The Hidden Death of the Ownership Society

The foundation of the neofeudal economy is this: the right of ownership still exists in name, but the actual ownership of political and financial power is concentrated in the hands of a few.

The core of American liberty is widespread private ownership of property. The Founding Fathers were quite clear on the necessity of protecting private ownership from encroachment by a covertly created monarchical Empire or a financial Aristocracy.

Private ownership protected liberty and the distribution of wealth by enabling widespread ownership of "the means of production" (land, tools, intellectual property, enterprises) and home ownership.

Thus the correlation between prosperity, widespread ownership of small businesses and homes and a relatively modest disparity of private wealth. When ownership of property becomes concentrated into a rentier class (i.e. a financial Aristocracy) that is protected by a Monocrat Central State, income disparity shoots up and prosperity is concentrated in the hands of the political and financial Elites.

In other words, the Founding Fathers understood that financial servitude precluded political liberty. Liberty in a neofeudal economy was ultimately liberty in name only.

Why Inequality Matters: The Housing Crisis, The Justice System & Capitalism.

While outright slavery was outlawed, the chains of serfdom were (and are) entirely legal. If you doubt this, please try erasing your student loans in bankruptcy court.

There are a number of complex dynamics in play in the Death of the Ownership Society. I will try to cover them as simply and directly as possible.

1. If a homeowner's real-world equity is effectively zero, then what do they actually own? They own a mortgage, i.e. a promise to pay a debt. As long as they are current on payments, this acts more as a claim on future ownership, i.e. full ownership when the mortgage is paid off, or a long-term lease.

If their equity is 10% of the mortgage, there is no way to extract this equity short of selling the home, and the transactions fees will consume most of the 10%.

What the lender owns is A) a claim on the underlying property and B) the homeowner's income stream, much of which flows to the lender via mortgage payments.

Is this arrangement "widespread ownership" or is it cloaked neofeudalism? In credit bubbles, homeowners appear to benefit as their ownership claim is leveraged by the lender's capital into astounding profits. But alas, credit bubbles never last, and when they pop then the extra debt taken on to play the speculative leverage game remains to be paid.

2. If the mortgage is sliced and diced into tranches and securitized, i.e. bundled into pools of mortgages sold to investors, what happens to the notion of ownership?

Longtime correspondent Jim S. provides the answer: securitization creates a new class of "non-property" that is fraudulent and thus criminal. Jim explains:

The original crime at the front of the securitization process is creating "non-property." The loss of the legal paper trail of title transfers, note transfers, country property transfer registrations in the rapid performance of mortgage securitizations is further sidestepped by focusing attention on the foreclosure procedural irregularities at the end of the process. 

The creation of "non-property" at the front of the process necessarily creates the additional requirement of additional fraud at the end of the process: foreclosures.By extending the forgiveness of what should be prosecuted as fraud (what has been deemed mere malfeasance deserving of a picayune civil fine), the Status Quo hid the original crimes of rapid securitization that destroyed the legal status of property. The biggest crime in American History is about to end the process of "sweeping" the original crime under the rug. The crime is the destruction of the legal standing of property, fully at public expense, and its ultimate accumulation in the Executive Branch for "redistributive" disposition, again at the full expense of the public. Dodd/Frank only has extended the efficiency of the complicated process of theft, and further solidified the nature of its very permanence. 

The focus on the disappearance of mortgage titles is at the foreclosure end, and not at the front end of the securitization process where the titles disappeared on a system wide basis. Robo-signing is a fraudulent result of the original crime, not recognized or treated as a crime, but as a civil offense worthy of a paltry fine.
The robo-signing settlement will further solidify mortgage securities formation in the future, with civil penalties for malfeasance reduced to a minimized cost of continuing the process. 

Though the the Consumer Financial Protection Bureau (CFPB) has been sold as a consumer protection agency, it is fundamentally a rogue agency operated within the Federal Reserve 

The CFPB is mentioned as having undefined scope and extensiveness of powers, immune from real Presidential or Congressional oversight, having essentially full, autonomous power within the Federal Reserve to do what it wants, when it wants, in the full comfort and safety of the Federal Reserve itself. The CFPB can buy, borrow on and take security positions in failing and failed banks. What a deal 

This harks back to a pre-crisis specialty: get rid of supposedly outdated regulation, but create no new limits or powers to keep things from blowing up.

