Monday, August 30, 2021

The Elites' Battle for the Future America

No nation can produce less of lesser quality, and squander more on infinitely greedy and corrupt elites, all funded by issuing trillions of new units of currency, and imagine that this asymmetry will never have consequences.

As I have often noted, historian Michael Grant identified profound political disunity in the ruling class as a key cause of the dissolution of the Roman Empire. Grant described this dynamic in his excellent account The Fall of the Roman Empire, a book I have been recommending since 2009.

I've been writing about the fractures in America's ruling elites for many years, as well as the erosion of the foundations of society that lead to systemic collapse, for example, Collapse, Part 2: The Nine Dynamics of Decay (June 2015), Going to War with the Political Elite You Have (May 14, 2007) and The Conflict within the Deep State Just Broke into Open Warfare (March 10, 2017)

America's elites are fracturing along multiple tectonic fissures: while the conventional media focuses on the ginned-up bread and circuses of Red and Blue political games (i.e., The Purple Empire), the real conflicts are within the camps running the Red and Blue games, the Imperial Project of global hegemony (a.k.a. The Deep State), the New Nobility of Big Tech attempting to overthrow the Old Nobility, the Nationalists versus the Globalists and the Financial Gamesters versus The New Foundation.

These are my informal acronyms, of course, but the conflicts are real and intensifying as extreme policies reach new extremes and the risks of breakdown increase.

The most dangerous elites are the ones clinging to the perverse but compelling faith that the Federal Reserve and Treasury can conjure endless trillions of U.S. dollars without any consequence other than continued global hegemony, the faith that the Federal Reserve has god-like powers to tweak the dials so that 1) the U.S. dollar remains the pre-eminent reserve currency 2) but not so strong that it sinks the emerging market economies and 3) magical enough that there are no limits on how many can be absorbed by global stock, bond, debt, risk and commodity markets and 4) remains the primary method of limiting the global financial leverage of geopolitical rivals. Uh, sure. No problem, the Fed is all-powerful, right?

The fundamental problem for the Imperial Project is the dollar must serve both the domestic elites profiting from Federal Reserve expansion of asset bubbles and the global markets that rely on a stable dollar for reserves, credit and transactional liquidity. While America's billionaires are cheering the Fed's endless largesse to the already wealthy, those tasked with maintaining hegemony are looking ahead and seeing the debauchery of the U.S. dollar as the Fed and Treasury spew trillions, very little of which is actually flowing into productive investments, i.e. the ultimate foundation of hegemony.

It's instructive to observe the institutional symmetries between the Federal Reserve and its elite backers and the Soviet agencies which oversaw Chernobyl, a history illuminated in Chernobyl: The History of a Nuclear Catastrophe.

It seems the only agency with a comprehensive grasp of the Soviet nuclear power industry was the KGB, which had sources within every nook and cranny of the state, economy and society. State secrets were protected to the point that even political elites did not have access to the potential for failure and the consequences of failure.

Just as in the final throes of Imperial collapse in the Soviet Union, nobody seems to be in charge in the U.S. It's difficult to tell if incompetence is now the default setting everywhere in the American State or if there are a couple of competing chess games being played behind the curtain. When failure is so absolute, incompetence alone doesn't seem quite up to the task. Perhaps failure received a nudge. After all, the cliff edge is already crumbling and it doesn't take much to help a rival lose their footing.

As I have argued recently, inflation is not transitory; the trends have reversed and inflation is now embedded via two fundamental dynamics: the endless trillions being created out of thin air by the Fed and Treasury are not increasing the productivity or resilience of the U.S. economy; rather they are fatally weakening the economy and society by institutionalizing soaring wealth-income-power inequality, and 2) globalization's increase of global supplies and optimization of global supply chains has reversed; scarcities can no longer be filled by exploiting another developing-economy via neocolonial-neoliberal pillage. That oh-so-profitable game is over, but few believe it's possible: isn't there always another place and people to pillage?

The warring elites will have to choose an economic side soon: either go with the Fed's plan for an ever-more unequal future America in which inflation stripmines the bottom 90% while the technocrat class and its billionaire owners become ever-wealthier and the world loses confidence in the predictability of the U.S. dollar's value, or the debt and phantom capital of the Fed's sand castles are wiped away and the dollar is re-anchored to the nation's economic foundations of improving productivity via newly enforced competition, transparency and accountability and the resilience of a reshored industrial base.

Hopefully America's equivalents of the KGB have an equivalently sound grasp of just how prone to failure America's financial fantasy has become. No empire can survive the debauchery of its currency, for the empire's power flows not from hard power (military) or soft power (cultural influence) but from the currency that funds both hard and soft power.

