The New, Improved 1984

The new, improved version of 1984 is based on complicity.

George Orwell's prescient book 1984 envisioned a technologically enabled authoritarian state of ubiquitous surveillance, propaganda and fear that constantly rewrote history to suit the needs of the present regime. Published in 1949, 1984 took the totalitarian templates of Nazi Germany and the Soviet Union and extended them into a future where the state employed technology to perfect not only control of the populace via police state repression but control of their minds via propaganda extolling the state and revising "facts" to support the current party line.

Welcome to the new, improved 1984, America 2013.

Ubiquitous surveillance: check.

Ubiquitous propaganda extolling the state and central bank: check

Perpetual fear-mongering: check

Perpetual war against an unseen enemy who can never be defeated: check

Police state with essentially unlimited powers to suppress "enemies of the state": check

Continual revision of history to support the current party line: check.

Have you noticed that every key metric of the economy is constantly being revised, rewriting history and installing a shiny new set of "facts"? In a recent podcast I recorded with Chris Martenson of Peak Prosperity, Chris pointed out that downward revisions in economic data are made only when the data point is safely over the horizon of history; that the U.S. GDP dipped into negative numbers in 2011 was masked at the time with the usual ginned-up positive numbers, and revised down to an approximation of reality years later when the reality has zero impact on the public perception of the state-managed "recovery."

The "headline number" is always positive, and its downward revision buried in an avalanche of new data. The revisions are so constant and so extreme that the recognition of this constant revision of history to suit the political needs of the current regime has been numbed; everyone knows the numbers are intended to paint a positive picture of a devolving, fragile economy and society, but we prefer this propaganda illusion to the harsh reality.

Why? Because half of us are getting a direct check, benefit or payment from the state. Over 61 million people get a check from Social Security, over 50 million draw Medicare benefits, another 50 million get Medicaid benefits, 47 million receive SNAP food stamp benefits, 22 million people work directly for the state on all levels, millions more work for government contractors that are effectively proxies of the state, millions more receive Federally funded extended unemployment, retirement checks, Section 8 housing benefits, and so on.

Orwell underestimated the power of complicity. Once a citizen receives a direct payment from the state, the state has purchased their complicity, for no matter how much that citizen may complain privately about the state, he or she will never risk the payment/benefit by resisting the state in a politically meaningful way.

Once you get a check from the state, you begin loving your servitude. The collusion of the state and its central bank is truly a thing of authoritarian beauty: the central bank (the Federal Reserve) creates money out of thin air and buys government bonds with the new money. The state can thus borrow unlimited sums at low rates of interest, and continue to send tens of millions of individual payments out to buy the passivity and complicity of its citizens.

The state is great when it sends you money, never mind where or how it gets the money or the incalculable costs of subservience and complicity.

We don't hate Big Brother; we don't care about Big Brother or the fear-mongering or the rewriting of history or any of the rest of it, as long as the state's money flows to our individual account. Our complaints are as hollow as the state's financial "facts." 

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

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

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What's Cooking at our House: Sichuan Green Beans

This is a standard dinner dish at our house.

When the garden is producing scarlet runner green beans in quantity, one of our standard dinners is Sichuan style green beans. I am not a chef, nor am I an expert on Sichuan cuisine. That doesn't mean, however, that authentic Sichuan dishes are beyond reach.

When we shared this dish with one of our Chinese friends, I told her we didn't tire of it, and she said she understood why: it's a classic combination of tastes and textures that is especially delicious when the green beans are julienned an hour after they've been plucked from the garden.

This is the dish I would choose to make if some famous TV chef showed up at our door asking for a home-cooked meal because it is very forgiving while delivering first-rate taste and visual appeal.

The flavor foundation of the recipe (which is a cobbled-together concoction of various recipes from cookbooks such as Land of Plenty: A Treasury of Authentic Sichuan Cooking by Fuchia Dunlop) is hot chili bean paste and Sichuan peppercorns, both of which can be purchased at any well-stocked Asian market.

Most Asian-cuisine bean pastes are soy-based, but the hot chili bean paste uses broad (fava) beans.

The third key flavoring is oyster sauce, also readily available at Asian markets (or online if there are no Asian markets in your vicinity).

The starting point: scarlet runner green beans, though any green bean variety will do.

Julienne the green beans (about 1 pound or so) and slice some onion and garlic to taste. (For us, that's about a half cup or so of sliced onions and 3-5 sliced segments of garlic.)

In two tablespoons of healthy oil (we use extra-virgin olive oil, but you can use any good oil) heated in a wok, combine 1 teaspoon each of the Sichuan peppercorns and Sichuan hot chili bean paste. Once this is sizzling (10 seconds or so), add the onions and garlic.

Once this has cooked down a bit, add 2 to 3 ounces of sliced precooked pork, chicken, etc., or vegetarian substitute such as pressed tofu. Meat (or substitute) is a condiment in Chinese cuisine rather than the main ingredient.

