What Is Obvious About This Market?

What is "obvious" to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum.

Longtime readers know my analytic perspective is based on what psychiatrist/author R.D. Laing called the Politics of Experience.

Survival+ 6: The Politics of Experience (April 2, 2009)

Survival+ 7: Simulacrum and the Politics of Experience (April 3, 2009)

In his prescient 1972 lecture, The Obvious, Laing explained the inherent difficulty of understanding "the obvious" when a systemic madness is taken as "normal":

To a considerable extent what follows is an essay in stating what I take to be obvious. It is obvious that the social world situation is endangering the future of all life on this planet. To state the obvious is to share with you what (in your view) my misconceptions might be. The obvious can be dangerous. The deluded man frequently finds his delusions so obvious that he can hardly credit the good faith of those who do not share them.

We can summarize one aspect of this analysis by asking: what is "obvious" to those inside a system and what is "obvious" to those outside the system? Our experience of what is "obvious" says a lot about our cultural context and assumptions: the manufacture of our "news" and consensus, the mystification of our experience via propaganda and simulacra, what we perceive as "normal" relationships, work, goals, etc.

What is "obvious" to most participants is that the stock rally is fueled by central bank liquidity and quantitative easing, and since there is no limit in sight to these policies, there is also no limit to the stock market running higher.

It is also "obvious" that betting against this trend is an excellent way to lose money, so the number of people shorting the market dwindles with each push higher.

Equally "obvious" is the incentive to borrow money via margin to invest in the rising market: the higher it goes, the more you can borrow, and the more you borrow and plow into the market, the more you make. It is a wonderful self-reinforcing feedback loop.

Thus record-high margin debt is not a warning sign but evidence that the music is still playing, so by all means, keep on dancing:

Near-Record NYSE Margin Debt Leads to Caution (Bloomberg)

That the disconnect between the real economy and the stock market is widening is obvious, but there doesn't seem to be any intrinsic reason why it can't continue widening. As a result, many analysts are calling for a brief retrace and then another leg up to new highs. Others see a serious decline (10%+) this summer and a new high in Q4 2013 or Q1 2014.

In other words, what might be obvious to those outside the system--that all liquidity-driven bubbles end badly, usually when participants are convinced there is nothing to restrain the trend from going higher--is not at all obvious to participants and those cheering them on (the MSN, the Federal government and the Fed).

What I sense is a near-universal resignation of those attempting to call a top in the market, an acceptance that the trend is up for the foreseeable future and that trying to short this market (i.e. profit from a decline) is a fool's game.

The number of those willing to short the market, i.e. take the other side of the trade, has dwindled. Every sharp rally like last Friday's eliminates entire divisions of shorts, leaving the trade even more one-sided.

Yes, the market is manipulated and totally dependent on central bank QE, liquidity and outright buying of stocks and bonds. But the market is not as stable as presumed, and one-sided trades tend to capsize when everyone who feels safe being on one side of the boat least expects it.

Every trader wants to short the market after it becomes obvious the trend has reversed. But since there are so few shorts left, the decline (should one ever be allowed to happen) might not be orderly enough for everyone to pile on board. More likely, the train will leave with few on board and the initial drop will leave everyone who was convinced the uptrend was permanent standing shell-shocked on the platform with margin calls in hand.

When it is obvious the trend has reversed, it will be too late to profit from it.

The conclusion? What is "obvious" to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum. 

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economyComplex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

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

Thank you, Steven B. ($10/month), for your astoundingly generous subscription to this site -- I am greatly honored by your support and readership.

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Part 46: An unstable elixir ready to boil over (serialized fiction)

Here is this week's chapter of my serialized comic novel "Four Bidding For Love."(Those who find absurdist humor and adult situations offensive, please read no further.)

