Wednesday, August 31, 2022

The System Is Busy Cannibalizing Itself

As the word suggests, cannibalism won't end well for those consumed by the infinitely insatiable few.

Cannibalize is an interesting word. It is a remarkably graphic way to describe the self-inflicted destruction of a system by stripping previously functional subsystems to sustain the illusion of system functionality.

Here are some examples.

An Air Force which routinely posts photos of its impressive fleet of 100 aircraft has been cannibalizing parts from 80 aircraft to keep 20 flying. This maintains the useful illusion that all 100 aircraft are available for combat when only 20% are functional, and most of those only minimally so.

An enterprise maintains a substantial cash position even as it loses money every quarter by quietly selling off its most valuable assets. This maintains the illusion of financial strength even as the enterprise is being hollowed out.

The system--whatever you choose to call it--is busy cannibalizing itself to the point of collapse. Neoliberal State Capitalism is a pretty accurate description of every major global player's system because all seek to benefit from the expansion of markets (Neoliberal Capitalism) and financial instruments (Finance Capitalism), and control these markets and instruments to benefit the few in power at the expense of everyone else (state Capitalism).

Turning transparent, open markets into controlled, exploitable "markets" is the ultimate cannibalization of equally-open-to-all market capitalism which is the foundation of the productive distribution of opportunity.

Turning small-scale, localized finance into centralized / globalized hyper-financialization cannibalizes finance to benefit the few with unlimited access to credit, leverage and monopoly. First you borrow vast sums at low rates of interest that are inaccessible to mere mortals, take a corporation private, indebt the company and use the funds to accumulate mountains of derivatives that leverage the debt 10-fold or even 100-fold, then take the corporation public again, goose the stock and then cash out all the leveraged gains.

The newly public company has been stripmined of core assets and burdened by debt. The financiers cannibalized the corporation to benefit themselves at the expense of everyone else with a stake in the business and the future viability of the enterprise.

This cannibalization is not restricted to the financial realm. True virtue--honesty, trustworthiness, the willingness to accept self-sacrifice for the greater good--has been reduced to ashes behind a glossy, fraudulent facade of virtue-signaling, a facade that masks the cannibalization of the system to benefit the self-congratulatory, hypocritical few at the expense of the many.

Health has also been cannibalized to maximize the private gains of the few at the expense of the many. If we define food as natural products high in nutritional content then very little of what's being presented as "food" actually qualifies as food because its nutritional content is somewhere between abysmally low and non-existent.

Highly processed products are simulacra of food that hijack our hardwired pleasure responses to heavy concentrations of salt, sweets, fat and spice and crunchy/chewy mouthfeel. The nutritional content of these products is so low and the fat-salt-sugar content so high that they are severely damaging to health on multiple levels.

The unwary consumer who stuffs themselves with these simulacra of food (shall we call it "fud"?) feels full even as their body and brain are starved for real nutritional content and real-food fiber.

Everywhere we look, we find a massive cannibalization effort behind every phony facade, a cannibalization that hollows out the functionality and adaptability of core systems to benefit the few at the expense of the many.

Virtue-signaling isn't virtue, cannibalized aircraft can't fly, cannibalized enterprises are zombies awaiting incineration and those cannibalized by the "fud" and healthcare industries cannot become healthy because garbage in, garbage out.

As the word suggests, cannibalism won't end well for those consumed by the infinitely insatiable few. It won't even end well for the infinitely insatiable few because they're consuming the last of their prey so voraciously.

In the meantime, enjoy the self-destructive charms of cannibalized functionality and value.




Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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

 

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

Read more...

Monday, August 29, 2022

Make Sure You Download the Latest Ministry of Propaganda Updates

While it's fun to sort all the propaganda into various boxes, we would do well to look for what all the marketers / MoP players seek to mystify.

It's time once again to check for Ministry of Propaganda updates, which like Windows and iOS is constantly being updated to counter new threats and enhance the user experience (heh).

Much like the other operating systems that underpin our daily lives, the core functions of the MoP don't change much. My chart from 2007 remains an instructive summary of MoP operations, with the only changes being Mr. Buffett is now buying oil companies and social media corporations are now major media players.



The core mission of the Ministry of Propaganda isn't just to push a desirable narrative--it's to mystify the underlying dynamics of a system that benefits the few at the expense of the many by promoting a self-serving worldview (weltanschauung) that explains how the world works in a way that protects the interests of those in power.

As science fiction author Philip K. Dick explains in the quote below, the MoP narrative isn't just a cloak thrown over the underlying dynamics, it's the creation of an entire universe / worldview, including contexts for understanding what's going on, establishing what's valuable and what isn't, and what behaviors enhance status and which ones marginalize us.

The Ministry of Propaganda isn't monolithic: various factions compete to push their self-serving narratives. As Dick noted, this includes governments, corporations, religious and political groups, each of which understands that once the populace accepts their worldview, their power is cemented in realms far above mere force.

A key mechanism in establishing a dominant worldview is the think-tank or equivalent self-serving body claiming authority over what's true / false and important / unimportant. This can be authority over the "correct" interpretation of spiritual texts, economic policies, healthcare "standards of care," geopolitical goals, etc.

Since humans are innately social, status-striving beings, hierarchies of authority and power are the air we breathe. Those who establish themselves as authorities don't just gain power, they cement their power on the basis of their authority rather than on loyalty or competence.

