About That "Bull Market Til 2016" Call: Before You Buy the Dip, Check Out This Chart

If credit expansion leads the stock market, the market is in trouble.

Before you buy the dip "because this Bull market will run until 2016," please ponder this chart from our Chartist Friend From Pittsburgh of total credit and the Dow Jones Industrial Average (DJIA). Unsurprisingly, the stock market advances when credit is expanding and declines when credit growth slows.

Why is this unsurprising? Because ours is a debt-dependent consumer economy: everything from local government building projects to the purchase of vehicles to going to college requires borrowing money (i.e. credit expansion).



Source: The Dome Top Bears Have Been Given Their Stock Market Sell Signal

Here is Chartist Friend From Pittsburgh's commentary:

Total Credit Market Debt (TCMD) growth is not confirming the new DJIA high at all.The trend of TCMD growth clearly reversed lower in 2007 by making a new all time low. The uptrend of the DJIA appears to be up since it's recently made new all-time highs.
The point is - there's a serious disconnect/divergence/non-confirmation going on here and in the end credit growth is the more important of the two and determines the trend because people can't make a move nowadays without taking out a loan (house, car, student, government spending, etc.).

I would add these points:

1. Notice that credit growth is rolling over, and that its recent peak was significantly lower than the 2007 peak. In other words, despite rescuing the Too Big To Fail Banks (TBTF) to the tune of $16 trillion and the creation of $3.2 trillion that it pumped into the financial system to goose housing and stocks, the Federal Reserve's unprecedented campaign to reflate leverage and credit only managed a weak bounce from 2007 highs in credit growth.

This is known as diminishing returns: Our Era’s Definitive Dynamic: Diminishing Returns(November 11, 2013)

The Fatal Disease of the Status Quo: Diminishing Returns (May 1, 2013)

2. In a debt-dependent consumer economy beset with declining real income for the bottom 90%, the only way to expand credit is to blow asset bubbles that boost phantom assets long enough to leverage new debt:

Why Our Consumer-Debt Dependent Economy Is Doomed (December 10, 2013)

Why We're Stuck with a Bubble Economy (December 9, 2013)

See those two little blips up in the real wages of the bottom 90%, circa 1999 and 2007? Those modest boosts in income were the result of monumental credit/asset bubbles. Once those bubbles popped, real income for 100% of households plummeted, and the bottom 90% saw its real income (i.e. the purchasing power of earnings) decline by 7%.

You can't leverage more debt off declining income unless you loan money at near-zero rates of interest. That explains the Fed's Zero Interest Rate Policy (ZIRP), which has the sole purpose of enabling more leverage and debt even as real income stagnates.


And just to remind us how those bubbles ended:



Buy the dip "because this Bull market will run until 2016?" Based on what? Does liquidity from the Fed ultimately drive the market, or does credit expansion drive the market? We will find out in 2014.


If You Seek Practical Gifts, Consider These Everyday Kitchen Tools

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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?


We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

print ($20)       Kindle ($9.95) 

---

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. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
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. Once we accept responsibility, we become powerful.
Kindle: $9.95       print: $24 

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

Read more...

A Modest Proposal to Radically Reduce the Nation's Bureaucracies

On the criminalization of everyday life.

Yesterday I described the power of digital technologies to replace paid work: The Python (Script) That Ate Your Job. Since organizations only have expenses, any paid work that can be replaced by software and/or robots will eventually be replaced by software and/or robots. Maintaining high expenses is a fast-track to going broke.

Which brings me to the nation's vast array of overlapping public and private bureaucracies.

I suspect that a significant percentage of the nation's many bureaucracies could be replaced with a very simple script that yielded one answer to most queries: no.

If the answer to all queries was "yes," there would be no need for bureaucracies to rubberstamp this approval. If the answer to any query was "no," then there would also be no need for bureaucracies to rubberstamp this denial.

Bureaucracies justify their power, payroll and budget by granting occasional favors of "yes" to supplicants who bow before the power of the bureaucracy and pay the appropriate fees.

In other words, bureaucracies justify their power, payroll and budget by saying "no" conditionally. If the agency issued "yes" as a matter of default, then the agency could be replaced by a script. The same is true of the agency always issued a "no" as a default; that agency could also be replaced by a simple script.