Remove this mixture from the wok and cook the green beans separately (you may need to add a teaspoon or two of oil to the wok). This enables each set of ingredients to be cooked to the right degree without overcooking or undercooking other ingredients. Toss a couple teaspoons of Chinese cooking wine into the green beans to aid the cooking process (water can be used as a substitute).

Once the green beans are tender but still firm (do not overcook), stir in a few teaspoons of oyster sauce and then stir in the onion/garlic ingredients that were cooked first.

The flavorings can be adjusted to taste; if you prefer mild spiciness, use 1/2 teaspoon of the hot bean paste. The key is the combination of hot, sweet, sour and savory and the varying textures of ingredients.

This dish can be prepped and cooked in about a half-hour, so not only is it delicious, it's relatively quick to prepare.

Serve with your favorite kind of rice. 

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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.)

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Credit Outbids Cash = Resource Wars

There are real-world consequences to over-issuing credit and currency.

Creating credit is the same as printing money when interest rates are zero. If I borrow $1 billion at 0% from the Federal Reserve (because I'm a Too Big to Fail bank, for example), it is functionally equivalent to printing $1 billion in cash currency because the credit costs nothing.

Let's say there is a .25% interest rate cost and printing cash also costs .25%. The carrying costs of both are trivial.

As a result, those with access to cheap credit have the equivalent of a printing press. I illustrated this recently with an example of three traders entering a trading fair: Trader 1 only has cash that has been earned and saved; Trader 2 has access to leveraged credit (i.e. borrowing $100 based on $10 of cash collateral) and Trader 3 has a printing press that creates cash currency. The Financial System Doesn't Just Enable Theft, It Is Theft (July 31, 2013)

As a result, Traders 2 and 3 could buy a lot more real-world goods at the fair than Trader 1, enabling the two traders with essentially unlimited credit/cash to reap enormous profits on carry-trades and other speculative trading.

Longtime contributor Harun I. recently pointed out an even more destructive consequence: resource wars.

Not only can trader 2 and 3 purchase more goods than trader 1. Trader 2 and 3 have no limit on what they can bid and therefore can price trader 1 out of the market completely. This can and does lead to economic warfare and control over states that have to import the majority of their food and/or energy.

This is a profound insight. Let's take two states, both of which issue credit and currency. The first is the U.S., and the second is a beleaguered state (State 2) with too much public and private debt and little collateral (for example, gold reserves) to back its currency.

The second state can issue as much currency and credit as it chooses, but the value of that capital falls in direct proportion to the quantity issued. Those sellers who accept this credit or cash as payment for real-world goods have little trust that the money issued by State 2 will retain its current purchasing power in the future. As a result, there is a huge risk premium priced into the trade, and relatively few traders will accept the risk of trading a potentially worthless currency for their scarce resources.

For whatever reason (and there are more than one), the trader trusts that the U.S. dollar will retain its purchasing power long enough for the trader to trade it for some other asset or form of capital, or even hold it as collateral for future loans.

Harun's point is the U.S. can outbid State 2 for oil or any other resource because it's essentially free for the U.S. to issue credit and cash. The price for the resources in U.S. dollars will soar in a bidding war, and while the U.S. can simply issue more credit/cash, State 2 is rapidly impoverished as the cost of essential resources rises.

Eventually this leads to a bidding war for trust: Whose credit/cash will be trusted to retain its purchasing power? There is a grand irony here, of course; as issuers of credit/cash attempt to debase their currency to boost their exports, their debased currency buys fewer real-world resources.

In a global credit crisis created by the over-issuance of credit/debt, which currencies will lose trust and which will gain trust? Those which retain or gain trust will enrich the issuer and those who lose trust will impoverish the issuer.

Nations that lose this bidding war for trust may reckon it's "cheaper" to wrest control of the needed resources by force rather than go through the arduous steps necessary to rebuild lost trust in their credit and currency.

In sum: there are real-world consequences to over-issuing credit and currency.

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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, Gregory S. ($5/month), for your most-excellently generous subscription to this site -- I am greatly honored by your support and readership.

Thank you, Daniel G. ($5/month), for your superbly generous subscription to this site -- I am greatly honored by your support and readership.

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Why the Shrinking Trade Deficit Will Choke U.S. Corporate Profits

All those counting on a weaker dollar and rising U.S. corporate profits will be doubly surprised.

That the U.S. trade deficit shrank to $34 billion in June is being presented as good news all around (no surprise there, as all news is presented as good news). The petroleum boom in the U.S. has pushed oil imports down by over $2 billion a month to $10 billion/month, and non-petroleum trade generated a deficit of $37 billion/month, down $5 billion.

Slowing imports and modestly higher exports are being presented as reasons for stronger GDP growth going forward. Oil Boom Helps to Shrink U.S. Trade Deficit by 22%.

