Some Recent Projects

Taking a break from financial topics, here are a few photos of other projects I've been working on the past few months.

Since I've spent very little time in front of a computer screen the past few months, I thought I'd share a few of the other projects I've been working on. Even when traveling, I seem to end up building stuff....

We went hiking around the Hetch-Hetchy reservoir with our brother-in-law:

Here's a view of the valley's secondary waterfall:

Turns out there was a little project needed on his family homestead in Gold Country--rebuilding a deck:

The old beam had to be re-leveled and "adjusted," and then new joists installed. The final product was considerably stronger than the rotted mess we took down. I tend to put a crown in these kinds of decks to counter eventual settling.

Naturally, working this hard in Gold Country sun works up an appetite, so here's one home-cooked meal we enjoyed: steak with fresh salsa, black beans with hominy and of course beer (not shown): (note the partially healed cut on my forearm--just the usual damage.)

I do go ocean swimming when we're in Hawaii, of course; here's a favorite spot:

But we also painted my mother-in-law's house, which had last been painted in the early 90s:

As you know, preparation is 90% of a good paint job, so here I am, scrubbing off the mildew/mold from fascia boards:

All that toil works up an appetite, so here's one of our grindz at our friends' home: poi, fresh ahi, fresh corn, poke, stir-fried veggies from the garden, chips and home-made guacamole and of course beer (not shown):

It is legal to collect limited quantities of wild ohelo berries, and here's part of our harvest:

Playing tourist is OK but the real fun in France was helping my brother with some projects around his house. Here I am wearing my little brother's nail belt while we install a somewhat tricky corregated ceiling to a deck to turn it into a watertight carport underneath:

The following day we built a raised-bed garden box and filled it with their accumulated composted yard debris and then added some store-bought manure and compost for the top layer:

All work and no play makes Jack a dull boy, however, so my brother took me to Montpelier on his "moto," a very fast and relatively comfortable BMW. We rode a 350 cc single-piston Matchless as teens (anyone ever heard of a Matchless, or ridden one?) plus an assortment of 2-cycle 250s and similar bikes. My brother has ridden motos his entire adult life, from ramshackle Triumphs in India to racing Ducatis that scared the living daylights out of me.

Since 130 Kilometers per hour (80 miles per hour) is normal on this machine, my brother rigged me up with proper gear; here I am with his bike:

My brother parking the bike in Montpelier:

A typical boulangerie we stopped in for a quick lunch:

I won't bore you with touristy photos of France or Paris, but here's a few snapshots of meals/food. Empanadas prepared by our sister-in-law's daughter:

A typical meal at my brother's/sister-in-law's home: homemade soup, bread from the village bakery, a selection of cheese (brobi, chevre, and brie at this meal), fresh veggies, fresh salad with vinigrette dressing and an outstanding wine:

Here is a fancy dessert we enjoyed in Paris: the chocolate is the exact shape and size of the bolts that fasten the Eiffel Tower:

As I note below, most of my time is spent pursuing the sort of self-reliance that I promote on the weblog and in my books. What sort of message is given if someone promoting a path doesn't actually live the life being recommended to others? This is why my time online is strictly limited; I do my best to maintain correspondence and write useful things in those few hours, but it's impossible to keep up with everything digital and fulfill one's goals in the real world. The balance/trade-off is a difficult one, as you no doubt know, a ceaseless juggling act.

To me, the time I have spent with family and friends is my "wealth," and the application of tradecraft skills in the real world my "net worth" and source of satisfaction.

I also squeezed in another project: recording a song I wrote with an old friend and musical mentor. It's titled My Big Island Girl (MP3), and yes, it was recorded on the Big Island.

