A Must-See Film and Must-Read Book

The film Food, Inc. and the book The China Study illustrate two key parts of theSurvival+ analysis: simulacra and an integrated understanding of how food production, diet, health and sickcare a.k.a. healthcare are linked in a causal chain.

Though I seem fixated on the Survival+ analysis, the reason is simple: it provides a framework for understanding all the apparently unconnected (or seemingly independent) problem states which are dooming the entire structure of the status quo.

The new documentary Food, Inc. is a prime example. The film does an excellent job of describing how a simulacrum of real food and healthy farming has been presented by immensely powerful (and heavily protected by the State) cartels: agribusiness, national supermarket and packaged food conglomerates, fast food multinationals and the media/marketers who rake in billions hawking fake food as if it was actually real.

Slick marketing also creates an entirely false simulacrum of corporate farming practices: the adverts show a happy cow in a green field, while the reality is a feedlot of wretched animals crowded together, covered in manure, forcefed corn to fatten them up as quickly is possible.

The similarity between the wretched, unhealthy animals crowded into feedlots and the human consumers crowded into fast food outlets is not coincidental.Stuff a human being with 200 pounds of fatty meat, 200 pounds of refined sugar, 300 pounds of high fructose corn syrup and half a ton of heavily refined white flour, white rice and fried potatoes a year, and guess what, you get an animal in very poor health.

Cattle are selected to eat grass, not corn, and humans are selected to be omnivorous, eating a variety of seeds (legumes, nuts, etc.), fruits, meats, fish, vegetables,both raw and cooked. They are not selected to eat "food" which has no fiber and essentially no nutrients.

There are many maddening and disturbing scenes in the film: the family with a very overweight and diabetic father is filmed going out for "cheap" hamburgers because they work too late to have a home-cooked meal. Later, they're filmed in a standard supermarket, passing over the broccoli because it's "too expensive."

So the insulin which costs the family $260/month is "cheap" and real food is "costly"? This sort of insanity is the result of carefully manufactured fake food which appeals to our innate cravings for salt, sugar and fat, all of which are rare in agrarian or hunter-gatherer environments, and a carefully constructed simulacrum of food and food production.

The causal chain between the way food is grown and what is eaten is drawn with great clarity by the book The China Study: The Most Comprehensive Study of Nutrition Ever Conducted and the Startling Implications for Diet, Weight Loss and Long-term Health. Based on detailed research from hundreds of counties in China, the study confirms a common sense understanding of the causal chain, i.e. "what you eat is what you are," and "disease comes through the mouth" (the old Chinese proverb that poor diet causes illness.)

No surprise that a vegetable-based diet with plenty of variety and fiber is linked to long, healthy lives and a diet heavy with fatty meats and refined grains is linked to shorter lives burdened with chronic illnesses. There is no surprise here because humans were selected to consume a fiber-rich variety of foods, meat included. While meat and fat are the dominant sources of calories in small subsets of humanity (Inuit, etc.), a rugged lifestyle kept the Inuit much healthier than they are now, eating packaged food.

Diet and lifestyle are linked to good health? Once again, no surprise there: humans are selected to walk and run great distances. Stop moving, start eating a fake, fatty, sugary diet, and you get a nation of diabetics.

As I take pains to describe in Survival+, the fabrication of a simulacrum reality in the present requires that the past be suppressed or buried in a manufactured amnesia.

Thus the fact that adult-onset diabetes was rare a mere 40 years ago is rarely linked to the question: what has changed so dramatically in the American diet that chronic diseases are exploding? And if the answers are "obvious"--fast food, fake food, the marketing of "convenience" over nutrition, the larding of food with salt, sugar and fat, the dominance of TV over preparation of actual food, etc.--then why aren't the solutions equally obvious?

The answer is simple: basic, nutritious food prepared at home from scratch is simply not profitable.

This integrated understanding leads to a crystal-clear grasp of why a nation swept by epidemics of chronic "lifestyle" diseases has a sickcare system which will bankrupt the nation even as it does nothing to stem the epidemics: managing chronic diseases caused by unhealthy lifestyles and diets is immensely profitable. Promoting healthy lifestyles and diets is not profitable at all.