The modest proposal is to replace all bureaucracies with simple scripts that mimic actual bureaucratic function and output but without the extraordinary cost of tens of thousands of employees. We should also recall that regulatory bureaucracies are designed to be captured by monied private interests, i.e. "some are more equal than others." This intrinsic well of injustice would be capped off by automated scripts.

Here's an example of how this would work.

All queries relating to permits, fees and what is against the law will be handled in this fashion:

"Do I need a permit to do X (plant a garden in my front yard, bake a loaf of bread, build killer drones in my garage, perform minor surgery on myself, etc.)?"
Default response: yes.

"Is X (attempting to contact aliens via my tin-foil hat, crossing the street with a geranium plant, wearing mismatched socks in public, etc.) against the law or prohibited by statutes"?
Default response: yes. If it isn't against the law, it will be shortly.


"Can I do X (dream of freedom, paint my front door red, build a submarine in my backyard, keep rodents as outdoor pets, seek the Tao, skateboard in my neighbor's empty swimming pool, etc.)?"
Default response: no.

Private bureaucracies would have a slightly different set of defaults:

"How do I contact customer support?"
Default response: no.

"How do I go about getting a refund?"
Default response: no.

"Can I buy an upgrade online?"
Default response: yes.

One justification for the expansion of public bureaucracies is the pressing need to criminalize every aspect of life in America: How Every Part of American Life Became a Police Matter.

But justifying the expansion of centralized authority and Central State bureaucracies via overcriminalization could easily be scripted as well. For example, the script could insert operative phrases that criminalize virtually everything, at almost no cost to the taxpayer. For example:

"Can I skateboard on the sidewalks?"
No. You are a public threat, and therefore subject to arrest and imprisonment in America's gulag.

"Can I stop my kid's attention-deficit-whatever meds and just eliminate sugar, TV and violent videogames from his life?"
No. Sugar, violent videogames and addictive meds are all high-profit and therefore of the highest public good, and your proposal is a threat. Should you attempt to curtail your child's addictions to sugar, videogames and high-profit medications, you will be subject to arrest and imprisonment in America's gulag.

"Can my 7-year old boy hug his 7-year old friend at school who happens to be a girl?"
No. That is inappropriate touching. In fact, all touching is inappropriate. If this hug occurs and you fail to immediately stop it, you will be subject to arrest and imprisonment in America's gulag.

"Can I sell a few spliffs of home-grown medical marijuana to a friend?"
No. You are a dealer of dangerous drugs and deserve a "tenner" in America's gulag.

The script could also insert appropriate warnings such as:

Please note that if you live in locales with private police forces and private prisons, the odds of you being arrested and incarcerated in a highly profitable private prison are significantly higher than if you live in a jurisdiction with an overstretched public police force and an already crowded state gulag.

To mimic the rare approval of actual bureaucracies, the script could randomly generate approvals, subject to payment of fees. For example:
"Can I dump toxic chemical waste in my neighbor's empty swimming pool?"
Response: yes, if you complete the appropriate forms and pay the processing fees.

With my modest proposal, at least we won't be paying a fortune for the criminalization of every aspect of life by an out-of-control array of Central State bureaucracies. A few simple scripts could do the same job, and millions of people currently working in centralized bureaucracies would be free to pursue something more productive than the criminalization of everyday life.

If you want to find out what a "tenner" is, or what centralized authority and the criminalization of everyday life leads to, please read the three volumes of The Gulag Archipelago by Aleksandr Solzhenitsyn:

The Gulag Archipelago: 1918-1956
The Gulag Archipelago 2
Gulag Archipelago 3

To those who say "it can't happen here" I reply: it's already happened here. War at Home: Covert action against U.S. activists 


If You Seek Practical Gifts, Consider These Everyday Kitchen Tools

---

The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?


We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

print ($20)       Kindle ($9.95) 

---

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. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
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. Once we accept responsibility, we become powerful.
Kindle: $9.95       print: $24 

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

Read more...

The Python That Ate Your Job

We are already well into the "end of work."

