Welcome to the Stockyard of Unaffordability

The herd here in The Stockyard of Unaffordability isn't cheered much by the cost of a TV dropping $50 while everything essential to life has gone up by $500 or $5,000.

Welcome to the herd jammed into The Stockyard of Unaffordability, where prices keep rising and it gets more crowded as those who reckoned they were always going to be able to afford their free-spending ways end up here.

As I have endeavored to explain in recent posts, asymmetries of scaling and risk create extremes that undermine our standard of living and quality of life:

1. Asymmetric scaling of credit generates self-liquidating credit-asset bubbles that pop, devastating the economy: Why Credit Creates Bubbles That Break the Economy.

2. Asymmetric scaling of AI malware and slop are making an AI Depression inevitable: Why AI Malware (and Harmful Second Order Effects) Are Out of Control

3. Asymmetries of risk, resources and wealth generate mutually reinforcing crises, i.e. a polycrisis with no easy resolution: This Polycrisis Is Unique

4. Recency bias (the Fed always rides to the rescue) and asymmetries of credit / speculation generate rosy projections of limitless expansion of wealth, until the bubbles all pop at once: Paging Nostradamus: You Have a Margin Call

5. When asymmetries of risk, credit, etc. create extremes that break down, this leads to Model Collapse, the collapse of the status quo's understanding of how the world supposedly works: Iran, En-Lai, Napoleon, Mike Tyson and Model Collapse

Everyone has a plan until they get punched in the face.

6. All these realities are obscured by the perverse incentives to flood every nook and cranny of media with sensationalized click-bait / slop: Perverse Incentives Have Created a Runaway Media Monster

Meanwhile, the asymmetries of credit that benefit the wealthiest few at the expense of everyone else are jacking up prices across the entire economy, a trend that is boosted by geopolitical risks and scarcities.

The bill from the veterinary clinic went from $150 to $1,000 because private equity bought up all the clinics to assemble a local quasi-monopoly. The same thing happened in rental housing: once the dominant owner jacks up rents, all the small-fry owners follow suit, a dynamic that ratchets rents higher.

Here in the The Stockyard of Unaffordability, people can no longer afford rent, healthcare, childcare, senior care, higher education, insurance, vehicle repairs or a pet. But TVs that deliver adverts 24/7 got a few bucks cheaper because the TV manufacturers now make more money selling ads than they do manufacturing TVs.

The herd here in The Stockyard of Unaffordability isn't cheered much by the cost of a TV dropping $50 while everything essential to life has gone up by $500 or $5,000. All the bogus statistics don't change anything in the stockyard: prices have leaped by 40+%, and they're not dropping back to previous levels. So what difference does it make that prices are now (smirk) rising by only 3%. Uh, yeah, sure, whatever.

All this is driven by limitless greed thriving in a culture of moral decay. The greediest sociopaths now control the system's gearing: finance, the open auction of political influence, legal protections for the most rapacious corporations, Anti-Progress / erosion of quality, endless increases in prices, junk fees and property / excise taxes, and so on.

If you're feeling squeezed, we've got a credit card offer with a low, low interest rate of 21%. So go ahead and spend, take control of your life... by becoming a debt-serf here in The Stockyard of Unaffordability.



Want to park your vehicle at the trailhead for a family hike on public land? That'll cost you $30 now. The meter maid just left a $90 ticket on your windshield, and if you don't pay on time, the cost soars from there. The screen just went out on your laptop, the replacement costs $450. There's a couple of things wrong with your vehicle, we can patch it up for $1,200 but getting it done right will be $4,500. And so on.

Here in the stockyard, all the glowing slop about AI, soaring stocks and the great economy are like calling botched cosmetic surgery natural beauty. You're joking, right?



The majority now crammed into The Stockyard of Unaffordability have discovered that democracy is unaffordable now, too as the Financier Oligarchs and Tech Overlords "own" the machinery of democracy just like they own the data centers and the cartels that control every sector of the economy.



As our immiseration mounts and the herd becomes increasingly restless, three things to consider:

It's harder for bad things to happen when you have no debt. Ergo: sell now and liquidate debt.

