Thursday, July 02, 2020

Dancing Through the Geopolitical Minefield

The elites dancing through the minefield all have plans, but how many are prepared for the punch in the mouth?
Open any newspaper from the past 100 years and you will soon find a newsworthy geopolitical hotspot or conflict. Geopolitical conflict is the default setting for humanity, it seems, but it does feel as if the minefield of geopolitical rivalries and flashpoints has been thickly sown and many of the players are dancing through the minefield with a worrisomely cavalier confidence that they won't step on mine, i.e. bad stuff only happens to the other players.
The global minefield includes these dynamics:
1. The grinding collision of geopolitical tectonic plates: spheres of influence, soft and hard power projection, border conflicts, etc.
2. The urgency sparked by the pandemic to take advantage of rival's vulnerabilities and the countering urgency to defend one's key borders/interests.
3. The destabilizing forces of elite dominance and wealth inequality within nation-states encourage elites to seek external distractions.
In this context, it's interesting to review Edward Luttwak's three stages of Empire. Luttwak's The Grand Strategy of the Roman Empire sketches out three stages of Empire that apply equally well to elites within nation-states. In other words, elites can be said to have conquered their domestic masses politically, socially and economically, much as imperial elites conquer other nation-states.
Luttwak describes the first stage of expansion thusly:
"With brutal simplicity, it might be said that with the first system the Romans of the republic conquered much to serve the interests of the few, those living in the city--and in fact still fewer, those best placed to control policy."
The second stage spread the benefits of Empire much more broadly:
"During the first century A.D., Roman ideas evolved toward a much broader and altogether more benevolent conception of empire... men born in lands far from Rome could call themselves Roman and have their claim fully allowed, and the frontiers were efficiently defended to defend the growing prosperity of all, and not merely the privileged."
The third stage is one of rising inequality:
"In the wake of the great crisis of the third century, the provision of security became an increasingly heavy charge on society, a charge unevenly distributed, which could enrich the wealthy and ruin the poor. The machinery of empire now became increasingly self-serving, with its tax collectors, administrators and soldiers of much greater use to one another than to society at large."
That line describes the global situation rather neatly. Geopolitical blocs, alliances, nation-states with imperial pretensions and nation-states with regional power ambitions are all in a land-rush frenzy to extend and consolidate their influence and power by any means available: financial, trade, diplomatic, soft power (cultural imperialism, etc.) and hard power (military forces) before the inherent internal instability of their elites' dominance catches up with them.
Understood in this way, we can understand the geopolitical minefield as the conflict ground of various national and regional elites. What better way to distract restive, exploited and increasingly impoverished home populaces than to whip up a conflict with neighboring rivals / "enemies"?
In the run-up to events that unexpectedly spiral out of control, elites are over-confident about their ability to control the situation and "naturally" come out on top of any conflict. Hence they are dancing through the minefield, confident that they will magically miss all the mines, even the ones that cannot be detected.
Recall that the elites at the outbreak of the American Civil War and World War I were confident the war would be over in a few months. An overweening confidence in one's ability to manage fast-moving crises is the ultimate hubris, and elites are prone to this hubris due to the apparent ease of extending their power and wealth in their domestic economies and political orders.
The odds of miscalculation increase exponentially as the number of players dancing through the minefield increases. As Mike Tyson so sagely observed, "Everyone has a plan until they get punched in the mouth." The elites dancing through the minefield all have plans, but how many are prepared for the punch in the mouth?
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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Wednesday, July 01, 2020