There is no win-win at this late date: one elite will lose, and America will itself be lost if those debauching the dollar are allowed to win. The rationalizations are as absurd and extreme as the policies: as long as the trillions flow into the assets owned by billionaires, there can't be any inflation, and so on, an endless spew of excuses by those profiting from the debauchery of the dollar.

No nation can produce less of lesser quality, and squander more on infinitely greedy and corrupt elites, all funded by issuing trillions of new units of currency, and imagine that this asymmetry will never have consequences.

It's not yet clear that there is any leadership left in America. What's playing on stage are warring camps of self-interested elites fighting to secure their power even as the foundations crumble beneath their feet.






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Saturday, August 28, 2021

Do You Live in a Social Capital Desert?

Necessity is a magnet, and perhaps as what's essential in our lives changes, social capital will start sprouting, even in the most unlikely places.

"Desert" has become a favored metaphor: food deserts describe neighborhoods with few places to buy fresh fruits and vegetables, democracy deserts describe political regions rigged by gerrymandering, and so on.

Many of us working our way forward to a more resilient, sustainable and healthier future talk about social capital--the intangible but very real network of connections and relationships that characterize social mammals such as humans.

We call this network of ties and trust "capital" because it takes time and effort to build and maintain, and it generates value.

The value generated by social capital has many forms, but the one most commonly cited is favors with an economic value. We say we're "calling in favors" when we seek help in locating clients, contractors, mechanics, employees, etc., or ask for help in childcare, yardwork, picking someone up at the airport, etc.

The foundations of this form of social capital are 1) longstanding ties to families, schools, home towns or neighborhoods, etc., and 2) reciprocity, being generous with one's connections, time, experience and expertise to one's network.

This "investment" isn't made with calculated returns in mind (though some people do offer help in the hopes of gaining something of far more value than they offered); the eventual value generated is unknown, but everything that's given--especially the trust that you do what you say you'll do-- is like a savings account that adds value to your place in the network.

Put more bluntly, an unreliable person isn't going to be valued as highly as a person who commits to a task and unfailingly gets it done on time and with minimal fuss / hassle.

Unlike other forms of capital, social capital doesn't necessarily decay over time: long-dormant connections and favors can come alive in moments of necessity.

In China and other Asian nations, much of what is automatically labeled corruption in the West is in many cases better understood as social capital bleeding into the immense financial wealth generated by state-finance connections in Asian economies.

The old school/university or home-town ties that grease deals between politicians and developers is known as guanxi in Mandarin Chinese, a word that embodies a complex web of obligations, reciprocity, trust and value that are universal characteristics of human sociability and social capital.

Ancient trading networks stretching from the Roman Empire to India were built on networks of trusted contacts in Rome, Egypt (the entrepot of trade from Mediterranean ports to the Arabian Sea ports) and India. This wasn't corruption, it was simply business--often based on family and near-family connections.

It's long been observed that societies with low trust in strangers--that is, low levels of trust in the fairness and reach of the society's legal, financial and political institutions--are economically stagnant, as enterprises cannot expand beyond the trusted network of families and family-like connections.

In modern industrial societies, social capital has lost value as people have come to rely on government and institutions for income, food, aid, child and elderly care, etc.--the resources and services that we once relied on social capital networks to provide.

Urban life tends to degrade social capital, which requires time, effort and caring that are often scarce in busy, over-committed lives. The frenetic pace limits the rewards of investing in social capital networks, as does the fast-revolving door of neighborhoods and workplaces: it's difficult to establish friendships and meaningful ties when everyone is pressed for time and people move on in a few months or years.

Investing in people who are gone in a few months yields very little, so social capital dwindles to near-zero. Many urban dwellers don't have any contact with their neighbors and only limited contact with people they work with.

The ties that exist are too contingent and weak to support much in the way of trust, reciprocity, sharing, obligation, etc.

In economic terms, if the government provides income and Corporate America provides the goods and services, the traditional need for social capital evaporates.

Humans are not just rational economic robots, and so the impoverishment of social capital deserts in which few know their neighbors, share anything with others, owe anything to anyone or trust anyone is also a desert of emotional well-being.

This has spawned a number of seminal books such as The Lonely Crowd: A Study of the Changing American Character, Bowling Alone: The Collapse and Revival of American Community and The Culture of Narcissism: American Life in An Age of Diminishing Expectations, in which author Christopher Lasch sets aside the psychological definition of an individual's narcissism (hedonistic egoism) to examine what he called "pathological narcissism."

In my view, this systemic narcissism resulting from two dynamics:

1) Work/career demands so much of individuals now that they have little time or energy to build or maintain social capital networks.

2) Given the general dependence on the Savior State and corporations for life's necessities, there is little motivation or need to maintain social capital beyond the immediate family circle.

In other words, the individual has no economic need to invest in social capital because all the essentials are provided by the state and corporations.