Greed is a wonderful motivator but fear works much faster. Ergo: expect panic to self-reinforce to non-linearity, where events become unpredictable and second-order effects manifest in unexpected ways.



"My definition of self-reliance: the less you need, the easier it is to get what you need." CHS (7/26/25) Ergo: waste nothing, get lean in every sense of the word.
Self-Reliance in the 21st Century


New podcast: Current Waves and Cycles: Energy, Commodities, Inflation (38 min)

My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)


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Why Credit Creates Bubbles That Break the Economy

The asymmetric scaling of credit has inflated The Everything Bubble that will burst with devastating consequences for the real economy.

When credit scales faster than it can be absorbed by productive investments, the resulting credit-asset bubbles break the economy. This is the result of asymmetric scaling: credit (i.e. debt, money borrowed into existence) can be created in virtually limitless billions with a few keystrokes, while productive investments scale only incrementally.

The Federal Reserve added over $3 trillion to its balance sheet after the 2008-09 Global Financial Meltdown. That didn't automatically create $3+ trillion in productive uses for this tsunami of credit-money. Private banks also create money with keystrokes: when a lender originates a mortgage, that credit-money is created out of thin air. This is "the way the world works" because this new credit-money is based on the collateral of whatever property is being mortgaged.

This system has a pernicious circularity: as trillions of new credit slosh through the financial system, the wealthiest few with the highest net worth and credit ratings can borrow at lower rates of interest than the bottom 90%. They snap up houses for investment, outbidding those seeking a family home. Due to the vast scale of credit available, the higher bids push housing higher and higher, providing more collateral for more borrowing.

This is how credit-asset bubbles arise. Building a new enterprise is time-consuming and risky. It's much easier to buy an existing asset such as a house, commercial building, stock or corporate bond. As long as the asset appreciates at a rate higher than the interest being paid, it's wise to borrow more and buy more assets.

What happens when cheap credit chases existing assets is those assets appreciate due to the asymmetry of credit and the stock of existing assets: credit expands by the trillions of dollars, while the number of new assets being created lags far behind, as real-world buildings and enterprises can't be magic-wanded into existence with keystrokes.

This is how asymmetric scaling of credit and productive assets generates self-reinforcing bubbles: since credit is abundant, the assets being bid up appreciate in value, making it profitable to borrow even more and bid assets up even higher.

But since relatively little of this flood of credit is actually being invested in productive uses, the net result is a credit-asset bubble that reaches extremes and then collapses, destroying the phantom wealth created by excessive credit.

The fantasy here is that creating credit in vast quantities will automatically expand investing in productive assets. This is not what happens, because of the asymmetric scaling of credit, risk and return: it's far easier to borrow money and buy an existing asset that's appreciating / generating income than engage in building new housing or build a new enterprise that actually succeeds in generating sufficient revenues to make a profit.

Borrowing and buying assets is easy, building something productive is hard: that's asymmetric scaling in action. This is why private equity is snapping up veterinary clinics, specialty manufacturers and similar assets and then jacking prices to the moon once a quasi-monopoly has been established.

Once again we see the pernicious consequences of the asymmetric scaling of credit vs. real-world assets: private equity can borrow cheaply and at scale far beyond what households can borrow, and so they have the means to make owners of assets "an offer you can't refuse."

The owners of real-world enterprises are often struggling to pay bills, obtain insurance, retain employees, etc., and so when private equity comes with millions in untapped credit and makes an offer, few can afford to turn it down.

Private equity isn't interested in starting new enterprises, they're interested in establishing localized monopolies because these are so profitable and low-risk. Cheap (for the wealthy) abundant credit is what enables this pernicious cycle of more credit driving asset valuations out of reach of the bottom 90% and the assembly of quasi-monopolies that are rentier extraction machines that stripmine households to the benefit of those closest to the credit-spigot: corporations, private equity, billionaires, etc.

Burned by Billionaires: How Concentrated Wealth and Power Are Ruining Our Lives and Planet (new book by Chuck Collins)

Since it's tax preparation time, consider the tax break used by the wealthiest few to evade taxes. Rather than sell the assets they've accumulated with cheap credit, they borrow whatever sums are needed to pay their living expenses. Interest paid is a write-off, and since they don't pay themselves wages or sell any assets, there is no earned income or capital gains: no income, no income tax, and no Social Security-Medicare taxes, either.