An Interesting Juncture in History

Just as the rewards of central-bank bubbles have not been evenly distributed, the pain created by the collapse of the bubbles won't be evenly distributed, either.
We've reached an interesting juncture in history, and I don't mean the pandemic. I'm referring to the normalization of extremes in the economy, in social decay and in political dysfunction and polarization.
Let's ask a very simple question. The S&P 500 stock index went up five-fold from its 2009 low at 667 to a recent high around 3,400. Did your income rise five-fold since 2009? Probably not.
Houses that sold for $150,000 in 2000 are now valued at $900,000, a six-fold increase since 2000. Did your income rise six-fold since 2000? Probably not.
State university tuition has risen about 2.5 times from 2004 to 2019. Did your income rise 2.5-fold since 2004? Probably not.
Even burritos from the local taco truck have tripled in price in the past 15 years. Did your income triple? Probably not.
The average household income in 2000 was about $42,000. To match the six-fold increase in urban housing valuations, that household would have to earn $252,000 this year. How many households saw their income soar from $42,000 to $252,000? Not many.
The average household income in 2009 was about $50,000. To match the five-fold increase in stock market valuations, that household would have to earn $250,000 this year. How many households saw their income soar from $50,000 to $250,000? Not many.
To keep up with tuition (never mind healthcare insurance), the household earning $45,000 in 2004 would have to bring home $112,000 this year.
The household earning $100,000 in 2004 would need to boost its income to $250,000 to keep up with college tuition. How many households boosted their income from $100,000 to $250,000 in the past 15 years? Not many.
In other words, what's been normalized over the past 20 years is the total subjugation of labor by central-bank inflated asset bubbles that benefit the top 0.1%. Labor has lost ground while assets have soared, leaving those whose income is earned less able to buy over-valued assets and more prone to borrowing money to maintain their lifestyle-- a situation I call debt serfdom.
Two generations ago, nobody knew the name of the Federal Reserve's chairperson. Now that chairperson is in the news virtually daily. The media exposure of the Fed chair far exceeds that of elected officials such as the Speaker of the House of Representatives or the Senate Majority Leader, or the Chief Justice of the Supreme Court.
In effect, the nation has become dependent on its central bankers and their limited agenda (expand the wealth and power of the financial sector). The elected government and the real-world production of goods and services both have taken a back seat to conjured "wealth."
The ascendance of finance and the decay of labor's value is the result of the ascendance of monetary stimulus as the core driver of "wealth" and thus "growth." It was once expected that consumption would be funded by wages earned by labor, and investment would be funded by savings set aside from earnings. That era is long past. What's been normalized is a systemic reliance on debt to fund consumption and on the euphoric "animal spirits" of the wealth effect generated by soaring assets such as homes and stocks.
History offers a number of parallels to the ascendance of borrowed capital over labor and central bank money-printing over the creation of productive value. History suggests eras that have normalized economic and financial extremes--extremes of inequality, policy, and decay--haven't ended well for anyone.
Just as the rewards of central-bank bubbles have not been evenly distributed, the pain created by the collapse of the bubbles won't be evenly distributed, either.
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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Tuesday, June 30, 2020

The New Normal: Extremes of Neofeudalism, Incompetence, Authoritarianism and Relocalization

The pendulum swung to an extreme of globalization, financialization, centralization and monopoly, all of which created extreme systemic fragility.
Here's what to expect in the rapidly evolving New Normal: extremes become even more extreme as the status quo attempts to force compliance with its last-ditch schemes to preserve what was always unsustainable while painting a happy face on the stock market, the one thing they can push higher as the global economy unravels.
Mark, Jesse and I discuss this dynamic in Salon #10: Remember when Maximum Pessimism and Irrational Exuberance were mutually exclusive? (54 minutes): realistic pessimism is lashed to the mast with the irrational exuberance of stock market soothsayers, central bank cheerleaders and the organs of propaganda (Wall Street) and control of the narratives (social media and search monopolies).
Cognitive dissonance? Yes. Schizophrenia? Sure. Crazy-making? Undoubtedly. So the default "solution" is petty Authoritarianism to ensure we only see approved narratives, that we focus on the happy-happy signal of the glorious stock market (best rally ever!), that we pay higher taxes without complaint, and so on.
And of course, buy, buy, buy and borrow, borrow, borrow, lest the flimsy house of cards collapse.
As I explain in my book Why Our Status Quo Failed and Is Beyond Reformthe only possible output of central bank monetary stimulus is financialization, and the only possible output of financialization is unprecedented wealth and income inequality.
As Max Keiser, Stacy Herbert and I discuss in Fractals of Incompetence (15:30), the problem with pushing extremes is the system is incompetent at every level, from school boards to the Federal Reserve. Rather than solve problems, our institutions have devolved into mechanisms to protect clerisy / insiders from transparency and accountability.
In the New Normal, systemic incompetence isn't going to magically transform into competence, it's going to reach new extremes of incompetence and self-serving hubris.
My term for servitude via debt and taxes is neofeudalism, and neofeudalism is the default setting of the New Normal as the super-wealthy can buy even more of the nation's assets thanks to the Federal Reserve's free money for financiers, leaving the peasantry the owners of debt rather than assets.
The only way to escape neofeudal servitude is to figure out some way to live on a fraction of what the conventional lifestyle requires, i.e. radical frugalityRadical frugality will also be a permanent part of the New Normal, either voluntary or imposed by circumstances.
The silver lining in all this is the potential to relocalize essential elements of our economy, a subject Richard and I discuss in The New Normal (37 minutes). The pendulum swung to an extreme of globalization, financialization, centralization and monopoly, all of which created extreme systemic fragility.
In the New Normal, the pendulum will finally start moving away from globalization, financialization, centralization and monopoly to decentralized, relocalized economic activity, which is the core dynamic in doing more with less and regaining agency.
The New Normal has yet to fully impact the global financial system, which is still in the eye of the hurricane, magnificently confident that the Federal Reserve's money-printing is the most powerful force in the Universe. The stock market's hubris is begging the gods for retribution, and we may not have to wait too long for the karmic hammer to crush the hubris and the irrational exuberance, as Adam, Mike, John and I discuss in Three major risks the markets are not pricing in yet (39 minutes).
The winds are picking up, and the flimsy shacks of the Fed and Wall Street are no match for the real world.
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, June 28, 2020