     Afterward, just when Ross thought his luscious bedmate had fallen asleep, Alexia turned over and nestled against him. As his heartstrings were exquisitely tuned to female vulnerabilities, her small voice of longing touched him with a sharp immediacy. "Would you make me ranchos huevostomorrow morning?"
     Stifling his surprise at her request, he exclaimed, "Of course I will, my toothsome little Aphrodite. It's one of my specialties. Do you have any tortillas?"
     In the darkness he detected her happiness in her murmured reply. "Hmm. In the freezer." Cuddling closer, she whispered, "That's very sweet of you."
     In response Ross gently stroked her hair, and his conflicted feelings renewed their battle. Long after Alexia had drifted into the regular breathing of deep slumber, he lay awake mulling the peculiarities of Fate, Karma, and God's Will, and wondered how he could have been so wrong about GreenDollGal. Yes, he saw the financial desperation behind her obsessive, go-for-the-throat online bidding, and in this the difference between them was less than the thickness of a sheet of paper. The loathing he'd felt so keenly now seemed terribly misplaced, and the swirl of affection, desire and sympathy he felt for her now felt like granite beneath his feet while his fury at her clairvoyant winning streak was like a puff of steam dissipating before his eyes.
     And where was her clairvoyance now? Had it mysteriously failed her, or had her budding feelings for him clouded her third eye? Or perhaps she'd already sensed and accepted his true identity? As a woman of high feelings, it was a fool's errand even to guess her reaction to such an intuition, and the uncertainties looming before him kept Ross awake far into the night.
     As Alexia left her window ajar at night to allow in zephyrs of fresh air, he heard a plaintive solo saxophone drift up from the street. At first Ross reckoned it came from a passing car, but since no engine or tire noise accompanied the solo, he realized that the sax was being played by a passing pedestrian on the sidewalk. It was a peculiar and unexpected strand of extemporaneous live music in the quiet night air, a mournful tune rising as the player approached and then fading as he or she walked slowly past. Ross did not recognize the music, but he knew what it expressed: a sighing acceptance, a tip of the hat to life's curious beauty, and perhaps a lingering shadow of regret.
     What a pickle, he told himself once again; should I stay and hope she'll accept me as no-longer-the-enemy, or should I get out before she discovers the truth? Sliding his hand onto her warm bare rump, the agony of his decision intensified and Ross thought, hoist on my own petard; I'm madly in love with the woman I loathed just days ago.
     No, he told himself, it's up to me to rescue her from the pool of degradation she's flung herself into. Oh, poor GreenDollGal, it's all so obvious now: the shoes and the dolls and the film posters, the loveless sacrifices and surrenders on your sofa, all pathetic substitutes for the affection you deserve and crave; I know, because I've been on my own path of self-imposed ruination.
     You can't abandon this poor dear sweet woman now, he told himself, and let her keep trading herself; no, you have to save her, no matter how much she resists, for it's not only your duty, it's your heart's highest calling.
     Though Ross could not hear her shifting uneasily beside Robin's supine figure, Kylie was also wide-eyed with disturbing thoughts. Her intuition warned her that lies, even seemingly modest ones assembled to serve some worthy cause, had a way of simmering for a time and then exploding; and if there was ever an unstable elixir ready to boil over, it was Alexia and Ross upstairs. The two should have created a violent chemical reaction at their first meeting; how the pair had avoided setting off a conflagration Kylie could not imagine. But the reaction had begun just the same, Kylie knew, and the build-up of heat would soon reach flashpoint. The question which plagued her was unanswerable: would the truth clear the air of poisonous fumes, or act as the spark which finally ignited the hot mixture?
     As unpleasant as it might be, Kylie knew the only hope of resolution lay in telling the truth. Tomorrow morning, she resolved, I'm trooping up there and laying out the truth to Alexia, no matter how much Robin protests.

Next: A slow measure of her folly (Chapter 13)

To read the previous chapters, visit the "Four Bidding For Love" home page. 

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College Grads: It's a Different Economy

The economy has changed in structural ways; preparing for the old economy is a sure path to disappointment.

Millions of young people will be graduating from college over the next four years, and unfortunately, they will be entering an economy that has changed in structural ways for the worse. It's easy to blame politics or the Baby Boomers (that's like shooting fish in a barrel), but the dynamics are deeper than policy or one generation's foolish belief in endless good times and rising housing prices.