In traditional economies, producing goods and services in the home and sharing with a social network were essential to survival; there was no Savior State providing money to buy everything.

As for the emotional well-being value of social capital, the simulacra of social media and brand-identity fill the void, however imperfectly.

In my own experience, social capital develops organically and without extraordinary effort in the close-knit connections of shared community, family ties, faith, purpose and values. Some enterprises can foster social capital, but the demands to maximize profits every quarter make enterprises poor soil in which to grow social capital.

In an economy that optimizes time spent earning money and buying everything, very few people have much to share: they have very little free time, their career demands maintaining specialty skills over activities that generate surplus goods (hobbies, crafts, gardens, etc.) and the financial pressures to maximize income set the goals of life.

In other words, social capital deserts don't just lack trust and connections; they lack tradable goods and services that have value in a society in which everything is store-bought.

For example, people who don't have time or interest in preparing meals with raw ingedients will not value gifts of home-grown fresh fruit and vegetables, and so one of the fundamental forms of reciprocity throughout human history--exchanging home-grown food--has little value.

Which brings us to the last redoubt of social capital, family networks. These too have frayed as people have lost connections to any "home" locale and moved far from each other. Since there is no need for social capital to meet most of Maslow's Hierarchy of Needs, there is very little "necessity" glue to bind people together.

In Hawaii, the need to maintain home gardens and social capital has 100-year old roots in plantation communities in which the workers weren't paid enough to buy everything they needed. Home gardens weren't a luxury, they were essential because what little money that was available was needed to buy staples such as flour and rice.

Children went barefoot because there was no money for shoes or other "luxuries."

What's changed is what is essential. In today's world, earning enough income to buy everything is what's essential, and social capital is non-essential. In living memory, social capital and home food production were essential, ashaving enough money to buy everything was out of reach for the vast majority of households.

Social capital can't be bought, it takes significant, sustained investments of time, energy and caring. In a society obsessed with financial measures of value, it's little wonder social capital has atrophied to the point that it is a non-factor in many lives.

The value isn't in being willing to accept something of value, it's in creating and sharing something of value without calculating a financial return. The return isn't financial, it's far more valuable than that.

It's an open question as to whether social capital deserts can be made to bloom. The soil may lack the requisite nutrients. For households hungry for sociability and social capital, it may be easier to move somewhere with fertile soil rather than to try to turn hardpan into a verdant garden.

That changes if a self-sustaining, self-organizing, like-minded group assembles around a value-purpose driven project. But that's asking a lot of people stretched for time and energy, and of people like me who are joiners, not founders or leaders.

Necessity is a magnet, and perhaps as what's essential in our lives changes, social capital will start sprouting, even in the most unlikely places.

This essay was first published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($54/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.






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Thursday, August 26, 2021

Fed Up with the Fed's Abuse of Power

One phrase describes the Fed's pillaging of the nation to benefit the few at the expense of the many: abuse of power.

To confess that the fate of the entire global economy now rests on the mumblings of a fossilized Politburo fanatically devoted to making the rich richer is to 1) state the obvious and 2) admit the extreme fragility of the global financial system. That it has come to this-- all global markets soar or collapse in unison based on the addled spew of the fossilized Politburo's chairman--is overwhelming evidence that 1) the system is broken and 2) the fossilized Politburo has way too much power and 3) the fossilized Politburo is abusing its power by enriching the already-rich, decade after decade, to the detriment of the bottom 90% and systemic stability.

Let me translate the incoherent ramblings of Chairperson Powell: let them eat cake (or more precisely, let them eat brioche), for increasing wealth and income inequality has been the Fed's prime directive since The Maestro Alan Greenspan began the Fed's manipulation--oops, I mean management--of the stock, bond and risk markets in the early 1990s.

The fatal synergies unleashed by the Fed's abuse of power were already apparent to Greenspan by December 5, 1995 when he issued his famous warning that equities were exhibiting "irrational exuberance." The irrational exuberance of those early days of the Fed's abuse of power--stripmining the middle class to boost the wealth of America's top tier--now look positively quaint compared to today's Fed-fueled speculative mania which has poisoned the entire society and hoisted the economy on a rickety ladder to the sky that will crush everything below when it finally snaps.

It would be refreshing to dispense with the Fed's pathetic, tissue-thin rationalizations for making the rich richer: we're just trying to boost inflation (the surest way to impoverish the bottom 90%) and increase employment... oh right, which must be why labor's share of the economy has been in a free-fall for the past 30 years of Fed manipulation / abuse of power. (see chart below)



Let the record show what the Fed has accomplished: 1) inflating three ever-more destructive speculative bubbles and 2) unprecedented extremes of wealth and income inequality. The Billionaires are grateful for the free trillions the fossilized Politburo showers on the super-wealthy while destroying the safe yields that once benefited the middle class.

