The Banality of (Financial) Evil

The financialized American economy and State are now totally dependent on a steady flow of lies and propaganda for their very survival. Were the truth told, the status quo would collapse in a putrid heap.

Go ahead and be evil, because everyone else is evil, too, because being evil serves everyone's interests far better than maintaining integrity, for integrity will cost you more than you can afford.

In other words, lying, fraud, embezzlement, misrepresentation of risk, material misrepresentation of facts, half-truths, the replacement of statements of fact with propaganda and spin: these are not the work of a scattered handful of sociopaths: they represent the very essence and heart of America's economic status quo.

Hannah Arendt coined the phrase the banality of evil to capture the essence of the Nazi regime in Germany: doing evil wasn't abnormal, it was normal. Doing evil wasn't an outlier of sociopaths, it was the everyday "job" of millions of people, and not just Nazi Party members.

Not naming evil is the key to normalizing evil. Evil must first and foremost be derealized (a key concept in the Survival+ critique), detached from our realization and awareness by naming it something innocuous.

Here is a telling excerpt from the book Triumph of the Market:

Normalization of the unthinkable comes easily when money, status, power, and jobs are at stake.... Intellectuals will be dredged up to justify their (actions). The rationalizations are hoary with age: government knows best, ours is a strictly defensive effort, or, if it wasn't me somebody else would do it. There is also the retreat to ignorance, real, cultivated, or feigned.

Can any of the tens of thousands of people working on Wall Street or in the bowels of the Federal Reserve, Treasury, Pentagon, etc. truthfully claim they "didn't know it was wrong" to mislead the citizenry, the soldiers, the investors and the buyers of their fraud? On the contrary, every one of those tens of thousands of worker bees and managers knows full well the institution they toil for is doing evil simply by hiding the truth of its operations.

The entire status quo of the American Empire is built on lies. Now the dependence on lies, fraud and misrepresentation is complete; Wall Street and the Empire itself would fall if the truth were finally revealed and properly identified as evil.

Lying has been derealized; it is now the expected norm. To tell the truth--on your resume, on your loan application, on your tax form, and about your own actions-- is now tainted and suspicious; the truth-teller is reviled as "putting on airs" of moral superiority, and they will be shunned and cut off by the liars around them.

Cheating on tests no longer carries any stain of ethical corruption; "everyone" cheats lest they fail to get into the university of their choice, the one that represents "the short cut" to a "good job" with excellent pay: yes, a job doing evil every day. But we no longer care about doing evil; we avoid it as a moral slaughterhouse we prefer not to see. Let the butchering of the moral heart of the nation be hidden from our delicate eyes and quivering guilty consciences.

The idea that we might not be able to buy the McMansion/auto/tattoo/toy we "deserve" enabled our killing of truth. Deprivation is a greater evil than the loss of personal integrity, and so hundreds of thousands, if not millions, of Americans went along with the lie and sacrificed their integrity to support it, feed it, breathe life into it and then pass it on to the next liar.

So the mortgage applicant lied, and the mortgage broker lied by accepting a document he/she knew was false. And so the lie grew heavier as it passed from hand to hand, and the truth became lighter than air and floated away long before the falsified mortgage was originated, packaged, tranched and sold as a AAA "safe" investment.

We now say and vouch for whatever is necessary to "win," whatever "winning" is in a universe with no moral compass. When the entire system depends on the steady relentless flow of lies--from the Federal Reserve, the Treasury, the Pentagon, the banks and Wall Street, the ratings agencies, the accounting departments, every nook and cranny of the American economy and empire--then no one is willing to sacrifice their own livelihood because they know it wouldn't stop anything.

The machine would continue on, processing lies, fraud and propaganda, without them. But they would be outside the lucrative heart of darkness, and no longer able to buy their coveted McMansion/auto/tattoo/toy that defined who they are.

Integrity has become as light as the truth itself, and both have floated away, unnoticed and unmourned. Hannah Arendt wrote about the Great Evil, Nazi Germany, and "The Final Solution" of death camps. But the Nazi machine spewed plentiful opportunities to practice the banality of evil, and the death camps were simply one division of the daily grind of pressing one's palms on evil and passing it on to the next "good German."

Here is a memorial outside the village where my brother lives in France. It is a typical village, quite small, perhaps a few hundred residents. The memorial commemorates three young French civilians who were taken out and shot by Nazi soldiers, either for suspected "crimes" or as a "lesson" to the civilian populace.

