Wednesday, July 15, 2020

This Is a Financial Extinction Event

The lower reaches of the financial food chain are already dying, and every entity that depended on that layer is doomed.
Though under pressure from climate change, the dinosaurs were still dominant 65 million year ago--until the meteor struck, creating a global "nuclear winter" that darkened the atmosphere for months, killing off most of the food chain that the dinosaurs depended on. (See chart below.)
The ancestors of modern birds were one of the few dinosaur species to survive the extinction event, which took months to play out.
It wasn't the impact and shock wave that killed off dinosaurs globally--it was the "nuclear winter" that doomed them to extinction. As plants withered, the plant-eating dinosaurs expired, depriving the predator dinosaurs of their food supply.
This is a precise analogy for the global economy, which is entering a financial "nuclear winter" extinction event. As I've been discussing for the past few months, costs are sticky but revenues and profits are on a slippery slope.
Businesses still have all the high fixed costs of 2019 but their revenues are sliding as the "nuclear winter" weakens consumer spending, investment in new capacity, etc.
Despite all the hoopla about a potential vaccine, no vaccine can change four realities: one, consumer sentiment has shifted from confidence to caution and from spending freely to saving. This is the financial equivalent of "nuclear winter": there is no way to return to the pre-impact environment.
Two, uncertainty cannot be dissipated, either. There are no guarantees a vaccine will be 99% effective, that it will last more than a few months, that it won't have side-effects, etc. There are also no guarantees that consumers will resume their care-free spending ways as credit tightens, incomes decline, risks emerge and the need for savings becomes more compelling.
Three, consumer behavior and uncertainty have already changed, and so businesses that cannot survive on much lower revenues won't last long enough to emerge from the "nuclear winter" of uncertainty and a shift in sentiment.
Four, assets based on 2019 revenues, profits and demand are now horrendously overvalued, and the repricing of all assets will bring down the predators, i.e. the banks.
As I've noted here before, the top 10% of households account for almost 50% of consumer spending. These households are older, and own the majority of assets --between 80% and 90% of stocks, bonds, business equity, rental real estate, etc. This is the demographic with the most to lose in returning to care-free air travel, jamming into crowded venues and cafes, etc.
This demographic has "been there, done that" and foregoing fine dining, sports events, concerts, cruises, etc. is not much a burden and may actually be a relief.
Meanwhile, the entire food chain of landlords, banks, local government, employees, etc. depends on enterprises returning to 100% of 2019 revenues. As tenants stop paying rent, landlords default on mortgages, sending banks into insolvency, leaving local government with less tax revenues and employees with fewer job prospects.
To a degree few appreciate, the "recovery" since 2009 has been dependent on over-spending, over-borrowing and over-speculating: as spending, borrowing and speculation all pull back to what would have been "normal" levels two generations ago, the economy collapses because it's become completely dependent on over-spending, over-borrowing and over-speculating.
As consumers and businesses retrench, borrowing declines while defaults and bankruptcies eviscerate bank profits and balance sheets. As spending declines, businesses with high fixed costs and pre-pandemic business models (crowding people together in close quarters, etc.) cannot generate enough revenues to survive. As the collateral of commercial real estate and profit streams collapse, assets are repriced all down the food chain, reversing the wealth effect: as people feel poorer, they borrow and spend less, creating a feedback loop of lower valuations, lower spending, lower profits, lower borrowing all of which feed back into each other, pushing everything lower.
The lower reaches of the financial food chain are already dying, and every entity that depended on that layer is doomed: the small business die-off will bring down distributors, banks, landlords, and employment, and as the this layer collapses then the top predators will starve to death as well: Big Tech, healthcare, higher education, tourism, local tax revenues, etc.
The clouds are spreading and thickening, and the dawn sky is tinted an ominous red. This is a financial extinction event, and the Fed's pathetic shamans can't reverse history.
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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Monday, July 13, 2020

Could America Have a French-Style Revolution?