One phrase describes the Fed's pillaging of the nation to benefit the few at the expense of the many: abuse of power. When will America finally end the Fed's reign of inequality and ever more extreme abuse of power? When will we finally ease this disastrously fossilized Politburo into the dustbin of history? If we cannot do so, the nation's financial collapse is easily foretold.






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

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Wednesday, August 25, 2021

How to Identify a Bubble: Wall Street Says It's Not a Bubble

The post-bubble-crash phase is already being prepared: 'no one could have seen this coming'--except anyone who paid attention to anything other than self-interested shills.

It's really pretty simple to identify a speculative bubble of epic proportions in stocks: if Wall Street says it's not a bubble, it's a bubble. As I explained in The Smart Money Has Already Sold, from the long view the entire game of "investing" (wink-wink) boils down to one dynamic:

Wall Street and the Federal Reserve inflate an unprecedented debt-funded speculative bubble and then lure retail "investors" (i.e. gamblers) in with the promise that the enormous gains are just starting, there's so much more easy money ahead, etc. Then Wall Street distributes (sells over time so as not to alert the complacent herd of retail punters) its shares of overpriced rubbish ("investments", heh) to bagholders, and then to everyone's surprise (or not), the market suddenly crashes as the unsustainable bubble pops.

Wall Street has long practice in how to reassure the herd: since insiders have juiced the market higher for years at every dip (with the Fed's free trillions offering a helping hand), the bagholders have been well-trained to buy the dip even as the wheels come off the whole "this time it's different" scam.

Human psychology being what it is, desperate retail bagholders cling to the delusional belief that a recovery to new highs is just around the corner, because that's what the market has done for 13 straight years.

Every decade or so--1999-2000, 2007-2008, and now 2020-2021--Wall Street's roving army of shills spews the same paper-thin justifications for "this is not a bubble": this rally is just getting started, we're assured because 1) corporate profits are rising and will support much higher valuations; 2) the Federal Reserve will never let any bubble pop (said in so many words) and 3) if we look at comparative charts of quatloos, the British pound in the 1820s, the current price of sake on the Sendai Exchange and bat guano futures, it's obvious the S&P 500 is still undervalued. (Use as many arcane charts as possible to wow the bagholders.)

Sadly, it's all so easy. The hardest part is waiting for the pain from the last bubble popping to diminish enough for greed to overwhelm caution. Wall Street only had to wait five years from the nadir of the dot-com bubble in 2003 to the next bubble pop in 2008; the wait from 2008 to 2021 has been excruciatingly long. Thirteen years we've had to wait for the retail herd to go all in, for margin debt to soar to new extremes, for short interest to fall to multi-decade lows.

But it's finally showtime, and the bagholders continue buying garbage that's guaranteed to collapse in value. The post-bubble-crash phase is already being prepared: no one could have seen this coming--except anyone who paid attention to anything other than self-interested shills.

The woe and gnashing of teeth will be colossal for the bagholders, as will the profits for Wall Street insiders. Fortunately they have long practice in looking woeful in public, as if they're sharing the pain, and hiding their glee at getting away with the same old "this isn't a bubble" scam yet again.

What nobody dares ask is: will the bagholders have anything left after this "third time's the charm" bubble pops? Please don't tell us this is the end of the road for the "this isn't a bubble" scam. Without greed-fueled credulous bagholders with cash/credit to gamble, the game is over.






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The Story Behind the Book and the Introduction.



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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
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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)

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Sunday, August 22, 2021

The Upside of a Stock Market Crash

A drought-stricken forest choked with dry brush and deadfall is an apt analogy.

While a stock market crash that stairsteps lower for months or years is generally about as welcome as a trip to the guillotine in Revolutionary France, there is some major upside to a crash. Let's start by noting how drawn-out crashes reset the dominant ethos of the era from wild debt-funded speculation to long-term investing in productive assets.

(Whatever that means....nobody seems to know what a "productive asset" even is... presumably a call option on a Momentum Stock that expires in two days qualifies....)

In an era where punters expect to turn $4,000 into $400,000 in a few months via a frenzied speculative churn, there is no role or incentive for long-term investing. A 10% return is barely acceptable on a single trade on a single day, so the idea that one invests one's nestegg in stocks that might (if all goes well) return a total gain of 10% annually... you must be joking, right? Ten percent a year?

An incentive structure that no longer rewards speculation would be a positive for the nation. A market that drifts lower, impoverishing every buy the dipper and draining the capital from every speculator, large and small, would be extremely beneficial as it would lower expectations and re-establish measures of value that have lost all meaning.

In the larger scheme of things, nations which save some earnings and invest these savings in enterprises which increase productivity generate broad-based prosperity. Nations which become dependent on speculative bubbles to generate illusory gains of phantom capital stagnate and collapse once the bubbles pop, which all speculative-debt-funded bubbles eventually do.