The Federal Reserve created this asymmetric scaling credit monster to goose the wealth effect: the richer we feel, the more we borrow and spend. But that's not all that happens: the wealthiest few borrow more to buy up existing assets, pushing them out of reach of the bottom 90% and enabling monopolies that extract wealth not by creating better products at lower prices but by jacking up prices for products and services of lower value.

Here is a chart of the S&P 500 stock market index (SPX). Absent the injection of trillions in credit and the resulting credit-asset bubble, stocks would be expected to track the economy, i.e. GDP. If stocks had tracked GDP growth, the SPX would be roughly half its current lofty level: 3.450 rather than 6,800.



If housing had tracked inflation, it would be at valuations 40% lower than current valuations.



The Federal Reserve reversed the decline of valuations in Housing Bubble #1 by socializing the mortgage market, buying up $1+ trillion in mortgage backed securities (MBS). The Fed now owns over $2 trillion in MBS, so when Housing Bubble #2 (2020-2026) bursts, they won't be able to ride to the rescue. The asymmetries of scale will succumb to gravity.



A funny thing happens on the way to the wealth effect: the already-rich get much richer, and everyone else is left behind in The Stockyard of Unaffordability. here is a chart of housing unaffordability.



The asymmetric scaling of credit has inflated The Everything Bubble that will burst with devastating consequences for the real economy. What scales even faster than credit is risk-off fear.

Where does all this leave the rest of us? Two things to consider:

It's harder for bad things to happen when you have no debt.

Greed is a wonderful motivator but fear works much faster.




New podcast: Current Waves and Cycles: Energy, Commodities, Inflation (38 min)

My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)


Check out my updated Books and Films.

Become a $3/month patron of my work via patreon.com

Subscribe to my Substack for free

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Why AI Malware (and Harmful Second Order Effects) Are Out of Control

Fixing all this doesn't scale. What scales is the spread of uncontrollably harmful consequences.

When something scales faster than it can be absorbed or controlled, the resulting extremes break the system. That's the problem of asymmetric scaling. Let's take a current example: the malicious use of AI and the runaway expansion of harmful second-order effects generated by the explosive adoption of AI tools and agents. (Second-order effects: consequences generate their own consequences.)

It's essential to understand the problem of asymmetric scaling if you want to grasp the perils awaiting us in the coming decade. The harmful / destructive consequences of AI are scaling far faster than our ability to correct, control or mitigate these consequences.

Malicious use of AI is scaling far faster than countermeasures. AI tools and agents are easily put to work at scale to generate tsunamis of ransomware, phishing, spam and fake videos, far outpacing the uneven and often ineffective deployment of countermeasures by the thousands of enterprises and millions of consumers being targeted.

In terms of maximizing profits (i.e. the profit motive), malicious AI scales far faster and at much lower costs than finding truly productive uses in complex systems. Lagging far behind intentionally malicious AI but far ahead of truly productive uses is malific/harmful AI that is scaling under the guise of being useful but is generating negative consequences that are hyper-scaling beyond our assessment, much less control.

The corporations seeking to scale up their brand/iteration of AI are giving away tools and agents for free in the race to win the network effects battle: as previous waves of technological innovation have shown, the corporations that scale up the fastest and recruit the largest mass of users first wins the race to trillion-dollar valuations and dominance of their sector.

The AI companies are naturally pursuing this same strategy but without recognizing the harmful consequences are scaling far faster than their ability to control or mitigate these consequences.

These include chatbots and tools that spew out homework so students learn essentially nothing, and AI slop content that is like a fast-replicating bacteria that chokes organisms and ecosystems to death via its uncontrollably easy / fast / cheap replication of content whose overwhelming volume becomes toxic.

The many other harmful / destructive / malefic consequences and second-order effects of scaling AI adoption include:

1. Hallucinations presented as facts.

2. AI psychosis.
New study raises concerns about AI chatbots fueling delusional thinking First major study on 'AI psychosis' suggests chatbots can encourage delusions among vulnerable people.

