The Hipster Techie Mental Map

Washington D.C. is not even on the Hipster Techie mental map.

We all have inner maps that assign awareness, priority and importance to geographic features. For those who work inside the Beltway, Washington D.C. dominates their mental map of the world. Residents of Manhattan famously regard it as the center of the financial, art, fashion, etc. world.

In the hipster techie mental map, Washington D.C. doesn't exist, and New York has a small tech innovation footprint. In this world view, politics, finance and fashion are not what changes the world for the better; only tech does that.

Everyone wants to defend their city as important, if not the center of the universe, but the reality is that people who want to "make it" gravitate to the capital of their interest, be it Nashville, New York City, Hollywood, San Francisco or a regional magnet-city.

The typical hipster techie works for a start-up or fast-growing company in the social media / e-commerce / marketing mobile/web apps/software space. While these firms can be found in many cities, a great many are located in San Francisco and the S.F. Bay Area (Silicon Valley, etc.) for a variety of reasons, including a culture that celebrates innovation and understands that failure and success are two aspects of the same dynamic.

Having a start-up crash and burn is a disaster in most places; in the Bay Area, it is generally regarded as "getting your sea legs."

Three large research universities--two of the premiere public universities, University of California, Berkeley ("Cal") and University of California, San Francisco (UCSF) and one of the premiere private universities, Stanford-- act as incubators of start-ups which have access to seed money from a high concentration of venture capital. Two national labs provide government support of research: Lawrence Berkeley National Laboratory and Lawrence Livermore National Laboratory.

These elements spawn waves of newcomers and start-ups, most of which eventually fail or are bought up by established tech firms.

Many locales around the world have attempted to recreate the "magic" of Silicon Valley; the recipe is not that easy to duplicate. Many feel the Valley has lost its edge; as global competition increases, perhaps that can be said of every established innovation center.

If you've been offered a job in S.F. with a mobile apps start-up, here are 25 Things I wish I knew before moving to San Francisco by Jason Evanish (via Maoxian).

Here is one approximation of the hipster techie mental map:

Notes:

SFO: San Francisco International Airport

JFK: John F. Kennedy International Airport

Page Mill Road: home to many start-ups and Stanford Research Park
Not to be confused with Sand Hill Road, the concentration of venture capital (VC) firms (a.k.a. vulture capital)

Mr. Softee: MSFT, Microsoft
See Steve Ballmer's Nightmare Is Coming True: the slow death of Microsoft 

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

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

Read more...

Is the Central State Too Big to Fail or Too Big to Survive?

We are currently in the relatively brief interim when systemic risk has apparently been eliminated by financial alchemy. This cannot last for purely ontological reasons.

We can summarize the Central State/Banks' "fix" to the 2008 global financial meltdown as one gargantuan expansion of debt, the risks of which have been distributed to taxpayers and what's left of the private financial system.

As noted in yesterday's entry on risk, growth and security ( The Grand Tradeoff of Risk/Innovation/Growth and Financial Security), risk cannot be eliminated; it can only be suppressed temporarily or transferred to others.

The Central States and their Central Banks have suppressed the risks created by this unprecedented expansion of debt with what amounts to financial alchemy: the States issue new debt (sovereign bonds) and the Central Banks buy the debt with newly created money. The sovereign bonds then sit on the Central Bank balance sheets as assets.

Presto-Magico, interest rates remain near-zero, enabling further expansion of sovereign and private debt. Risk appears to have been eliminated, since the Central Bank balance sheet is not exposed to any market influence. Theoretically, the Federal Reserve balance sheet could expand from $2.9 trillion to $29 trillion, and the risk of such expansion would not be priced into the market or economy.

But since risk cannot be eliminated, it can only be distributed, what is actually happening is the Central Banks are distributing the risks of their alchemy to the entire economy.

The same can be said of expanding sovereign debt arising from unprecedented fiscal deficits and subsidies/guarantees issued to every politically potent constituency, cartel and fiefdom: the risks of all this vast expansion of State debt is being distributed to future taxpayers who must ultimately foot the bill.