My "solution" is always the same: start by turning off the TV. That is the essential step one. If your mind has been poisoned by media/marketing propaganda, then your body will be poisoned by what you consume as a result of what you now think/believe/desire.

Rent the film, borrow the book, even if you know all this already. It will be instructive to see what others are discovering for the first time: we are paying the price of simulacrum passed off as "real," of eating fake unhealthy garbage passed off as "real food," and of mindlessly "consuming" a diet of corporate media/marketing fixated on profiting from our deepening insecurities, restless unhappiness and chronic diseases.

Permanent link: A Must-See Film and Must-Read Book


Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

NOTE: the Kindle reader for PCs is now available for free which means you canread the Kindle version of Survival+ on your PC.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Jeffry H. ($25), for your extremely generous contribution to this site. I am greatly honored by your support and readership.

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Survival+ Trends for 2010

Here are a few key trends which will gather momentum in 2010--trends drawn from the Survival+ analysis.

My purpose in writing Survival+ was to provide a coherent account (i.e. anintegrated understanding) of the powerful trends which are working beneath the superficial surface of our economy and culture.

Survival+ explains why the status quo is doomed, and illuminates the mechanisms which doom it. It also describes "the way out"--we must each put our energy into constructing a parallel, transparent, self-organized, re-localized system which is entirely legal and entirely independent of the failing, doomed status quo which is stripmining the productive to enrich the public and private Elites (file under "Fall of the Empire, Roman and other").

Here are a few of the trends described in Survival+ which I anticipate will be gathering momentum in 2010.

1. Millions of productive citizens will opt out, voluntarily or involuntarily.Millions of small business owners will get tired of paying taxes so thousands of Federal bureaucrats can "earn" $170,000 a year (and pile up benefits the private sector can only dream about) and make sure Goldman Sachs employees (the "doing God's work" CEO is only worth $250 million, poor guy) can divvy up $16 billion in ill-gotten gains.

While they aren't wealthy, many small business owners are comfortable because they scrimped and saved and sacrificed. So when they close their business because it's no longer worth the hassle, the guff, the taxes, the bureaucratic fees and paperwork, then they will survive. The closure of the business will deprive their employees of jobs and the local stripmining machinery (local government) of tax revenues--revenues which cannot be replaced.

Given the dominance of the financial sector, agribusiness, pharmaceuticals and a hundred other concentrations of capital and political power (cartels), then the individual citizen has literally no choice but to opt out.

Those who have worked like crazy to net $170,000 will no longer be willing to work that hard so they can pay absurdly high tax rates to support bureaucrats raking in $170,000 a year for going to pre-meetings (or whatever) and public-employee retirees double-dipping (drawing $100K+ pensions and bennies and getting rehired immediately on contract to do the same job they just left.)

No, thank you, we really don't need to work this hard to support you. We are tired of being serfs. The more you try to tax "the rich," the more "rich" people will opt out.

Many will be opted out involuntarily. Those who believed the fantasy that sacrificing their lives to make partner or get that corner office will suffer great disillusionment when they are axed without a qualm. They "won't be fooled again." Take your 60-hour a week career, Corporate America, and shove it where the sun doesn't shine.

Others will be opted out by the structural implosion of the industries they worked in for decades. Just today I saw a man about my age (mid-50s) gathering recycling on our street. I'd seen him sorting through the bins before, so I asked him if he was collecting glass or plastic. Since he was not using a cart, he said, "no glass, just plastic" so I went to get our neighbors' bins of recycling for him.

Whenever I see a guy or gal collecting recyclables, I think how little separates us.

In chatting with the gent, I learned that he'd been a carpenter for 25 years, never without work until last year. He was expecting an extension on his unemployment shortly which would enable him to move out of the homeless shelter. He still had his work truck, stored at a friend's house.

I don't know if construction will ever come back to the point that all the hundreds of thousands of people who made a living in the industry will be employed again. I think not; bubbles don't reinflate.

The same can be said of millions of people laid off from retail and a hundred other industries. The jobs aren't coming back, regardless of what propaganda is issued by Washington. (Note to Obama White House: start issuing indictments, not more worthless propaganda.)

