Monday , October 22 2018
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Charles Hugh Smith

Charles Hugh Smith

At readers' request, I've prepared a biography. I am not confident this is the right length or has the desired information; the whole project veers uncomfortably close to PR. On the other hand, who wants to read a boring bio? I am reminded of the "Peanuts" comic character Lucy, who once issued this terse biographical summary: "A man was born, he lived, he died." All undoubtedly true, but somewhat lacking in narrative.

Articles by Charles Hugh Smith

Is the Greatest Bull Market Ever Finally Ending? (Hint: Follow the Money)

1 day ago

The key here is the gains generated by owning US-denominated assets as the USD appreciates.
Is the Greatest Bull Market Ever finally ending? One straightforward approach to is to follow the money, i.e. global capital flows: assets that attract positive global capital flows will continue rising if demand for the assets exceeds supply, and assets that are being liquidated as capital flees the asset class (i.e. negative capital flows) will decline in price.
Global capital flows are difficult to track for a number of reasons. A significant percentage of global mobile capital is held in secretive offshore tax havens and “shadow banking,” and tracking global corporate capital flows is not easy. Capital held in precious

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Here’s Why the Next Recession Will Spiral Into a Depression

6 days ago

Here’s the difference between a recession and a depression: you can’t get blood from a stone, or make an insolvent entity solvent with more debt.
There are two basic differences between a recession and a depression:
1. Duration: a recession typically lasts between 6 and 18 months, while a depression drags on for years or even decades, often masked by official propaganda as “slow growth” or “stagnation.”
2. The basic dynamic: recessions are business / credit cycle events that wring out the excesses of credit expansion (i.e. lending to unqualified borrowers who subsequently default) and mal-investment in low-yield, high-risk speculations and projects that only made financial sense in the euphoria of bubble psychology

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How Many Households Qualify as Middle Class?

7 days ago

By the standards of previous generations, the middle class has been stripmined of income, assets and purchasing power.
What does it take to be middle class nowadays? Defining the middle class is a parlor game, with most of the punditry referring to income brackets as the defining factor.
People tend to self-report that they belong to the middle class based on income, but income is not the key metric: 12 other factors are more telling measures of middle class membership than income.
In Why the Middle Class Is Doomed (April 17, 2012) I listed five minimum threshold characteristics of membership in the middle class:
1. Meaningful healthcare insurance (i.e. not phantom insurance with $5,000 deductibles, etc.) and life

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The Distortions of Doom Part 2: The Fatal Flaws of Reserve Currencies

12 days ago

The way forward is to replace the entire system of reserve currencies with a transparent free-for-all of all kinds of currencies.
Over the years, I’ve endeavored to illuminate the arcane dynamics of global currencies by discussing Triffin’s Paradox, which explains the conflicting dual roles of national currencies that also act as global reserve currencies, i.e. currencies that other nations use for global payments, loans and foreign exchange reserves.
The four currencies that are considered global are the US dollar (USD), the euro, the Japanese yen and China’s RMB (yuan). The percentage of use in each of the three categories of demand for the reserve currencies–payments, loans and foreign exchange reserves–are

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The Global Distortions of Doom Part 1: Hyper-Indebted Zombie Corporations

14 days ago

The defaults and currency crises in the periphery will then move into the core.
It’s funny how unintended consequences so rarely turn out to be good. The intended consequences of central banks’ unprecedented tsunami of stimulus (quantitative easing, super-low interest rates and easy credit / abundant liquidity) over the past decade were:
1. Save the banks by giving them credit-money at near-zero interest that they could loan out at higher rates. Savers were thrown under the bus by super-low rates (hope you like your $1 in interest on $1,000…) but hey, bankers contribute millions to politicos and savers don’t matter.
2. Bring demand forward by encouraging consumers to buy on credit now. Nothing like 0% financing to

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Pensions Now Depend on Bubbles Never Popping (But All Bubbles Pop)