The enormous powers of social media and traditional media to promote claims of authority have generated a deranging snarl of conflicting agendas and narratives. Various centers of power collaborate on pushing worldviews that benefit their interests, but this isn't entirely coherent. The one thing all participants in the Ministry of Propaganda agree on is our power is deserved and must be defended against all threats, which includes hostile entities inside and outside the national borders.

This fragmented, constantly shifting cacophony of competing authorities is destabilizing. As the tectonic plates of worldviews collide, the edges crumble and people naturally seek the safety of some core set of beliefs, in effect "circling the wagons" in an attempt to restore some internal stability.

We see this in the intense political polarization of this era (see chart below). To make sense of the competing claims of authority, we reduce the perimeter of what's defendable, putting more of the world into "outside enemies" (them) and reserving the "safe, trusted place" for fewer of "us."

With so many competing factions in the Ministry of Propaganda, there's a proliferation of propaganda such that there is literally nothing left but PR. In a universe constructed of nothing but agit-prop and PR, we all have our favorites examples. James Bond picks up his Nokia phone. Even though nobody's seen a Nokia phone in ages, if you want to be cool like Bond, go buy a Nokia phone.

Marketing is the MoP's entire universe. Everybody's selling something to gain or maintain power, status, mindshare or the ultimate prize, the dominant worldview.

To ease the confusion, please download the latest updates from the Ministry. These updates replace all that misinformation, misdirection, and blatant marketing with the, ahem, facts, or the correct interpretation of the facts. (We had to destroy the village in order to save it. OK, got it.)

While it's fun to sort all the propaganda into various boxes, we would do well to look for what all the marketers / MoP players seek to mystify. In my analysis, what must be mystified at all costs boils down to the unsustainability of 1) the current consumption of resources, 2) the current method of creating capital so the few can buy up the planet's most valuable assets, 3) neocolonialism, the modern replacement for the old model of occupation and exploitation by force, and 4) neofeudalism, the economic / social /political arrangement in which the majority of the populace are modern-day serfs with extremely limited agency and power which they are told is limitless.

"You can be anything you choose to be!" Or at least your digital avatar can do so, and that's practically as good as actually having agency and power in the real world. Or so we're told, mindlessly, endlessly without pause or respite.

More on these topics in the coming weeks.






Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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

 

Thank you, Luca C.B. ($25), for your much-appreciated generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Friday, August 26, 2022

Economies Can Burn Out, Too--And They Are

Economies can burn out, too, and they're already sliding into the final stages of burnout.

Burnout has a startling knack for sneaking up on us. We're stressed and tired but still functioning at a high level, and then suddenly our capacity to keep going collapses. We are no longer able to function no matter how much we (or others) cajole us. We've burned out and there are no quick, easy fixes. We have to slowly rebuild our lives to function at a much more leisurely pace and with far lighter loads of stress and much less systemic fragility.

This process is the subject of my recent book When You Can't Go On: Burnout, Reckoning and Renewal ( sample chapter).

Economies can burn out, too. In other words, burnout is scale-invariant: we understand individuals burn out, but enterprises, cities and economies can burn out, too, for the same reasons individuals burn out.

University of California-Berkeley professor Christina Malasch pioneered research on what causes burnout. Her focus was on workplace burnout, but the dynamics she identified in toxic workplaces can also be constructively applied to all human systems, right up to the entire hyper-globalized, hyper-financialized global economy.

1. An overwhelming load of systemic stress from multiple sources (overwork, environmental damage, drought, debt, corruption, depletion, etc.)

2. A loss of control of the sources of systemic stress (workers have no control over their work, central banks can print money but they can't print water, etc.)

3. Declining rewards for effort (workers not compensated for extra effort, positive policy initiatives thwarted by vested interests, etc.)

4. The network is toxic (the workplace is toxic, the political circus is toxic, the supply chain is toxic, etc.)

5. Injustice / unfairness is the order of the day (insiders rig the system to benefit their self-interests, "justice" is reserved for the rich and well-connected, show trials and execution by social media slander abound, etc.)

6. The system demands adhering to corrupt, destructive, venal values (the primacy of greed and self-interest, short-term gains outweigh long-term social / environmental costs, sleazy self-serving PR is the dominant form of communication, etc.)

Did you recognize all six sources of systemic burnout in the global economy? We have a winner! The sad truth is all six sources of systemic burnout are painfully obvious, and this goes a long way to explaining why the hyper-globalized, hyper-financialized global economy is unraveling in real time: the global economy is toxic to participants, the planet and the structural integrity of all human systems.

I found it difficult to pick a few examples of how economic / social systems burn out because there are so many examples. Since everyone has exposure to the medical system, let's look at the immense expansion of the bureaucratic load on the system in the number of administrators and what they're paid: both are off the charts when compared to physicians. (See charts.)

Unsurprisingly, young physicians are burning out. The administrators are earning big bucks rearranging the deck chairs on the Sickcare Titanic to maximize corporate profits by whatever means are available (overbilling, fraud, excessive meds and procedures, increasing workloads of staff, etc.), the frontline workforce is burning out and much closer to quitting en masse than the ill-informed public grasps.