The routine killing of civilians went on day after day; it was the "day job" of the occupying troops.

Americans toiling away in their various departments of evil excuse their complicity by telling themselves, "nobody died because I lied" (except in all the places around the world where nobody knows what's really going on in America's name). Hiding the truth carries no penalties or remorse because it is SOP now, standard operating procedure.

The moral slaughterhouse is filled with corpses. We don't really know what our Imperial Project is doing in the world. We also don't know what the Federal Reserve/Wall Street partnership is doing, either. Those inside know, of course, but very few are telling, because the system depends on lies and distortion to continue its domination.

The truth-teller will lose their prestigious position, their generous salary and the acceptance of their peers. Consider the fate of Edward Snowden. In exchange for this sacrifice, the truth-teller receives only the glowing, ephemeral shards of his/her integrity: in the American culture and economy, integrity has no value. The machine will grind on without them, impervious to the tiny pricks of truth; the machinery of propaganda, artifice, misdirection and misrepresentation is well-oiled and masterful in the reach and scope of its operation.

There is no vengeance more remorseless than that of a State dependent on the banal evil of half-truths in pursuit of those who reveal the State's actions.

Lest you think this an exaggeration, please watch The Most Dangerous Man in America: Daniel Ellsberg and the Pentagon Papers. Daniel Ellsberg was only one of thousands of "good Americans" doing their job in a war machine built entirely on lies and propaganda. Only one citizen out of those thousands, or tens of thousands, was willing to trade his career for his integrity and conscience.

That's how the banality of evil works. Maybe someday someone will break free of the culture of lies and propaganda in the Federal Reserve, the Treasury, Wall Street and the "too big to fail banks" and tell the truth. They will be hounded, discredited, scorned and reviled for telling the truth, and the truth will quickly be covered up or shredded.

That's how the banality of evil works. Truth has become too dangerous to the status quo, so it must be strangled every day, by tens of thousands of people, and its limp corpse hidden away.

Those toiling away in the Empire of Lies assume karma requires their belief: I don't believe in karma so it doesn't exist. But karma doesn't require belief; it works completely independently of humanity's belief or non-belief.

The consequences have accumulated and the dam is about to burst. Believing in the triumph of financial evil won't save us, and averting our gaze won't stop the flood.




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

The Sample Hour #230 - Building Social Capital Through Community (1:01 hr)(with Drew Sample)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become 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, Mike M. ($5/month), for your remarkably generous pledge to this site -- I am greatly honored by your support and readership.		Thank you,Corbett C. ($5/month), for your superbly generous pledge to this site -- I am greatly honored by your support and readership.

Thank you, Robert W. ($10/month), for your outrageously generous pledge to this site -- I am greatly honored by your support and readership.

Thank you, Wojciech N. ($5/month), for your magnificently generous pledge to this site -- I am greatly honored by your steadfast support and readership.

Read more...

The Fed Is Fatally Corrupt-- And So Is the Rest of America's Status Quo

We know you're all just poor corrupt officials, but bleating excuses won't save you from the karmic payoff.

The Federal Reserve can be summed up in two famous lines from the classic film Casablanca in which the corrupt police official Renault is ordered to close Rick's cafe.

Renault: I'm shocked! Shocked to find that gambling is going on in here.

[The croupier hands Renault a wad of cash]: Your winnings, sir.

The Fed is totally, completely, fatally corrupt. Only those being handed their ill-gotten gains defend the Fed. Everyone who is isn't totally, completely, fatally corrupt wants America's financial Politburo tossed on the bonfire of history.

The Fed's response to its highest-level officials minting millions in insider trading is as transparent as Captain Renault's shock: only when the putrid corruption filling every nook and cranny of the Fed seeps out under the door does the Fed suddenly announce it's shocked that insider trading is going on in here.

Any agency with the faintest wisp of integrity would claw back all the trading gains of every Fed official and employee, but since the Fed is totally, completely, fatally corrupt, the Politiburo's mega-millionaires are handed their winnings like the comically corrupt Captain Renault.

At least the fictional Captain Renault had a sense of self-deprecating humor: at one point he declares, "I'm only a poor corrupt official." Chairman Powell, here's your cue: go ahead, say it: "I'm only a poor corrupt official."

