Wednesday, December 04, 2019

Costs Are Spiraling Out of Control

And how do we pay for these spiraling out of control costs? By borrowing more, of course.
If we had to choose one "big picture" reason why the vast majority of households are losing ground, it would be: the costs of essentials are spiraling out of control. I've often covered the dynamics of stagnating income for the bottom 90%, and real-world inflation, i.e. a decline in purchasing power.
But neither of these dynamics fully describes the relentless upward spiral of the cost basis of our economy, that is, the cost of big-ticket essentials: housing, education and healthcare.
The costs of education are spiraling out of control, stripping households of income as an entire generation is transformed into debt-serfs by student loan debt. The soaring costs of healthcare are a core driver of higher costs in the education complex (and government in general), and to cover these higher costs, counties raise property taxes, which add additional cost burdens to households and enterprises as rents rise.
Rising rents push the cost structure of almost every enterprise and agency higher.
Then there's the asset inflation created by central bank ZIRP (zero interest rate policy) which has inflated a second echo-bubble in housing that has pushed home ownership out of reach of many, adding demand for rental housing that has pushed rents into the stratosphere in Left and Right Coast cities.
The increasing dominance of monopolies and cartels has eliminated competition in sector after sector. Monopolies and cartels skim immense profits even as the value, quality and quantity of their products and services decline: The U.S. Only Pretends to Have Free Markets From plane tickets to cellphone bills, monopoly power costs American consumers billions of dollars a year.
Thanks to their political influence, monopolies and cartels have legalized looting, raising prices and evading anti-trust regulations because they can pay whatever it takes in our pay-to-play political system.
Let's look at a few charts that illustrate the relentless rise in costs:
Do you reckon these two charts are connected--soaring costs and ballooning administrative payrolls?
Student loan debt is soaring above $1.5 trillion, guaranteeing profits to lenders and debt-serfdom to the students exiting with degrees that are in over-supply, i.e. possessing little scarcity value in an over-credentialed economy:
The echo housing bubbles in many locales exceed the nosebleed valuations of the previous bubble:
And how do we pay for these spiraling out of control costs? By borrowing more, of course:
Even at low rates of interest, the cost of servicing skyrocketing debt increases, leaving less net income to support additional borrowing.
What will it take to radically reduce the cost basis of our economy? A fundamental re-ordering that breaks up all the cartels and monopolies that push prices higher even as they deliver lower quality goods and services would be a good start.


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.

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Tuesday, December 03, 2019

Crunchtime: When Events Outrun Plan B

Not only will events outrun Plan B, they'll also outrun Plans C and D.
We all know what Plan B is: our pre-planned response to the emergence of risk. Plan B is for risks that can be anticipated, regular but unpredictable events such tornadoes, earthquakes, hurricanes, etc. In the human sphere, risks that can be anticipated include temporary loss of a job, stock market down turns, recession, disruption of energy supplies, etc.
Hidden in most Plan B's are a host of assumptions that all the systems running in the background pf the economy will remain stable. Even if electrical and cell-phone service go down, for example, we assume the outage will be temporary. We assume delivery of energy and food will resume shortly, we assume medical care will be available somewhere nearby, roadways will soon be cleared and so on.
In other words, we assume emergencies will be short-lived and that these non-linear events will leave the rest of our social and economic orders as fully intact linear systems, that is, predictable because the outputs (results) will continue to be proportional to the inputs.
If one road crew can clear five roads of debris, then if ten roads are blocked, we reckon adding another crew will generate a proportional result: two crews will clear all ten blocked roads. This is a linear system and response.
But if for some reason the second crew can't clear even a single road, and adding a third crew also fails to make progress, the situation becomes non-linear: increasing inputs doesn't generate proportional outputs.
If the situation goes non-linear, events can quickly outrun Plan B. Consider a restaurant with high fixed costs and high operational costs, i.e. the typical restaurant: fixed costs like rent and liability insurance don't change as the customer count rises or falls; they stay the same. Operational costs--utilities, wait and kitchen staff hours, etc.--go up and down depending on how many customers come through the door.
Let's say the owner's Plan B addresses the risk of a temporary slowdown in business: staff hours and orders for ingredients are trimmed, advertising offers deeper discounts, etc. Plan B is designed to deal with a temporary 10% decline in sales because that's the worst the owner has seen in ten years.
So what happens when sales decline 30% and continue dropping? Customers don't respond to discounts as they did in the past, and the business starts hemorrhaging cash as changing the inputs isn't changing the output (declining sales).
Staffers whose hours have been slashed can't make a living, so they quit, creating turnover problems. Staff morale plummets. Events have outrun Plan B and the owner has no pre-planned response as the financial situation deteriorates with alarmingly ferocious velocity.
If Plan B assumes modest, temporary, linear disruptions, it will fail if events start following a non-linear dynamic. Recency bias--the natural assumption that the recent past is a reliable guide to the future--leads us to underestimate the risk of non-linear financial-economic dynamics.
Central banks and governments have gone to extreme lengths to maintain the illusion of linearity, the illusion that all is well and the economy will remain firmly expansive because central bank inputs (QE, purchases of assets, lowering interest rates) will reliably yield proportional outputs (low inflation, steady growth, etc.).
Despite the happy PR issued by central bankers and government authorities, these extreme measures have generated emergent properties beyond their control, specifically, soaring wealth and income inequality, fragile financial systems and zombie corporations which only continue operations by borrowing more every year.
The contrived linearity of the past decade is about to give way to non-linear dynamics accelerated by the financial repression of central banks and the corrupt state / cartel-monopoly excesses of Big Pharma (opioid crisis), Big Tech (we're only evil when it's profitable, which is all the time), Big Banks (legalized looting is our game) and pay-to-play politics, where the greediest private-sector sociopaths rent the power of the greediest public-sector sociopaths.
Not only will events outrun Plan B, they'll also outrun Plans C and D at which point the runaway system no longer responds to any controls.