A stock market crash that only slipped lower for months or years would also force the nation to look at the broken rungs on the ladder of upward mobility. As it now stands, upward mobility has been reduced from available to almost all to available to the children of the wealthy (i.e., an aristocracy) or a Darwinian death-march in which an army of hopefuls obtain the necessary baseline credential (a college B.A. or B.S. diploma) and then experiences the Darwinian death-march's appalling attrition as hundreds of insolvent PhD graduates seek a handful of tenure-track positions and naive law-school grads are worked to exhaustion and then jettisoned as over-credentialed offal.

The only ladder rung left is from debt-serf to tax donkey. Which brings us to the bracing prospect of getting amazingly rich in an amazingly short time via stock market speculation in leveraged instruments such as options and futures contracts.

On the one hand, there's 40 or even 50 years of grinding away for The Man to pay the monthly nut of student loans, a pickup truck loan and if you're lucky, a staggeringly large mortgage, and on the other hand, turning $4,000 into $400,000 and telling The Man to take this job and shove it.

From the perspective of power relations in a kleptocratic economy masquerading as a "democracy" (heh), insanely risky speculation in bubbles is 1) a relief valve (hey, at least there's still one way out) for the social unrest that awaits a broad recognition that the entire economy is rigged to benefit billionaires and the top 0.1% and 2) a means of distracting people from the dead-end realities of an economic-political system that increases wealth-and-power inequality by leaps and bounds every time the Federal Reserve spews more jibberish--which is every day.

Few believe a crash is even possible, and a crash that doesn't immediately bounce to new highs once the Fed spews more gibberish is incomprehensible. A crash that doesn't bounce and just keeps slipping to new lows is viewed as far less likely than Martians landing.

Which is of course one reason why it's so likely. When everybody's all in, then the pool of greater fools is no longer large enough to sustain a rally. While various gimmicks and tricks can keep the bubble inflated for a few weeks or months, eventually gravity wins and stocks start sliding--or put another way, they just stopped going up.

The other reason why bubbles inevitably burst and stocks decline for years is kleptocracies, extremes of inequality and speculative frenzies are all systemically unstable. Each lacks the fundamental dynamic stability required for sustainability.

A drought-stricken forest choked with dry brush and deadfall is an apt analogy. If there's no human-provided spark, random lightning strikes will ignite the crash, no human intervention required. The destruction of speculative-driven debt and gambling will clear the economy of dead wood and enable a regrowth of constructive, long-term investment in increasing productivity. That's an upside the U.S. economy desperately needs. The sooner the speculative bubble crashes, the sooner a constructive ethos can take hold.




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:

Gadfly Interview with Charles Hugh Smith (Host Carlos Gonzalez, 22 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).



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Friday, August 20, 2021

Why the Wheels Are Coming Off

Is that the scent of smoke? What's that red glare? Must be nothing.

Why are the wheels coming off the American Project? Afghanistan is front and center in the news flow for obvious reasons, but since I have no expertise on that nation or America's role there, I am stipulating these are general comments from a systemic perspective.

By the American Project I mean 1) global hegemony in both hard and soft power and 2) American Exceptionalism, the belief that America is not just uniquely strong but uniquely right in terms of holding the high moral ground.

1. If you don't understand the problem, you can't possibly arrive at a solution. It's long been painfully obvious that U.S. presidents would be best served by their closest advisors being anthropologists with long in-country experience in whatever nation the U.S. is engaging.

Any anthropologist with experience in Vietnam would have dismissed the idea of an American "victory" by any means as a possibility. The same can be said of Iraq and Afghanistan. Unfortunately, American presidents don't listen to anthropologists, they listen to advisors with no real understanding of the nation and people the U.S. is engaging. Lacking a grasp of the situation, every characterization of the "problem" will necessarily be completely misguided and the proposed "solutions" cannot but fail miserably.

Rather than seek a deep understanding the nation and its people, U.S. presidents and their advisors see everything through the distorting lens of great-power rivalries, geopolitical juggling, American prestige and power and a profoundly parochial, provincial view of other cultures and societies. The resulting ignorance of U.S. policy is stupefying.

Willful ignorance and blind ambition are fatal siblings.

2. Since the U.S. can conjure trillions of dollars out of thin air at will, money is squandered freely without any accountability or care. From a systemic perspective, the primary role of the Federal Reserve is to conjure as many trillions of dollars as needed to supply the American Project with money to squander--as long as a healthy slice of the squandered trillions butters the bread of private interests in the U.S.

3. There was a weary-sounding saying in the Vietnam years: "It's the only war we got." Indeed. Historians of Imperial Projects may well note approvingly that America is a war-like nation. This is not uncommon in history, rather it is the rule. Being war-like is unexceptional.