Thank you, Jim, for the clear explanation.

It is clear that Securitization Is Illegal.

3. Economist John Maynard Keynes' concept of a "comprehensive socialisation of investment" has been reduced by the Neo-Keynesian cargo cult to a cartoonish campaign of the Central State to borrow trillions of dollars to prop up its most corrupt and inefficient crony-capitalist cartels and the rentier-class--the financial Aristocracy. Here is Keynes:

I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the means of securing an approximation to full employment. But beyond this no obvious case is made out for a system of State-Socialism which would embrace most of the economic life of the community.

In this context, we can understand the original purpose of the Federal Housing Administration (FHA) and the other housing-mortgage agencies of Fannie Mae and Freddie Mac as a "somewhat comprehensive socialisation of investment" in housing: a Federal agency underwrote and guaranteed mortgages to individual households to enable widespread ownership of homes. It was not conceived as a "system of State-Socialism," that is, a means for the State to acquire ownership of the nation's housing stock.

Not coincidentally, the rental housing market was dominated by individual investors (Mom and Pop proprietors) in the era before mortgage securitization and the concentration of power in "too big to fail" investment and commercial banks.

Institutional ownership of rental housing was concentrated in the 50+ unit housing sector, less than 1% of the nation's 15 million rental properties. In the 5- to 49-unit sector, individual owners still owned three-fourths of all properties.

The ownership of rental properties was widely dispersed among individual investors.

4. Now we find the Federal mortgage agencies are colluding with private capital to transfer ownership of the Federally guaranteed/owned portion of the nation's housing stock to concentrations of private capital, i.e. the financial Aristocracy.

The details of this wholesale transfer of what amounts to public property to the financial Aristocracy are chilling: in effect, private capital puts a few bucks down and Fannie Mae loans them the rest at zero interest. It also gives them roughly 30% of the rental income for managing the properties, and after the dust of robo-signing has settled, the properties will be transferred to the financial Aristocracy.

What happened to the agency's mission to broaden home ownership? It has been subverted to serve the interests of concentrated private capital.

Michael Olenick: How Fannie Enriches Private Equity Investors at Taxpayer and Homeowner Expense (Naked Capitalism, highly recommended)

Fannie Mae Begins Marketing Foreclosed Homes as Rentals

Structured Sales Transactions (i.e. the bundling and transfer of Fannie Mae owned properties to private capital)

Thanks to the collusion of the Federal Reserve and the Federal mortgage agencies, private capital is gorging on vast blocks of homes:

Blackstone to buy $1 billion worth of Tampa Bay homes for rentals

It’s About Time - JP Morgan To Enter The Housing Slumlord Trade

5. There are effectively two sets of laws in the U.S.: one for the Central State/financial Aristocracy and one for the serfs. From Why Inequality Matters: The Housing Crisis, The Justice System & Capitalism:

One of the central characteristics of highly unequal societies is that two sets of laws develop: One set for the rich and powerful and one set for everyone else. The more unequal societies become, the more easily they accept the unacceptable, and with each unrebuked violation, the powerful actors at the top of the society gain an ever greater sense of entitlement and an ever greater sense that the laws that govern everyone else don’t apply to them. As a result, their behavior becomes increasingly egregious.Yale’s Robert Dahl, one of the preeminent political scientists of our era, wrote in 2006 in On Political Equality (Yale University Press) of the risks of rising economic inequality, which is inevitably accompanied by political power which also concentrates at the top of the society: 

“The unequal accumulation of political resources points to an ominous possibility: political inequalities may be ratcheted up, so to speak, to a level from which they cannot be ratcheted down. The cumulative advantages in power, influence, and authority of the more privileged strata may become so great that .. a majority of ordinary citizens…are simply unable…to overcome the forces of inequality arrayed against them.”

In other words, neofeudal serfdom.

The new road to serfdom runs not through Marxist ownership by the State but the transfer of the nation's assets and wealth by the State to concentrated private capital.