But the fatal corruption of America's financial Politburo isn't unique; it's of a piece with the rest of America's fatally corrupt status quo, from the mega-millionaires in Congress minting millions in stocks (here's looking at you, Ms. Pelosi) to the Big Pharma parasites who evade responsibility for killing tens of thousands of Americans with their falsely labeled medications (non-addictive, huh), the entirety of America's ruling elite is totally, completely, fatally corrupt, from the billions collected by contractors in Afghanistan to the corporate insiders minting billions with stock buy-backs--a form of fraud that was illegal back before America became a moral cesspool.

Kleptocrats around the world are taking lessons from the Fed and the rest of America's corrupt ruling elite: how to launder money? Easy--open opaque LLC accounts in South Dakota. America is the world's best protected tax haven, because it's designed for America's own corrupt elite.

The cost of corruption is a bit higher in America, but you get what you pay for: world-class corruption costs more. Here is America, a few million in lobbying and campiagn contributions can buy pretty much anything: you need a tax loophole involving some obscure life insurance ploy? Pony up the cash and you got it on a silver platter.

Are loopholes available to the debt-serfs and tax donkeys? Of course not. Our designated role is limited to making monthly debt payments, paying taxes and distracting ourselves with binge-everything.

The higher you go up the food chain, the more profound the corruption. The croupier at Rick's doesn't have many opportunities for corruption; skimming anything will quickly lead to termination and prosecution. But at the top in America, the opportunities for corrupt gains, skims, scams, thinly veiled bribes and insider trading are essentially limitless. As Cato the Elder observed: "Thieves of private property pass their lives in chains; thieves of public property in riches and luxury."

America's corrupt elite is blind to the outcome of their skyrocketing wealth: skyrocketing inequality. And as a result, they're blind to what will wash away their putrid palace, for inequality is a systemic toxin that brings down even the greatest empires.

Dear corrupt Fed and corrupt ruling elite: the banquet of consequences of your corruption is being served. We know you're all just poor corrupt officials, but bleating excuses won't save you from the karmic payoff.

Who benefited from this Fed-inflated bubble?



Who benefited from this Fed-inflated bubble?



The answer: billionaires and the top 0.1%, with a few dregs draining down to the top 5%:




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on Secular Inflation (Host Richard Bonugli, 31 min)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become 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, Lisa P. ($125), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.		Thank you, Francis M. ($50), for your superbly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, Jerry A. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

Thank you, Jeffrey R. ($5/month), for your magnificently generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Please Don't Pop Our Precious Bubble!

It's a peculiarity of the human psyche that it's remarkably easy to be swept up in bubble mania and remarkably difficult to be swept up in the same way by the bubble's inevitable collapse.

Allow me to summarize the dominant zeitgeist in America at this juncture of history: Grab yourself a big gooey hunk of happiness by turning a few thousand bucks into millions-- anyone can do it as long as they visualize abundance and join the crowd minting millions.

Beneath the bravado and euphoric confidence in our God-given right to mint millions out of chump change, a secret plea lurks unspoken: please don't pop our precious bubble! The big gooey hunk of happiness available to all depends on one special form of magic spell: If we don't call the bubble a bubble, it won't pop.

And so Wall Street shills spew endless "research" (heh) proclaiming that the forward price-earnings ratio of 21.1 will only slightly exceed past norms, and so on--in summary: If we don't call the bubble a bubble, it won't pop.

What differentiates this bubble from the 1720 South Seas Bubble, the 2000 dot-com bubble or the 2007-08 housing bubble is: this bubble includes every asset class and has sucked the entire populace and economy into its magic maw.

The bubble has swept up housing, stocks, junk bonds, commodities, cryptocurrencies, NFTs, and numerous collectibles--the bulk of America's household assets are now firmly lodged in the maw of the Everything Bubble.

Here is a sampling of recent headlines in America:

I turned $10,000 into $6 million in six months.

My cat turned $6,000 in my RobinHood account into $6 million by walking on my keyboard.

I turned $100 my aunt gave me for the birthday into $6 million in one trade, buying way out of the money calls on a meme stock.

I turned $23 into $6 million so easily I'm going to sleep my way to $60 million.

OK, so these are slight exaggerations, but the zeitgeist is very real.

Another differentiating factor is the Everything Bubble has no boundaries. Flipping houses takes work as it is tied to the real-world house being flipped. But NFTs (non-fungible tokens) have no limits: an NFT can represent/instantiate a rock, photo, chipped glass, etc., and there are no limits on how many NFTs can be originated.