The more accurate title would be "The Python (Script) That Ate Your Job." Python is a computer language whose core philosophy is summarized by "PEP 20 (The Zen of Python)", which includes aphorisms such as:

Beautiful is better than ugly.

Explicit is better than implicit.

Simple is better than complex.

Complex is better than complicated.

Readability counts.

(source: Wikipedia)

As I understand it (from a non-programmer POV), Python enables rapid development of scripts that may not be optimized by some metrics but which work perfectly well in terms of solving a problem in a cost-effective manner.

(Programmers can be highly partisan, i.e. emotionally attached to their preferred language, so I am trying to be as non-partisan and careful as possible here to avoid arousing the ire of either Pythoneers or Python detractors. I am just an ignorant bystander; please don't shoot the piano player, etc.)

A senior manager at a small tech company recently related a story that illustrates 1) the power of Python (and other scripting languages) and 2) the changing nature of work:

The company had some time-consuming data analysis that needed to get done on a regular basis, and the manager was considering recruiting a (paid) intern to do the work. Instead, he spent four hours writing a Python script which did the work in a few minutes. He named the program "Intern."

This story is repeated thousands of times a day across millions of tasks. Virtually all of my self-employed friends use technology to enable one person to produce output that would have taken three people in the 1980s.

As management guru Peter Drucker noted, enterprises don't have profits, they only have expenses. If you are self-employed or own/manage a business, you will immediately grasp the profound truth of this insight.

If you can replace an expensive worker (and every employee is expensive nowadays, due to the high cost of labor and general overhead) with a Python script that can be crafted in a few hours, financial fact compels you to do so: your business has no profit, it only has expenses.

This dynamic is scale-invariant, meaning it is true of all organizations, from one-person businesses up to global corporations and entire nations. A non-profit group only has expenses, and so do churches, cities and nations. Once expenses exceed income, the organization goes bust.

Could I be replaced with a Python script? In some ways, yes: a script could be written that mined the thousands of entries and essays I've written for repeating words, phrases and themes, and the script would rehash the material into "new" entries.

But since the script isn't logging "experience" in the same way as a human does, the script would not be able to replicate dynamics such as changing one's mind or taking a new direction, although it could randomly generate such behaviors to mimic human development.

Would the script be "good enough" to attract readers? Perhaps; but attracting and keeping readers is not necessarily a problem-state that can be solved with data-mining and pattern matching, as readers seek not just novelty and expressive writing but insight. Any script that rehashed existing material would not be generating new insight; it would simply be repackaging previous insights.

For highly partisan blogs, this might well be "good enough," since partisan readers actually want to read the same rehashed material again and again: in effect, a script that repackaged "it's the Demopublican's fault" with new headlines and slightly different content would closely match the human content generator's output.

I have no doubt some clever programmers have already played around with generating rehashed content and posting it as a blog written by a human being, an artifice masked by an avatar ("Hi, my name is J.Q. Public and I write about politics."). It would almost amount to sport to generate a phony history and cobbled-together quirks to fill out the illusion of personhood.

(Some readers have even wondered if "Charles Hugh Smith" is such an avatar. The answer is no, because the history and quirks of "Charles Hugh Smith" are simply too implausible to be believable. Also, the cost of maintaining such a complicated avatar isn't worth the paltry income generated by the blog. What machine intelligence would be dumb enough to maintain this idiotically complicated enterprise for such a paltry return? Only a human would be compelled to do so.)

Could a robot and standardized scripts replace everything I can do with a Skil 77 wormdrive power saw? It could certainly do a great many repetitive tasks at a work bench, but it would not be able to do non-standardized, on-the-jobsite tasks such as cutting out the rotten sections of a wood window frame. The robot might be able to execute the cuts (presuming it was light enough and mobile enough to stand securely on a scaffold or slope), but it would need a human partner to program the cuts in the real world and in real time.

In other words, "work" is increasingly a partnership of humans and technology. If one's skills and experience (i.e. labor) can be replaced with a Python script, it will be replaced by a Python script. Organizations that fail to replace costly paid human labor with a script will have much higher costs than those organizations that replace paid labor with scripts.

The paid human labor that can't be replaced by a script will increasingly require the knowledge and skills needed to collaborate with technology as an essential work partner.