America's Founding Fathers were extremely wary of foreign entanglements and wars because America was extremely weak in its initial decades, lacking a Navy for defense and power projection. Nonetheless, war was viewed as unavoidable within a decade following the final ratification of the Constitution and the Bill of Rights (the Barbary War in 1801) and a full-blown war with Great Britain followed 11 years later (1812). Two wars in 21 years more or less set the pattern.

As many have noted, war is an extremely profitable business if one manages to keep the conflict out of the home country. War profiteering has as long a history as war itself, and it took extraordinary efforts to put any sort of limits on war profiteering in the "good war," World War II.

If a nation becomes politically and economically dependent on a vast, politically powerful and politically sacrosanct industry, then that industry will continue to do what it does, regardless of conditions. If that industry is construction, then when useful construction projects dwindle, the industry will soak up billions building bridges to nowhere, fully supported by the political and financial classes.

If the industry is warfighting, then wars will manifest, with "victory" being the stated goal but utilization and expansion of assets being the actual purpose. Wars that cannot possibly be "won" in any conventional sense are the ideal means to maximize profits and the utilization of assets.

It's nothing personal, it's just the way things work: "It's the only war we got." Provide a better war and the make-work one drops away.

The war-fighting cartel is not unique. America is little more than a putrid porridge of politically powerful and politically sacrosanct cartels: Big Tech, Big Pharma, Big Ag, Big Banks, Higher Education, Sickcare, Bread and Circuses and so on. The only constants are infinite greed and near-infinite corruption and incompetence.

4. Sunk costs. When the costs of some misadventure / poorly executed investment reaches a threshold, stakeholders can't stomach the loss to their pride and prestige, never mind the financial losses. And so they continue doing more of what's failed spectacularly.

The sunk costs of America's misadventures are piled to the rafters but losses aren't allowed, so prevailing policy is to pile the losses and risks ever higher, hoping nobody will connect the dots when the whole rotten construct collapses in a heap of magical thinking and corruption.

5. The hubris of endlessly printed trillions. Since the Federal Reserve has gotten away with printing trillions out of thin air to buy the U.S. Treasury bonds that have conjured trillions out of thin air for the government to squander, American Exceptionalism now includes the eventually-fatal hubris that we can always buy our way out of trouble by conjuring another trillion or three out of thin air.

Since there's no limit on how many trillions we can conjure out of thin air, there's no limits on how many trillions we can squander and therefore there are no limits on American Exceptionalism or the American Project.

Since everything is for sale, and we can conjure endless trillions, then we can buy whatever is needed to keep the wagon rolling forever.

Until the wheels fall off, of course. And when that happens, then we can always deploy the last refuge of failing enterprises:

6. Managing narratives has replaced actually solving pressing problems. It's now impossible in America to actually address pressing problems without stepping on the toes of one politically powerful and politically sacrosanct cartel or another, and so problems fester and multiply to the point they cannot be solved within the status quo, regardless of how many trillions are conjured and squandered.

To mask the coming collapse, narratives must be tightly controlled. Since collapse can't be forestalled without making powerful enemies, the only politically expedient option left is to eliminate any dissent that questions the officially sanctioned happy-stories.

When a society and a state give up the search for solutions because real solutions will negatively impact politically powerful cartels, collapse is only one step away. It's all fun and games in the unwinnable wars and simulacra reforms stage, but managing narratives isn't the same as managing the real world, and the real world eventually crushes the happy-story narratives and those who actually believed them.

Is that the scent of smoke? What's that red glare? Must be nothing. The wheels are coming off, but never mind, here's a happy story to tide you over until the banquet of consequences is served.




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:

Gadfly Interview with Charles Hugh Smith (Host Carlos Gonzalez, 22 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).



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Wednesday, August 18, 2021

The Smart Money Has Already Sold

Generations of punters have learned the hard way that their unwary greed is the tool the 'Smart Money' uses to separate them from their cash and capital.

The game is as old as the stock market: the Smart Money recognizes the top is in, and in order to sell all their shares, they need to recruit bagholders to buy their shares and hold them all the way down. Once the catastrophic losses have been taken by the bagholders, then the Smart Money slowly builds up positions amidst the wreckage.

It's easy to become a bagholder; all you need is greed. Been there, done that, for the siren songs luring bagholders to their ruin are compelling and numerous. The Smart Money doesn't have to mislead anyone; all they do is let the strident super-Bulls talk up the riches to be had by all those who buy today and hold indefinitely, and human greed does the rest.