18 days ago

We’re living in a fantasy, folks. Bubbles pop, period.
The nice thing about the “wealth” generated by bubbles is it’s so easy: no need to earn wealth the hard way, by scrimping and saving capital and investing it wisely. Just sit back and let central bank stimulus push assets higher.
The problem with bubble “wealth” is it’s like an addictive narcotic: now our entire pension system, public and private, is dependent on the current bubbles in stocks, real estate, junk bonds and other risk assets never popping.
But a funny thing eventually happens to financial bubbles: they all pop. And when the current bubbles pop, they will gut pension reserves, projections and promises.
Take a look at the chart below of taxpayer

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Fixing Infrastructure Isn’t as Simple as Spending Another Trillion Dollars

20 days ago

It isn’t easy to add new subway lines or new highways, and so “solutions” don’t really exist.
If there’s one thing Americans can still agree on, it’s that America needs to spend more on infrastructure which is visibly falling apart in many places. This capital investment creates jobs and satisfies everyone’s ideological requirements: investment in public infrastructure helps enterprises, local governments and residents.
Unfortunately, it isn’t a simple as spending another trillion dollars. Spending money is the easy part; actually fixing what’s broken isn’t just a matter of spending more money.
The poster child for spending trillions on infrastructure and getting very little value is Japan, which has funneled much

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The Labor Shortage Is Real

21 days ago

Few conventional-media commentators are willing or able to discuss these factors in the labor shortage / declining participation trends.
Is there a labor shortage in the U.S.? Employers are shouting “yes.” Economists keep looking for wage increases as evidence of a labor shortage, and since wage increases are still relatively modest, the argument that there are severe labor shortages in parts of the U.S. is unpersuasive to many conventional economists.
But if we look at “we’re hiring” signs and billboards, it’s clear employers are having trouble filling available positions. Longtime correspondent Harvey D. recently submitted this list of billboards advertising job openings in South Carolina:
“Here’s a sample of

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Droit du Seigneur and the Neofeudal Privileges of Class in America

26 days ago

Want to understand the full scope of neofeudalism in America? Follow the money and the power and privilege it buys.
The repugnant reality of class privilege in America is captured by the phrase date rape: the violence of forced, non-consensual sex is abhorrent rape when committed by commoner criminals, but implicitly excusable date rape when committed by a member of America’s privileged elite.
Compare the effectiveness of excuses offered by privileged elites (we were both drinking, I didn’t hear her say no, etc.) when offered in court by less privileged males on trial for rape. The privileged elite is acquitted or given a wrist-slap while the commoner gets 20 years in prison.
This implicit privilege to non-consensual

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The Four Disastrous Presidential Policies That Are Destroying the Nation

28 days ago

The nation is failing as a direct consequence of these four catastrophic policies.
It’s admittedly a tough task to select the four most disastrous presidential policies of the past 60 years, given the great multitude to choose from. Here are my top choices and the reasons why I selected these from a wealth of policy disasters.
1. President Johnson’s expansion of the Vietnam War, which set the stage for President Nixon’s continuation of that disastrous war for an additional five years.
For those who missed the 30-minute lecture on the Vietnam War in history class, Johnson took a low-intensity guerrilla war in South Vietnam in which the U.S. was supporting a corrupt and venal South Vietnamese elite and expanded it into

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When Does This Travesty of a Mockery of a Sham Finally End?

29 days ago

Credit bubbles are not engines of sustainable employment, they are only engines of malinvestment and wealth destruction on a grand scale.
We all know the Status Quo’s response to the global financial meltdown of 2008 has been a travesty of a mockery of a sham–smoke and mirrors, flimsy facades of “recovery,” simulacrum “reforms,” serial bubble-blowing and politically expedient can-kicking, all based on borrowing and printing trillions of dollars, yen, euros and yuan, quatloos, etc.
So when will the travesty of a mockery of a sham finally come to an end? Probably around 2022-25, with a few global crises and “saves” along the way to break up the monotony of devolution. The foundation of this forecast is this chart I

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Digging into Wealth and Income Inequality

September 20, 2018

That changes our perspective on the wonderfulness of ever-expanding household wealth.
The assets of U.S. households recently topped $100 trillion, yet another sign that everything is going swimmingly in the U.S. economy. Let’s take a look at the Federal Reserve’s Household Balance Sheet, which lists the assets and liabilities of all U.S. households in very big buckets (real estate: $25 trillion). (For reasons unknown, the Fed lumps non-profit assets and liabilities with households, but these modest sums are easily subtracted.)
If we look at the numbers with a reasonably skeptical view, we start wondering about aspects that might have previously been taken as “facts” that were above questioning.
For example,