2. Millions of households will get by on one salary where they once had two. As the status quo devolves, jobs are starting to disappear even from the so-called "invulnerable" industries like government and healthcare.

3. Internecine Conflict Between Protected Fiefdoms will intensify. As Federal and local government tax revenues continue plummeting, "tax the rich" schemes will proliferate and promptly backfire. The truly wealthy--the 1/10 of 1% who own some 2/3 of the productive assets of the nation--will buy exemptions or loopholes from their corrupt and venal Congressperson for a mere $100,000 or so. (Even a million is cheap when you're saving $100 million.)

That leaves the working "rich," those professionals and business owners who have a choice. They can always opt out and just shut down, move to another state or country or cut their business or hours down to subsistence level.

The more "raise taxes" schemes which are passed into law, the faster tax revenues will drop. Most lower income households pay no tax at all except the 7% FICA/Social Security tax. The "rich" pay almost all the income taxes, and as they opt out tax revenues have nowhere to go but down.

Stunned that their revenue-enhancement plans have backfired, the various protected fiefdoms (fire departments, cop shops, city hall, school districts, transit districts, universities, "Defense" a.k.a. Global Empire, brought to you by Military-Industrial Complex, Inc., with special guest, Blackwater Associates, Sickcare/Medicare/Medicaid, and so on) will start jockeying to be first in line for the dwindling tax swag.

Fire departments will start mailing out flyers pleading for extra property taxes lest they have to close a station or three (anything other than take a pay cut or slash their lavish pension/medical bennies) and Police chiefs will exit their chauffeured vehicles a block from the "town meeting" (so they can appear to walk in with appropriate humility) where they will plead for "more cops on the street." (Never mind the PD retirees drawing $100K per year in cash and bennies.)

The revolving door between "Defense" corporations and the Pentagon will spin even faster as lobbyists sprout like evil weeds, hawking new costly ways to "fight" GWOT (global war on terrorism). "Either pay us now or the nation will be at risk." Yeah, right. Like a $300 million fighter jet has anything to do with GWOT, or "Homeland Security" has anything to do with, well, homeland security.

Go ahead and nail another "terrorist leader" in the Yemeni wastelands with a high-tech drone missile; did anyone look at the demographics of the region, which is exploding with literally millions of young men devoid of goals and gainful employment? Are high-tech weaponry toys anything other than profit machines for Protected Fiefdoms? Go ask the captains and commanders on the ground before you answer; don't take the word of some overpaid pundit/PR hack/government factotum.

Sadly for the Protected Fiefdoms, there simply won't be enough money to fund all their fat jobs, fat pensions, fat benefits, fat expense accounts, fat contracts, etc. (The Chinese have simply stopped buying more U.S. Treasuries, by the way; the "pusher" is getting tired of providing endless credit to the junkie, who will soon be experiencing the dread tremors of agonizing withdrawal from credit dependency.)

That's when the Internecine Conflict begins in earnest. Dark mutterings will turn into angry rants; everything is sacrosanct and must be funded "at all costs": subway and bus service, education, cops, fire department, carbon credits (more on that new Wall Street scam next week), and of course, sickcare--and above it all, the high keening whine that "we were promised this forever and ever," "it's in the contract."

Check the streetwise reply: "You can't get blood from a turnip."

The snake can eat its tail for awhile, but at some point the transit agency will rebel at the cost of sickcare "insurance," and so on; each Protected Fiefdom will be sharpening their knives for other Protected Fiefdoms. Politicos, bought and paid for many times over, will find it impossible to reconcile all the demands placed on the fast-dwindling tax swag under their control.

Like tribes unused to cooperation, no fiefdom will consider negotiating a 25% cut in pay, benefits and pensions for all the fiefdoms; each will seek to eviscerate the budgets of other fiefdoms to protect their own share of the swag. All will fail and the entire government will slip into insolvency. Greed, avarice and blindess have consequences.

4. The legitimacy of the State and Financial/Corporate Elites has fallen below a fatal tipping point. People will not just max out their credit cards and then stop paying--they will do so with righteous pleasure, confident that they are simply dishing out precisely what the Financial Elites have earned by their own avarice, embezzlement, debauchery of credit, corruption and purchase of political power.