6. The next iteration of this transfer is now clear: blocks of rental homes will be bundled and securitized by Wall Street and sold to investors worldwide. Haven't we seen this before? Only now it's all OK because the creation of "non-property" rentier income streams is now legal, and the Federal government and the Federal Reserve have begun to transfer publicly owned or guaranteed properties to their pals in private capital on a wholesale basis.

From It’s About Time - JP Morgan To Enter The Housing Slumlord Trade:

“It’s hard to find a private-equity firm on the planet that doesn’t have a strategy in this space,” Gary Beasley, chief executive officer at Waypoint Homes, said last week at the American Securitization Forum’s annual conference in Las Vegas. The Oakland, California-based company has bought homes in California, Arizona, Illinois and Georgia.

The foundation of the neofeudal economy is this: the right of ownership still exists in name, but the actual ownership of political and financial power is concentrated in the hands of a few. "Ownership" of a heavily mortgaged home is a simulacrum of ownership when the "owner's" income is diverted to a rentier financial Aristocracy.

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RIP: Our Expansionist Central State (23 Minutes, 25 Slides) CHS with Gordon T. Long:

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Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economyComplex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

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

Thank you, Harry R. ($50), for yet another monstrously generous contribution to this site --I am greatly honored by your steadfast support and readership.

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Is the Global Recovery Self-Sustaining?

To claim a "recovery" based on unlimited Central State borrowing and spending and central bank manipulation of asset valuations is self-sustaining is beyond absurd.

The mainstream media (MSM) is overflowing with stories proclaiming the global economy is on the mend: Europe's crisis is in the rearview mirror, China's growth has rebounded, Japan is aggressively pursuing Keynesian Nirvana and the U.S. economy is in the sweet spot between resurgent housing prices and ever-higher corporate profits.

This reality is the reason global stock markets have surged: everything's getting better.

The goal of every Central Planning scheme on the planet is a self-sustaining recovery:that is, one that doesn't require another couple trillion dollars, euros, yen or yuan to keep it from collapsing in a heap.

Though the conventional punditry is hesitant to declare victory, by reading between the lines we know the basic propaganda thrust: we are over the hump, the recovery (in housing, stocks, bat guano, etc.) is now self-sustaining.

Really? Based on what engine of growth? If we cut through the Keynesian jargon of aggregate demand and other Cargo-Cult mumbo-jumbo, what we find is the Status Quo is hoping to boost its precious aggregate demand with the same bag of tricks that imploded so spectacularly in 2008: the wealth effect based on phantom collateral created by Centrally Planned asset bubbles.

Central Planners in America have had remarkable success in inflating an asset bubble in stocks--five year highs!--but alas, the wealth effect is limited by the inconvenient reality that only the top of 10% of households own enough stock to feel any wealth effect from a market that has more than doubled in four years of Fed intervention and unprecedented fiscal profligacy.

That leaves housing as the only widely held asset that can possibly generate a wealth effect in more than the top 10% of households. This explains the Federal Reserve's frantic campaigns to reflate housing prices: buying 10% of all outstanding mortgages in 2009-10, and then setting out to buy another 10%-20% in an unlimited mortgage buying program announced in 2012.

Add $1 trillion+ in Treasury bond purchases designed to keep interest rates negative when adjusted for inflation, and the Fed is literally pulling out all the stops to reflate housing with historically low mortgage rates.

I covered this recently in The Rise and Fall of Phantom Housing Collateral (December 13, 2012).

With the Fed's unspoken collusion, lenders have reduced housing inventory by keeping foreclosed and defaulted homes off the market. By driving supply below recession-weakened demand, the Fed and lenders have managed to trigger bidding wars that have boosted home prices by 20% or more in beaten-up markets.

By keeping interest yields at less than zero, the Fed has effectively driven "hot money" seeking a yield into stocks and housing; as a result, investors and prospective flippers account for 30%+ of home sales.

Nothing is too grandiose for Central Planning, of course, when the goal is to save the banks from having to mark their vast portfolios of defaulted and foreclosed mortgages to market, or forcing them to liquidate millions of impaired properties. Saving crony capitalism from itself is the raison d'etre of Our Expansionist Central State (video presentation).

But inflating asset bubbles to create phantom collateral to support the much-desired borrowing-and-squandering of debt-based aggregate demand has a funny little self-destruct feature: the phantom collateral vanishes, leaving behind the debt, which still must be paid. And all those heavy monthly payments on old debt leaves less income to spend on stuff.