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We’re All Speculators Now

September 19, 2018

When the herd thunders off the cliff, most participants are trapped in the stampede..
One of the most perverse consequences of the central banks “saving the world” (i.e. saving banks and the super-wealthy) is the destruction of low-risk investments: we’re all speculators now, whether we know it or acknowledge it.
The problem is very few of us have the expertise and experience to be successful speculators, i.e. successfully manage treacherously high-risk markets. Here’s the choice facing money managers of pension funds and individuals alike: either invest in a safe low-risk asset such as Treasury bonds and lose money every year, as the yield doesn’t even match inflation, or accept the extraordinarily high risks of

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Massive Deficit Spending Greenlights Waste, Fraud, Profiteering and Dysfunction

September 18, 2018

America’s problem isn’t a lack of deficit spending/consumption. America’s problems are profoundly structural.
The nice thing about free to me money from any source is the recipients don’t have to change anything. Free money is the ultimate free-pass from consequence and adaptation: instead of having to make difficult trade-offs or suffer the consequences of profligacy, the recipients of free money are saved: they can continue on their merry way, ignoring the monumental dysfunction of their lifestyle.
This explains the appeal of Modern Monetary Theory (MMT), which holds that deficit spending is the “solution” to all our problems because governments can’t go broke–they can always emit whatever currency they need via

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The Next Financial Crisis Is Right on Schedule (2019)

September 13, 2018

Neither small business nor the bottom 90% of households can afford this “best economy ever.”
After 10 years of unprecedented goosing, some of the real economy is finally overheating: costs are heating up, unemployment is at historic lows, small business optimism is high, and so on–all classic indicators that the top of this cycle is in.
Financial assets have been goosed to record highs in the everything bubble.Buy the dip has worked in stocks, bonds and real estate–what’s not to like?
Beneath the surface, the frantic goosing has planted seeds of financial crisis which have sprouted and are about to blossom with devastating effect. There are two related systems-level concepts which illuminate the coming crisis: the

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After 10 Years of “Recovery,” What Are Central Banks So Afraid Of?

September 7, 2018

If the world’s economies still need central bank life support to survive, they aren’t healthy–they’re barely clinging to life.
The “recovery”/Bull Market is in its 10th year, and yet central banks are still tiptoeing around as if the tiniest misstep will cause the whole shebang to shatter: what are they so afraid of? The cognitive dissonance / crazy-making is off the charts:
On the one hand, central banks are still pursuing unprecedented stimulus via historically low interest rates, liquidity and easing the creation of credit on a vast scale. Some central banks continue to buy assets such as stocks and bonds to directly prop up the “market.” (If assets don’t actually trade freely, is it even a market?)
On the other

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The Global Financial System Is Unraveling, And No, the U.S. Is Not immune

September 5, 2018

Currencies don’t melt down randomly. This is only the first stage of a complete re-ordering of the global financial system.

Take a look at the Shanghai Stock Market (China) and tell me what you see:

Shanghai Stock Exchange Composite Index – Click to enlarge

A complete meltdown, right? More specifically, a four-month battle to cling to the key technical support of the 200-week moving average (the red line). Once the support finally broke, the index crashed.

Now take a look at the U.S. S&P 500 stock market (SPX):

SPX is soaring to new highs, not just climbing a wall of worry but leaping over it. So the engine of global growth–China–is exhibiting signs of serious disorder, and the world’s consumerist

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Why Is Productivity Dead in the Water?

September 1, 2018

The only possible output of this system is extortion as a way of life.

As the accompanying chart shows, productivity in the U.S. has been declining since the early 2000s. This trend mystifies economists, as the tremendous investments in software, robotics, networks and mobile computing would be expected to boost productivity, as these tools enable every individual who knows how to use them to produce more value.