Here are the liner notes about the song:

We are longtime friends who have played together for over 30 years. One of us (Coconut Charlie) has been a professional musician for almost 20 years who decided to give up gigging for the joys of recording. The other (CHS) just tries not to embarrass himself on guitar. Both of us write songs. CC's work tends to instrumental rock/jazz, CHS tends to write pop songs like "My Big Island Girl," which was inspired by CHS's wife, who is, yes, a Big Island girl. We recorded the song as "live" as possible: rhythm guitar (CHS) in two takes, bass and lead guitar (CC) in one take each, vocal in 3 takes (CHS) and background vocals in a couple takes. The song references a beach known to Hilo, Hawaii natives, and the name we chose for the band (Polihua) reflects CHS's long history in Hawaii. The song was written as a contemporary entry in the venerable "hapa-haole" Hawaiian style: words in English, Hawaiian themes/references. CHS thinks CC's guitar solo is a mini-symphony of roughly 30 seconds. The song is short by the usual standards but we think it is "long enough," i.e. it captures everything we wanted to communicate in words and music. We had great fun recording it and we hope you enjoy it.

If you want to give the guitar players an unmatchable thrill, you can buy (gasp) an official MP3 for 99 cents from amazon.com (also amazon.uk, amazon.jp and amazon.de): My Big Island Girl (amazon.com MP3 download)

The song will be available on iTunes in a few weeks, according to the distributor.

Though I am a hopelessly mediocre musician, CC's brilliant improvisation more than compensates for the inadequacies of my voice and guitar work. Have a listen, it's only 1:50 minutes long.

If this recession strikes you as different from previous downturns, you might be interested in my new book An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook on any computer, smart phone, iPad, etc.Click here for links to Kindle apps and Chapter One. The solution in one word: Localism.


Readers forum: DailyJava.net.


My new book is available in both print and ebook formats: An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook now on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One.

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

Thank you, Susan H. ($50), for your stupendously generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Declan O. ($5), for your much-appreciated generous contribution to this site -- I am greatly honored by your support and readership.

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The Truth Is Going Global

A chance encounter with a night clerk in Paris offers insight into the power of truth and the World Wide Web.

Amidst the endless flood of propaganda ("there is no recession, Europe is about to fix all its problems in one fell swoop, a new Bull market is underway," etc.) a trend of long-term importance is emerging: the truth is going global.

By the "truth" I refer not to some eternal truth, but to an understanding that the financial model presented by the Status Quo as "reality" is in fact an illusion that serves the interests of those controlling massive concentrations of wealth and political power. Simply put, the present-day financial Status Quo is unsustainable, and it will devolve or collapse under its own weight of internal instabilities and lies.

There is no way to track how many people around the world are awakening to the understanding that everything that the mainstream media presents to them as financial reality is a distortion aimed at managing their perceptions and gaining their passive acceptance of the Status Quo as "good for you" or at least "permanent."

Thus all we have is anecdotal evidence of the sort I am going to present.

Earlier this week, I was standing in the cool pre-dawn darkness outside the small hotel that had been "home" for this visit to Paris, waiting for the airport shuttle. The night clerk of the hotel, a young man in his mid to late 20s, was kind enough to join me. (I will call him by his first initial, C.) C. was conversant in English, and spoke in a measured, friendly tone.

Just as a point of conversation, I asked about France's rugby team, which had been in the news for its win over Britain's team. He replied that he didn't follow sports much, and then he referred to ancient Rome's technique of using "bread and circuses" to distract its people.

Woah. Bread and circuses? This was not the response I expected. With a bit of encouragement, C. then went on to describe how "banksters" (his word) dominated the governments in both the U.S. and Europe, how the mass media was incapable of reporting the truth, and how people were blind to this manipulation of their opinion.

I asked him how he had learned all this, and he replied, "The Internet." He had learned all this from American websites and blogs.

With no further prompting from me, he went on to describe Roosevelt's confiscation of private gold in the 1930s, and how a plot of good land and house in the countryside might be the ultimate hedge when things fell apart. He suggested that gold would the basis of a new money, but only after the Elites had bought it up/made it illegal for commoners to own.

This young man did not know I was a writer/blogger; to him, I was just the brother of a regular customer of the hotel.

I asked if he had studied economics in university, and he said no, but a friend of his did, and that his friend was only learning how to indoctrinate the next generation of students with the Status Quo model.