Never mind the side-effects of the handful of meds we've prescribed, or where the med ingredients are sourced; make yourself comfortable on this nice deck chair here on the Sickcare Titanic. never mind that collision with the iceberg. Everything is under control, and we'll be billing your insurer or Medicaid / Medicare shortly.

Water is in the news because it turns out, so very inconveniently, there is no substitute for fresh water and central banks can't print more with a few keystrokes. Inconvenient indeed, as it turns out industry, energy, food and dang it all, life itself (not to mention the swimming pools of the filthy rich) depend on a reliably ample flow of fresh water--a flow that's drying up globally.

The western U.S. is in th grip of a mega-drought, Europe is in the grip of drought and so is China. The political battle being waged by users (see chart of the claimant states using Colorado River water) has no winners, only losers. Which economic sector will dry up and blow away is now an open question globally.

The global economy's Waste Is Growth Landfill Economy is expiring, and we're ill-prepared to function without squandering resources via oh-so-profitable planned obsolescence, millions of vehicles sitting in traffic jams (more fuel wasted = higher GDP--we're growing!) and bridges to nowhere.

The concluding paragraph of this article on China's systemic water crisis cuts to the chase: reshore or perish: China's Growing Water Crisis: A Chinese Drought Would Be a Global Catastrophe:

China-centric supply chains took decades to build and cannot be easily or quickly moved elsewhere. This is all the more reason for governments to act now to prepare key global markets for an extended water crisis in China. Nor is past experience much of a guide: when China suffered widespread multiyear droughts in 1876 and 1928, it was not the 'factory floor of the world.' Today's global supply chains are woefully unprepared for a Chinese drought that could disrupt grain trade patterns and key industrial materials production across multiple continents. As China continues overexploiting groundwater amid intensified weather volatility, it moves closer each year to a catastrophic water event, and forceful steps must be taken while there is still time.

This is of course the subject of my 2021 book Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States ( free chapter) in which I lay out a strategy to reduce the toxic load of our economy / society, restore constructive values and move to a more productive, sustainable model of social and economic vitality.

Economies can burn out, too, and they're already sliding into the final stages of burnout. The toxic feedback loops are mutually-reinforcing and time is short. Solutions abound but not in the infinitely greedy - Waste Is Growth Landfill Economy status quo.












Recent podcasts/videos:

Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs)

It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min)

Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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).

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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

 

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

Read more...

Wednesday, August 24, 2022

What's Worse Than Inflation? Depression + Inflation

If "markets" controlled by the rich are allowed to distribute essentials, the result will be civil disorder and the overthrow of regimes.

What's worse than inflation? Depression + Inflation. And that's where we're heading. As I explained yesterday in The Fed Can't Stop Supply-Side Inflation, central banks are trying to reduce inflation by crushing demand. This works in eras of abundance, but not in eras of scarcity in which supply constraints drive inflation.

If the FEW essentials--food, energy and fresh water--are supply-constrained, monetary tightening won't reduce inflation. Jacking up interest rates to crush demand won't increase supplies, it only exacerbates the destabilizing inequality of who gets their fill (the rich) and who doesn't (everyone else).

Food shortages caused by drought and other extremes of weather don't stop humans from getting hungry, and neither do central bank-created depressions.

And Depression is what we'll get if central banks continue pursuing their fatal misdiagnosis of the cause and fix of inflation. Central banks can trigger a Depression by jacking up rates and tightening financial conditions, but this won't put an end to humanity's needs for the essentials soaring in price due to scarcity.

Central banks crushing demand won't reduce wages, either, as workers need a living wage or there's no point in even showing up. After 45 years of losing ground, the worm has finally turned.

The highly unpopular (and misunderstood) solution to supply-constrained inflation is rationing so everyone gets enough to get by regardless of their wealth or income. Without rationing, the rich and powerful engorge themselves as usual, soaking up scarce supplies with their wealth. Those without wealth do without or are pushed into insolvency, generating civil instability that will eventually threaten the integrity of the entire system the wealthy control with such self-satisfaction.

Rather than cut off the water to the poor who are unable to pay soaring utility bills, it's the wasteful rich who should be cut off and fined a couple hundred thousand dollars for squandering resources.

If central banks think causing a Depression will reduce supply-constrained inflation, they will be proven tragically wrong. Depletion and scarcity are not temporary and the central bank "solution"--impoverishing the already poor and laying waste to the economy to reduce demand--won't actually fix supply constraints caused by forces beyond the reach of financial manipulations.

If "markets" controlled by the rich are allowed to distribute essentials, the result will be civil disorder and the overthrow of regimes by those left bereft while the wealthy squander resources because they have the financial means and political power to do so.

What's worse than inflation? Depression + Inflation. What's worse than Depression + Inflation? Depression + Inflation + civil disorder triggered by mass impoverishment and wealth inequality.






Recent podcasts/videos:

Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs)

It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min)

Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Elise L. ($10.80), for your most generous contribution to this site -- I am greatly honored by your support and readership.

 

Thank you, Henrik E. (10 kroner/month), for your much-appreciated generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Monday, August 22, 2022

The Fed Can't Stop Supply-Side Inflation

The Fed and other central banks have zero control of supply-driven inflation, period.

America's financial punditry is bewitched by four fatal fantasies:

1. Inflation is demand-driven. If the Federal Reserve (or other central banks) reduce demand with monetary tools like raising interest rates, inflation will cool.