One theory holds that the workforce has not yet learned how to use these tools, an idea that arose in the 1980s to explain the decline in productivity even as personal computers, desktop publishing, etc. entered the mainstream.
A related explanation holds that institutions and corporations are not deploying

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Here’s How We Ended Up with Predatory, Parasitic Elites

August 29, 2018

Combine financialization, neoliberalism and moral bankruptcy, and you end up with predatory, parasitic elites.
How did our financial and political elites become predatory parasites? Some will answer that elites have always been predatory parasites; as tempting as it may be to offer a blanket denunciation of elites, this overlooks the eras in which elites rose to meet existential crises.Following in Ancient Rome’s Footsteps: Moral Decay, Rising Wealth Inequality(September 30, 2015)
As historian Peter Turchin explained in his book War and Peace and War: The Rise and Fall of Empires, the value of sacrifice was a core characteristic of the early Republic’s elite:
“Unlike the selfish elites of the later periods, the

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To Understand America’s Neofeudal Economy, Start with Extortion

August 28, 2018

Here is the result of America’s neofeudalism: soaring wealth and income inequality.
Let’s spin the time machine back to the late Middle Ages, at the height of feudalism, and imagine we’re trying to get a boatload of goods to the nearest city to sell. As we drift down the river, we’re constantly being stopped and charged a fee for transiting one small fiefdom after another. When we finally reach the city, there’s an entry fee for bringing our goods to market.
Note that none of these fees were payments for improvements to transport or for services rendered; they were simply extortion. This was the economic structure of feudalism: petty fiefdoms levied extortionate fees that funded the lifestyles of nobility.
This is

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How “Wealthy” Would We Be If We Stopped Borrowing Trillions Every Year?

August 24, 2018

These charts reflect a linear system that is wobbling into the first stages of non-linear destabilization.
The widespread presumption is the U.S. is wealthy beyond words, and will remain so as far as the eye can see: wealthy enough to fund trillion-dollar weapons systems, trillion-dollar endless wars, multi-trillion dollar Medicare for all, multi-trillion dollar Universal Basic Income, and so on, in an endless profusion of endless trillions.
Just as a thought experiment, let’s ask: how “wealthy” would we be if we stopped borrowing trillions of dollars every year? Or put another way, how “wealthy” would we be if the rest of the world stops buying our trillions in newly issued bonds, mortgages, auto loans, etc.?
The

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If You Want to Survive this Election with Your Mental Health Intact, Turn Off the “News” and Social Media Now

August 19, 2018

If you want to preserve your sanity and avoid unhappy derangement, turn off all corporate and social media from now to Thanksgiving.
Since elections are extremely profitable for traditional media / social media corporations, your sanity will gleefully be sacrificed in the upcoming election–if you are gullible enough to watch the “news” and tune into social media.Elections are extremely profitable because candidates spend scads of cash on media adverts.
The greater the discord and derangement, the higher the media profits. The more outraged you let yourself become, the more time you spend online, generating insane profits for the corporations that own whatever platforms you’re addicted to.
Seeking an echo chamber of

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Our “Prosperity” Is Now Dependent on Predatory Globalization

August 15, 2018

Nowadays, trade and “prosperity” are dependent on currencies that are created out of thin air via borrowing or printing.
So here’s the story explaining why “free” trade and globalization create so much wonderful prosperity for all of us: I find a nation with cheap labor and no environmental laws anxious to give me cheap land and tax credits, so I move my factory from my high-cost, highly regulated nation to the low-cost nation, and keep all the profits I reap from the move for myself. Yea for free trade, I’m now far wealthier than I was before.That’s the story. Feel better about “free” trade and globalization now? Oh wait a minute, there’s something missing–the part about “prosperity for all of us.” Here’s labor’s

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The Fantasy of “Balanced Returns” Funding Retirement

August 9, 2018

Consider how a “balanced portfolio” yielding “balanced returns” worked out for middle class retirees in Venezuela.
The fantasy that a “balanced portfolio” yielding “balanced returns” will fund a stable retirement for decades to come is widely accepted as a sure thing: inflation will stay near-zero essentially forever, assets such as stocks and bonds will continue yielding hefty income and capital gains, and all the individual or fund needs to do is maintain a “balanced portfolio” of various asset classes that yield “balanced returns,” i.e. some safe “value” lower-yield returns and some higher risk “growth” returns.
This fantasy is based on the belief that yields will exceed real inflation for decades to come. That