As with the French Revolution, that will be the trigger for a wholesale replacement of our failed institutions.
Since it's Bastille Day, a national holiday in France celebrating the French Revolution, let's ask a question few even think (or dare) to ask: could America have a French-style Revolution? Not in some distant era, but within the next five years?
By French-style Revolution I don't mean the extravagant use of the guillotine, I mean the complete political overthrow of the ruling elites. This overthrow need not be violent; it could be an entirely peaceful electoral rejection of the two-party political elites and the Federal Reserve / banking / financialization elites which together form the neoliberal-neofeudal ruling elites.
The BAU Crowd (business as usual) considers the possibility of such an overthrow of parasitic, predatory elites as remote as a landing by Martians. I suspect they're purposefully blind to the reality that America's elites and institutions are structurally incapable of accepting meaningful reforms that would address the extremes of dysfunction, exploitation, predation and wealth / power / income inequality that characterize America today.
America's elites and institutions have only one systemic response to crisis: do more of what's failed spectacularly.
This inability to acknowledge the reality of their own self-serving incompetence and the deeply dysfunctional nature of virtually every level of America's economic, social and political orders leaves an overthrow of the entire ruling elite as the only option left other than resignation to Bread and Circuses funded by the Fed, a policy of desperation that will inevitably debauch the U.S. dollar and impoverish everyone who counted on Bread and Circuses to fix what's broken.
Counting on Fed-funded Bread and Circuses to fix what's broken is the perfection of magical thinking, a state of denial expressed by the phrase routinely (but apparently falsely) attributed to Marie Antoinette, when she learned that the peasants had no bread: Then let them eat brioche (roughly translated into "cake" in English).
Ignoring the horror of the delusional BAU Crowd, let's explore the set-up for a French-style Revolution in America.
Setting aside the horrors of the guillotine, the French Revolution was many things unfolding at once:
-- The failure of the Monarchy's money system, as inflation soared to the point commoners could no longer afford bread. (The price of bread peaked the week that the Bastille was stormed by mobs.)
-- The overthrow of the state-religion nexus in favor of Enlightenment rationalism.
-- The romantic ascent of liberty as the rallying cry against an oppressive feudal hierarchy.
-- The fragmentation of the social and political orders into warring factions.
-- The failure of the Monarchy's institutions to recognize and understand the potentially fatal challenges and institute reforms that addressed the problems.
-- The failure of the French economy, which was plagued by poor roads and communication lines, limited trade due to regional fragmentation and low levels of productive investment.
-- Geopolitical rivalries with Great Britain, the rising power of the Germanic states and other continental European powers (Russia, Austria, Sweden).
In sum, institutions that had failed collapsed and were replaced, first by Napoleon's centralized bureaucracies and later by political reforms, a process that took much of the 19th century to play out.
I think the parallels to America in 2020 are obvious, if inexact.
Most importantly, America's core institutions have failed: the financial system, healthcare, higher education, the political process and the national defense/intelligence complex.
In every case, a class of insiders has come to dominate each centralized hierarchy for its own benefit. Blinded by their greed and hubris, they cannot recognize or understand the systemic failure they inhabit because their attachment to their position, privilege and power is blindingly strong.
Reform is impossible, for as with the French Monarchy, the existing system is the wrong structure and unit size, to borrow a phrase from Peter Drucker. Reforms profound enough to actually repair what's broken would require the insiders surrender much of their position, privilege and power, which they will never do.
As I have taken pains to explain, finance capitalism has fatally distorted the American economy in ways that few understand (or want to understand, since it's so disturbing).
The resulting concentration of wealth and power has also fatally distorted the political process of governance.
As I explained in my books Resistance, Revolution, Liberation and Inequality and the Collapse of PrivilegeAmerica's systems only function when there is more of everything to distribute, i.e. "growth": more money, more goods and services, more political power.
When there is less of everything, America's institutions fail because they have no mechanisms for DeGrowth / contraction.
This is the result of their systemic structure as centralized hierarchies. Expansion is effortless, contraction breaks the system. (See the chart of the rising wedge model of breakdown below.)
Much is being made of the fragmentation of American society into so-called progressive-conservative camps, and perhaps the best way to understand this fragmentation is that both camps recognize the failure of American institutions but differ on how to reform them.
Given that America's institutions only function with "more of everything," a reality that aligns with America's zeitgeist of "there's always more of everything," I consider it inevitable that whomever is in power will enthusiastically embrace the illusory "solution" of printing trillions of dollars out of thin air, in the delusional confidence that the world's appetite for dollars is essentially infinite.
Put another way: America finds it comforting to assume that it will always be able to digitally create "money" out of thin air and trade this "nothing" for real goods, i.e. "something."
That America has gotten away with this magic for decades only fuels the confidence of those who reckon the way to "get more of everything" is so easy and simple: just create another few trillion dollars out of thin air and buy the world's resources with this "free money."
Eventually the rest of the world will tire of this fraud, and America will face the loss of its magic printing press.
At that point, inflation will destroy the purchasing power of the US dollar and commoners will be unable to afford the cost of living.
As with the French Revolution, that will be the trigger for a wholesale replacement of our failed institutions. Whether that replacement can be accomplished within the existing political system will depend on a great many factors that will be unfolding simultaneously and interacting with each other in unpredictable, nonlinear ways.
My work is all about sketching out alternative systems that are non-hierarchical, opt-in, decentralized, adaptive, self-organizing and anti-fragile--everything that our current systems are not.
How do we get from "there"--failed, centralized hierarchies dominated by self-serving insiders-- to "here"--opt-in, decentralized, adaptive, self-organizing and anti-fragile institutions?
Nobody knows, but I suspect the decay of our failed institutions will accelerate rapidly, and we won't have to wait very long to witness the messy transition to new decentralized, localized, flexible non-elite-ruled institutional models.
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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.