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.
 
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Sunday, December 01, 2019

Could America Survive a Truth Commission?

A nation that's no longer capable of naming names and reporting what actually happened richly deserves an economic and political collapse to match its moral collapse.
You've probably heard of the Truth Commissions held in disastrously corrupt and oppressive regimes after the sociopath/kleptocrat Oligarchs are deposed. The goal is not revenge, as well-deserved as that might be; the goal is national reconciliation via the only possible path to healing: name names and tell the plain, unadorned truth, stripped of self-serving artifice, spin, propaganda and PR.
Is such a stripped-of-spin truthful account of names and events even possible in the U.S.? Sadly, there is precious little evidence that a Truth Commission in the U.S. would be anything more than a travesty of a mockery of a sham, a parade of half-truths, misdirections, falsehoods and fabrications, all aimed at one goal: protecting the powerful from the consequences of their decisions and actions.
Sadly, we've lost the capacity to simply tell the truth: everything, and I mean everything, is crafted to protect the guilty, polish the putrid decay of legalized looting, defraud the unwary, ease the most venal, power-mad sociopaths into positions of unparalleled power, sell low-quality goods and services nobody needs or would even want if the marketing weren't so Orwellian, persuade debt-serfs to borrow more and bamboozle voters into further enriching the few at the expense of the many.
The truth is no match for greed is good and don't be evil, unless it's incredibly profitable, in which case, go for it but cover your tracks (here's looking at you, Big Tech). Outrage is reserved for whistleblowers who name names and reveal the sordid truths that the status quo has expended the nation's treasure to protect from the light of day.
This is the pathetic state of America: our outrage is reserved for those telling the truth, not for the legions who lie, cheat, steal and prevaricate to conceal the truth at all costs.
The so-called gatekeepers are all corrupt and self-serving, minions of the Intelligence Community, corporate overlords, billionaires or the interest groups that fund their studies, departments, think tanks and "research" (the conclusions are established first and the "research" follows accordingly).
Who has earned our trust by refusing to toe the line of an approved narrative? Who's left who isn't blinded by hatred, bought off by billionaires or fearful of retribution from America's disastrously corrupt and oppressive regime, rightfully fearing being fired, demoted, marginalized, demonetized, disappeared from public view via being de-platformed or permanently disappeared via "accident" or "suicide"?
We've been so jaded by all the lies, all the legal looting, all the rigged statistics, and yes, all the convenient "accidents" that we no longer trust anyone to simply report the names and events. We now assume that everyone has an ax to grind and is likely being handsomely rewarded to sharpen the ax without appearing to do so too blatantly.
A nation that's no longer capable of naming names and reporting what actually happened richly deserves an economic and political collapse to match its moral collapse. A nation whose only reliable purpose and goal is to protect the powerful from consequences, no matter what the consequences of that corruption might be, is nothing but a hollow shell begging for one good kick to send it tumbling into the abyss.