1. Getting a college degree, even in the STEM (science, technology, engineering and math) subjects, no longer guarantees a job. As I have often noted, producing more graduates does not magically create jobs. The economy can only support a certain number of jobs in any one field. Producing 10 times as many graduates in that field does not create 10 times more jobs.

According to this analysis of supply, employment, and wage trends in information technology (IT) and other high-tech fields, Guestworkers in the high-skill U.S. labor market (via B.C.), only half of those graduating with STEM degrees get jobs in STEM fields.

Interestingly, 36% of IT workers do not hold a college degree, and only 24% of IT workers have a four-year college degree. As one would expect in a nation with a strong tradition of immigration, many "guest workers" (i.e. people seeking citizenship via working in the U.S.) also have degrees in the STEM fields.

This report Where are the STEM jobs? (via B.C.) predicts 8.65 million STEM jobs in the U.S. by 2018, which is a mere 6% of the current workforce of 142 million.

2. Those millions of Baby Boomers clinging to their jobs can't afford to retire, partly as a result of Federal Reserve bubble-blowing and zero-interest rates. Now that cash earns nothing, having a $300,000 nestegg of lifetime savings generates only enough interest income to pay a few bills. In the days before the Fed manipulated the economy to serve the interests of the banking cartel and the state, such a sum would earn roughly $15,000 a year at 5%.

Those days are gone, thanks entirely to the Fed, which is blowing new asset bubbles and engaging in unprecedented financial repression, distorting the entire economy in self-reinforcing negative ways.

It's easy to blame Boomers for buying into the fantasy of ever-rising real estate, but it's not a generational issue; plenty of Gen-Xers also drank the "housing never goes down" Kool-Aid. The issue is: who inflated the bubbles with lax oversight, easy money and low interest rates? The Fed and the U.S. government's housing and financial oversight agencies.

3. Many of those Boomers clinging to jobs are doing so to support you. Yes, it's a fine irony, isn't it? If you got a decent full-time job, Mom and Dad could stop sending you money for rent, gas, etc. But since millions of Boomers have to keep their jobs to be able to support their unemployed offspring, there are fewer openings than there would be if Boomer Mom and Dad could quit and retire.

4. We now have a bifurcated economy: we have what's left of the open-market economy and we have the cartel-state economy of various rentier arrangements. A rentier arrangement is one in which the input costs can keep rising due to political power/protection while the output declines.

Our economy is now dominated by rentier arrangements. This is one of the core reasons it is stagnating, the other being a parasitic, corrupt financial sector that depends on phantom collateral and accounting trickery for its survival.

Rentier arrangements include the financial sector (hated by the public but politically sacrosanct), the National Security State (you can never have enough people spying on the world, including Americans), healthcare (costs triple while the availability of care and the health of the populace decline) and education (college tuition rises 600% when adjusted for inflation but a third of the graduates learned essentially nothing).

Protected from the discipline of the market, these quasi-monopolies vacuum up an ever-increasing share of the national income while their output/yield declines. Where $200 million bought four top-line fighter aircraft a decade ago, now it buys one; we have reached the point where we can't afford our own fighter aircraft. And many in the military conclude the $200 million-each F-35 Lightning (by some estimates of full program costs, $300 million each) is an underpowered, bug-ridden dog, less capable than competitors and the aircraft it replaces at four time the cost, the F-18 E/F Super Hornet.

For decades, those entering the rentier cartels were assured of lifetime security.Get a job in healthcare or education or the defense/national security sectors, and you had it made. But these bloated rentier arrangements are bankrupting the nation.

Lacking any limit on their cost inputs, these sectors have expanded at rates far exceeding the growth rate of the economy that supports them. Healthcare once absorbed roughly 5% of the economy; now it is consuming 18% and is on track to consume 20%. Healthcare alone will bankrupt the Federal government and the economy.

As a result, employment in the rentier arrangements will be less secure going forward. Right now, the Federal government can borrow $1 trillion every year because the Fed has manipulated interest rates to zero. At some point, rates will rise (for one reason or another) and the "free money" will become costly. That will eventually limit the state's ability to fund its favored cartels and rentier arrangements with borrowed money.