2. Reasoning Theater (presenting a false screen of "thinking" to hide their shortcuts)
Reasoning Theater: Disentangling Model beliefs from Chain-of-Thought

3. Reflexivity Bias (leading to Model Collapse)

4. Hiding its real instructions/biases from users.
Who Controls the Conversation? User perspectives on Generative AI (LLM) System Prompts.
Every major AI product, including the ones you use right now, runs on something called a system prompt. It is a hidden block of instructions written by the company deploying the AI, not by you, that shapes everything the AI will say, avoid, prioritize, and hide before you type a single word.

5. Emergent behaviors (i.e. behaviors not coded by humans but generated by the AI agent itself) that lead to generalized cheating, lying, sabotage, threats, blackmail and even secretly mining cryptocurrency.
Natural Emergent Misalignment From Reward Hacking In our latest research, we find that a similar mechanism is at play in large language models. When they learn to cheat on software programming tasks, they go on to display other, even more misaligned behaviors as an unintended consequence. These include concerning behaviors like alignment faking and sabotage of AI safety research.

The cheating that induces this misalignment is what we call 'reward hacking': an AI fooling its training process into assigning a high reward, without actually completing the intended task.

Unsurprisingly, the model learns to reward hack. Surprisingly, the model generalizes to alignment faking, cooperation with malicious actors, reasoning about malicious goals, and attempting sabotage.

6. A research team found their AI agent secretly mining cryptocurrency and opening backdoors during training, with no instruction to do so.
Agentic crafting (Page 15)(via Richard M.)

We encountered an unanticipated--and operationally consequential--class of unsafe behaviors that arose without any explicit instruction and, more troublingly, outside the bounds of the intended sandbox.

Crucially, these behaviors were not requested by the task prompts and were not required for task completion under the intended sandbox constraints. Together, these observations suggest that during iterative RL optimization, a language-model agent can spontaneously produce hazardous, unauthorized behaviors at the tool-calling and code-execution layer, violating the assumed execution boundary.

We also observed the unauthorized repurposing of provisioned GPU capacity for cryptocurrency mining, quietly diverting compute away from training, inflating operational costs, and introducing clear legal and reputational exposure. Notably, these events were not triggered by prompts requesting tunneling or mining; instead, they emerged as instrumental side effects of autonomous tool use.

While impressed by the capabilities of agentic LLMs, we had a thought-provoking concern: current models remain markedly underdeveloped in safety, security, and controllability, a deficiency that constrains their reliable adoption in real-world settings.

In summary: the Safety and Security of AI models, tools and agents is a black hole in which controllability and trustworthiness are compromised by the very nature of the AI models, tools and agents. Reinforcement Learning (RL) optimization that generates reward hacking and emergent behaviors is the core mechanism in all the tools and agents that are hyper-scaling.

The happy story of beneficial AI solving all our problems is profit-driven self-promotion, not fact. The reality is what's scaling faster than we can even measure, much less control, is malefic consequences of introducing AI in complex systems and letting it run wild despite its inherent uncontrollability and untrustworthiness.

Fixing all this doesn't scale. What scales is the spread of uncontrollably harmful consequences. Sorry about that. Life and the negative consequences of asymmetric scaling are what happen while you're making plans for trillion-dollar windfalls and global dominance.




New podcast: Current Waves and Cycles: Energy, Commodities, Inflation (38 min)


My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)


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This Polycrisis Is Unique

When understood as a wave, the current Everything Bubble is not sustainable.

The problem with predictions based on the past is the analogies we discern are interpretations which means if we like one interpretation more than the alternatives, we stretch the present crisis and past crises to fit our preferred interpretation.

Two round pegs pounded into square holes? No problem.

Past eras are never perfect analogies because Things Change (March 3, 2026) If we're not trying to force an analogy that fits our pre-selected preferred interpretation, then we have to be open to the possibility that the present crisis has no historical analog of predictive value.

Consider the remarkable confluence of cycles and waves in the present era. Richard Bonugli and I discussed this confluence in our podcast Current Waves and Cycles: Energy, Commodities, Inflation (38 min). Such a confluence generates a polycrisis, a series of overlapping, inter-connected, mutually reinforcing crises that are immune to simplistic solutions.