2. Substitution of high-cost goods with lower-cost goods reduces inflation, and substitution is infinite: there's always cheaper chicken if beef gets too pricey.

3. Higher prices will lead suppliers to increase production, which will increase supply and reduce prices.

4. The Federal Reserve has control of all these inflation-reducing dynamics via interest rates and its balance sheet (buying or selling various durations of Treasury bonds).

All of these are fantasies, fantasies that are fatal because they're flat-out false. The Fed has no control over supply-driven inflation, which is what we have now. Consider eggs. The price has skyrocketed not because consumers suddenly ramped up demand that is now outstripping supply, but because essential inputs to supply such as feed and energy have soared in price and constraints that have nothing to do with interest rates such as the spread of bird viruses.

These essential inputs are going up in cost due to factors completely unrelated to interest rates or monetary policy. Drought and weather extremes are constraining the supply of animal feed stocks, and energy prices are being driven by geopolitical forces completely outside central bank control.

Infinite substitution is also false. What's the substitute for eggs? Silkworm goo squeezed into plastic eggs? Well, not yet... there are no substitutes for eggs. And with the soaring input costs of producing chickens, chicken is no longer that cheap.

Higher input costs affect all production. There are no cheaper substitutes when essential inputs for everything are soaring due to supply constraints. The financial fantasy holds that entrepreneurs will rush to build new production to reap the gains generated from higher prices, but this is nonsense when input costs are rising for all producers.

Unless somebody can get nearly free energy and nearly-free feed, the new producer's cost will be the same as existing producers, whose profits are being pressured as prices rise. It makes no sense to pour capital into a sector with declining profits and higher input costs.

The idea that raising ot lowering interest rates by 1% is going to magically resolve supply constraints generated by systemically higher input costs is delusional on multiple levels. In the magical imagination of our financial punditry, some fresh-faced entrepreneur will plant more grain to feed chickens because it's so darn profitable.

Nice, but what if there's no water? What if the cost of fertilizer and other inputs is so high that even higher prices might not yield a profit for such a risky venture? The disconnected-from-reality pundits don't factor in the possibility that one storm could wipe out the harvest just as the crop reaches maturity.

As for energy: there's a 10-year permit process for whatever the fresh-faced entrepreneur has in mind. Consider the much-hyped modular mini-reactors so many expect will solve all our energy problems. One design just received the go-ahead, and a prototype is expected to reach the initial trials stage in.... 2030. Yeehaw, that will solve our inflation right now, yowza.

Meanwhile, back in the real economy the pundits don't appear to inhabit, the Fed blithely oversaw the stripmining of wage earners for 45 years and is now powerless to stop the inevitable snapback. Wages are rising because workers need a living wage (Garsh, imagine that! Funny, that's not in any of our statistical models).

The Fed increasing or decreasing its balance sheet by $1 trillion has zero effect on wages rising for profoundly systemic reasons. And while we're highlighting the Fed's complete powerlessness over the input constraints of essentials, let's also burst the pundits' delusional fantasy that the Fed raising or lowering interest rates by a point or two has any effect on tax donkeys and debt-serfs whose student loans and credit card balances remain at rapaciously high interest rates.

The fantasy that the Fed can reduce supply-driven inflation arising from systemic constraints on essential inputs is not just delusional, it's toxic because it generates unrealistic expectations and diverts policies into dead-ends where real solutions become impossible because the assumptions being made are false.

The Fed and other central banks have zero control of supply-driven inflation, period. Trying to crush inflation by crushing demand won't fix inflation because the source is supply, not demand.

Note to Fed: hoping that we'll love a gross-beyond-belief silkworm-goo substitute for eggs is remarkably representative of your powerlessness and disconnect from reality.






Recent podcasts/videos:

Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs)

It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min)

Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, John K.A. ($33.33), for your splendidly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

 

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

Read more...

Thursday, August 18, 2022

The Real Story of America Abandoning the Gold Standard

Even currencies maintaining convertibility to gold are still subject to bond yields, interest rates, trade and capital flows.

It's widely held that all of our financial woes are the result of abandoning the discipline of the gold standard in 1971. The premise here is that if the U.S. had maintained the gold standard, the excesses of the fiat currencies regime could not have arisen.

The real story is the U.S. was hemorrhaging gold in the 1960s at such a rate that America's entire gold reserves would have disappeared by 1976 - 1978. Other nations converted their dollars into gold as a furious pace, draining America's gold reserves. Once your gold is gone, you can't have a gold standard. (see chart below.)

The point here is the U.S. was only a few years away from going off the gold standard anyway. President Nixon ended the convertibility of the U.S. dollar to gold (a.k.a. "closed the gold convertibility window") i.e. abandoned the gold standard, to preserve the remaining reserves, officially listed as around 8,100 tons.

The real story is complex. It has a lot of moving parts that are critical to understanding the gold standard and fiat currencies. A good starting place is this essay from the Federal Reserve Bank of St. Louis: The Changing Relationship between Trade and America's Gold Reserves.

Let's start by defining the international gold standard: other nations can exchange your national currency for gold. No other arrangement can claim to be "backed by gold." If the supposedly "backed by gold" national currency isn't convertible to gold, it isn't a gold standard. It's a simulacrum of the gold standard.

To understand currencies, we must start with Triffin's Paradox, which I've covered for years. (For example, What Will Benefit from Global Recession? The U.S. Dollar October 9, 2012).