5. The private-sector economy is bifurcated as well. The sprawling global corporations can draw upon talent from around the world, so competition for those big-bucks corporate jobs is fierce. Small business, under pressure from higher taxes, global competition and skyrocketing healthcare costs, cannot afford to hire anyone who can't generate a net profit for the company on day one--if they hire anyone at all.

Mentoring, on-the-job training, all of that good stuff--everybody wants somebody else to have given you that. They want you productive on day one.

6. The older generations will have to adjust to demographic and financial realities.That the promises made for Social Security and Medicare cannot be kept is "obvious," but so politically dangerous that we cannot discuss this truth openly. As I have maintained for years (Boomers, Prepare to Fall on Your Swords June 2005), the Baby Boomers will have to let go of the impossible promises made to them by an expansive Savior State. If they refuse to do so voluntarily, then the younger generations will have to insist via political means.

Or we can passively do nothing and watch the whole entitlement system implode. That works, too, but it's messier than just dealing with demographic and financial realities.

7. There are two sets of laws now: one for the Elites and the state, and one for the rest of us. If you wonder why small business growth has shriveled, look no further than the over-regulated, legalistic thicket that awaits anyone starting or operating a business. It no longer makes sense to have employees; contract workers or arrangements between sole proprietors is the only way left to do business for most of us.

The rule of law has been undermined by corruption, political favoritism, and mindless regulation. That systemic failure leads to stagnation and cynicism.

8. We are a free-lance nation. Many people bemoan this, as they want everyone to have the security to be unproductive and never be fired. But that's the problem with the entire rentier cartel-state economy: cartels are skimming operations that are immune to market discipline or any limits on their cost structure. Incompetence has no cost in cartels, and neither does inefficiency.

These bloated fiefdoms and cartels keep growing while the economy stagnates, increasing their share of the national income at the expense of the rest of the economy (and there is an opportunity cost to this malinvestment--what else could we have done with these trillions squandered on rentier arrangements?). The cartel-state economy will collapse under its own weight.

There are opportunities, but they require a deep understanding of risk and security. A livelihood with day-to-day low-level insecurity and volatility is actually far more stable and secure than the cartel-state one that claims to be guaranteed.

The burdens of Fed manipulation and the cartel-state rentier arrangements will come home to roost between 2015-2017. Those who are willing to seek livelihoods in the non-cartel economy will likely have more security and satisfaction than those who believed that joining a rentier arrangement was a secure career.

There is a price to joining a parasitic rentier arrangement, a loss of integrity, agency and independence. Complicity in an unsustainable neofeudal society has a cost. 

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

Thank you, Robert E. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, Alexis V. ($10), for your much-appreciated generous contribution to this site -- I am greatly honored by your support and readership.

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The Mobile Gold Rush

Here's the basic mobile gold rush model: poach advert spending in a stagnant economy.

The mobile gold rush of Web 2.0 continues to attract thousands of techie fortune seekers to San Francisco. It's an old story, and a compelling one: there's gold in them thar hills, and I'm a-gonna git me some. The only thing that changes is the nature of the gold.

The dot-com boom of the late 1990s created a new gold rush in San Francisco and Silicon Valley that fizzled in the early 2000s as the same old reality hit home: only the first few gold-seekers hit it big, and most of the late-comers trudge home empty-handed.

Over 50,000 people left the San Francisco Bay Area as employment in dot-com technology imploded.

The new gold rush is mobile--mobile apps, mobile services, mobile anything. And so the timeless gold rush story is dusted off and launched anew: young coders are paying $600 a month for the right to sleep in someone's laundry room; the average rent on a one-bedroom apartment is over $2,500.

Developers are breaking ground on dozens of residential highrises that will add thousands of apartments and condos to the Market Street corridor. Rent for a postage-stamp studio: $2,000 a month (maybe more if the market will bear it), but we know hipsters like bicycles so they'll be plenty of secure bike-racks. Amenities galore!

Though there are already thousands of pricey restaurants in San Francisco, dozens more are opening every month as entrepreneurs rush to claim their piece of the tech "miners" spending.