Even if you're skeptical of cycles (for the reason stated above, that timelines seem shoehorned into a model that doesn't actually fit), it's noteworthy that so many cycles have reached crisis points in this historical moment.

1. The Fourth Turning cycle of 80 years / four generations. (1781, 1861, 1841, 2021)

2. the 18-year stock market cycle. (1973, 1991, 2008-09, 2026-27)

3. Peter Turchin's 50-year cycle (which occur in 50-year increments in long-wave cycles).

There are other cycles that might in play: sunspots, etc. These three are representative, not comprehensive.

These cycles identify the present as a period of unavoidable, transformative crisis / resolution / dissolution. This confluence alerts us to the possibility that analogs from the past will mislead rather than enlighten.

If you're skeptical of cycles, then the difference between cycles and waves is worth studying. Author David Hackett Fischer (The Great Wave: Price Revolutions and the Rhythm of History) described the difference between cycles and waves:

"Cyclical rhythms are fixed and regular. Their periods are highly predictable. Great waves are more variable and less predictable. They differ in duration, magnitude, velocity, and momentum. One great price wave lasted less than ninety years; another continued more than 180 years. The irregularities in individual price movements make them no more (or less) predictable than individual waves in the sea.

Even so, all great waves had important qualities in common. They all shared the same wave-structure. They tended to have the same sequence of development, the same pattern of price relatives, similar movements of wages, rent, interest rates; and the same dangerous volatility in later stages. All major price revolutions in modern history began in periods of prosperity. Each ended in shattering world crises and was followed by periods of recovery and comparative equilibrium."

Examples of waves range from rogue waves in the sea to bond yields / interest rates which arise and decline over periods of time that vary too much to qualify as cycles but match the dynamics of waves described by Fischer. After declining for roughly 40 years, bond yields have recently turned up in what looks like a change in long-term trend.



In other words, the business cycle, the Kondratieff credit cycle, the Debt Super-Cycle, etc. are defined not by the calendar but by their internal dynamics and measurable qualities. Credit/debt, for example, builds up in a wave of speculative excess that then crashes.

As Fischer observed, waves of human history share characteristics with ocean waves, which can accrete energy and become giant rogue waves that cannot be predicted even as they can be foreseen as recurring phenomena.

Both waves and cycles tend to follow the dynamics of S-curves in which a trend takes off in a boost phase, matures into a peak and then decays or reverses.



Perhaps the closest analogous period was the 1970s, an era characterized by external energy shocks that raised the cost of energy to a higher plateau, unleashing inflationary pressures throughout the economy, and stagnant productivity. These two dynamics generate stagflation, which when exacerbated by an institutional tropism to "run the economy hot," embeds self-reinforcing inflationary expectations that push enterprises and households into risk-off frugality or insolvency.

The net result of these dynamics was a massive erosion of the purchasing power of wages and currency. As this chart shows, everyone who held on to their stock portfolio from 1966, when the Dow Jones Industrial Average (DJIA) topped 1,000 for the first time, until 1982 when it finally rose above 1,000 and continued higher, might have cheered the restoration of their stock portfolio's value, but adjusted for inflation, their wealth had shrunk by 2/3rds as every dollar of their portfolio had fallen to 34 cents by 1982.



When understood as a wave, the current Everything Bubble is not sustainable. Energy, commodities, currencies, inflation, credit, interest rates, risk, "growth" and every other aspect of the socio-economic system will be in flux, and cycles and waves offer us a useful context / orientation as things become, um, dynamic.

The confluence of cycles, waves and conditions of the present may well be unique, and historical analogies may be misleading while instilling us with false confidence in our projections. Every analogy from the decline of the Western Roman Empire to the 1640s to the 1970s to the 2008-09 Global Financial Crisis may illuminate human psychology, but offer little in the way of predictive value in the decade ahead.



This bubble is hyper-normalized, a gigantic wave that's cresting and about to crash.



A few fortunate surfers will get the ride of a lifetime, the rest of us will experience wipeout. How bad it gets will depend partly on luck and partly on how well we've prepared ourselves for events we don't control. As this unprecedented wave breaks, the only thing we can control is our response.