The risks are currently being masked by the near-zero interest rates engineered by the financial alchemy described above.

One interesting feature of risk is that it shares dynamics with pressurized systems: If you increase the pressure in a home's water supply system, eventually the weakest element will burst, relieving the pressure. Which joint is the weakest is not easy to identify until after the fact. 

In many cases, the weakest element is perceived as the safest. Case in point: the rapid expansion of risk, credit and leverage in the 2000s ended up blowing apart the mortgage market, the very element that was widely assumed to be low-risk and "safe."

We can expect a similar systemic blowout in what is currently considered "safe," for example municipal bonds and sovereign debt. As noted yesterday, in focusing on econometric data such as GDP or corporate profits, we lose sight of the truly key system dynamics. Yes, by all means "follow the money," but even more importantly, "follow the risk."

The key institutional delusion of Central States and Banks is that risk that is distributed is magically contained. Economist Joseph Stiglitz characterized this convenient delusion as an "intellectual bubble" in Crisis, Contagion, And The Need For A New Paradigm (Zero Hedge). He summarized the delusion as this: by "spreading risk, diversifying risk, risk is contained."

Risk cannot be contained, it can only be masked for a time. In the long view, we are currently in the relatively brief interim when systemic risk has apparently been eliminated by financial alchemy. This cannot last for purely ontological reasons, and history is overloaded with examples of financial alchemy that blows up in the faces of the erstwhile magicians.

Ultimately, this leads to this question: is the Central State too big to fail, or too big to survive? The conventional view is that the State is so big that it can absorb essentially infinite amounts of debt, guarantees, backstops and promises without risk.

If we understand any debt-dependent state and economy is a pressurized financial system in which the pressure (risk) is constantly rising, then we must conclude that Central States and Banks are not too big to fail, they are too big to survive.

Distributing risk does not contain or eliminate it; it simply increases the pressure in the system and the ferocity of the ultimate blowout. 

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

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

Read more...

The Grand Tradeoff of Risk/Innovation/Growth and Financial Security

The very promise of permanent security dooms the economy to stagnation as complicity, avoidance of risk and passivity are incentivized.

Focusing on econometric data to make sense of our economic ills blinds us to deeper dynamics, for example, the Grand Tradeoff of risk and financial security.

We can visualize this as a seesaw: if financial security is the priority, then risk is avoided. If risk and innovation are rewarded, then security is off the agenda.

Contrast this ontological tradeoff with what Central States around the world have promised their populaces: rock-solid, permanent financial security via guaranteed mortgages, bank deposits, pensions, education and healthcare, and high growth to pay for it all based on ever-expanding innovation.

Sorry, developed-world people; you cannot have it both ways. If everyone is promised financial security, a premium is placed on risk avoidance and complicity with the Status Quo. Why risk failure and disorder for an unpredictable pay-off when "going along to get along" will reap guaranteed pensions, healthcare and an assortment of other entitlement goodies?

If you want growth, you must reward risk and innovation and foster a culture that accepts failure and low-intensity disorder as the norm. Promising financial security in this environment is promising the impossible.

That leads us to the deliciously perverse Grand Irony of the Grand Tradeoff: by fostering expectations of guaranteed financial security, you incentivize risk avoidance, which fosters a low-risk, low-innovation, low-growth economy that is incapable of expanding fast enough to fund all the grandiose promises of rock-solid security made to citizens.

The very act of promising financial security guarantees the promised security is illusory.

If you want a high-innovation, high-growth economy, you must reward risk and accept constant disorder and failure--the very antithesis of guaranteed financial security.

Risk cannot be eliminated, it can only be suppressed or transferred to others. This is the foundation of all three of my recent books: An Unconventional Guide to Investing in Troubled Times, Resistance, Revolution, Liberation: A Model for Positive Change and Why Things Are Falling Apart and What We Can Do About It.

In promising financial security to hundreds of millions of citizens, Central States have in effect claimed that risk--that the promises cannot be kept--has been eliminated. This is an ontological impossibility. Risk cannot be eliminated, it can only be pushed beneath the surface or transferred to others.