The core of Triffin's Paradox is that there is an intrinsic tension between international and domestic demands for the currency. As this essay observes: "Monetary policy can focus on its international responsibilities (i.e., maintaining fixed exchange rates and parity of notes with the value of gold) or focus on the domestic economy--but not both."

The authors describe how central banks reversed the erosion of their gold reserves (i.e. outflows of gold) by raising interest rates on their Treasury bonds, enticing foreigners to exchange gold for the higher yields.

But as we see today even in the fiat era, raising bond yields to support the nation's currency harms the domestic economy by making credit more costly. Simply put, in either a gold standard or fiat currency regime, you can't have it both ways. Either fiscal-monetary policies support the nation's currency internationally or serves domestic needs, but it can't sustainable do both.

As I've pointed out recently, the dominant policy driver in the U.S. from 1946 to 1991 was the Cold War with the Soviet Union (USSR). A key component of the Cold war was supporting the rebuilding of allies' war-ravaged economies (via the Marshall Plan and other policies) and most importantly, by keeping the vast American market open to our allies' exports.

In other words, the U.S. encouraged the rise of mercantilist economies (i.e. export-driven) in Japan and Germany and other Eurozone nations to bolster allies' rapid recovery and growth. As long as allies prospered, the attraction of the Soviet Union's ideology dimmed and allied economies could support larger defense expenditures to counter any Soviet invasion.

But this had a cost: to provide rapidly expanding international economies and trade, the U.S. had to export dollars to fund this expansion, and to export dollars one must run a trade deficit: America imported goods and exported dollars.

Running trade deficits was thus not a purely economic decision, it was geopolitical and of the greatest importance. The domestic cost of opening the U.S. market to mercantilist allies had to borne as part of the many sacrifices demanded by the global Cold War with the Soviet Union.

This essay offers a useful summary of how World War I destabilized the international gold standard, and how efforts to restabilize it failed. The enormous debts incurred by the European powers to fight WWI made it impossible to attract gold to rebuild reserves with high bond yields, as tight credit led to domestic depressions. Germany's attempt to inflate away their crushing war debts also ended disastrously in hyper-inflation.

Great Britain abandoned gold convertibility in World War I, returning to the gold standard in 1926. But the domestic devastation triggered by this led to Britain abandoning the gold standard again in 1931.

By the postwar era, the U.S. held 2/3 of the world's gold reserves. This led to the Bretton Woods agreement in which the U.S. was the only nation that made its currency convertible to gold.

By the late 1950s, as this chart shows, other nations started converting dollars into gold at an alarming rate. The U.S. was still running small trade surpluses, so this depletion wasn't driven by large trade deficits. It was simply an extremely imbalanced global monetary scheme returning to a more balanced arrangement: the extraordinary dominance of the U.S. was not sustainable or healthy in terms of dynamic equilibrium.

The key takeaway here is there is no one simple magic solution to the complexities of currencies which are inextricably tied to bond yields, interest rates, trade and capital flows and the strength of domestic economies. Those who see a return to gold convertability as the solution would do well to ponder the lessons of the gold standard in the 20th century, which reveals that even currencies maintaining convertibility to gold are still subject to bond yields, interest rates, trade and capital flows.




Recent podcasts/videos:

Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs)

It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min)

Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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


Become a $1/month patron of my work via patreon.com.




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Monday, August 15, 2022

Deglobalization Is Inflationary

Price cutting is being replaced with price gouging, a substitution that consumers recognize as inflation..

Globalization was deflationary, Deglobalization is inflationary. The entire point of globalization is to 1) lower costs as a means of maximizing profits and 2) find markets for surplus domestic production. Both serve to export deflation as offshoring production keeps prices stable (and profits high) and dumping surplus production in high-cost developed-nations suppresses their domestic producers' pricing power.

Deglobalization is inflationary because reshoring production increases costs. Securing production from the threats of geopolitical blackmail, civil/economic disorder in the producing nations or broken supply chains requires moving essential supply chains back to the security of the domestic economy.

This move costs money, and production costs are higher in developed economies for all the reasons that drove corporations to move production overseas: labor costs, healthcare, environmental compliance, social benefits and taxes are higher.

Now that resources have been depleted in many producer countries, the costs of producing essential materials is rising. China, a major exporter of rare earth minerals essential to the renewable energy sector, is now exploiting neighbor Myanmar's resources: Myanmar's poisoned mountains.

As developing-world nations prospered from manufacturing exports, their workforces have demanded higher pay and improved financial security. Poisoning the water, soil and air is highly profitable but the public pays the price, and eventually the public demands some environmental limits on the toxic dumping of globalization.

The warm and fuzzy narrative of how wonderful globalization was for everyone was always bogus. As I explained back in 2009, importing deflation to the developed world and maximizing profits by turning the developing world into a toxic waste dump was neoliberal capitalism's "fix" for stagnation: Globalization and China: Neoliberal Capitalism's Last "Fix" (June 29, 2009).

Globalization enabled mobile capital to swoop in, buy up local assets, create new markets for credit and imported goodies and then sell at the top before all the external costs of globalization came due and the credit bubble burst.

Now that the global credit bubble is bursting, the mobile capital exploitation party is over. Now the game is to exit Periphery nations and move the winnings of globalization to the Core for safekeeping.