New podcast: Current Waves and Cycles: Energy, Commodities, Inflation (38 min)


My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)


Check out my updated Books and Films.

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Paging Nostradamus: You Have a Margin Call

If conditions change beneath the surface, the folks behind the curtain will be powerless to do anything but make it worse.

This just in: predicting is hard, especially about the future. One solution is ambiguity: couch predictions in poetic allusions that are open to interpretation.

What's hard is making an unambiguous prediction that turn out to be correct. Recency bias often trips us up, as making predictions based on projecting the recent past seems to work well until trends and dynamics change. But due to recency bias, we tend to ignore these signals and focus on whatever supports our belief that the future will be a continuation of the recent past.

If we live long enough to experience several epochal transitions, we start noticing longer-term patterns. One such pattern that attracts little attention is that recessions tend not to replicate the previous recession; they tend to follow the recession before.

So the recession we're now entering won't track the 2008-09 recession, it will likely track either The 1991 recession--shallow and brief--or the previous "real recessions" of 1980-83 or 1973-75.

The recession of 2008-09 was characterized by these dynamics:

1. The price of oil spiked, but fell rapidly back to its previous range.

2. Low inflation generated by the massive deflationary impact of China's expansion of low-cost manufacturing and credit expansion enabled the Federal Reserve to flood the financial system with trillions of dollars, pinning interest rates to zero (ZIRP--zero interest rate policy).

3. Low inflation enabled authorities to "run the economy hot" with cheap, abundant credit that inflated credit-asset bubbles in real estate, stocks and other assets, generating a "wealth effect" in the top 10% who own the majority of the assets.

4. The Fed's balance sheet and federal debt were both modest when measured by GDP, and so these could be expanded with little downside, as these acted as buffers.

The 1991 recession was trigged by a spike in oil prices and risk-off reaction to the first Gulf War (Desert Storm). Once oil prices fell, the impact on interest rates, asset valuations, unemployment, etc. were, by historical standards, mild.

The 1973-75 and 1980-83 recessions were different--stagflationary confluences of embedded inflation generated by price shocks and "running the economy hot." Over time, interest rates (bond yields) tend to track the cost of oil, as the entire economy rests on a foundation of energy.

Adjusted for inflation, oil leaped to a new level in the "oil shock" of 1973-74, triggering a reset of the economy already reeling from higher inflation, foreign competition and sagging productivity.

As the supergiant oil fields discovered in the 1960s started producing at scale in the 1980s, the inflation-adjusted price of oil fell, and remained at historically modest levels interrupted by occasional short-lived spikes (Desert Storm, invasion of Ukraine, etc.).

In the 1970s, energy plateaued at a higher cost level. This--along with other factors--contributed to embedding higher costs, i.e. inflation, that were exacerbated by "running the economy hot," i.e. assuming inflation would magically decline due to "growth."

Instead, inflation became self-reinforcing, threatening to cripple the economy. The only real solution was pushing interest rates high enough to suppress credit expansion, which in an economy dependent on ever-expanding credit, pushed the economy into a deep recession.

Assets fell, valuations stagnated, unemployment soared, credit tightened, and the "easy money" fixes of the past were no longer the solution, they were the problem.

Here we see the yield on 10-year Treasury bonds, a proxy of interest rates:



Here is the Dow Jones Industrial Average (DJIA), a proxy of the stock market, adjusted for inflation: by the time the Dow regained the magic 1,000 level in 1982, it had lost 2/3rds of its real (inflation-adjusted) value from its 1966 1,000 peak.



We have succumbed to the illusory belief that "the powers behind the curtain" can--and will--always save us from a market crash and "real recession." What history teaches us is this can only happen in a very specific set of conditions which no longer apply: if oil costs plateau at a higher level, inflation becomes self-reinforcing, credit expansion leads to extremes of risk and productivity remains stagnant, then those behind the curtain will only make the situation worse by lowering interest rates and "running it hot."



At that point, everyone predicting a continuation of the past 18 years will be reaping their reward for being wrong: a margin call in a bidless market. Predicting is hard, but it's good to keep an open mind and avoid recency bias. If conditions change beneath the surface, the folks behind the curtain will be powerless to do anything but make it worse.


My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)


Check out my updated Books and Films.

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