Is C. a rarity or one of a growing number of young people around the world who "get it"? There is no way to know, but we do know this:

1. English is the international language that every educated person must learn

2. U.S.-based websites are available everywhere in the world except where they are actively blocked, i.e. China, etc.

What is truth and what is illusion? Ultimately, we organize the chaos around us into models that explain the behavior we observe. If the model no longer makes sense of the world we see, then eventually we abandon it for a model which does a better job of matching the reality we observe.

The Status Quo model of financial reality no longer makes sense of the real world, and so the Status Quo has been forced to manipulate our perception via statistical legerdemain, manipulated markets and coordinated "perception management" via the corporate media.

As I write this, the stock market appears to be breaking out to new highs on the "news" that Germany and France "agree" and that a complete "fix" of the Eurozone's multiple financial morasses is close at hand. The presumption is, of course, that maintaining the financial Status Quo will usher in a global Bull Market of epic proportions, with a global resurgence of confidence and prosperity to follow.

Truth or illusion? We know it is illusion being presented as truth. But if the audience believes the magic, then is it true? How many young people have gazed behind the curtain and seen through the trick? We don't know, but the number may well be rising faster than the Status Quo realizes.

NOTE: I am jetlagged, exhausted and under the weather; I owe many of you books and emails, and your continued patience is greatly appreciated.

If this recession strikes you as different from previous downturns, you might be interested in my new book An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook on any computer, smart phone, iPad, etc.Click here for links to Kindle apps and Chapter One. The solution in one word: Localism.


Readers forum: DailyJava.net.


My new book is available in both print and ebook formats: An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook now on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One.

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

Thank you, Brian C. ($50), for your monstrously generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Mark M. ($20), for your much-appreciated generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Semi-Random Notes on the Occupy Wall Street (OWS) Movement

Here are some semi-random notes on the Occupy Wall Street movement, based partly on some "insider" contacts.

I am honored to have long been in email correspondence with David DeGraw ofAmped Status, one of the key initial organizers of the Occupy Wall Street movement. As a result of our mutual support society/correspondence, I am also honored to be included in an email group of people I consider the leading lights in the movement to restore democracy and fiscal sanity to this nation, people like Matt Taibbi, Barry Ritholtz, William Black, Max Keiser, Dylan Ratigan, Karl Denninger, Yves Smith, Michael Hudson, Nomi Prins, David Cay Johnston, Paul Craig Roberts, "George Washington" and Tyler Durden, to name some whose work you have probably read.

I want to start by saying that David DeGraw has acted under extreme pressure with integrity and grace at every step of this amazing journey. He is an American hero in my book, along with all the other initial organizers of the OWS movement: someone who cannot be bought, someone with the uncommon courage to act (virtually alone at times) against the united forces of oppression, exploitation and thuggery that is the Wall Street/Washington, D.C. Power Elite.

The OWS story appears to begin in late September, but it actually started in March, when David, Anonymous and other activists began organizing a June 14 "occupation" of Liberty Park: Acts of Resistance: What Are You Going To Do To Rebel Against Economic Tyranny? (June 1, 2011), Prepare For Revolution: The Empire State Rebellion Begins on June 14th (March 31, 2011), The A99 social network group, etc.

David has summarized his 19-month experience on the front lines of the movement:Report from the Frontlines: The Long Road to #OccupyWallStreet and the Origins of the 99% Movement.

What few people know or recall is that the June 14 occupation attracted a total of four citizens: David and three other brave souls: event organizer Gary Roland, Oren Clark and Kevin Dann. (Other sources say 16 people showed up but only these four were prepared to occupy the park.)

Here is David's statement after the disappointing turnout: Back home from Liberty Park(June 15, 2011).

David does not try to take credit as a leader; rather, he repeatedly states the movement is decentralized and leaderless, mentioning the key roles played by Anonymous, A99 OpESR, US Day of Rage and the NYCGA (New York City General Assembly) among many others:

There are definitely other significant groups that played a key role. In such a decentralized movement, it’s hard to keep track of all the efforts being put forth. We will feature other perspectives in the days ahead.