Globalization lowered costs at the expense of quality, another "win" for Neoliberal Capitalism as planned obsolescence is now the implicit backdrop of globalization: poor quality goods soon fail, requiring the hapless consumer herd to buy a replacement. Since developed-world consumers already have everything (rent a larger storage unit for all your stuff), the only way to goose demand is to crapify everything so replacing low-quality goods with new low-quality goods keeps production lines and profits humming.

This works great until supply chains break down and consumers run out of discretionary income. Globalization only works if every part works perfectly, as redundancy and buffers (inventory, multiple suppliers, etc.) have been stripped to maximize cost-cutting and profits.

Now globalized perfection is breaking down and costs rise. Price cutting is being replaced with price gouging, a substitution that consumers recognize as inflation.

Deglobalization is not a quick or painless process. The ride down will be bumpy and cost increases have many sources. Profits will become harder to come by and scarcities will knock down global rows of dominoes in unexpected ways. External costs that piled up for the past 30 years have come due and must be paid.

Inflation isn't transitory or within the control of central banks. The forces at work are far beyond the reach of central bankers. Cost of credit matters, but so does the real world.






Recent podcasts/videos:

Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs)

It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min)

Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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Thursday, August 11, 2022

A Tale of Two Recessions: One Excellent, One Tumultuous

Events may show that there are no winners, only survivors and those who failed to adapt.

Some recessions are brief, necessary cleansings in which extremes of leverage and speculation are unwound via painful defaults, reductions of risk and bear markets.

Some are reactions to exogenous shocks such as war or pandemic. The uncertainty triggers a mass reduction of risk which recedes once the worst is known and priced in.

Far less frequently, structural recessions are lengthy, tumultuous upheavals that can set the stage for excellent long-term expansion or unraveling and collapse. In these structural recessions, 10% to 20% of the workforce loses their jobs as entire sectors are obsoleted and jobs that depend on excesses of debt and speculation go away.

In the U.S. economy of today, this would translate into a minimum of 14 million jobs vanishing, never to return in their previous form and compensation.

The old jobs don't come back and new jobs demand different enterprises, training and skills. Unemployment remains elevated, spending is weak and productivity is low for years as enterprises and workers have to adjust to radically different conditions. If the economy and society persevere through this transition, the stage is set for the reworked economy to enjoy an era of renewed prosperity and opportunity.

If an economy and society can't complete this transition, stagnation decays into collapse.

I've annotated a St. Louis Federal Reserve chart of U.S. recessions since 1970 to show the taxonomy described above. The stagflationary 1970s / early 1980s were a lengthy, tumultuous structural upheaval; the 1990-91 recession was triggered by the First Gulf War; the Dot-Com Bust in 2000-2002 was largely the unwinding of speculative excesses in the technology sectors (similar to the radio-technology bubble of the 1920s); the Global Financial Meltdown (aka the Global Financial Crisis) was the structural reckoning of unregulated global financialization excesses, and the 2020 recession was the result of policy responses to the Covid pandemic.

Each of these resulted in a multi-quarter decline in GDP, the classic (though flawed) definition of recession.

Recessions that cleanse the system of financial deadwood are necessary and yield excellent results. Per the Yellowstone Analogy ( The Yellowstone Analogy and The Crisis of Neoliberal Capitalism (May 18, 2009) and No Recession Ever Again? The Yellowstone Analogy (November 8, 2019), the deadwood of excessive speculation, leverage, fraud and debt issued to poor credit risks must be burned off lest the deadwood pile up and consume the entire forest in a conflagration of the sort that was narrowly averted in 2008-09 when fraud and risk-taking had reached systemically destructive extremes.

The problem with letting deadwood pile up so it threatens the entire forest is the policy reaction creates its own extremes. The coordinated central bank policies unleashed in 2008 and beyond established new and unhealthy expectations and norms, the equivalent of counting on central bank water tankers to fly over and extinguish every firestorm of excessive risk-taking and fraud.

Those emergency measures create their own deadwood, distortions and risk, and are not a replacement for prudent forest management, i.e. maintaining a transparent market where excessive risk is continually reduced to ashes in semi-controlled burns.

When systemic changes in the economy and society demand structural transitions, the resulting tumult can either creatively rework entire sectors, weeding out what no longer works in favor of new methods and processes, or those benefiting most from the old structure can thwart desperately needed evolution to protect their gravy trains.

If change is stifled as a threat, the entire economy enters a death-spiral to collapse. Some eras present an economy with a stark choice: adapt or die. Adaptation in inherently messy, as new approaches are tried in a trial-and-error fashion and improvements are costly as the learning curve is steep.

Sacrifices must be made to achieve greater goals. as I outlined yesterday in A Most Peculiar Recession, in the 1970s the U.S. economy was forced to adapt to three simultaneous structural changes:

1. The peak of U.S. oil production and the dramatic repricing of oil globally by newly empowered OPEC oil exporters.

2. The pressing need to reconfigure the vast U.S. industrial base to limit pollution and clean up decades of environmental damage and become more efficient in response to higher energy prices.

3. The national security / geopolitical need to encourage the first wave of Globalization in the 1960s and 1970s to support the mercantilist economies of America's European and Asian allies to counter Soviet influence.

Coincidentally, this last goal required the U.S. expand the exorbitant privilege of the U.S. dollar, the primary reserve currency by exporting dollars to fund overseas expansion of U.S. allies like Japan and Germany and running permanent trade deficits to benefit mercantilist allies.