If it is suppressed by financial repression and intervention, it doesn't vanish; it slowly builds up like tectonic pressures that are suddenly released in the financial equivalent of a massive, unpredictable earthquake.

If the risk is transferred to the system itself, then it will eventually bring down the system.

Promising financial security is also promising that risk has been systemically eliminated. This is the fundamental dynamic of the "social contract" that underpins societies and economies from Europe to Japan. It is a social contract constructed on an ontological illusion.

If risk is avoided, suppressed and unrewarded, the economy will stagnate and the costs of the promised financial security will crush it. If risk is embraced and rewarded, the resulting expansion is based on a high rate of disorder and failure. Security cannot be promised, because security is illusory.

The very promise of permanent security dooms the economy to stagnation as complicity, gaming the system, avoidance of risk and passivity are incentivized.

"There is no security on this earth; there is only opportunity." 
(Douglas MacArthur)

---

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, Robert V.T. ($50), for yet your stupendously generous contribution to this site -- I am greatly honored by your support and readership.

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

Read more...

A Note of Gratitude and a Few Things About New Media

The New Media experiment here at oftwominds.com continues, and as always I have readers to thank for the inspiration, ideas and encouragement to continue jousting at windmills.

I rarely write about myself or the blog because to do so seems self-indulgent. I have a very average life unworthy of comment, other than the occasional reference to show my actions in the real world align with the values espoused here: home-cooking, near-zero-cost fitness, bicycling, gardening, investing in myself and real businesses rather than in Wall Street, etc.

The blog is only interesting as an example of New Media, and this is the basis of today's indulgence.

I would like to start by thanking you for your readership. There are literally millions of blogs, twitter and RSS feeds, Facebook channels, etc., and I am grateful you are investing your valuable time here at oftwominds.com.

I am especially grateful to those of you who have chosen to subscribe or contribute cash to the site. Your contributions keep the "parts flying in close formation," i.e. the site continues to function as a channel for unique content.

My own path to paid content was reader-directed. I have been paid to write free-lance articles since 1989, so getting paid for content did not seem novel. But starting a blog requires accepting non-payment for content; the value proposition to the content creator is self-expression and the joys of the content creation itself. That is all the creator of original content controls.

After writing hundreds of blog entries per year for a few years, several readers suggested I post a tip jar for donations. At their request, I did so. Some time later, a reader asked me to set up a subscription payment through PayPal, even though I wasn't offering anything other than the free blog. I complied, and a few generous souls sent me $5 a month.

My longtime friend G.F.B., one of the very few people who understands New Media in a meaningful way, suggested I send subscribers and major contributors ($50 or more annually) a Weekly Musings Report as a thank-you for their financial support. So I launched the Musings Report last January. Now contributors and subscribers actually receive proprietary original content for their financial generosity. (It's kind of like the Bilderburg Group or Council on Foreign Relations in its exclusivity, except without the power, prestige or agenda to rule the world.)

All of this was duly done with wide-eyed wonder, i.e. gosh, you mean I can do this? This New Media experiment continues, and as always I have readers to thank for the inspiration, ideas and innovations.

Unsurprisingly, those few who choose to contribute cash to oftwominds.com follow the Pareto Distribution. Roughly 4%-5% of regular or occasional readers choose to contribute or subscribe (around 500 generous people out of about 100,000 regular readers per month), and of those generous few, about 20% give 80% of the total dollars contributed. Around 4% subscribe/contribute $50+ annually; they receive the Weekly Musings Reports.

(The Pareto rule is often called the 80/20 rule; the vital few 20% exert outsized influence on the 80%. 20% of 20% is 4%, and so the 4% who contribute enable the 96% to read for free).

In other words, I depend on readers volunteering their financial support on a sliding scale that reflects their generosity, incomes and the value they place on oftwominds.com content. Some contribute $5, some $500; each is appreciated as a vote of encouragement and support.