Forget the V, W or L Recovery: Focus on N-P-B

The only realistic Plan B is a fundamental, permanent re-ordering of the cost structure of the entire U.S. economy.
The fantasy of a V-shaped recovery has evaporated, and expectations for a W or L-shaped recovery are increasingly untenable. So forget V, W and L; the letters that will shape the future are N, P, B: there is No Plan B.
All the hopes for a recovery were based on a quick return to the economy that existed in late 2019. All the bailouts and stimulus programs were based on this single goal: a quick return to The Old NormalThis was Plan A.
For all the reasons that have been laid out here over the past six months, The Old Normal is gone for good. The Old Normal economy was too precarious, too brittle and too fragile to survive the toppling of any domino, as the only Plan A "solution" was to push destabilizing extremes to new extremes, i.e. doing more of what failed spectacularly and increasing the fragility of precariously fragile systems.
A short list of what's been irreversibly destabilized due to a systemic collapse in demand, exponential rise in risk and uncertainty, dependence on over-indebtedness, imploding global supply chains, structural decline in income and employment and the rapid emergence of new business models that obsolete high-cost, inefficient, sclerotic, bureaucratic monopolies include:
1. Healthcare
2. Higher education
3. Commercial real estate
4. Tourism
5. Restaurants / live entertainment
6. Business travel / conferences
7. Office parks, commutes, urban work forces, etc.
8. High-cost urban lifestyles
We could also include entire sectors that have yet to recognize the tsunami that's about to wash away their Old Normal: marketing, finance, local governance, etc.
The problem is there's no Plan B for anything in the U.S. economy. There is only Plan A, a return to 2019 / The Old Normal. If that's no longer possible, there is literally nothing left on the policy / response plate.
What nobody dares even ask is: what businesses and industries will still be financially viable running at 50% capacity? How many cafes, restaurants, resorts, airlines, etc. will turn a profit operating at 50% capacity? How many can not just survive half of the seats being empty, but turn a profit?
The short answer is very few, because the operating costs of most businesses are unbearably high. The likely survivors are those enterprises with low fixed costs and low operating costs-- enterprises that own their facilities in locales with low property taxes, and enterprises that can be run by the owners without employees.
How many enterprises have these kinds of barebones cost structures? Very few.
For most enterprises, the only way they can lower their costs to a level that enables their survival is to cut costs by half: cut rent, mortgages, debt service, property taxes, fees, utilities, insurance, etc. by half.
That would mean everyone down the line would have to survive on half of their previous revenues: landlords, banks, local municipalities, service providers, and so on.
How many of these institutions and enterprises could survive on 50% of their previous revenues?
The only realistic Plan B is a fundamental, permanent re-ordering of the cost structure of the entire U.S. economy. Call it DeGrowth, or creative destruction, or disruption if you prefer, but whatever name we use, the reality will be extraordinarily disruptive, uncertain, risky and unpredictable.
As many of us has explained over the years, unstable, brittle, fragile systems characterized by soaring inequality, pay-to-play political corruption and dependence on debt, leverage and speculative bubbles were unsustainable.
Plan B can be a chaotic mess of denial and failed half-measures that only make all the problems worse, or it can be a positive transformation that results in a society that does more with less. The choice is ours.
Unfortunately, the pandemic chart I composed on February 2, 2020 is still playing out, increasing uncertainty.
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.

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, Bob O. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.
 
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