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We’ll Pay All Those Future Obligations by Impoverishing Everyone (How to Destroy Our Currency In One Easy Lesson)

August 7, 2018

The only way to pay all these future obligations is by creating new money.
I’ve been focusing on inflation, which is more properly understood as the loss of purchasing power of a currency, which when taken to extremes destroys the currency and the wealth/income of everyone forced to use that currency.
The funny thing about the loss of a currency’s purchasing power is that it wipes out every holder of that currency, rich and not-so-rich alike. There are a few basics we need to cover first to understand how soaring future obligations–pensions, healthcare, entitlements, interest on debt, etc.–lead to a feedback loop which will hasten the loss of purchasing power of our currency, the US dollar.
1. As I have explained

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The 21st Century Misery Index: Labor’s Share of the Economy and Real-World Inflation

August 3, 2018

Isn’t it obvious that those at the top of the wealth-power pyramid don’t want us to know how much ground we’ve lost while they’ve gorged on immense gains?
In the late 1970s and early 1980s, an era of stagflation, the Misery Index was the unemployment rate plus inflation, both of which were running hot.
Now those numbers are at 50-year lows: both the unemployment rate and inflation are about as low as they can go, reaching levels not seen since the mid-1960s. (See chart below)
By these measures, the U.S. economy’s Misery Index has never been lower and hence prosperity has never been higher or more widespread.
But this simply isn’t true: the top 5% are indeed doing better than ever but the bottom 80% are losing

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Here’s What We’ve Lost in the Past Decade

July 31, 2018

The confidence and hubris of those directing the rest of us to race off the cliff while they watch from a safe distance is off the charts.
The past decade of “recovery” and “growth” has actually been a decade of catastrophic losses for our society and nation. Here’s a short list of what we’ve lost:
1. Functioning markets. Free markets discover price and assess risk. What passes for markets now are little more than signaling devices to convince us the economy is doing spectacularly well. It is doing spectacularly well, but only for the top .1% of 1% and the class of managerial/technocrat flunkies and apologists who serve the interests of the top .1%.
2. Genuine Virtue. Parading around a slogan or online accusation,

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Here’s How Systems (and Nations) Fail

July 29, 2018

These embedded processes strip away autonomy, equating compliance with effectiveness even as the processes become increasingly counter-productive and wasteful.
Would any sane person choose America’s broken healthcare system over a cheaper, more effective alternative? Let’s see: the current system costs twice as much per person as the healthcare systems of our developed-world competitors, a medication to treat infantile spasms costs $8 per vial in Europe and $38,892 in the U.S., and by any broad measure, the health of the U.S. populace is declining.
This is how systems and nations fail: nobody chose the current broken system, but now it can’t be changed because the incentive structure locks in embedded

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When Long-Brewing Instability Finally Reaches Crisis

July 28, 2018

Keep an eye on the system’s buffers. They look fine until they suddenly collapse.
The doom-and-gloomers among us who have been predicting the unraveling of an inherently unstable financial system appear to have been disproved by the reflation of yet another credit-asset bubble. But inherently unstable / imbalanced systems can stumble onward for years or even decades, making fools of all who warn of an eventual reset.
Destabilizing systems can cling on for decades, as the inevitable crisis doesn’t necessarily resolve the instability. History shows that when systems had enough inherent wealth to draw upon, they could survive for centuries, thinning their resources, adaptability and buffers until their reservoirs were

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The Imperial Naivete of the American Public

July 24, 2018

The nation’s premier corporate profit engines / social media giants are the ideal platforms for undermining the U.S. via the sowing of disintegration.
Whether it’s stated or not, one source of the inchoate outrage triggered by Russian-sourced purchases of adverts on Facebook in 2016 (i.e. “meddling in our election”) is the sense that the U.S. is sacrosanct due to our innate moral goodness and our Imperial Project: never mind that the intelligence agencies of all great powers (including the U.S.) meddle in the domestic affairs and elections of other nations, including those of allies as well as geopolitical rivals– no other great power should ever meddle with U.S. domestic affairs and elections.
In effect, meddling in

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