As Anonymous A99 wrote in response to questions about their movement:

“We are a DECENTRALIZED non-violent movement. If you are looking to contact one of our leaders, go to the nearest mirror and peer deeply into it. It may take some time, but, eventually, one of our leaders will appear with answers to all of your questions.”

This lack of identifiable leaders and shadow financial backers is driving the Power Elites and their Mainstream Media lackeys crazy. Since they are all pimps or prostitutes for one special interest or another, the storm troopers of the Elite cannot believe there isn't some interest group behind the whole thing. A decentralized, self-organizing mass protest movement against their rule simply doesn't compute.

I have also been honored to be included in another small email group formed by an anonymous Elite insider who uses the nom de guerre Guy Fawkes. I won't divulge this list for reasons of confidentiality, but the key point made by Mr. Fawkes is thatWashington D.C. is a bath-house/whorehouse where everyone is for sale and/or hustling:

The key to understanding Washington is to understand that the whole place is for sale. It's not just politicians. It's interest groups (right and left), media, foundations, lobbyists, etc.

Companies/foundations/labor all essentially manufacture "public opinion" from thin air simply by routing money to the right mouthpieces -- public interest groups, non-profits, academics & universities, analysts. It's hugely sophisticated and the budgets are enormous.

They are all competing (and paying) to either get the government to screw their competitor or convey some government benefit to them.

The voice of the electorate -- the real "grassroots" -- gets completely lost in the din. As soon as a "movement" picks up steam (e.g. Tea Party, MoveOn.org) it becomes completely co-opted... Tea Party becomes about "Guns, God & Gays" as Denninger rightly points out. Huge sums of money are dangled in front of the movement's leaders and the original purpose of the movement is transformed into something that the status quo can tolerate.

There's no room in this town for anyone who challenges the status quo -- be that a Ron Paul, a Dennis Kucinich, a Noam Chomsky, etc. (Republicans ridicule Ron Paul just as much as Democrats do... It's NOT his ideas that they are afraid of, it's that he's a huge threat to their power and perks.)

We all know this, and some try to dismiss it as "business as usual": politicos have always been corrupt, money is the mother's milk of politics, etc., but these are excuses, not explanations. A nation ruled by a deeply, pervasively corrupt political/financial class is not a democracy or a haven of free market capitalism: it is a neo-feudal kleptocracy organized along a neo-colonial "plantation economy" model with debt-serfs kept in line by the toadies, lackeys and apparatchiks of government, media and finance--a class of enforcers, propagandists and regulators that constitute a Technocratic Caste, a caste with a taste for power and the big bucks that flow to those willing to sell their souls and bodies in service to extreme concentrations of wealth and power. (All of this is explained in depth in my book Survival+.)

The corporate media is bought and paid for, and "journalists" toe the line or they're fired. It's really that simple.

That's why the Web/blogosphere drives the Power Elites crazy: they can't co-opt it with cash. You want to buy this site's content and message? Sorry--I already have enough money. It really doesn't matter how much money I have--it's always enough. This is something else the Power Elites and their prostitutes/pimps simply cannot understand: how can someone not be bought? Doesn't everyone crave the "Elite status" of special passes, big salaries, shiny gew-gaws and luxury possessions? Those who have sold their souls for a few beads and bangles are unable to understand those for whom integrity and independence are the only types of "wealth" they recognize. All that the pimps and whores of Washington value so much--the access to corridors of power, the fancy cars, the costly cozy dinners, and all the other perks of servitude--are meaningless to us, crass, ugly baubles marking depraved, lost souls.

Though it's early, there are a number of lessons to be drawn from Occupy Wall Street. Others have already filed excellent reports, for example Chris Martenson-Occupy Wall Street: What’s Really Going On, and David Graeber, via Yves Smith (Naked Capitalism): On Playing by the Rules.

Here are my observations.