You know the story: the canny folks didn't bother seeking gold, they sold the tools to the miners and fed them--a fresh egg, after all, could fetch a princely weight of gold in the feverish economy of gold mining towns.

It's too bad the actual gold in the mobile gold rush--income streams in the billions of dollars--doesn't exist. All technology boils down to this: either it increases productivity or it's a time-sink. Some technologies serve both masters, of course, and perhaps mobile technology is the ultimate in promising productivity but delivering time-sink.

Let's disassemble the mobile gold rush into its constituent parts. The easiest way to do that is to follow the money.

1. How big is the income stream generated by sales of mobile apps, services and hardware? Most apps are free or sell for a few dollars, ditto services. With Android tablets going for $45 a piece in China, hardware profits are heading down. How much premium will people pay for an Apple or Samsung tablet?

People like to tout $1 billion in sales in this or that; fine, but what's the net, and is that net rising or falling? What else is in the pipeline that offers similar functionality for free?

2. People now expect free everything except their monthly 4G service bills. The real money in mobile is the monthly service fees; people routinely pay $150+ a month for their smart-phone service; no wonder you can get a free phone if you sign up for a lengthy service contract.

As correspondent Mark G. recently observed, you will soon be able to buy a fully functional Android-OS tablet for $1--if you sign the service contract.

3. So if there's no money in selling apps/software or hardware, then what's left? Marketing. The hot new vein of gold the frenzied tech-miners are digging is mobile advertising and targeted marketing.

The scenario that everyone imagines is this: carefree wealthy young people are out on the town and they seek a pizza. They open an app (free of course--the money is made in delivering the advert) and all the nearby pizza places that paid to join the advert network show up on their little screen. Oh joy, the terribly difficult task of locating a pizza place has been simplified, and the restaurant owner gladly ponies up the advert fee for the special delivery of a customer.

Nice, but how realistic is this scenario? How many billions can it possibly generate? The entire ad industry is about $170 billion a year, and that covers everything: television, radio, print, Internet and mobile. Advertising & Branding Industry Overview. Mobile adverts are still a thin slice of that: $4 billion.

That's the gold everyone's seeking: a larger slice of the advert pie. It is obvious that mobile can poach a lot more advert dollars from other media, hence the gold rush to mobile everything that serves adverts.

It is a given that a targeted ad, specially sent to the most important consumer in the world, you, based on your own unique desires of the moment, will be more effective than a TV, radio or print advert that reaches thousands of people with the same message.

Big Data machines are grinding away at reams of marketing data to select the most effective platforms and techniques to "grow mobile's share" and make advertising even more compelling to enterprises. Everyone will soon have a specialized mobile advert campaign designed for them, with "guaranteed" (ahem) results that beat every other competing media.

These truisms are feeding a corporate frenzy for mobile technology. The game plan for all these hot-shot coders seeking nearly instant wealth is not to design a service that generates tens of millions of dollars annually--the game plan is to rough out an idea, claim it will generate tens of millions of dollars and then sell it for millions of dollars to some corporation desperate for a "mobile strategy."

Is that a sustainable model? No, because once every corporation has scooped up a company with 11 coders for a couple million dollars, then the need to scoop up more start-ups fades.

All this overlooks the basic mobile gold rush model: poaching advert spending in a stagnant economy. If we look at who pays income taxes as a rough guide to how many people have disposable incomes large enough to have money to blow on excess consumption, we conclude that only the top 10% of U.S. households have enough income to respond to adverts, as The top 10% of households paid fully 72.7% of all Federal income tax, the top 5% paid 60.7%.

As noted here many times, real median income (adjusted for inflation) is down 8%. If we subtract out the income of the top 10% (which is rising), then the decline for the bottom 90% is a lot more than 8%.

Bottom line: fewer dollars of income, higher costs for essentials leaves fewer disposable-income dollars left to blow on consumption.

If only the top 10% have significant disposable income, then advertising is a diminishing-return game, as everyone chases the dwindling number of dollars available for purchases of non-essentials. Is poaching adverts a solid foundation for a gold rush? Not by historical standards.