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Sunday, July 12, 2020

How Do We Change the Leadership of our Quasi-Sovereign Big Tech Neofeudal Nobility?

You better bow low and pay up, peasant, or your voice in the digital world will disappear just as quickly as your democracy's control over Big Tech.
Who's the junior partner in global hegemony, Big Tech or the U.S. government? The question would have been laughable just a few years ago, but now it's a viable debate when we ask questions like: which one plays a larger role in your daily life, Big Tech platforms or the government? If controlling the flow of data is now the primary means of production, then who owns control of data flows? As we all know, the answer is Big Tech platforms: Google, Facebook, Apple, Microsoft, Amazon, Twitter, Netflix et al.
As Mark, Jesse and I discuss in our latest salon, The Rise and Fall of the Neo-Feudal Network State, these platforms have become defacto sovereign states with global hegemony over surveillance, censorship, data collection and behavioral influence--what Jesse calls network states.
Since the leadership of these private-sector sovereign entities is effectively monarchical, it is also effectively neofeudal: these platforms are private, closed source systems, managed by black-box algorithms hidden from users and regulators. This is the acme of neofeudalism: there is no democratic control at all by users or citizens.
Whether Facebook will ever hit upon a more coherent approach to protecting the free expression of the powerless as well as the powerful depends on whether it ever comes to grip with its own role as the largest censor in the history of the world. (emphasis added by CHS)
"Facebook is governing human expression more than any government does or ever has," said Susan Benesch, a faculty associate at Harvard University's Berkman Klein Center for Internet & Society. "They have taken on the task of defining hate speech and other unacceptable speech, which is a quasi-sovereign power... and we the public have no opportunity to contribute to the decision-making, as would be the case if the decisions were being made by a government."
Indeed, despite company executives' paying lip service to the concept of democracy from time to time, Facebook is structurally monarchical.
To the University of Virginia media studies professor Siva Vaidhyanathan, campaigners against Facebook need to come to grips with the global nature of its threat.
"The US got off easy in 2016-- the same year that Rodrigo Duterte took over the Philippines by riding Facebook to victory, and two years after Narendra Modi took over India by riding Facebook to victory. Much of the world suffers from all of the Facebook maladies much worse than the US."
Vaidhyanathan argued that solutions to Facebook's ills cannot be achieved with oversight from above but will require a more fundamental shift from below. "The root of Facebook is the fact that it is a global intrusive surveillance system that leverages all that behavioral data to target both ads and non-ad content at us."
In other words, the lords of Big Tech control the digital means of production, and the peasants and serfs are powerless. That is the perfection of neofeudalism. As Mark and Jesse posit, this has effectively flipped the central states (governments) into the junior partners of the privately owned network state/central state global hegemony.
In response, governments now view the quasi-sovereign Big Tech platforms domiciled in their borders as key allies in the struggle for global hegemony. Hence we are witnessing pushback against Chinese social-media giant TikTok, which as Jesse points out, is indeed a global platform for propaganda just like Facebook, Google, et al.
Recall that propaganda isn't just what you're allowed to see, it's also what you're not allowed to see and also what's being promoted on Page One in your feed and what's been buried on Page 23 (to use an old-media analogy).
Meanwhile, these privately owned quasi-sovereign networks are immensely profitable, as they sell the data they collect to advertisers and marketers, including political campaigns. Apple, Google, Amazon, Facebook etc. wield more political power and influence than traditional political advocacy groups because their cash hoards are so stupendous.
The feedback loop is ominous: as government regulators are throttled or marginalized by political pressure bought by privately owned quasi-sovereign Big Tech platforms, the platforms are in effect protected from any democratic control exerted by the citizenry in their nominal "home nation," not to mention the citizenry they influence in other nations.
Unlike the old monopolies like Standard Oil, the quasi-sovereign Big Tech platforms are the media, so there's nothing left to balance their skyrocketing power. As we discuss in the podcast, their control is (in Jesse's term) molecular, so they've effectively dismantled the legacy social-political structures such as working class, middle class, etc.
With mass media replaced by Big Tech's data-flow / behavioral-control molecular media, political coherence has been lost, and so divide-and conquer control mechanisms are now essentially infinite: any group, no matter how coherent, can be splintered into warring fragments by the Big Tech Neofeudal Nobility.
After all, they have the data and they can use it however they want, with no limits or controls by users, citizens or nominally democratic governments.
How do we change the leadership of our Neofeudal Nobility, the privately owned, quasi-sovereign Big Tech platforms? The short answer is: we don't. There is no mechanism left for influencing anything in the monarchies of Facebook, Google, Apple, Amazon, etc al.
Meet the new boss, worse than the old boss. You better bow low and pay up, peasant, or your voice in the digital world will disappear just as quickly as your democracy's control over Big Tech.
Recent Podcasts:
My COVID-19 Pandemic Posts


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


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.

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, Lawrence M. ($5/month), for your superbly generous pledge to this site -- I am greatly honored by your support and readership.
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