In the Everything Bubble, it is not surprising that a significant percentage of Americans have bought NFTs and many view NFTs as legitimate investments equivalent to cryptos, stocks, bonds and housing.

The only problem with the if we don't call the bubble a bubble, it won't pop magic mantra is that it has an expiration date. Human greed is unlimited, the number of currency units that can be issued by central banks is unlimited, the number of NFTs that can be originated is unlimited, and magical thinking has no limits, but enough of the assets being inflated in the Everything Bubble have faint ties back to the real world such that the distortions in the imaginary world of infinite wealth end up distorting the real world, which is much less forgiving than the imaginary one.

All speculative manias pop, even if no one calls the mania a bubble. The first declines are bought, as buy the dip has never failed, but since the smart money sold long ago, there isn't enough dumb money to keep the bubble inflating. Cats walking on keyboards start generating enormous losses, and all the punters who minted money are torn between HODL (hold on for dear life, i.e. never sell) or making outsized gambles on long shots that were guaranteed winners a few months ago.

This continues until the $6 million roundtrips back to $6,000, and then the tax bill arrives: somehow minting millions accrued taxes that aren't entirely offset by the losses.

Or the margin call exceeds the liquidated value of the account, and the can't-lose punter now owes the brokerage major money.

But never mind the banquet of consequences currently being laid out: maybe if we all shout please don't pop our precious bubble! the bubble will never pop and our $6 million will become $60 million and then $600 million.

In the manic grip of euphoric confidence, it seems impossible the bubble will ever stop inflating. Every dip generates a rally, and the strategy of rotating out of a weakening sector into a hot-hot-hot sector will obviously work forever.

It's a peculiarity of the human psyche that it's remarkably easy to be swept up in bubble mania and remarkably difficult to be swept up in the same way by the bubble's inevitable collapse. It's incredibly difficult to sell, walk away from the bubble mania and not look back. That's why so few people succeed in doing so. Those few who do get to keep whatever big gooey hunk of happiness they tore off during the mania and everyone who stays in the casino while it burns down watches their big gooey hunk of happiness melt away.

The banquet of consequences is being served, and everyone will attend. What you're served depends on when you sold.

S&P 500 stocks over 10 times annual sales: please don't pop our precious bubble!



S&P 500 Everything Bubble compared to bubbles #1 and #2: please don't pop our precious bubble!



Billionaire wealth increasing in the Everything Bubble: please don't pop our precious bubble!




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on Secular Inflation (Host Richard Bonugli, 31 min)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become 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, Les M. ($250), for your beyond-outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.		Thank you, John M. ($54), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Luke H. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

Thank you, Warren J. ($10/month), for your outrageously generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Is Anyone Willing to Call the Top of the Everything Bubble?

Can extremes become too extreme to continue higher? We're about to find out.

Is anyone willing to call the top of the Everything bubble? The short answer is no. Anyone earning money managing other people's money cannot afford to be wrong, and so everyone in the herd prevaricates on timing. The herd has seen what happens to those who call the top and then twist in the wind as the market continues rocketing higher.

Money managers live in segments of three months. If you miss one quarter, the clock starts ticking. If the S&P 500 beats your fund's return a second time because you were bearish in a bubble, your doom is sealed.

When the bubble finally pops and everyone but a handful of secretive Bears is crushed, the rationalization will cover everyone's failure: "nobody could have seen this coming."

Actually, everyone can see it coming, but the tsunami of central bank liquidity has washed away any semblance of rationality. My friend and colleague Zeus Y. recently summarized the consequences of this decoupling of markets and reality:

"I used to be with the Bears until the uncoupling was complete when the Fed started guaranteeing non-investment grade junk bonds. At that point, any semblance of sanity, much less probity, much less integrity was gone. Rinse and repeat with digital dollars going into the tens and even hundreds of trillions of dollars.

For two decades we fiscal sanity-ists have been assuming SOME baseline reality. I see none in sight and still plenty of assets to plunder and pump and still resources to suck and suckers to shake down. The system is running hot and wild on its own algorithms, and actual people are lying back and simply lapping up the "passive" income created by delusion-made-reality.