Citizens will move their business to the underground economy and sign up for for "free" government benefits at the same time, feeling that extracting swag from the government (controlled by financial and other Elites for their own benefit) which ignored their interests and offered simulacrum reform rather than real reform is simply a rough sort of justice.

This is the result of a legitimacy squandered in sycophancy and service to banks, Wall Street, agribusiness, and all the other Elites which rule the government like a puppetmaster controls a puppet.

Others will shift to the underground economy because they simply can't afford to pay taxes any longer; they need every dollar of income to simply survive. Paying taxes is no longer an option, whether they consider it legitimate or not.

When the demonstration of angry citizens fills Wall Street, the nervous bankers looking anxiously down and the authorities tasked with protecting the craven Elites will both declare it a "mob;" and perhaps State agents from the Ministry of Propaganda will toss stones through a few windows to solidify that spin in the corporate Mainstream Media.

5. Popular uprisings will be ignored, written off or downplayed, protest movements will be marginalized by the corporate media, and eventually the State's machinery of repression and subterfuge will crank up to full power. All the tricks of fascist repression deployed in the 1960s to stifle, undermine and repress free speech will be brought back in new, subtler guises: inept black bag jobs are out, there will be no fingerprints or taped doors left this time around.

Just to refresh your memory of how the Ministry of Propaganda is organized now:

Permanent link: Survival+ Trends for 2010


Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

NOTE: the Kindle reader for PCs is now available for free which means you canread the Kindle version of Survival+ on your PC.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Robert S. ($20), for your most generous contribution to this site. I am greatly honored by your support and readership.

Read more...

Overcoming Depression in a Depression

Financial worries and failures can sap our confidence and hope to the point that depression grabs us by the throat. But there is no shame in poverty or failure; happiness requires much less than is commonly supposed.

One of the key purposes of Survival+ is to re-examine what our culture implicitly lays down as the "baseline requirements" for prosperity and happiness.

Comparing ourselves to unattainable idealizations of "success" and "happiness" can cause a gnawing internal misery. As the New Depression takes its toll on the economy, livelihoods and household assets and income, many feel like failures as their jobs, social standing and wealth evaporate.

It is terribly easy to slip into that private Hell of self-recrimination and hopelessness; indeed, once the descent is irreversible then a cruel obsession with past decisions --now revealed as glaringly disastrous--can feel irresistable.

My longtime friend (from high school days) G.F.B. recently opined that fame/media exposure is the "new wealth": people crave it more than money. Private, hidden wealth is simply another form of poverty in our media-deranged society; it is better to be poor and get 15 minutes of fame on the tellie (TV) or Facebook than to be unknown, invisible and wealthy.

Perhaps all this is a function of the great gulf which only widens by the day between wealth and most of the citizenry; with wealth from speculation in housing now a distant memory, and no other means to get rich available, then this mad desire for media recognition seems an attainable substitute.

But let's suppose you get the mansion on the beach and national facetime on TV. The next day, you're still yourself, and your feelings about yourself remain unchanged. You still have the same patterns of thoughts and emotions, and you still have to live an ordinary life, even if you have a personal chef and personal assistant.

It is my observation that the more that is done for a person, the more trivial and petty their concerns become.

There is only one success in life, and that is being yourself. That's the only "career" no one else can pursue, and the only "success" no one else can attain.

It's certainly nice if being yourself leads to the chalet in Aspen, the beachside mansion and facetime on TV; but for most of us, being ourselves doesn't align with the skillsets and character required to become rich and famous. And those who substitute the acquisition of wealth and/or fame for being themselves eventually find themselves firmly bound in a bitter unhappiness sporadically relieved by various addictions and futile therapies.

For some reason beggars and panhandlers have latched onto me as an easy mark since I was a mere lad of 17. I have trained myself to ignore most of the pleas and scams, though I do toss a buck into the open case of street musicians. Since there are hundreds or even thousands of beggars and panhandlers in the urban area around me, even if you felt it a generosity to offer up some coins or a dollar or two, you would quickly use up all your cash within a few blocks.