Here are the boring site stats. Oftwominds.com is published on two sites: oftwominds.com, which is hosted by a high-bandwidth dedicated server, and charleshughsmith.blogspot.com, a mirror site which generates the RSS feed and another distribution channel of the daily content.

The main site attracted 2.3 million visits (900K unique visitors) in 2012, and served 6.5 million pages and 1,035 GB of data. The blogspot mirror site garnered about 1 million page views, for an annual total of around 3 million visits and 7.5 million page views. I do not track how many read the RSS feed (roughly 4700 subscribers) or how many read the content on Zero Hedge, Seeking Alpha, Business Insider or one of the other sites that republish oftwominds.com entries. Since oftwominds.com entries attract 5K-10K views on Zero Hedge alone, I estimate the daily number of readers is roughly double what my sites record (or maybe triple; who knows?).

I don't pore over my stats, as I think it is counterproductive (traffic is what it is), but it seems there are about 100,000 "uniques" a month on the two oftwominds.com sites. (As noted above, it is probably double that if the republished entries are included.)

I want to thank one group of "hidden" supporters: all those who order their Amazon purchases through the links on oftwominds.com. This doesn't cost them anything extra, but it does generate a commission to me. To everyone who makes the effort to order their Amazon purchases through oftwominds.com, thank you most sincerely for your support.

I also want to thank those of you who email me links, ideas and commentaries despite the lack of response. I write thousands of emails a year in response to readers, over 8,000 in the past 21 months. Despite this staggering output, I am only able to reply to perhaps a third of reader email, and much less when I am away from my desk, i.e. doing stuff in the real world.

A blog broadcasts freely shared content. An email is content freely shared with an individual or group of individuals. Each is freely shared, and I thank you for taking your time and energy to send me valuable information, critiques, links and suggestions. Without your freely shared content and opinions, I could not address such a wide range of topics in the blog. This is the "of two minds" referenced in the blog title. (It also reflects the core idea that there are usually multiple legitimate perspectives on any given topic.)

Though it is "obvious," the key attribute of the blog is that it is free. That millions of bloggers are posting content for free is rather astonishing, given that preparing unique content is a non-trivial task.

Consider the assumptions generally made about bloggers, blogs, email and content. When I post a blog entry, I do not expect the 15,000 people who read it somewhere on the web to send me an acknowledgement. Yet if I send the exact same content in an email to an individual, then I expect an acknowledgement, and the recipient's lack of response seems impolite.

This is why I receive email chastising me: "Why have an email link if you're not going to reply?" The email link is not an invitation to establish a dialog, it is a channel for you to share your views and information should you wish to.

Nonetheless, I feel a constant unhappy guilt over my inability to respond to every email. I feel it comes across as impolite or uncaring, yet I simply cannot write more than 3,000 or 4,000 emails a year, on top of writing 250 blog entries, dozens of feature articles for other media channels and my books. An auto-response is not a real response, so I decline to ask readers to take a non-response as an authentic reply.

Which site do we choose to post a comment on, the site with 15 readers or the one with 15,000 readers? We generally choose the site with the large audience, of course, because we want our opinion or content to reach the multitude, not the handful.

In this sense, we are "free-riding" on the blog's success in garnering an audience in a transparently Darwinian competition for readership.

The general assumption seems to be that posting original content on a blog automatically indentures one to hosting and moderating comments. If we recall that blogs are freely broadcast content that the reader pays nothing to the blogger to access, this assumption becomes rather peculiar: why should a blogger share his/her audience with others who pay nothing for his time, server, etc., especially when moderation of the comment/forum is an enormous time-sink?

The typical answer is that a comment board adds free content to the blog and therefore makes it a more attractive site, thereby boosting the site's audience. This is supposed to magically generate income via adverts that make the extra effort worthwhile.

But since only a handful of blogs gain a large enough audience to generate a middle-class income from adverts, this is simply not true for 99.9% of blogs.