In other words, asset bubbles and debt based on phantom collateral crush real demand based on rising income.

In the last Fed-engineered asset bubble, mortgage debt doubled to more than $10 trillion from a previous base of $5 trillion. The phantom collateral soon disappeared, leaving homeowners owing the extra $5 trillion: the pleasure boats, fine dining and exotic vacations of debt-based aggregate demand are long forgotten, but the debt payments are still around and must be paid monthly.

The aggregate demand so beloved by Keynesians was all based on debt rising faster than either GDP or household income: As a percentage of disposable personal income, mortgage debt rose from 53% in 1960 to 113% in 2003. Mortgage debt rose from 50% of GDP in pre-bubble years to 79.3% of GDP--an astounding rise of 30% in a mere decade of home-equity-extraction, borrow-and-blow gluttony.

When this unsustainable acquisition of debt finally hit the wall in the 2008-09 global financial meltdown, debt's unyielding rise stutter-stepped and slowed, as the collateral underlying that debt vanished into thin air.

Never fear, the Expansionist Central State to the rescue. When one debt bubble bursts, crimping the consumerist orgy of "aggregate demand," then the State creates a new debt bubble--in this case, a $1 trillion student-loan monster that has turned a significant percentage of an entire generation into debt-serfs.

Since the collateral supporting Federal debt is presumed to be infinite, so too is the Central State's line of credit: need $6 trillion to prop up a crony-capitalist, hopelessly corrupt and inefficient Status Quo? No problem.

Though you will not find a Keynesian pundit or economist with the courage required to admit it, the same problem of phantom collateral applies to Federal and state debt: the consumption all that debt funded is soon forgotten, but the debt remains to be paid, essentially forever.

The collateral supporting Federal debt is also phantom. Printing money is not the same as creating surplus value; that requires actual work and capital, and it is intrinsically limited by the cost-basis of production and market forces.

To claim a "recovery" based on unlimited Central State borrowing and spending and central bank manipulation of asset valuations is self-sustaining is beyond absurd. Aggregate demand (i.e. debt-based spending) supported by phantom collateral is not sustainable, no matter how many times Keynesian Cargo-Culters and Federal Reserve governors dance around their flickering little camp fire waving dead chickens.

---

RIP: Our Expansionist Central State (23 Minutes, 25 Slides) CHS with Gordon T. Long:

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

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

Thank you, Market Fresh Fruit ($5/month), for your wondrously generous subscription to this site --I am greatly honored by your support and readership.

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The Echo Boom in Housing-Recovery Stocks

Is housing in an echo boom? Though the jury is still out, it seems a risk-on speculative fever has returned to some housing-related equities.

Speculative bubbles often produce an "echo boom" a few years after the bubble has burst, as the cultural/institutional memories of the asset's spectacular gains remain operative long after the initial boom/bust. Is the much-hyped housing recovery an organic, sustainable trend, or is it merely a speculation-driven echo boom that is doomed to fade?

Given the unprecedented stimulus that the Federal Reserve has applied to the housing sector via multi-trillion dollar purchases of mortgages and its gargantuan money-printing/bond-buying efforts to suppress interest rates, it is not really possible to claim housing is in an organic trend; that would first require an end to Fed support and a normalization of the mortgage market and interest rates.

Housing bulls claim upticks in sales and household formation are evidence that pent-up demand is driving the market higher. Skeptics suggest the real driver is not higher demand but lower supply as lenders restrict inventory (homes for sale on the open market): The Real Housing Recovery Story.

Roughly a third of all existing home sales in many markets is not organic demand by households, it is speculation by flippers or investors chasing yield in a near-zero (real) yield environment. High levels of speculative activity could be nurturing a false confidence in permanently rising demand that is actually temporary.

Let's start with new home sales, the barometer of new construction. The 20% rise from 2011 is impressive, but this is off a very low base--a mere 306,000 new homes sold, less than a third of the 2006 level. (Courtesy of Calculated Risk)

For context, recall that there are about 75 million homeowners, about 50 million with mortgages, and over 19 million vacant dwellings in the U.S. In this context, 60,000 dwellings is statistical noise.