While I was locking my bicycle downtown yesterday, a tallish male street-person nearby turned round to face me and said in a pleasant voice, "How would you like to sponsor my dinner?" His eyes were clear--he wasn't drunk or stoned--and his entire persona was confident and easy-going.

I replied that I liked his pitch, and he said that he'd panhandled through New Zealand for a number of years. He said "panhandled" not with irony or shame but as if it were as noble a profession or trade as any other. Marvelling at his use of the word "sponsor"-- how much more appealing than "spare change?"--I extracted a small bill from my wallet while we chatted. He noticed my bad eye (torn up by an errant nail 32 years ago) and commented that a friend's daughter had a similar disfigurement in her eye. He was entirely at ease and completely focused on our modest conversation.

Poverty and begging did not strike him as shameful or as a reason to hate his life or himself.

While I don't recommend this gent's lifestyle, I found his positive attitude, self-acceptance and honesty quite refreshing.

I finally saw the recent Japanese film Departures and saw a similar message in the movie (which I highly recommend).

In the film, a young man's musical career as a classical cellist abruptly ends. Knowing he doesn't have the talent to rise any higher in that rarified profession, he sells his very expensive cello and feels a great burden lift from his shoulders as he leaves the store.

Being a professional cellist simply wasn't him; it was a goal pushed on him by his father. While he enjoyed playing the cello, the career was not a match for his character.

I won't give away more of the plot other than to say that his new profession--delivered by Fate, it would seem--is far from performing classical music and distressing enough to drive away his young wife. But it was a profession that somehow suited him in a fundamental fashion.

Recently I received an email from a young attorney in New York City who wrote that my essay For Aspiring Writers: the Worst Advice You'll Ever Read posed a direct challenge to him: though he was working 12-hour days as a lawyer, he wanted to be a fiction writer, and my little essay had fired him up to "prove me wrong," i.e. he could write despite his career and busy days.

I wrote him a reply which basically said, excellent, go for it, but realise you have to like the entire process of writing, and your expectations have to be low enough thathaving a single reader is success.

Being a rich and famous author certainly sounds appealing, and I understand the young attorney's dream. But there is a great and rich irony here; many people who watch TV shows have the impression that a career practicing law is glamorous, exciting and rewarding both in terms of being heroic and well-paid.

They should intern in a real law firm for a few months before filling out that law school application.

We are all bombarded with mass-marketed propaganda about how great it is to be wealthy/well-compensated, to get that corner office with a view, to have 1,000 "friends" on Facebook or to actually be--gasp!--on TV. But the hype is false; it's all about selling you something as an illusion of happiness and fulfillment. It's all a mirage; when you finally reach it, you find not happiness, prosperity or fulfillment but a deep, eviscerating emptiness.

A famous author once recounted that the day after she received a prestigious literary award, she fell into a deep depression that took years to overcome. That's the price of believing happiness flows from recognition and money.

Yes, some money (or equivalent) is necessary to live. But we have to be careful not to draw a causal line between X amount of money, X quantity/quality of possessions or X minutes of time in the media spotlight and happiness, prosperity and fulfillment.

Among many great ironies is this one: a serving of brown rice (or cornbread/tortillas) and beans is a most delicious meal when you're truly hungry. It is very cheap, and easier on the planet and your health that a juicy, fat-marbled chunk of meat or a cream puff or other luxury food item.

Bonus pop music reference: "Savoy Truffle" lyrics Savoy Truffle (Youtube)

Yes, yes, oh yes, luxury, status, wealth and the worshipful gaze of the camera are all wonderful and fine, but they aren't happiness.

An insightful commentator (and reader of this blog) who goes by the screen name Publius recently posted a few lines from the poet Rainer Maria Rilke's Letters to a Young Poet, Letter One, on the excellent blog deep into artlife west:

If your daily life seems poor, do not blame it;
blame yourself that you are not poet enough to call forth its riches;
for the Creator, there is no poverty and no poor indifferent place.

Yes, I know this sounds awfully precious in a world where people are hungry and broke and their spirits are in tatters. But nonetheless it remains true, and as someone who was down to my literal last $100 in the past "Great Recession" of 1981-82, I don't find it untrue or flippant. It is in fact the tonic which eases the pain of self-recrimination and sense of failure.