1. As an old activist myself (circa the early-mid 1970s), I learned that timing is everything but it is out of our control. A well-publicized mass demonstration in June draws 16 people (or four), and one three months later draws thousands of people. The difference is a change of awareness/ consciousness crystallized in the broader culture.

Concepts and phrases that placed me and other bloggers firmly in the farthest fringes of American society in 2005 and 2006 are now mainstream, bantered around on thousands of blogs and social media sites. People usually gain an awareness of propaganda and servitude slowly, and often only when their servitude and the dominance of self-serving Power Elites actually start impacting their own lives. That is now happening to more and more people.

The key to this process is having explanations and models which make sense of what's happening. As the Status Quo unravels/devolves, the propaganda becomes less and less persuasive as an account of how the world actually works. Alternative explanations suddenly "make sense." For me, the neo-colonial "plantation" model of financial/political exploitation and oppression neatly explains how America functions in the real world: debt-serfs, a Technocratic Caste of enforcers/managers, etc., just like on a colonial plantation ruled by a distant, cloaked, unreachable Elite. Others have different models, but the key feature is that each alternative explanation disrupts and subverts the Status Quo narrative.

This process cannot be co-opted or stopped. The only question left to be answered going forward is how much pain and suffering the Status Quo Power Elites and their armies of technocrat toadies, lackeys and prostitutes will impose on the nation before their grip on power is finally relinquished.

2. Given the vast armies of toadies, lackeys and prostitutes at their command, the Power Elite likes nothing better than "illegal action" which it can then ruthlessly suppress (truncheon-wielding cops, media smears, financial harrassment via the agencies of regulation/enforcement, etc.)

This is why I favor direct, perfectly legal action by individuals and households to divest themselves of servitude/complicity in the Status Quo. Max Keiser's campaign to cripple Power Elite speculators in silver is one example: if 100 million households each bought 10 ounces of physical silver, that would completely disrupt the speculative game played by Wall Street.

One way to take direct action is to avoid student loan servitude: whatever it takes, get an education and degree without burdening yourself (and enriching Wall Street) with huge student loans. It can be done, but it means moving outside the Status Quo propaganda and narrative.

There is no law (yet) requiring citizens to have a mortgage, or credit card debt or an auto loan. Imagine what would happen to Wall Street's ponzi financialization schemes if there were no mortgages to slice and dice and sell. Removing your interest payments and debt from the system is a direct action against servitude and the dominance of the Wall Street/Washington Power Elite.

Debt forces our complicity and servitude. The first step to true independence and freedom is to owe Wall Street and the other systemically dangerous institutions (SDIs) nothing. Owing them nothing is still perfectly legal. Once their income streams collapse, then buying the pimps and prostitutes of Washington becomes much more difficult.

The storm troopers of the Elite in Washington will protect their interests at every turn; that is why "reforming the system" is essentially impossible.

There are three ways not to have a mortgage:

1. don't get a mortgage

2. pay off your existing mortgage

3. If you are insolvent, declare bankruptcy and dismiss the mortgage debt via the legal process of bankruptcy.

Others have taken the route of strategic default.

Other direct actions include:

--remove your money from Wall Street firms and "too big to fail" banks, opting for credit unions and online securities accounts.

--closing credit card accounts and/or minimizing your use of credit cards, which generate vast fees and profits for Wall Street and TBTF banks--what William Black calls systemically dangerous institutions (SDIs).

-- don't vote for either criminal gang--the Demopublicans or the Republicrats. Vote for an alternative, or the non-incumbent, or at least someone who refuses to play the game (for example, Ron Paul or Dennis Kucinich). Not voting plays right into the Power Elite's hands: the passivity and complicity of the average citizen is their greatest ally in maintaining their neo-feudal power.

There are other direct actions we can take in the privacy of our own lives and homes. The basic idea is simple: stop being complicit in an exploitative, oppressive Status Quo, and stop passively accepting the governance of prostitutes and pimps and the lackeys they appoint (Geithner, Bernanke, et al.) It is perfectly legal (so far) to be debt-free, to own silver and to vote against the two criminal gangs that run Whoretown (Washington, D.C.)