These measures created their own distortions which led to the Plaza Accord in 1985 and other structural adjustments. Ultimately, the U.S. managed to adapt to a knowledge economy (Peter Drucker's phrase) and a more efficient means of production, resulting in a much cleaner environment and a leaner, more adaptable economy.

The deadwood of hyper-financialization and the distortions of hyper-globalization have now piled up so high that they threaten the entire global economy. Those who have feasted most freely on hyper-financialization and hyper-globalization must now pay the heavy price of adjusting to definancialization and deglobalization.

Those who have been living on expanding debt and soaring exports are in for a drawn-out, wrenching structural adjustment to the reversal of these trends and the fires sweeping through the deadwood that's piled up for the past two decades.

There will winners and losers in this global structural upheaval. Mercantilist economies that feasted on 60 years of export expansion will be losers because there is no domestic sector large enough to absorb their excess production, and those who feasted on the expansion of debt to inflate asset bubbles will find their reluctance to conduct controlled burns of their speculative debt-laden deadwood will exact a devastating price when their entire financial system burns down.

Those who didn't rely on exports for growth will find the transition much less traumatic, as will those who maintained a regulated, transparent market for credit that limited excesses of leverage and high-risk debt.

Those who adjust to structurally higher energy costs by becoming more efficient and limiting waste via Degrowth will prosper, all others will sag under the crushing weight of waste is growth Landfill Economies. I explain why this is so in my new book Global Crisis, National Renewal.

Recessions which are allowed to clear the deadwood and encourage adaptation yield excellent results. Those which don't lead to the entire forest burning down. Economies optimized for graft, corruption, opacity and benefiting insiders will burn down, along with those that optimized speculative extremes of debt and those too rigid and rigged to allow any creative destruction of insiders' skims and scams.

Events may show that there are no winners, only survivors and those who failed to adapt and slid into the dustbin of history.

Chart courtesy of St. Louis Federal Reserve Database (FRED)




Recent podcasts/videos:

Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs)

It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min)

Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Thomas T. ($108), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.

 

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Wednesday, August 10, 2022

A Most Peculiar Recession

So what are conventional pundits missing today? I would start with three dynamics.

Only old people experienced real recessions--those in 1973-74 and 1980-82. Recessions since then have been shorter and less systemic.

In the good old days, a recession laid waste to entire industries which never recovered their previous employment. People who were laid off couldn't find another job. Major sectors of the economy dried up and blew away. Jobs were scarce and there was an oversupply of people looking for work.

We're told consumer confidence is in the dumps and everyone expects the worst: recession! Oh Lordy. Interestingly, there isn't much evidence of this near-panic behaviorally. Everyone's tightening their belts and battening down the hatches, but it's not the cliff-dive we see in a real recession.

There's certainly a lot of froth to be scraped off the latte, but what I'm curious about are the armatures of the economy and what I'm seeing is the crowd ignoring key dynamics because they're so busy pushing the Recessionary Play-Doh into the old playboard.

The entire notion that there is a hard and fast line indicating "recession" is not realistic or useful. The economy dropped 1% for two quarters in a row, quick hit the alarm, go to DefCon 1. Uh, OK, right.

The more useful approach is to look at data points as mostly signal noise that fail to reflect or illuminate the core dynamics of the economy. Here's an example: the stagflation of the 1970s is a hot topic as the financial punditry compares then to now, seeking evidence of similarities strong enough to predict a Lost Decade ahead.

One key factor that's rarely (if ever) mentioned was the staggering cost of cleaning up America's industrial sector and polluted skies and waterways at the same time that the Cold War required the U.S. to strengthen its allies by allowing them unfettered access to the U.S. marketplace--exports to the U.S. that had a price advantage due to the dominance of the dollar and the relative weakness of allies' currencies.

1972 exchange rates indicate that the Japanese yen was 302 to $1--an enormous advantage when compared to recent exchange rates of around 110 yen to the USD.

What few current pundits seem to grasp is the dominant dynamic of the entire era of 1945-1992 was the Cold War with the Soviet Union and its client states and allies. Strengthening allies' economies was a core goal and so the costs to the domestic economy had to be absorbed: there was no choice.

The costs of cleaning up the nation and its vast industrial base was an enormous drag on the economy. The value of the trillions of dollars (in current dollars) invested was not in boosting profits, it was in restoring what had been heedlessly destroyed and damaged by rampant dumping of waste and pollutants and improving the health and well-being of the citizenry.

Check out the smog in early 1970s TV series filmed in Los Angeles for a taste of what was cleaned up.

But in a mind-boggling failure of conventional economics, our financial punditry is blind to the impact of the most consequential economic realities of the 1970s--the Cold War and the lengthy, painful, costly clean-up of the nation and its industrial base--on stagflation.

One reason for this abject failure is these dynamics were difficult to measure, so they weren't measured. We only manage what we measure and so if we don't measure it, it doesn't exist. If we measure things in a no-longer-relevant manner, for example GDP, we continue to act as if this misguided measure is of supreme importance when the reality is it's dangerously misleading.