Failure is as normal as breathing. To distain and fear failure is akin to saying you only like the intake of breath and not the exhalation.

We are what we do every day. The only thing no one can take away is your personal integrity. It is the ultimate treasure, a foundation that can support the greatest accomplishments. In times like these, accomplishments which may appear small from the outside are great indeed to those struggling through failure, poverty and uncertainty.

As I wrote in the last page of my novel For My Daughter: take strength, you are not alone.

Permanent link: Overcoming Depression in a Depression


Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

NOTE: the Kindle reader for PCs is now available for free which means you canread the Kindle version of Survival+ on your PC.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Paul L. ($125), for your overwhelminging generous contribution to this site. I am greatly honored by your support and readership.

Read more...

Why a 35% Decline in Housing Values Would Be Good for the Nation

Housing eats up far too much of household incomes. The best way to lower the cost basis of housing is for prices to revert to 1995 or lower.

One of the key tenets of this blog and the Survival+ analysis of full-spectrum prosperity is that the cost basis of our entire economy must be lowered dramatically. The status quo "solution" is to borrow ever greater sums of money to pay the spiraling-out-of-control cost basis of one industry after another:

Healthcare (i.e. sickcare) costs rising? Borrow another trillion dollars to pay the bills.

Housing costs still too high? Borrow $1.2 trillion to buy toxic dead-zone mortgages so irresponsible lenders can pump out another couple trillion in soon-to-be-toxic mortgages.

Higher education costs going through the roof? Make students borrow hundreds of billions of dollars and enter a life of debt-serfdom to pay for their education.

Borrowing trillions to pay out-of-control price spirals will lead to national insolvency. There is no other end-state.

The solution is to lower the cost structure at the fundamental level. You want to encourage small businesses? Then let every commercial real estate owner in the nation go bankrupt and sell all the millions of square feet of commercial space for 10 cents on the dollar. The new owners' cost basis will be so low that they can rent out a space for $500/month that once required $5,000/month just to cover the bloated mortgage on the grossly overvalued property.

Let's look at some charts for cost-basis context in residential housing.

A 35% decline in housing from current levels is already baked into the reversion to pre-bubble valuations. The Fed is trying to hold back the tide with very expensive sand castles; now that the Federal government owns the insolvent Fannie Mae and Freddie Mac mortgage giants, it has shifted the speculative lending to FHA (Federal Housing Administration) which as a result is now in financial trouble and needs a bail-out to remain semi-solvent (surprise!).

This is the result of hyping home ownership as a speculative investment during bubbles: equity plummets as prices revert to historic averages. This is a rather staggering chart; as a percentage of GDP, homeowner equity has already dropped below the 1997 pre-bubble line. As far as actual equity is concerned (as opposed to nominal prices), the housing bubble's gains have already been completely erased.

It stands to common sense that negative equity drives foreclosures. At some point, the burdens of attempting to pay a mortgage which far exceeds the value of the property makes little financial sense. Given that 15+ million households have negative equity, we can see that the foreclosure/short-sale pipeline is stuffed for years to come.

California prices have already retraced about 3/4 of the bubble; another 35% (roughly $100,000) would complete the reversion to pre-bubble valuations.

It is important to note that the housing bubble had little to do with actual construction or material costs. The bubble was entirely debt/financial-based. As this classic chart shows, construction costs actually dropped from 1980s peaks.

As for demographics/population driving prices higher--if that's true, then why are there (according to the Census Bureau) 18 million vacant dwellings in the U.S.?

The cause of high rents is high mortgage costs which are caused by high valuations. Joe Blow buys a rental building in the bubble years and his mortgage is huge. So he has to raise rents in order to make his monthly nut. Is the high rent related to anything other than a speculative frenzy? No.

So if Mr. Blow's building goes into foreclosure and is auctioned off at 50% of what he paid, then the new owner can cover the (revalued) mortgage for considerably less money. Thus, resetting housing valuations for owners also resets housing costs for renters.

From at least one point of view, the entire "project" of persuading Americans that homeownership was the high road to accumulating wealth was a stupendous scam perpetrated by those industries which benefitted from the elevation of homeownership to quasi-religious status.