Demonstrating is a good way to join in common cause and to raise awareness within the passive public, but being debt-free and thus a free citizen is even more powerful. Removing your debt and interest from Wall Street and the other systemically dangerous institutions (SDIs) will cripple their power in a way that toothless political reforms cannot.

Becoming a free, independent citizen won't solve all our nation's problems, but it will certainly enable solutions that are now impossible in the current neo-feudal, neo-colonial plantation run by Wall Street and Washington.

NOTE: I am jetlagged, exhausted and under the weather; I owe many of you books and emails, and your continued patience is greatly appreciated.


Readers forum: DailyJava.net.


My new book is available in both print and ebook formats: An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook now on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One.

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

Thank you, Cathleen M. ($50), for your wondrously generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Richard P. ($50), for your most-excellently generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

The Origins of American Debt-Serfdom

The commodification and expansion of credit and the transformation of housing from shelter to speculation doomed the nation to debt-serfdom.

How did America become a land of debt-serfs? We can trace our debt-serfdom to three core dynamics which now dominate the American economy. To understand the transition from a state of minimal financial wealth/maximum freedom to one of debt servitude (illusory wealth and sacrifice of freedom for all that lifetime debt can buy), we first need to understand the gradual nature of this transmogrification.

It has become a cultural given that major political changes are often wrought by conspiracies, official or informal. Conspiracies--otherwise known as crony or cartel capitalism and insider manipulation of process and perception--do exist. However, major cultural shifts are long, drawn-out affairs that result not from conspiracy but from the steady application of self-serving agendas by wealthy, politically powerful special interests.

It may be difficult for many to imagine, but it was once difficult to obtain credit.Two generations ago, "if you want a loan, you have to prove you don't need it." Applications for credit cards, auto loans and mortgages were examined by bank officers in your local branch, people who had actual working knowledge of your payment history, account balances, etc. (Student loans did not exist.)

A modest home improvement loan required lengthy applications and a face-to-face meeting with a senior bank officer, who asked probing questions about your personal finances. (I know this because I went through the process in 1980.)

Credit card limits were low--$500 was common--and it required an application to raise the limit on your one credit card (multiple cards were frowned upon as risky). An increase in your credit card limit was a reason to celebrate--you'd won the trust of your bank through prudent management of your money.

I know this sounds like 1880, but it was actually 1980, a mere 30 years ago. People had a home mortgage, but prior to 1970 the balances were modest in terms of annual income, and the primary reason people got a mortgage was not to speculate on housing but because it was cheaper to own than rent, as millions of veterans qualified for low-down payment VA loans. (The Armed Forces were much larger in those days, in terms of active-duty personnel as a percentage of the population.)

In this environment of what we might call "artisan credit" issued by local bank branches, debt was frowned upon as risky and buying things required saving money. The auto industry had long depended on auto loans to sell millions of vehicles, but a hefty down payment was generally required.

A household with minimal savings was deemed a credit risk; the only way to get credit was to slowly build up savings and perfect history of paying one's bills and debts. The only way for many to qualify for a credit card was to pledge cash savings to the bank: if you failed to pay, the bank would take your savings for payment of your debt.

You see the problem with this low-credit, low-risk environment: profits were slim, not just for banks but for retailers and the real estate industry. If people had to save up to buy a new item of clothing or an appliance, then the retailers were limited in how many gew-gaws they could sell. If people stayed put and didn't buy and sell their houses frequently, then developers, lenders and realtors had a very limited field of profit-making opportunities. If only people who qualified via stringent credit standards had access to credit, then the transactionf ees and interest earned from credit were also limited.

The "solution" to that low-risk, low-churn, low-credit environment was the commodification and mechanization of credit. An analogy can be found in industrial consumer goods such as autos. When autos were hand-made by artisanal craftsmen, they were extraordinarily expensive. When Henry Ford mechanized the production, effectively turning them into mass-produced commodities, they became affordable to tens of millions of households.