Nice, except nobody is talking about the negative consequences of a shrinking trade deficit on U.S. corporate profits. The financial media doesn't talk about this because it doesn't understand the connection, which is based on Triffin's Paradox, a dynamic I have discussed in depth a number of times:

What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012)

Understanding the "Exorbitant Privilege" of the U.S. Dollar (November 19, 2012)

The basic idea here is that the world's reserve currency must expand to meet the needs of global trade. Most commentators view the U.S. dollar through the prism of the domestic economy: Federal Reserve money-printing increases the supply of dollars, depreciating its value, and this policy is intended to competitively devalue the dollar to increase U.S. exports.

Here's the heart of Triffin's Paradox: Triffin's Paradox: when one nation's fiat currency is used as the world's reserve currency, the needs of the global trading community are different from the needs of domestic policy makers.

Understood in this light, rising U.S. trade deficits in the 1990s and 2000s were required to provide enough dollars to lubricate rising global trade:

Trading nations need dollars to lubricate trading and as foreign exchange reserves that bolster the value of their own currency and provide the asset base for the expansion of credit within their own nation.

What does a declining trade deficit mean? It means fewer dollars are being exported. The global economy is about $60 trillion, of which about 25% is the U.S. economy. Into this vast sea of trade, the U.S. "exports" about $400-500 billion in U.S. dollars via the trade deficit. Put in perspective, it isn't that big compared to the machine it is lubricating. (That is $250 billion less than was "exported" in 2006.)

So what happens when there are fewer dollars being exported? Demand for existing dollars goes up, pushing the "price" of dollars up--basic supply and demand.

How does a rising dollar impact U.S. corporate profits? Most large U.S. global corporations already earn 60+% of their revenues overseas, in other currencies. As the dollar weakened, global corporate profits skyrocketed as earnings in euros, yen, etc. rose when stated in dollars.

As the U.S. dollar strengthens, overseas profits will decline when stated in dollars. Shrinking trade deficits means fewer dollars exported into the global economy, which means demand for dollars for trade, reserves and to pay debts denominated in dollars will face shrinking supply. That will drive the "price" of dollars higher.

As the price of dollars rise, U.S. corporate profits will decline as all the goods and services sold overseas in other currencies are converted (at least for accounting purposes) into U.S. dollars.

Be careful what you wish for. Shrinking trade deficits may appear to be positive for the domestic economy, but they won't be positive for a stock market dependent on profits generated by global corporations who earn 50%-60% of their revenues overseas: a rising dollar driven by declining trade deficits will re-set the stock market downward along with corporate profits.

All those counting on a weaker dollar and rising U.S. corporate profits will be doubly surprised. 

---

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, Bernard B. ($25), for your remarkably generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Sardar N. ($5), for your most generous contribution to this site -- I am greatly honored by your support and readership.

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Real Personal Income Points to Recession

Every time real personal income goes negative, a recession occurs. Now that personal income is falling, a recession is baked in.

Frequent contributor B.C. recently submitted a long-term chart of real personal income that highlights a strong correlation between falling real income and recession. This makes sense: if real (that is, adjusted for loss of purchasing power a.k.a. inflation) income is declining, households have less income to spend and less income to leverage more debt.

Note that real personal income is per capita (per person) and that government transfer payments (checks from social programs such as welfare, Social Security, etc.) are excluded.

There are two noteworthy points in this chart. One is that real personal income has been negative for the past five years, with one tax-related spike in late 2012 as those who could do so reported income in 2012 rather than 2013 to take advantage of the lower tax rates that expired in 2012.

The second point is that every time the black line (the 6-month annualized rate of change) of real personal income fell below 0% (that is, went negative), a recession occurred:

Here are B.C.'s explanatory comments:

An important caveat: the weak 6-month annualized comparison is against the spike in income at the end of '12.Still, the year-over-year and smoothed 6-month annualized rates were already falling below the historical recession threshold in late summer '12 and again in winter-spring this year.
A similar pattern trajectory occurred after recessions had begun (as per the National Bureau of Economic Research NBER):
Aug.-Sept. '08
June-July '01
Oct.-Nov. '90
Feb.-Mar. '82, Apr.-May '80, and Sept.-Oct. '79
Mar.-Apr. '74
Nov.-Dec. '70
Nov.-Dec. '60
Of course, the recessionary implications are bullish for war and for more TBTF bank printing for their balance sheets and offshore equity index futures accounts.

Thank you, B.C. The Big Lie of the "recovery" is that it is self-sustaining. Minus government transfers, the reality that the Fed and Federal government are simply enriching the top 1/10th of 1% with access to unlimited credit at zero interest is revealed.

"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." Ernest Hemingway, The Next War 

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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, R.M.W. ($180), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.

Thank you, Sue K. ($5/month), for your supremely generous re-subscription to this site -- I am greatly honored by your steadfast support and readership.

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