Yes, it creates stable communities, etc., but when households essentially enter debt servitude to support owning a house, driving up rents in the "bargain," is either the household or community served in the long run?

Frequent contributor Michael Goodfellow recently commented on this dynamic:

Housing is the single largest expense for most people. For years, government has discouraged supply in lots of places (like the S.F. Bay Area), encouraged larger, more expensive houses, and encouraged borrowing. Even now, they'd rather prop up prices to keep down the number of foreclosures, rather than let them drop to cut living expenses.

Our obsession with owning a house causes lots of people to stretch their finances. They end up cash poor, but sure they have this great investment in the walls.

Yes, there are many good reasons to own a piece of land with a house on it, but financial speculation isn't one of them. Yet that is the reason that has been touted, either directly or implicitly.

The government's doomed obsession with propping up high house prices has left one class of homeowners in the shadows: the 1/3 of homeowners who own their homes free and clear. Those without a mortgage resisted the temptation to extract all their equity; they have no mortgage. Price fluctuations don't mean much to them. The same can be said of those whose mortgage was based on pre-bubble valuations; yes, it was glorious to be worth a small fortune at the top but life goes on, etc., as the mortgage is still affordable and the owners still retain substantial equity even after prices have fallen.

For those who are underwater, short-selling (selling a house worth less than the mortgage and the bank accepts the loss) or in foreclosure, isn't a reversion to much lower values in their interests, too? Once they rebuild their finances and credit, in a few years they might be able to buy a house for a price which is actually affordable by historic standards (i.e. about 25% of net income goes to the mortgage).

As noted above, lower valuations help the nation's renters, too, lowering the cost basis of the property owners and making renting and buying more competitive--a boon to both markets.

The only real solution to unaffordable, high-cost structures is to dramatically lower the cost basis of the entire sector/industry/market. Housing prices dropping another 35% and removing the speculative mindset from housing would in the long run greatly benefit households and the nation.

Permanent link: Why a 35% Decline in Housing Values Would Be Good for the Nation

BOOK NOTE: I have another box of Survival+: Structuring Prosperity for Yourself and the Nation on order and will ship signed books to readers who donated $40 or more or who ordered a signed copy as soon as I receive the box. Thank you once again for your patience.


Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

NOTE: the Kindle reader for PCs is now available for free which means you canread the Kindle version of Survival+ on your PC.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Alberto R. ($20), for your ongoing generous contributions, financial and intellectual alike, to this site. I am greatly honored by your support and readership.

Read more...

Speculative Demand and Hoarding Drive Real Prices Higher

The combination of cheap money/limitless liquidity and speculative demand are driving real prices higher even as "real world" demand and income both falter.

Whenever I announce a topic as "critically important" then readership plummets. I'm not sure if it's karma for sounding self-important or a jinx generated by readers' fear of IBB material ("important but boring"), but I'm going to risk the curse and declare today's topic of critical importance in understanding how real-world demand can fall yet prices can continue rising.

Why is this important? In classic economics, falling demand (assuming supply remains constant, or that it falls at a slower pace than demand) leads to falling prices as suppliers cut prices to move product, take market share from rivals and hopefully stimulate demand.

But if prices rise due to speculative demand and hoarding even as wages, home equity and income stagnate, then we enter the dreaded vise of stagflation: prices for finished goods rise even as income stagnates or declines.

Frequent contributor B.C. outlines the dynamic very succinctly:

Since '05-'07, gold and other commodities have increasingly become an "asset class" into which hedge funds, pensions, and individuals have shifted money, i.e. "monetizing" use goods as opposed to paper assets or real estate, in an attempt to hedge against central bank credit-money printing and perceptions of the risk of hyperinflation at some point.

But rarely does one read or hear discussed the "hoarding effect" resulting from money flowing to gold and other commodities, creating artificial demand which pushes up the price of use goods required by firms and households. CHS: emphasis added

Two important aspects of the hoarding effect (1) increasing cost of production with slack capacity, reducing profits and incentives for further investment in production, and the past-through costs to households, which squeeze spending; and (2) the continuing downward pressure on money velocity as a larger incremental share of increasing credit-money supply goes to hoarding or speculating in commodities, with less money circulating in the larger economy.