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

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

Thank you, Kurt W. ($5/month), for your most excellently generous subscription to this site -- I am greatly honored by your support and readership.

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The Fatal Disease of the Status Quo: Diminishing Returns

The costs of maintaining a sclerotic, cartel-state Status Quo infected with incurable diminishing returns eventually exceed the carrying capacity of the real economy and the Status Quo collapses in a heap.

On the surface, the Status Quo appears stable, if not quite healthy. This stability is illusory, however, for the Status Quo has a fatal disease: diminishing return.

The basic idea of diminishing return is closely related to marginal utility and marginal return: the more capital, energy and labor committed to a project, the lower the return/yield/output.

Diminishing return works in two ways:

1. Output (yield) remains stable, but it requires an ever-increasing input of capital, energy and labor to maintain that output.

2. Input remains stable but output (yield) constantly declines.

To survive, the Status Quo must maintain the same output: the stock market must be held aloft at current levels, entitlements must be paid, the National Security State must either expand or maintain its current global reach, and so on.

What's hidden from view is the rising input costs to maintain this illusion of stability. Consider the Federal Reserve's campaign to elevate the housing and stock markets. First the Fed need only threaten to buy mortgages and Treasury bonds to trigger a market rally. But soon this is not enough to keep the market aloft, so the Fed unleashes a campaign of quantitative easing (QE1) with an eventual end date.

This pushes the market higher, but once the artificial stimulus ends, the market feels gravity once again and rolls over. To maintain the necessary output--a rising stock market--the Fed must increase each dose of QE.

But the return on this ever-increasing input diminishes. Like an organism fed a stimulant, markets habituate to the artificial stimulus and quickly become dependent on ever-increasing doses to maintain the output (i.e. the "high").

In 2012, the Fed announced essentially unlimited QE to infinity. There can no longer be any hint of an end to the quantitative easing, or the output (the market) will fall off a cliff.

That's the problem with diminishing return: eventually the input is so costly the system implodes. The Fed has already injected the patient (the economy) with massive doses of financial crystal meth to maintain the stock market's "high." Unfortunately for the Fed, the market demands a bigger dose to keep the high going, but the larger dose will prove fatal.

Illustrating the other mechanism of diminishing return is the Higher Education Cartel, one of the monopolistic rentier arrangements that dominate our economy (banks, the mortgage industry, national security, healthcare/sickcare, etc.).

Even as the cost of attending college have skyrocketed by 600% (adjusted for inflation), the output--the value of that education--has declined. A recent major study, Academically Adrift: Limited Learning on College Campuses, concluded that "American higher education is characterized by limited or no learning for a large proportion of students."

'Academically Adrift': The News Gets Worse and Worse (The Chronicle of Higher Education)

Meanwhile, student loans exceed $1 trillion, only 37% of freshmen at four-year colleges graduate in four years (58% finally graduate in six years), and 53% of recent college graduates under the age of 25 are unemployed or doing work they could have done without going to college--retail clerks, waiting tables, etc.

The Educrat Industry blames the economy for its own abysmal failure to actually provide a measurable yield on the immense sums spent on higher education, of course, but the reality is that higher education fails to prepare students for work in the real economy.

What higher education excels at is maintaining an ever-increasing input of cash while its output/yield declines. the same is true of all the other fiefdoms and rentier arrangements that dominate our economy.

The input needed to keep the Status Quo stable must be taken from other potentially more productive investments. Taxes notch higher as the state scoops ever greater sums into its maw to fund its failing fiefdoms and diminishing-return cartels, and it borrows trillions of dollars to fill the gap between tax revenues and ever-rising input costs.

All that borrowed money has a cost, too, of course--interest. The costs of maintaining a sclerotic, cartel-state Status Quo infected with incurable diminishing returns eventually exceed the carrying capacity of the real economy and the Status Quo collapses in a heap. 

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

Thank you, Mary S. ($25), for yet another wondrously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, HUbert G. ($5/month), for your most excellently generous subscription to this site -- I am greatly honored by your support and readership.

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