Annual New Home Sales
Year	Sales (000s)	Change in Sales
2005	1,283	6.7%
2006	1,051	-18.1%
2007	776	-26.2%
2008	485	-37.5%
2009	375	-22.7%
2010	323	-13.9%
2011	306	-5.3%
20121	367	19.9%
1 Estimate for 2012

Next up: the housing bubble in home prices, using the San Francisco Bay Area as an example:

The initial $1.1 trillion in Fed mortgage purchases and massive home-buying subsidies issued by the Federal government triggered an echo boom in 2010 that soon rolled over. The current uptrend started in early 2012, when lenders began restricting inventory by keeping foreclosed and defaulted houses off the market.

Is this uptick a speculative "echo boom" that is not sustainable? Charts of housing-sector stocks may offer some clues.

XHB is an exchange-traded fund (ETF) of homebuilders. This has roughly tripled off its lows and almost regained the lower boundary of its bubble-top price range in 2006.

Drywall/sheetrock manufacturer USG is a proxy of demand for construction materials. USG traced a classic bubble spike and collapse in 2006, and has recently risen to 2005 levels around $30, roughly triple its lows.

Weyerhaeuser Co. is another proxy of demand for construction materials. WY has returned to its bubble-top highs reached in 2007. This raises a question: can demand for lumber be equal to the 2007 levels when only 1/3 as many new homes are being built?

Sherwin-Williams also reflects construction/renovation demand. SHW exceeded its housing-bubble levels back in 2010, and has followed an exponential line higher since January 2012.

It certainly appears that some housing-related stocks have reached heights that far exceed the modest uptick in new-home sales. Is this the market forecasting stronger profits ahead and speculators front-running the housing recovery? Has the speculative push outrun the modest gains of actual home construction and sales?

Though the jury is still out, it seems a risk-on speculative fever has returned to some housing-related equities, and that euphoria generally ends badly for those coming late to the party.

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

Thank you, Michael M. ($60), for your outstandingly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

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

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Part 37: When the pixies of romance are frustrated...

Here is this week's chapter of my serialized comic novel "Four Bidding For Love."(Those who find absurdist humor and adult situations offensive, please read no further.)