The same thing happened with credit when computers took over the task of qualifying borrowers. A computer program assessed credit on a simple point system, and voila, the costly task of assessing credit risk fell to pennies per borrower. Not entirely by happenstance, banks found that millions of households that had been viewed as risks now qualified for credit, as the issuing and servicing of credit--credit card annual fees, transaction fees, late fees, etc.--became a fast-growing, monstrously profitable gusher for banks.

Retail sales could now be driven by desire rather than arduous, purposeful savings and a prudent credit record. The consumerist vision of the American Dream can be summarized thusly: to become a better, grander, different person, all you need to do is consume differently. With access to commoditized credit, virtually anyone with a job could buy, buy, buy on whim, impulse and advert-created desire. Easy, almost-universally accessible credit in vast amounts created the perfect world for both retailers and banks.

Powerful real estate interests funneled the rapid expansion of credit into vast profits by incentivizing "moving up," a code-phrase for transforming the housing market from one focused on security and shelter to speculation: the more times people sold and bought homes, the more transaction fees could be generated and the more developments sold.

A great number of seemingly subtle policy changes drove this transformation of housing from shelter to a speculative market accessible to Everyman and Everywoman: jumbo loans, expansion of Federally guaranteed mortgages, the easing of credit standards, the erasure of capital gains on owner-occupied residences, and so on. All these worked to expand access to credit, the incentives to churn and the size of loans available to consumers and homeowners.

What was not visible at the start of this commodification of credit was the inevitable end-game: anyone with a pulse and a willingness to lie/prevaricate/mislead via omission was issued jumbo mortgages to speculate in a real estate bubble of truly epic proportions; consumers were issued not one or two credit cards, but dozens, many with astronomical credit limits given the modest income of the borrower; students became indentured debt-serfs to lenders via massive student loans, and the need for saved cash essentially vanished as "no down payment" mortgages, auto loans and credit-based purchases became the norm.

Credit is a form of leverage. If a household earns the median household income of $49,000 a year, then trade-offs and disciplined sacrifices have to made to save up enough cash to buy consumer goods, education, a bigger, more luxurious house, etc. With access to abundant credit, then the need for adult-level discipline, sacrifice and trade-offs all go away; the household can indulge every desire and goal with child-like abandon.

So a household income of $49,000 can leverage purchases made with borrowed money up to $250,000 or even higher; with no down payments and super-low "teaser" interest rates, such a household could leverage their modest income into $500,000 in debt for everything from a university education to a McMansion to a boat to lavish overseas vacations--there was almost no limit to the debt "qualified" once down payments/cash vanished as a requirement and interest rates were manipulated below market rates to foster the illusion of solvency.

The initial conditions of any system set up the end-state. The commodification of credit to serve the interests of powerful industries made a credit bubble and collapse inevitable. It also made debt-serfdom inevitable. A culture and economy that once rewarded adult values and behaviors--discipline, sacrifice, trade-offs and the understanding that there is a price to every decision--was transformed into one that richly rewarded adolescent abandon, impulse and the temptations to lie to get what you want right now, or even more telling, "what I deserve." In that phrase, the propaganda of the marketer reached perfection.

So how do we fix an economy and culture gutted by debt, its people reduced to debt-serfdom? We write off all bad, uncollectable debt, and we severely restrict credit to everyone and every financial entity. Now that the economy has become dependent on debt the way a junkie is dependent on heroin, going "cold turkey" will be painful. But just as for the junkie, the only alternative to rehabilitation/moving beyond addiction is extinction. There is a price to every decision.

SPECIAL NOTES: D.M.T., my thank-you card to you was returned as "undeliverable to this address." It is important to me that you receive this letter--please email me or send me your correct address. Thank you!

I am exhausted and under the weather; I owe many of you books and emails, and your continued patience is greatly appreciated.

If this recession strikes you as different from previous downturns, you might be interested in my new book An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook on any computer, smart phone, iPad, etc.Click here for links to Kindle apps and Chapter One. The solution in one word: Localism.


Readers forum: DailyJava.net.