We are already well into the "end of work." Digital pythons have been eating jobs for some time now, and because organizations only have expenses, they will continue to do so indefinitely until the only paid jobs left are those that cannot be fully replaced by a script or a robot operating on standardized scripts.

Global Reality: Surplus of Labor, Scarcity of Paid Work (May 7, 2012)

Endgame 3: The End of (Paying) Work (January 21, 2009) 

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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?


We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

print ($20)       Kindle ($9.95) 

---

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. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
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. Once we accept responsibility, we become powerful.
Kindle: $9.95       print: $24 

Thank you, Luke M. ($10), for your much-appreciated generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

Why Our Consumer-Debt Dependent Economy Is Doomed

If you understand the difference between the first pair of shoes and the 25th, you understand why America's debt-dependent consumer economy is doomed.

Yesterday I explained Why We're Stuck with a Bubble Economy:

Now that interest rates are near-zero and mortgage rates are rising from historic lows, there is no more juice to be squeezed from low rates.Asset bubbles always burst, destroying collateral and rendering borrowers and lenders alike insolvent.
Without organic demand from rising real income and new households with good-paying jobs and low levels of debt, the consumer-debt based economy stagnates. This has left the economy dependent on serial asset bubbles that create phantom collateral that can support new debt, albeit temporarily.

The other critical dynamic is the marginal utility of additional consumption in a debt-dependent consumer economy. In an economy in which 49% of all residents (156 million people out of a total population of 317 million) receive a direct transfer of cash or cash-equivalent benefit from the central government, and millions of these people also receive cash and/or benefits from state and local governments (49% of Americans Get Government Benefits), poverty is relative rather than absolute for the vast majority of Americans.

The American economy is highly dependent on consumption. Household consumption accounts for about 35% of developing economies' activity--roughly half of America's 70% consumption economy.

As noted yesterday, with the earned income of the lower 90% of wage earners stagnant for four decades, America has enabled consumption by leveraging income and collateral into ever-rising mountains of debt.

The problem with debt, of course, is that it accrues interest, and that paying interest reduces the amount of income left to spend on consumption.

In this way, depending on debt to finance consumption is akin to the snake eating its own tail: at some point, the cost of servicing the debt reduces the income available to be spent on additional consumption to zero. Additional consumption becomes impossible without asset bubbles to temporarily enrich the households that own assets or "helicopter drops" of interest-free cash into household checking accounts.

This is how we have reached the point that a majority of U.S. households live paycheck to paycheck, as earnings are eaten up by essential bills and debt service.

Given that the majority of Americans already enjoy a considerable array of consumer goods and services, the only way to fuel more consumption is to entice consumers into buying more of what they already own or buy a replacement for a perfectly usable good or service. Let's illustrate the concept of marginal utility with shoes.

To those with no shoes at all (a common enough occurrence in the 1930s Great Depression), the utility of one pair of shoes is extremely high: the utility (i.e. the benefits) resulting from owning that one pair of shoes is enormous.

Now consider an aspirational-consumer (i.e. someone striving to look wealthier and more successful than they really are) of the upper-middle class: this consumer might own several dozen pairs of shoes, and his/her problem is finding space for more shoes.

The retailer attempting to persuade this consumer to buy a 25th pair of shoes must overcome the diminishing utility (i.e. marginal utility) of yet another pair of shoes. This is accomplished by offering a "deal you can't pass up" or appealing to the always pressing need to jettison last year's style in favor of this year's "new thing."

Here's the critical point of this dynamic: to the consumer who already owns so much stuff that he has to rent a storage facility to store all the surplus goods, the utility of any additional purchase is low. In practical terms, the utility has declined to the thrill of the initial purchase and the initial wearing/use of the new item. Beyond that, it's just another pair of shoes in the closet.

To the manufacturer/retailer/government dependent on more sales for survival, the value of the first pair of shoes sold and the 25th pair sold are the same. The manufacturer/retailer needs to sell more shoes just to stay in business, and the government living off sales and other consumption-generated taxes also needs more sales.