     Wrapping the large white towel around her, Alexia turned off the lights and flopped onto her soft pink comforter. Unless it was a cold night, she usually slept in the nude; what had once been daring as a young teen was now merely comfort. As she lay in the dark, she knew that despite the meal and the wine, sleep was still far away, trudging slowly toward her; for her mind swirled with the memories of the day and ruminations on her unexpected dinner.
     Though she rarely heard any sounds from Robin's studio, tonight muffled sounds rose through the hardwood flooring. Her thoughts flitted briefly to Robin, and her foolish wish on the walkway that he might comfort her; and in a cruel irony, the sounds drifting up from below became rhythmic, and she realized with a stab of pained recognition that Robin and another woman were making love. It was stupid of me to assume he didn't have a girlfriend, she berated herself; he's too young and good-looking not to have a love interest. How typical of me to think he was available just because I’d flung myself at him.
     As if her newfound pang of jealousy wasn't enough, Alexia heard Janson and Dorrie enter their bedroom, and soon their old bed began its rhythmic swaying. With the creaks and sighs coming from above and below, it was as if the house had suddenly set sail on the Pacific and was wallowing in choppy seas.
     Frustration, humiliation and a profound dissatisfaction all rose to taunt her, and Alexia arose and padded barefoot out to the darkened living room. Opening the cabinet beside her dolls, she pulled out a brandy glass and a bottle of port, and then made her way to the sofa. Pouring the dark liquid in the glass, she took a sip and set both bottle and glass on the low coffee table.
     As she gazed out at the pinprick lights on the Bay, she was startled by a man's voice. "I'm rather unobtrusive,” Ross said softly. "Not just here, but in life."
     Alexia turned sharply and realized her new housemate had been curled up at the other end of the sofa, nearly invisible in the room's shadows.
     Aware of both the suggestiveness of her attire—for she still wore only the white towel—and her duties as hostess, Alexia said, "I'll get you a glass if you like port."
     "That would be lovely, thank you."
     The pixies' wings began to buzz when they were frustrated, and Hanover the cat might have sensed the faint vibrations, for he padded out to the quiet of the kitchen. The humans, of course, detected nothing but the rather embarrassing creaking of the bed upstairs, and as Alexia filled Ross's glass with port, the pixies renewed their efforts, dosing Alexia again with their golden dust.
     "You know, this is a smoking jacket," Ross said conversationally. "More a robe than a jacket, really. And now, because of the fire, I have a smoking jacket that smells of smoke. Rather ironic, isn't it?" Taking a sniff, he asked, "Can you smell it?"
     "Faintly," Alexia replied. "I've always loved the smell of wood smoke."
     Drawing close to her, Ross said, "Here. Try now."
     Alexia sniffed the air near his jacket, and murmured, "Hmm."
     "If you close your eyes, you can smell better," he said helpfully.
     "Is that true?"
     "Try it." Alexia closed her eyes, and reckoned that perhaps it was true; she did smell the faint odor of smoke, and the soft alcoholic blossom of the port.
     "When I close my eyes, I smell your hair," Ross said, and his sheepish tone struck Alexia as almost apologetic.
     "Does it smell nice?"
     “Very nice."
     The two fell into a mutual embarrassment fed both by the direction of their conversation and the rising crescendos of the lovers above. In their disquiet, each raised the port to their lips and drank rather more deeply than they would have had each been alone.
     "Are your eyes still closed?" Ross asked lightly.
     "Yes," Alexia replied. "Why?"
     "It's rather like we're camping," he replied in a genial tone. "You can smell the wood smoke, it's dark, and we're sharing a glass of port to ward off the chill."
     "Hmm," Alexia murmured, for she liked his imagery.
     "Now all we need is s'mores," Ross said. "Actually, there's one dessert I want more than anything but I can't even ask for it."
     "Of course you can," Alexia said.
     "But it's probably not available."
     "Why? Is it that rare?"
     "There's only one in the whole world."
     Alexia's curiosity made her open her eyes, and she found Ross looking at her rather timidly, like a dog hoping for a pat on the head. "You've kept me in suspense long enough," she said, and Ross shrugged bashfully.
     "I'd like to taste your lips," he said very softly, and with a wistfulness which reminded Alexia of herself. Without realizing she was practically adrift in pixie dust, Alexia listened to the ardent lovers above in a state of heightened vulnerability, desire and envy and found herself asking in a small wounded voice, "Were you just being polite when you said I was sexy?"
     In a tone rich with sincerity Ross replied, "I think you know I was thunderstruck and very impolitely enthusiastic."
     Conceding to the truth of his confession, Alexia murmured, "Since you made dinner, I suppose I can supply dessert."
     "Close your eyes," Ross whispered. "The smell of smoke is romantic, isn't it?"
     Now the pixies were painfully aware that even their magic would fail if a couple's first kiss went awry, and they hovered over the pair anxiously, awaiting the verdict of Nature.

Next: The pixies celebrate victory (Chapter 11)

To read the previous chapters, visit the "Four Bidding For Love" home page. 

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Crisis and Opportunity

That which is unsustainable will pass away and be replaced with a more sustainable arrangement. That is the crisis and the opportunity.

"Never let a crisis go to waste" need not be the exclusive agenda of the Power Elite/ parasitic Aristocracy: it could be the agenda for the rest of us, i.e. the debt-serfs. If you are unfamiliar with the neofeudal/neocolonial financialization model, please read The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012). The same dynamics apply to the American Empire and domestic economy.

The Eurozone's Three Fatal Flaws (September 21, 2011)

My definition of Neoliberal Capitalism differs significantly from the conventional view: markets are opened specifically to benefit the Central State and global corporations, and risk is masked by financialization and then ultimately passed onto the taxpayers. In this view, the essence of Neoliberal Capitalism is: profits are privatized but losses are socialized, i.e. passed on to the taxpayers via bailouts, sweetheart loans, State guarantees, the monetization of private losses as newly issued public debt, etc.

Before we begin, please glance at the following six charts: To cut to the heart of the matter, always ask: cui bono--to whose benefit? The charts reveal the answer.