With that much will and that much corruption, that much greed and that much lust, with a strong dose of fear and opportunism to flavor this toxic brew, I do not see the entity slouching away from Bethlehem anytime soon (yes, Keats reference). The falcon has long since not heard the falconer in its widening gyre, but we have virtual falcons now that will do whatever we think it is we want (which has been force fed back to us).

Until this mass delusion and psychosis breaks by whatever means-- financial crash, rebellion against all the BS and return to simple community, we are only going to see digital currency, stocks, and pretty much everything go up as tens of trillions of concocted dollars try to find some asset to ride.

This will (continue to) drive the stock market, gold, cybercurrency, land, everything to unsustainable and giddy heights. I no longer think a Bear market is even possible. Just soaring "valuations" based on funny money and an unpredictable crash at some point in the future WAY longer than it ever should be if we had a sane world."

Well said, Zeus. It is now irrational to expect markets to ever reconnect with reality. That said, if you glance at the charts below, this is about as a good a time as any for the bubble to burst. Recall that bubbles don't need a specific trigger-event to pop, they simply stop going up.

Regression to trend: insane extreme.



S&P 500 stocks over 10 times annual sales: insane extreme.



S&P 500 Everything Bubble compared to bubbles #1 and #2: insane extreme.



S&P 500 stocks above their 200-day moving average: insane extreme.



Billionaire wealth increasing in the Everything Bubble: insane extreme.



Are there any limits on irrationality? Apparently not. But there are still limits in the real world and central bank liquidity is distorting the real world, not just the imaginary world.

At the grave risk of twisting in the wind as the S&P 500 goes to 5,000, 10,000 and 100,000, let's call September 2021 the top of the Everything Bubble. Can extremes become too extreme to continue higher? We're about to find out.


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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on Secular Inflation (Host Richard Bonugli, 31 min)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become 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 D.A. ($54), for your exceptionally generous contribution to this site -- I am greatly honored by your support and readership.		Thank you, Kent M. ($50), for your superbly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, James D ($20), for your most generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Daniel K. ($25), for your splendidly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Read more...

The Illusion of Stability, the Inevitability of Collapse

Beneath the illusory stability of rising GDP, the extremes of debt, leverage, stimulus and speculative frenzy required to keep the 'phantom wealth bubble' from imploding are all rising parabolically.

Imagine being at a party celebrating the vast wealth generated in the last ten months in stocks, cryptocurrencies, real estate and just about every other asset class. The lights flicker briefly but the host assures the crowd the generator powering the party is working perfectly.

Being a skeptic, you slip out on the excuse of bringing in more champagne and pay a visit to the generator room. To your horror, you find the entire arrangement held together with duct tape and rotted 2X4s, the electrical panel is an acrid-smelling mess of haphazard frayed wire and the generator is over-heated and vibrating off its foundation bolts. Whatever governor the engine once had is gone, it clearly won't last the night.

The party is the U.S. economy, and the generator room is the Federal Reserve, its proxies and the U.S. Treasury, all running to failure. What we're experiencing in real time is the illusion of stability and the inevitability of collapse. I've prepared a few charts to illuminate this reality graphically.

Here's the illusion of stability in a nutshell: while the broadest measure of the economy, gross domestic product (GDP) has continued marching higher (in both nominal and real/inflation-adjusted terms), the amount of Federal Reserve stimulus and Federal debt required to keep pushing GDP up at the same rate has exploded higher and is tracking a parabolic blow-off.

Let's start with a chart of GDP, which I've divided into four eras. Era #1 was the period of broad-based prosperity, defined as productivity gains that increased wages faster than inflation, i.e. the purchasing power of wages rose so each hour of labor bought more goods and services. Note that the GDP was not skyrocketing in this period, as the gains in productivity and prosperity were real and not based on financial trickery, debt, leverage or Fed stimulus. This era lasted from the 1950s through the mid-1970s, at which point stagflation put an end to the era of rising purchasing power of labor / wages.

Era #2 began around 1981 and lasted until 1999: this was the era of financialization, when debt and leverage replaced productivity as the source of profits and as a result speculation, leveraged buy-outs and other financial gimmicks proved far more profitable than actually producing goods and services. A key element of financialization is globalization, as the big profits only flow when debt, risk, income streams and phantom financial instruments can be commoditized (i.e. produced, packaged and sold as commodities) and sold globally.