Nonetheless, I receive indignant emails asking why I don't host comments. I have experimented with a variety of reader content over the past seven years, from Readers Journal essays, poems and commentaries to a reader-hosted and moderated forum. I consider Readers Journal a great success but I ran out of time to maintain it.

No one expects the proprietor of a Facebook page to get paid for providing content, largely because the content is either personal (800 million channels of me) or it is freely posted comments from friends.

Yet why do we expect bloggers to provide original content for free? Because free content is in great abundance, of course. Why pay for content when content is free?

We can discern all the threads of New Media in this brief discussion of blogs, comments and email: the difficulty in getting paid for original content, the freedom to broadcast one's opinions, photos, etc. to the world or to an opt-in circle of people, and the impossibility of managing the overwhelming flow of content, channels and messages.

One way to clarify my role in this New Media experiment is to ask: what's my job here? This is a question I understand, and here is the answer: my one and only job here is to create original content. Everything else is secondary.

The original content is why you're reading this. Nobody really cares if I reply to email or host a comments board; the content is the purpose, meaning and value.

Since nobody pays me directly for the blog's content, I am free to write about anything I want; I have no obligation to anyone or anything except my own sense of journalistic standards and craftsmanship. Very few of us get paid for self-expression, and I am acutely aware of the difference between journalism and self-expression.

My latest novel is serialized on the weekend for the amusement of the few who are following along. It is an indulgence to publish my self-expression, but I reckon most of you are forgiving of this occasional indulgence.

I confess I am a slave to original content. Before I travel, I prepare entries and charts in advance, so I can post new content in a few minutes at night. This creates a facade of stability, behind which the chaotic swirl of my real life is hidden.

As a result of travel, my mail piles up unread for weeks at a time, and hundreds of emails pile up unread, too, as I untether myself when I'm doing stuff in the real world. Since my only job here is creating content, as long as I manage that somehow, I am doing my job.

Hopefully you didn't notice that I was away from my desk for 13 of the last 52 weeks.

I have work in the real world, and so I have very little time to invest in content creation for the blog or email correspondence. That limited time must be split with my other content-creation job, which is writing books. Last year I wrote two books, an effort that required major sacrifices.

Why be a slave to content? Why bother? What's the point? For me, the answer is to play a positive role, however small, in the transformation ahead as the profligate, corrupt Status Quo runs aground and is replaced with new arrangements.

That said, oftwominds.com is always on the verge of coming apart at the seams because it is increasingly difficult to keep up this workflow and have any sort of life in the real world. This remains a one-man shop, because that's all the revenue can support. I apologize for the limitations of this arrangement but this is the best I can manage.

I want to apologize to those few whose book orders and contributions fell through the cracks in the past few months. The months since October have been especially chaotic for me, with houseguests during Thanksgiving week, a monumental multicultural Thanksgiving dinner, a museum/architectural tour of Los Angeles, weeks in Hawaii performing a bunch of other duties and responsibilities, a book launch (Why Things Are Falling Apart and What We Can Do About It), more houseguests, etc.

If you ordered a book and did not receive it, please email me immediately. I have sent hundreds of books to readers over the past few years, and my track record of filling orders has been pretty good. But the past few months have been overwhelming, and it will take me a few weeks to get back on track. Your patience is greatly appreciated.

If you subscribed or contributed $50 or more, but are not yet receiving the Musings Reports (and you want to), please email me.

To the 4% Remnant who supports the site with cold hard cash: thank you. You have stepped up to the New Media plate and scored a run (in my book, a home run). Thank you for valuing the original content and for understanding it is not free to create or host.

And now, back to our regularly scheduled insufferable drivel....


New instrumental song (5:36) by CHS and Coconut Cosmos: Alex and Daz Theme(raggae/rock/jazz with a blistering solo by C.C. in the second half; I play lead in the first 2:30)

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LAST WEEK OF DISCOUNTS: My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.

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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.

10% discount on the Kindle edition: $8.95(retail $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, Dan A. (silver coin), for yet another supremely generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, William S. ($100), for your astonishingly generous contribution (and book order) to this site --I am greatly honored by your support and readership.