Siren songs to lure the unwary greedy include these classics:

1. The Fed has our back, i.e. the Fed will never let stocks go down, so there's no risk in buying more shares today.

2. Innovation stocks can only go higher as they create new industries that are the future of the economy.

3. Institutional buyers are coming in, and that means prices can only go higher.

4. This is a new era, old measures of valuation no longer matter.

5. Over time, stocks only go higher, so buy and hold is the winning strategy.

The greatest ally of the Smart Money is buy the dip, as the bagholders trained to buy the dip will continue buying every dip on the way down until their capital is expended. Bagholders see every rally off a dip as proof buy the dip works, when every rally off a dip has been engineered to suck in bagholders.

Every rally is another opportunity to sell for the Smart Money.

The greatest hindrance to the Smart Money selling is low volume. The main point of selling is to dribble out shares in such modest doses that the price doesn't move. If a big block of shares is dumped all at once, then the price collapses in low-volume markets. So the Smart Money sells slowly and methodically, transferring 100 million shares over time to a million bagholders who each buy 100 shares.

When questioned, the Smart Money prevaricates with generalities rather than show their hands. The market is "constructive" and "supportive of equities," etc., meaningless terms intended to mask their steady selling and lull the bagholders into a false confidence in the Fed, innovation leaders, buy the dip, this time it's different, etc.

The Smart Money can count on one thing: greed is sticky. Once a bagholder has decided that Innovation-XYZ is their one-way ticket to unearned wealth--just look at all the newly minted millionaires who did nothing but trade call options in Innovation-XYZ--then the Smart Money knows the bagholder will never let go of that belief until there's no more money to throw into call options.

Generations of punters have learned the hard way that their unwary greed is the tool the Smart Money uses to separate them from their cash and capital. The tricks outlined in Reminiscences of a Stock Operator may have changed over time, but the game of selling at the top while stretching out the top to enable massive selling without moving markets is very much alive and well.




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:

Gadfly Interview with Charles Hugh Smith (Host Carlos Gonzalez, 22 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).



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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.

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Monday, August 16, 2021

Why the Global Economy Is Unraveling

Global supply chain logjams and global credit/financial crises aren't bugs, they're intrinsic features of Neoliberalism's fully financialized global economy.

To understand why the global economy is unraveling, we have to look past the headlines to the primary dynamic of globalization: Neoliberalism, the ideological orthodoxy which holds that introducing market dynamics to sectors that were closed to global markets generates prosperity for all.

This is known as Neoliberalism, as liberalizing markets means opening up sectors that had previously been restricted. Neoliberalism holds that global market forces introduce efficiencies and opportunities that then pave the way for growth. Global market forces include not just new buyers and sellers of goods and services but the introduction of vast new markets for credit and risk that far exceed what was available in local marketplaces.

So far so good: opening markets creates efficiencies and prosperity, blah blah blah. But the real dynamic behind this happy-story shuck-and-jive is unprecedented prosperity for those with access to low-cost credit generated out of thin air by central banks.

In other words, introducing market forces leads to the dominance of those who control those forces --banks and corporations. Once a local economy is exposed to global capital, those with the most expansive access to the lowest-cost credit can outbid local buyers, snapping up the most productive assets and dominating the local economy to their own benefit.

Since the core mechanism of Neoliberalism is access to low-cost credit, Neoliberalism concentrates financial power and risk in a handful of financial nodes which every market participant unknowingly becomes dependent on. When a developing-nation village was largely self-sustaining and not exposed to global markets, it was largely unaffected by global financial crises.

But once the village entered the global marketplace via credit-fueled tourism and development funded by global capital, the sudden contraction of credit in a global financial crisis is devastating. Since the village has become dependent on tourism, its self-sufficiency has been replaced by a dependence on wages from tourism and access to goods supplied by global corporations.

Now that the village is dependent on wages, credit and global goods, it is exposed to potentially catastrophic risks that are completely out of its control: the collapse of credit, the closure of foreign-owned hotels and the vagaries of currency devaluation, which may cause the purchasing power of their wages to drop sharply.

Even more perniciously, the flood of global credit washing into the village offers the enticing prospect of buying previously unattainable goods on credit. Globally sourced items such as motorcycles become affordable in monthly installments once the worker abandons farming and takes a wage-paying job at a foreign-owned hotel.

The teleology of Neoliberalism--every human activity must be turned into a market exposed to global credit markets--cannot be reversed once a partially monetized (i.e., a loosely bound system) economy is fully financialized (i.e., a tightly bound system). There is no going back to a localized economy because global markets quickly replace decentralized local marketplaces with markets that are dependent on global chokepoints.

In systems terms, loosely bound systems are interconnected by point-to-point links that do not share centralized nodes. A classic grid of streets and alleys is an example. If one street is blocked, there are many alternative routes to connect two points in a town. In economic terms, loosely bound markets have multiple suppliers and customers, each of which is independent of each other.