Era #3 was the logical extension of financialization and speculation: the U.S. economy became dependent on debt-asset bubbles for its "growth" and expansion of phantom wealth. Bubble #1, the dot-com speculative frenzy, imploded in 2000, and Bubble #2, the debt-housing speculative frenzy, imploded in 2008.

Era #4 is the logical extension of the bubbles popping: a permanent Fed-fueled speculative frenzy that requires ever greater quantities of Fed stimulus and federal and private debt, and ever larger extremes of speculative frenzy to keep from imploding.

Here's nominal GDP: it looks great until we look beneath the surface.



Here's real GDP, adjusted for official inflation (in chained 2012 dollars). Looks very similar to nominal GDP: if we look at the steady ascent of real GDP, we'd imagine the nation's prosperity is even more broad-based and solid than in Era #1, but we'd be wrong: Eras #2, #3 and #4 are characterized by rising inequality, the death-spiral decay of middle class purchasing power and total dependence on skyrocketing stimulus, debt, leverage and speculation.



Here's a glance beneath the surface: federal debt has exploded higher: in Era #2 (Financialization), federal debt rose from less than $1 trillion in 1981 to $5.7 trillion in 2000-- about a 6-fold increase over 20 years. The next 20 years saw federal debt rise from $5.7 trillion to $23.3 trillion in early 2020 (pre-pandemic), and since then, a sharp ramp to $28.5 trillion.

You see the trend: GDP rose about 7-fold while federal debt rose 30-fold--mostly in the last 13 years of Era #4.



This chart of federal debt as a percentage of GDP is enlightening: notice than in Era #1 (broad-based prosperity), the percentage declined as GDP grew at a faster rate than federal debt. In Era #2 (financialization), debt rose far faster than GDP, but the dot-com boom reduced the percentage to around 60%, double the percentage in Era #1.

Era #3, the bubble-economy, remained in the same range, but the trend changed in Era #4, after the Fed's Bubble #2 popped, almost bringing down the entire global financial system. In the era of speculative Fed frenzy (Era #4), the debt quickly rose to 100% of GDP and then made another quantum leap above 120%--a developing-world-kleptocracy level.

While prosperity was replaced by inequality and Fed-inflated speculative bubbles, debt as a percentage of GDP rose 4-fold.



Speaking of parabolic blow-offs, here's the Federal Reserve balance sheet, up 10-fold in a mere 13 years. Remarkable, isn't it, that the U.S. economy managed decades of expansion with the Fed balance sheet far below $1 trillion, decade after decade, but now the economy needs the Fed to create $7.5 trillion and throw it on the bonfire of speculative bubbles to keep the economy from imploding.

GDP in 2007 was $14.7 trillion and the Fed balance sheet was $800 billion, or 5.4% of GDP. Now the Fed balance sheet is over 36% of GDP, about a 7-fold increase in a mere 13 years. Notice the rate of expansion is near-parabolic, even as GDP has recovered to pre-pandemic levels.



Other central banks followed this same expansion of monetary stimulus. If GDP has normalized, then why the continuing panic-expansion of monetary stimulus? The only logical explanation is the system was breaking down before the pandemic and its decay has accelerated.



We all know what happens when the expansion of debt, leverage, speculation and central bank stimulus falter by even the tiniest bit: the entire global phantom wealth bubble pops: this is visible in the chart of total debt, public and private:



Beneath the illusory stability of rising GDP, the extremes of debt, leverage, stimulus and speculative frenzy required to keep the phantom wealth bubble from imploding are all rising parabolically. Every attempt to return to an economy that's not dependent on debt-asset bubbles and unsustainable expansions of debt and monetary stimulus has triggered a global market crash which can only be saved by doubling, tripling or quadrupling the previous levels of debt and stimulus.

This is why collapse is now inevitable. Parabolic blow-off expansions generate instabilities that cannot be suppressed by doing more of what's failing; that is called run to failure for a reason: the only possible outcome is systemic failure, i.e. the collapse of the phantom wealth bubble, a collapse which will bring down the entire machinery of bubble-blowing.

Before you pop that bottle of champagne, you better check out the generator room first. Duct tape, frayed wiring, the scent of overheated metal and rotted 2X4s are not going to keep the party lights going much longer.




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.


Recent Videos/Podcasts:

Charles Hugh Smith on Secular Inflation (Host Richard Bonugli, 31 min)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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


Become 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, J. Timothy B. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.		Thank you, A.S.L. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

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

Thank you, David E. ($60), for your splendidly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Read more...