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.
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Thursday, November 28, 2019

A China Trade Deal Just Finalizes the Divorce

Each party will continue to extract whatever benefits they can from the other, but the leaving is already well underway.
Beneath the euphoric hoopla of a trade deal with China is the cold reality that the divorce has already happened and any trade deal just signs the decree. The divorce of China and the U.S. was mutual; each had used up whatever benefits the tense marriage had offered, and each is looking forward to no longer being dependent on the other.
Any trade deal is like closing the barn door months after the horses left. Corporate America's supply chains are already leaving China for lower cost, friendlier countries, and for its part China has already made its intentions to escape the grip of the U.S. dollar abundantly clear.
Indeed, China has clearly stated its plan to move up the value chain globally and rely more on its domestic consumers to fuel growth rather than exports, which have been weakening for some time (see chart below).
As for supply chains leaving China for good--have you examined the labels of consumer goods recently? What once invariably read "made in China" increasingly reads "made in..." The reasons are numerous:
1. China's labor costs are soaring. Many other countries have lower-cost labor forces.
2. The welcome mat for foreigners has been pulled away. If you need evidence, look at the swelling flood of ex-pats leaving China for good, an exodus that began years ago.
3. China's workforce is shrinking as the populace ages. The demographics of the one-child policy are remorseless.
4. China's repression of Muslim minorities doesn't seem to bother Islamic governments but it presents a serious issue to global Corporate America.
Imagine what would happen to (say) Apple's reputation if even the tiniest part of an iPhone was traced to China's slave-labor force of Muslim minorities. Whatever Apple might save by keeping its supply chain in China would be more than offset by the global PR damage.
For Corporate America, the lowest-risk strategy is to move the supply chain out of China, the sooner the better: lower costs and lower exposure to IP theft and bad PR.
The tide of Chinese students studying in the U.S. on their government's tab is ebbing. China's authorities are playing the trade war as a patriotic battle, and so why pay for students to study abroad?
Chinese corporations are increasingly reluctant to invest in American assets as skepticism about China's agenda rises.
Signing the trade deal is signing the divorce decree, not a signal of a return to the good old days of wine and romance. Each party will continue to extract whatever benefits they can from the other, but the leaving is already well underway.



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, Thomas H. ($5/month), for your marvelously generous contribution to this site-- I am greatly honored by your support and readership.
 

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Wednesday, November 27, 2019

Thanksgiving 2019: A Few Things I'm Grateful For

Gratitude as medicinal balm--a little goes a long way.
Of the many things I'm grateful for, the most important are: after 50 years of work I still have my health and more work than I know what to do with; good friends; family; freedom, opportunity, the good fortune that a very few of the many stupidly contrarian / high-risk bets I've made actually paid off, and I have a garden and a library. ("The man who has a garden and a library has everything." Cicero)
Here's a few everyday things that I give thanks for:
1. My readers, correspondents, patrons and financial supporters: Of Two Minds exists because of you.
2. Everyone who supports independent thinkers and creators. On behalf of every independent creator of content, thank you.
3. Everyone who serves the public and maintains a friendly attitude despite the difficulties of their job and a general lack of appreciation. I've been there behind the counter, and I thank you for your problem-solving and positive attitude.
4. Opportunity. Life requires decisions, trade-offs, sacrifices and adaptation when things are no longer working. A reader who managed to extricate himself years ago from an oppressive, dictatorial regime and make his way to the U.S. submitted this comment a decade ago:
We live a very simple and happy life. It is amazing to see how most Americans do not have a clue of the unlimited opportunities we all have here. Most people want 'instant gratification' and they are not willing to sacrifice to get what they want, instead they choose to live above their means and go into debt for the rest of their lives.
5. Being average or below-average. It's really OK to be average, or even less-than-average, as in slow and untalented. Why? Because if you manage through discipline and effort to work up to average, you will have achieved far more than the gifted child of the elite who achieves success without developing self-discipline and without an appreciation, all too often, for the inner wealth of integrity and compassion.
6. Thrift: use it until it shreds / falls apart.
7. Inspiration:
8. When all seems lost... a dramatic reversal:
9. Wildflowers.
10. Rainbows. (Honolulu mauka)
11. Redwoods.
12. Magic.
13. Handmade leis.
14. homemade pizza.
15. Dessert.
16. Camping in national parks: Glacier National Park.
17. Yellowstone National Park: tent camping, first snow of the season.
18. Blue sky. (Mountain View, Hawaii)
19. Harvesting and sharing fruit. (ohelo berries)
20. Undiscovered gems you zoom past a hundred times and then finally stop to enjoy.
21. "He that is without sin among you, let him first cast a stone at her."
And again he stooped down, and wrote on the ground. And they which heard it, being convicted by their own conscience, went out one by one, beginning at the eldest, even unto the last: and Jesus was left alone, and the woman standing in the midst. (John 8:7-9)


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

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