Loosely bound markets are structurally flexible and adaptable--what Nassim Taleb terms anti-fragile--and intrinsically stable due to their multiple decentralized connections. Imagine a semi-random arrangement of dominoes: some are close together, others are far apart, some face north, others face southwest, etc. If one domino falls, it’s unlikely to knock over more than a few others.

In contrast, tightly bound systems connect all points through centralized nodes. An example is three lines of dominoes that intersect in several places--nodes in the system. If one domino in any line falls, it will topple every domino in the entire system. Tightly bound markets run supplies, credit and transactions through central nodes; there are few if any point-to-point links that don’t pass through a central node.

Tightly bound markets are thus exquisitely vulnerable to any disruptions in any node. This system may be optimized for profitability, but it is inherently fragile and prone to collapse due to the dependence of every point on tightly bound nodes: if one node fails, the entire system logjams.

To summarize: Neoliberalism generates systemic fragility by organizing what were once decentralized, redundant connections through credit/trade nodes controlled by elites. Global supply chain logjams and global credit/financial crises aren't bugs, they're built-in features of Neoliberalism's fully financialized global economy.

The unraveling we're witnessing is just getting started. The first dominoes have fallen, and there's no going back to the artificial stability that was sold as permanent stability. Instability and collapse are the inevitable result of the system's structure.




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:

Gadfly Interview with Charles Hugh Smith (Host Carlos Gonzalez, 22 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).



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Friday, August 13, 2021

Inflation: Keynes, the Gold Watch and Everything

Demand isn't the problem, supply is the problem, and it can't be resolved by printing more currency or lowering interest rates or cranking up inflation.

To the degree that we inhabit an economic order dominated by Keynes and "demand," then any discussion of inflation has to circle round to Keynes and his magic solution to all economic ills: "demand", otherwise known as money burning a hole in your pocket.

Keynes' solution to depression, unemployment and virtually every other economic ill was to stimulate demand for goods and services by giving people more money and making it easier for them to borrow more money, with the key incentives being to promote more spending, not more savings and investment. The more people were encouraged to borrow and spend, the more demand for goods and services would increase and this growth would solve all economic ills.

Productivity and supply aren't issues in the magical world of Keynesian economics: Keynes famously suggested that paying people to dig holes and then fill them was one way to get more money into pockets for people to spend.

In this economic order, inflation is a useful incentive to nudge people into spending their money rather than saving and investing it, as all cash will buy less next year in an inflationary regime.

Here's the problem with the Keynesian economic order: it stopped the gold watch in 1932 when the world's supply of oil and other resources could still be viewed as semi-infinite: supply was just waiting for more demand as a signal to increase. If demand increased, supply would always magically increase in parallel.

In this magical kingdom of Keynes, any scarcity / shortage would be transitory for two reasons: 1) stuff was basically infinite; there was always some new source to mine, drill, extract, etc., and 2) there is always a substitute for whatever is temporarily scarce: if the beef supply can't be ramped up to meet demand, then people can buy a substitute, which is presumed to be in unlimited supply.

In 1932, the world was still awash in oil, and hydrocarbons and minerals seemed abundant beyond measure. The human population was growing but nowhere near utilizing the planet's agricultural and fresh water supplies. Everything was essentially infinite; scarcities were transitory or localized.

Set the gold watch for 2021 and none of these conditions apply. The human populace has roughly quadrupled from 2 billion to 8 billion, the energy consumed per capita in developed nations has skyrocketed, resources are limited by depletion and costs of extraction, and as a result, scarcities are not transitory, they're permanent.

Inflation isn't just a mechanism to incentivize borrowing and spending now rather than later, it's a policy of impoverishment of the bottom 90%. The wealthy have income and capital gains from assets which bubble higher in the magical kingdom of Keynes, while those who depend on wages for their living lose ground every second the watch ticks forward in time.

Keynesian magic can't conjure substitutes for fresh water, wild fisheries, cobalt or even semiconductor-grade sand. In the world of 2021, demand is not the issue; supply is the issue, and the Keynesian magicians are literally blind to the consequences of this change.

The problem isn't there isn't enough money burning a hole in consumers' pockets; the problem is the price of goods extracted from the physical world and shipped across the world is rising far faster than the Keynesians can stuff money into pockets. The other problem is that there are no substitutes for what is scarce, and unless the Keynesian conjurers can magically turn dirt into cobalt, make heat and pollution vanish and provide magic carpets for moving stuff around frictionlessly, then the economy will increasingly be dominated by scarcities and shortages of resources and other inputs for which there are no substitutes.

It's a different world, people, so move your gold watches from 1932 to 2021, or suffer the consequences of delusional faith in fake magic. Demand isn't the problem, supply is the problem, and it can't be resolved by printing more currency or lowering interest rates or cranking up inflation.




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 World Just Got a Lot Riskier (with Gordon Long, 36 minutes)

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).



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