My new book is available in both print and ebook formats: An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook now on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One.

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

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Debt-Serfdom Is Now the New American Norm

Trapped assets that generate no income streams in the present are not capital; the value of such non-productive assets is illusory. Strip away these trapped assets and the reality is revealed: most American households toil to service their debts.

The typical American household is insolvent: its debts exceed its assets. There is nothing fancy about calculating insolvency: if debts exceed assets, the enterprise is insolvent. By this measure, most American households are insolvent, if their real assets are marked to actual market.

For example:

Auto loan balance: $9,000
Actual market value of auto: $6,000

Credit card balance: $6,000
Street value of stuff purchased with credit card: $300

home mortgage: $250,000
Auction value of house: $200,000

Student loans: $60,000
Market value of education: Not applicable, as it cannot auctioned off or securitized

And so on.

The typical American household is thus in service to its debt, not to its assets, and to the holders of that debt. This is debt-serfdom: serfdom in service to the owners of debt, debt that may well always exceed the value of the household's assets. This is debt-serfdom for life.

If we look at the American household as an enterprise, then we have to differentiate between unproductive, trapped capital, assets held in a house or retirement account, and productive, free capital which can be moved in and out of productive assets to earn a return which increases free cashflow income in the present.

By this standard, most of the typical American household's assets are trapped and therefore unproductive. In this sense they do not even qualify as capital. Let's say a household owns a house with a real-world market value in today's depressed market of $250,000, and the house carries a mortgage of $150,000. On paper, the household holds a net asset value of $100,000.

But this asset is not actually productive; it produces no income and exposes the household to the risks of declining real estate valuations. The asset provides the value of shelter, but if similar shelter could be rented for less than the costs of servicing the mortgage debt and the many costs of ownership, then sinking the entire household's net worth/assets in a house does not "pencil out" as a productive investment of assets.

In a practical sense, this $100,000 is inaccessible and thus trapped; housing is highly illiquid and has transfer costs of up to 10% in realtor and escrow fees. In most cases, the sale proceeds are simply reburied into another mortgaged home. The asset is trapped and thus not deployable capital.

The same can be said of many retirement accounts that are routinely counted as assets on household balance sheets. the assets are trapped in the account until retirement, and their deployment is often restricted to a handful of risky options (investing in Wall Street, for example). The purchasing-power value of the assets might decline considerably by the time the funds can actually be withdrawn, and in this sense their present value is chimerical.

Since these funds are trapped, they also don't qualify as capital: they cannot be used to start or buy a business or other assets which return free cashflow in the present.

Trapped assets are not capital. They cannot be moved into more productive uses that yield income streams that add to current income, which is the definition of capital. Borrowed money that is sunk into trapped assets is not borrowed capital; it is simply debt that must be serviced.

If we set aside assets trapped in real estate and retirement accounts, a truer picture of the American household's actual productive capital emerges: most households have essentially no productive capital, and their debts far exceed whatever meager free capital they do own.

In a very real sense, the non-cash, non-small-business assets of the typical American household are invisible, unuseable, inaccessible and thus illusory; they exist as entries on the balance sheet but not as real-world productive capital.

Wealth and income do not flow from servicing debt incurred by trapped assets, it flows from productive free capital.

Thus the typical household toils not to increase productive capital that can be deployed to increase household income but to service their crushing debts. How else can we describe this situation other than debt-serfdom?

Tomorrow I will discuss the slow and largely misunderstood transmogrification from a free people with limited access to borrowed capital/debt to a nation of debt-serfs.

If this recession strikes you as different from previous downturns, you might be interested in my new book An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook on any computer, smart phone, iPad, etc.Click here for links to Kindle apps and Chapter One. The solution in one word: Localism.


Readers forum: DailyJava.net.

My new book is available in both print and ebook formats: An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook now on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One.

Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds Kindle edition: Of Two Minds blog-Kindle

Thank you, Guy T. ($50), for your awesomely generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, S. Mohan ($50), for your inspiringly generous contribution to this site -- I am greatly honored by your support and readership.

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