with weapons stood back toward the entrance and behind the people. The faces of all three were cleanly shaved and straps from their gray helmets were snapped around their chins. When the uniformed man made it to the front he turned around to face the audience with his back toward the young man. He let his firearm dangle by its sling, took off his helmet and held it under his left arm.
Operation SERF, Part I
Operation SERF, Part II


Thank you, William C. ($50) for your exceedingly generous donation to this site. I am greatly honored by your support and readership.

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