1. Federal debt (skyrocketing as a result of monumental deficit spending funded by debt);

2. labor's share of the nonfarm business sector (collapsing);

3. GDP (rising modestly on the back of Federal Reserve money creation and monetization of Federal borrowing);

4. financial profits per employed person in the U.S. (exponential rise, interrupted by that spot of bother in 2008 that the Fed fixed with QE1-4);

5. output per person (i.e. productivity per worker, rising steadily)

6. real (adjusted) household income (tanking, depsite trillions of dollars created and borrowed by the Central State and Bank)

Can you say "exponential" and "unsustainable"?

Off a cliff, even as productivity has risen smartly:

Here is GDP, expanding on the back of Federal borrow-and-blow deficit spending:

Gee, the financial Aristocracy seems to be skimming all the productivity gains; they certainly aren't flowing to the wage earners:

Productivity per worker keeps increasing--where is the net going?

Not to the wage earner households:

As I have endeavored to explain this week, this financialization of the economy is the direct result of Federal Reserve and Federal government policies. The fact that gains in productivity are not flowing to wage earners is not some mysterious warp of space-time--it is the direct consequence of the Fed's financialization of the economy, supported by the political Elites of Federal government.

In the neofeudal, neocolonial model, speculation by the parasitic Aristocracy is backstopped by the taxpayers--the perfection of moral hazard.

Future taxpayers are burdened with crushing mountains of debt taken on to fund corrupt state fiefdoms and politically sacrosanct cartels and constituencies.

Debt (that profits the parasitic financial Aristocracy) is heavily incentivized while saving capital (cash) is punished with negative yields.

There are no financial limits on State borrowing and spending when the Federal Reserve is monetizing Treasury debt. The Federal government is thus free to borrow and squander trillions of dollars supporting cartels (sickcare, national security, war-on-drugs gulags, higher education, etc.) and pass the interest costs on to taxpayers, present and future.

There are also no limits on the skim of the financial Aristocracy when the Fed gives them unlimited 0% money, backstops their gambling and destroys the incentives to accumulate cash capital and invest it productively rather than speculatively.

This is the essence of the neocolonial model: make money cheap, reward consumption and speculation in asset bubbles and draw once-prudent citizens into debt-serfdom. Those not ready for big-mortgage serfdom are snared with the $100,000 student loan skim.

This is the same mechanism used to stripmine colonies with financialization: no coercion necessary. "They did it to themselves."

This neocolonial model leads to neofeudalism: Oops, the asset bubble burst, so your (phantom) wealth has vanished, but you still owe us the debt. Funny how that works.

In an economy based on debt, servicing that debt absorbs much of the income. So you need to borrow more to get by.

Since labor is in surplus, you need multiple university degrees to hope to get a high-paying job. (After taxes and debt service, the "high-paying" part is revealed as illusory--but by all means, please pursue the high-debt, high-consumption American Dream--you're enriching the parasitic Elites immensely.)

Each degree will rack up $100,000 in debt, and if you can't get a job, then the "solution" is another degree--oh, and of course, another hundred thou in debt.

There are no limits on Central State and financial Aristocracy exploitation, but there are limits on what debt-serfs can pay. Since we can't print money, there are limits for us debt-serfs. There are also limits on how much we can extract from a neocolonial/neofeudal system as wages (see above charts).

This neocolonial/neofeudal financialization model will implode under its own weight, and that will be the crisis. The opportunity will be to renounce all the unpayable debt and resolve to establish a radically lower-cost way of life that doesn't need "high incomes" for a fulfilling, prosperous life.

Such a way of life is based not on an extractive, expansive State or its partner, the exploitative parasitic Aristocracy, but on the forgotten third foundation of the economy, the community.

I cover this in my books Why Things Are Falling Apart and What We Can Do About It andResistance, Revolution, Liberation: A Model for Positive Change.

There are no apolitical “personal choice” acts; there are only profoundly political acts of resistance or complicity. (pages 205-6)

That which is unsustainable will pass away and be replaced with a more sustainable arrangement. That is the crisis and the opportunity.


NEW VIDEO: A DELUSIONAL & DYSFUNCTIONAL STATE (29 minutes, 25 slides), CHS with Gordon T. Long:

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Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

Thank you, Steven K. ($75), for your monumentally generous contribution to this site -- I am greatly honored by your support and readership.

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

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