Read more...

Money Velocity Free-Fall and Federal Deficit Spending

The velocity of money is in free-fall, and borrowing, squandering and printing trillions of dollars to prop up a diminishing-return Status Quo won't reverse that historic collapse.

Courtesy of Chartist Friend from Pittsburgh, here are three charts overlaying the velocity of money and the Federal surplus/deficit. The charts display the three common measures of money: M1, M2 and MZM. From the St. Louis Federal Reserve site:

M1 includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs). 

M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). 

Money Zero Maturity (MZM) is M2 less small-denomination time deposits plus institutional money funds.

The correlation of deficit spending and money velocity is especially striking in the chart of M2 velocity.

Here is MZM velocity:

And M1 velocity:

Since correlation implies causation, ideologically unbiased observers will wonder: does declining money velocity lead to more deficit spending, or does deficit spending depress money velocity?

Alternatively, both declining money velocity and soaring deficits reflect a contracting, post-credit-bubble economy. It is interesting to compare when the various measures of money velocity bottomed and topped out:

-- M1 velocity rose straight through the inflationary 1970s (no surprise there), chopped around the expansionary 1980s and then climbed along with the Bull market in stocks from 1994 to a peak in 2007, matching the peak in stocks and housing almost perfectly.

-- M2 velocity first peaked during the height of inflation in 1981 (when interest rates also peaked), bottomed in 1987 and then tracked the stock market and economy higher, reaching a much higher peak in 1997, much earlier than M1 velocity. M2 fell substantially to a low in 2002 and then rebounded modestly to a lower peak in 2007, after which it collapsed.

-- MZM velocity topped out in the inflationary surge of the early 1980s, like M2, but unlike the other measures, it did not ascend to new heights in the 1990s or 2000s; rather, it has fallen steadily for 30 years since its 1982 top.

The most striking feature of these charts is the complete collapse of money velocity. MZM and M2 have collapsed to historic lows, while M1 has fallen back to 1982 levels.

In this context, we can view unprecedented Federal deficit spending as a misguided attempt to compensate for the implosion of money velocity. I say "attempt" because the Treasury borrowing and blowing $6 trillion over the past five years and the Federal Reserve printing $2 trillion, backstopping the parasitic financial cartel with $16 trillion and buying over $1 trillion each of mortgage securities and Treasury bonds has only kept the economy stumbling along at essentially zero growth while real wages have declined by 7% to 9%.

This stupendous creation of money and unprecedented fiscal stimulus has had zero effect on money velocity. This conclusively shows that fiscal and monetary stimulus are not fixing what's broken with money velocity.

Please see these entries for more on why this is so:

Misunderstanding Austerity, Stimulus and Demand (January 17, 2013)

Why Expansionist Central States Inevitably Implode (January 15, 2013)

The Neoliberal Financial Skim (January 14, 2013)

Why Austerity Is Triggering a Crisis (January 7, 2013)

The Dangerous Blindspots of Clueless Keynesians (January 2, 2013)

Keynesian stimulus policies (deficit spending and low-interest easy money) create speculative credit bubbles. As the above charts illustrate, post-bubble economies do not respond to additional stimulus because the economy is burdened by impaired debt and phantom collateral.

In sum, the U.S. economy is a neofeudal debt-serf wasteland with few opportunities for organic (non-Central Planning) expansion. As a result, the velocity of money is in free-fall, and borrowing, squandering and printing trillions of dollars to prop up a diminishing-return Status Quo won't reverse that historic collapse.

Put another way: we've run out of speculative credit bubbles to exploit.


New instrumental song (5:36) by CHS and Coconut Cosmos: Alex and Daz Theme (raggae/rock/jazz with a blistering solo--don't miss it!)

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LAST WEEK OF DISCOUNTS: My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.

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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.

10% discount on the Kindle edition: $8.95(retail $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, Helen S.C. ($10), for yet another extremely generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, Barney S. ($5), for yet another extremely generous contribution to this site --I am greatly honored by your continuing support and readership.

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