As commodities speculators pile on with leverage, capturing a larger share of future surplus gains to existing and future commodities production, producers and intermediaries are required to go further out into the future to hedge or lock in prices, requiring many to become de facto commodities speculators themselves.

However, at some point, the speculative demand causes constraints on the real economy at which point the speculative alpha disappears, and buyers become sellers en masse to lock in outsized gains or to liquidate derivatives positions to avoid physical delivery, which was never the speculators' intention.

This is a profound dynamic that has received essentially zero coverage.

This slices through the cul-de-sac blather about deflation-inflation like a samurai sword through an over-ripe watermelon. Cheap abundant money drives speculative demand, fear of future inflation drives speculative hoarding, both divert funds and money velocity from the real world, which reduces real demand even as real prices rise.

The mismatch between speculative commodity derivative positions and physical delivery eventually drives a self-rienforcing liquidation of positions and leverage alike, crashing both prices and financial markets as the unwinding kicks off stops and reduces many positions to zero.

Couple this decreasing money velocity in the real world with income withdrawn from circulation to pay down debt (deleveraging, paying down credit cards, etc.) and you get a double-whammy on both velocity and disposable income: money is diverted to reduce crushing debt loads and pay rising prices. Consumers are crunched in the vise and Main Street investors can only watch from the sidelines, as they have no access to the credit or leverage enjoyed by large speculators and commercial traders.

Thus the "average investor" has few ways to gain from the speculative ramp-up in commodity and end-use prices, but ample opportunity to lose big when the cycle implodes, bringing down credit and equity markets as in Fall 2008.

Frequent contributor Harun I. offered this description of how easy credit fuels speculative gains and eventually, the destruction of consumer purchasing power:

Every government that has fired up the "printing presses" to monetize debt have created a boon for speculators. Those with first access to counterfeited money go out and purchase real assets at no real cost. However, their purchasing drives the prices of those assets up. By the time the money reaches the ordinary citizen, their purchasing power has been destroyed and they are effectively priced out of the market.

As long as the printing presses are running full steam, those with first access to the money, banks, are going to purchase real assets with that money just as they did in Weimar, Argentina, Zimbabwe, etc., and prices will rise.

Perhaps what we should be re-examining is our assumptions and definitions of inflation and deflation, exploring whether they can occur simultaneously.

Thank you, B.C. and Harun, for your insights. Many have attempted to build a case for deflation or hyperinflation. But without understanding the speculative dynamics outlined above, the picture is incomplete.

With the above dynamics in hand, it is possible to foresee consumers facing deflation in their primary asset--their house--effectively reducing their net worth, and deflating prices of finished goods which are mostly detached from speculative demand (for instance iPod-like devices, which contain little but mass-produced electronics and software) even as commodities with huge impacts on the costs of non-discretionary goods and consumer purchasing power such as oil and grains rise in a speculative-demand/hoarding spiral.

Indeed, we have already seen how speculative demand/hoarding of oil has created a situation in which the world is swimming in oil as consumer demand has plummeted--every storage facility is filled to capacity--yet prices rose to $80/barrel, only recently dropping to $71/barrel.

Without speculative demand/hoarding, how low would oil fall? That is unknown, but many expect the final Global Depression collapse in oil prices to reach $20 or even $10/barrel. (This is what I have termed the final "head-fake" in which oil falls one last time before shrinking supply drives it to $300/barrel.)

This overall dynamic is how you get falling net worth, declining prices for discretionary goods and rising prices for essential/non-discretionary goods such as oil.

This complex mix of inflation/deflation and falling purchasing power/asset base has long been my position on the simplistic (and thus misleading) "deflation/inflation" debate. What is new to me is the speculative dynamic which fuels just such a volatile mix of declining purchasing power and rising real costs.

I am indebted to David Hackett Fischer's detailed explanation of how rising prices run in long cycles--The Great Wave: Price Revolutions and the Rhythm of History--and to contributor Cheryl A. for sending me his work.

These inexorable cycles of rising prices are a key part of the Survival+ analysis and forecast.

Permanent link: Speculative Demand and Hoarding Drive Real Prices Higher

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