In an economy in which most people have the essentials of life--i.e. the first pair of shoes with the highest utility--all consumption beyond replacing a hopelessly broken essential is of marginal utility.

An additional $1 of debt adds the same burden to the household whether it is spent on the first pair of shoes or the 25th pair. Taking on debt might make sense for the first pair of shoes, or the first bicycle, but it makes increasingly less sense for each additional pair of shoes or replacement bicycle: the debt piles up but the utility derived from the purchase is increasingly marginal.

The $3,000 I could spend on a replacement bike for the perfectly serviceable bicycle I bought used 15 years ago for $150 is of marginal utility; the better-quality parts and lighter frame, etc.--all the benefits that would flow from spending $3,000 for a "better, more modern" bike are extremely marginal to me, even though I put well over 1,000 miles a year on my bike. All those improvements are too modest to matter. This is the essence of marginal utility.

If you understand the difference between the first pair of shoes and the 25th, and the increasing diversion of income to interest payments that results from debt-based consumption, then you understand why America's debt-dependent consumer economy is doomed. 

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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?


We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

print ($20)       Kindle ($9.95) 

---

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. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
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. Once we accept responsibility, we become powerful.
Kindle: $9.95       print: $24 

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

Read more...

Why We're Stuck with a Bubble Economy

Inflating serial asset bubbles is no substitute for rising real incomes.

Why are we stuck with an economy that only generates serial credit/asset bubbles that crash with catastrophic consequences? Ths answer is actually fairly straightforward. Let's start with the ideal conditions for an economy that depends on consumer spending.

1. Rising real income, i.e. after adjusting for inflation/currency depreciation, wages/salaries have more purchasing power every year.

2. An expanding pool of new households, i.e. young people who move away from home or graduate from college, get a job and start their own household. New households buy homes, vehicles, furniture, appliances, kitchenware, tools, etc., driving consumption far more than established households.

Neither of these conditions apply to today's economy. Income for the bottom 90% has been stagnant for forty years, and has declined 7% in real terms since 2000.


This stagnation is not the "new normal": the new normal is much worse, as labor's share of the national income has fallen off a cliff:



Household formation has also stagnated. That spike circa 2004-07 was caused by the housing bubble, which created new jobs and collateral that could be leveraged into new home purchases.



Since 2008, the Federal Reserve has bought $3.2 trillion in mortgages and Treasury bonds, and the Federal government has borrowed and blown $7 trillion in deficit spending. That $10 trillion in stimulus (not counting $16 trillion in Fed loans to banks and trillions more in other loans/subsidies), household formation has only recovered to the sub-1 million a year level.

In an economy of 316 million people, that isn't enough to generate "growth" in a $16 trillion economy.

With these organic sources of growth moribund or declining, the Fed and Federal government have resorted to other ways of stimulating more borrowing and spending, the sources of leveraged, high-risk "growth":
1. Lower interest rates so stagnant income can leverage more debt (and thus more spending)

2. Generate asset bubbles in stocks and housing that boost "the wealth effect," i.e. the emotional sense of being wealthier as a result of one's assets rising sharply in value, and the collateral available to support more debt.

If a house rises by $100,000 in value in a few short years, the owner has $100,000 more collateral to support new debt. The gargantuan expansion of home equity lines of credit (HELOCs) as the housing bubble expanded was the goal of the status quo, as asset bubbles create collateral that supports new borrowing and spending.

Now that interest rates are near-zero and mortgage rates are rising from historic lows, there is no more juice to be squeezed from low rates.
As for asset bubbles, they always burst, destroying collateral and rendering borrowers and lenders alike insolvent.

Without organic demand from rising real income and new households with good-paying jobs and low levels of debt, the consumer-debt based economy stagnates.This has left the economy dependent on serial asset bubbles that create phantom collateral that can support new debt, albeit temporarily.
Inflating serial asset bubbles is no substitute for rising real incomes and new households that aren't burdened with high levels of debt from student loans.


 If You Seek Practical Gifts, Consider These Everyday Kitchen Tools 

---

The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economy

With the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?


We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

print edition (list $20, now $18)

Kindle edition: list $9.95 

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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. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
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. Once we accept responsibility, we become powerful.

Kindle: $9.95       print: $24

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

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