So what are conventional pundits missing today? I would start with three dynamics:

1. For the first time in multiple generations, there is a structural scarcity of labor. For a variety of reasons, there are fewer people willing to do the work at the offered wage than there are jobs. This is not temporary, it is demographic and social, not simply economic. All the supposedly easy fixes-- automate everything, etc.--are not that easy.

2. The strength of the U.S. dollar is exporting inflation, to the benefit of the domestic economy. After offshoring critical supply chains--a disaster that will take years to reverse--now the U.S. is offshoring inflation and the resulting demand destruction.

3. Global capital flows are reversing. capital flowed from the Core to the Periphery to reap the gains of globalization. Now the flow is reversing and capital is flowing from the Periphery to the Core to preserve capital and lock in lower-risk returns. What looks expensive to those earning U.S. dollars may look cheap and secure to those fleeing depreciating currencies and assets.

In my analysis, these are consequential dynamics that merit little attention in conventional financial analysis.

There is much more to say but glance at these two charts: real (i.e. adjusted for official inflation) median household income and real Broad U.S. Dollar Index.

If we're not measuring or pondering the core structural dynamics of the economy, we're not going to make sense of no-longer-relevant data. This is a most peculiar recession, and few seem to be asking if the reason is we're missing what's changed structurally.

Charts courtesy of St. Louis Federal Reserve Database (FRED))






Recent podcasts/videos:

Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs)

It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min)

Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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

 

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Monday, August 08, 2022

Are Older Workers Propping Up the U.S. Economy?

Are 55 and older workers propping up the U.S. economy? The data is rather persuasive that the answer is yes.

The chart of U.S. employment ages 25 to 54 years of age and 55 and older reveals a startling change.

There are now 20 million more 55+ employed than there were in 2000, an equivalent of the entire workforce of Spain. This unprecedented demographic / employment transition is worth a closer look.

As the second chart shows, some of this increase is due to the rising population of Americans over 55 years of age--an increase of 42 million. In 2000, 30% of those 55 and older were employed. Today, over 37% are employed--a significant increase in the percentage of 55+ people who are working.

An increase of 20 million employees age 55 and older is so large that it's difficult to grasp. An increase equivalent to an entire nation's workforce is one way to make sense of it. Another is to look at the increase of America's total population from 2000 to 2022, which is about 48 million people (282 million in 2000, 330 million today).

The total U.S. population increased by 17%. The 55+ population increased by 42 million (from 57 million in 2000 to 99 million today), a 74% increase. Total employment in the 55+ cohort increased by 113%.

In 2000, only 17.6% of the 55 and older populace had a job. Now the percentage is 37.5% A 20% increase in the percentage of 55+ who are employed in a 20-year span is unprecedented.

If the percentage of employed 55+ had stayed the same, there would only be 17 million 55+ workers today. Instead, there are over 37 million. This raises a question: why are so many older workers continuing to work longer than they did in 1990 and 2000?

I doubt there is one cause or answer. We can attribute this dramatic shift to a number of causes: older households that never recovered from the financial damage wrought by the 2008-09 Global Financial Meltdown; older workers (like me) who only have Social Security for retirement income who can't get by on just their SSA check; those who enjoy their work and see no reason to stop; people who retired and became bored out of their minds so they returned to the workforce; parents who keep working to help their offspring and/or elderly parents; people who keep working to maintain healthcare coverage until they qualify for Medicare; older entrepreneurs who can dial back their workload but who still love their work, and so on.

All of these reflect structural changes in the U.S. economy: a steady decline in the purchasing power of wages and financial security, systemic exposure to the risks of financial bubbles bursting, etc. The bottom line is that nest-eggs that were deemed adequate are no longer adequate, and the only way to fill the gap is to keep earning money.

These changes are reflected in the decline in the percentage of employed 55+ people from 28% in 1970 to 18% in 1990 and 2000, and the subsequent rise to 37%. In an economy with an expanding workforce of young employees and rising productivity, more older workers could retire early. This is no longer the case.

In many cases, there is no nest-egg due to bankruptcy via huge medical bills, the heavy burdens of student loans, or the costs of helping children and grandchildren or very elderly parents. (Many of us aged 65-70 are taking care of parents 90+ years of age and helping out with active 3-year olds. Retirement? You're joking.)

As a result, expenses have risen rather than dropped for the 55+ cohort, requiring an income to stabilize household finances. (Have you looked at childcare (grandchildren) and elderly care (parents) costs recently?)

Another important structural change is the demand for workers of any age who are reliable and able to do the work. People who are accustomed to the structures of work by virtue of 40 or 50 years of employment are generally reliable workers and thus valued by employers beset by a scarcity of reliable, productive employees. (My first formal paycheck was issued by Dole Pineapple in 1970. That's 52 years of getting accustomed to the demands of employment. I'm pretty well broken in now.)

There are also demographic and cultural dynamics in play: the continuing satisfactions of work and the loss of purpose many feel in retirement, the decline in age discrimination, longer lifespans, etc.

Whatever the causes, 37 million workers 55 and older are earning money that's flowing into the economy and providing stable productivity--20 million more 55+ workers than 20 years ago. These 20 million jobs generate income that isn't just funding cruises and RVs. In many cases, it's supporting several generations on either side of the 55+ cohort.

Are 55 and older workers propping up the U.S. economy? The data is rather persuasive that the answer is yes.

Charts courtesy of CH @Econimica)






Recent podcasts/videos:

Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs)

It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min)

Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

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 recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

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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