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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

Housing’s Echo Bubble Now Exceeds the 2006-07 Bubble Peak

27 days ago

If you need some evidence that the echo-bubble in housing is global, take a look at this chart of Sweden’s housing bubble.

A funny thing often occurs after a mania-fueled asset bubble pops: an echo-bubble inflates a few years later, as monetary authorities and all the institutions that depend on rising asset valuations go all-in to reflate the crushed asset class.
Take a quick look at the Case-Shiller Home Price Index charts for San Francisco, Seattle and Portland, OR. Each now exceeds its previous Housing Bubble #1 peak:

US S&P Case-Shiller SF Home Price Index, 1980 – 2017(see more posts on S&P 500 Index, U.S. Case Shiller Home Price Index, ) – Click to enlarge

Is an asset bubble merely in the eye of the beholder? This is what the multitudes of monetary authorities (central banks, realty industry analysts, etc.) are claiming: there’s no bubble here, just a “normal market” in action.
This self-serving justification–a bubble isn’t a bubble because we need soaring asset prices–ignores the tell-tale characteristics of bubbles.

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Who Will Live in the Suburbs if Millennials Favor Cities?

April 27, 2017

Who’s going to pay bubble-valuation prices for the millions of suburban homes Baby Boomers will be off-loading in the coming decade as they retire/ downsize?
Longtime readers know I follow the work of urbanist Richard Florida, whose recent book was the topic of Are Cities the Incubators of Decentralized Solutions?(March 14, 2017).
Florida’s thesis–that urban zones are the primary incubators of technological and economic growth–is well-supported by data that shows that the large urban regions (NYC, L.A., S.F. Bay Area, Seattle, Minneapolis,etc.) generate the majority of GDP and wage gains.
Cities have always attracted capital, talent and people rich and poor alike.Indeed, “city” is the root of our word “civilization.” So in this sense, Florida is simply confirming the central role cities have played for millennia.

America’s Economic Output – Click to enlarge

More recently, Florida has addressed the rising wealth/income inequality that is making desirable urban areas unaffordable to all but the top 10% or even 5% wage earners. This is a critical concern, because vitality is a function of diversity: a city of wealthy elites paying low wages to masses of service workers is not an economic powerhouse.

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Our State-Corporate Plantation Economy

April 26, 2017

We’ve been persuaded that the state-cartel Plantation Economy is “capitalist,” but it isn’t. It’s a rentier skimming machine.
I have often discussed the manner in which the U.S. economy is a Plantation Economy, meaning it has a built-in financial hierarchy with corporations at the top dominating a vast populace of debt-serfs/ wage slaves with little functional freedom to escape the system’s neofeudal bonds.
Since I spent some of my youth in a classic Plantation town (and worked on the plantation as a laborer in summer), the concept of a Plantation Economy is not an abstraction to me, but a living analogy of the way our economy works.
Wal-Mart and the Plantation Economy (August 24, 2010)
Colonizing the Plantation of the Mind (August 25, 2010)
We Need a Social Economy, Not a Hyper-Financialized Plantation Economy (November 12, 2015)
Loving Our Servitude in America’s Plantation Economy (February 10, 2017)
The Plantation Economy is extremely hierarchical. Corporations and the state are both extremely hierarchical.
In the Plantation Economy, the Company has access to nearly unlimited credit.Small businesses serving the employees and the employees have enough credit to live on but not enough to buy productive assets. As a result, the Corporation can always buy up any productive assets, expanding its monopoly.

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Marx, Orwell and State-Cartel Socialism

April 23, 2017

When “socialist” states have to impose finance-capital extremes that even exceed the financialization of nominally capitalist economies, it gives the lie to their claims of “socialism.”
OK, so our collective eyes start glazing over when we see Marx and Orwell in the subject line, but refill your beverage and stay with me on this. We’re going to explore the premise that what’s called “socialism”–yes, Scandinavian-style socialism and its variants–is really nothing more than finance-capital state-cartel elitism that has done a better job of co-opting its debt-serfs than its state-cartel “capitalist” cronies.
We have to start with the question “what is socialism”? The standard definition is: a political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.
In practice, the community as a whole is the state. Either the state owns a controlling interest in the enterprise, or it controls the surplus (profits), labor rules, etc. via taxation and regulation.

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Our Intellectual Bankruptcy: The “Religion” of Economics, UBI and Medicare For All

April 23, 2017

1. Mainstream neo-classical/ Keynesian economics. As economist Manfred Max-Neef notes in this interview, neo-classical/ Keynesian economics is no longer a discipline or a science–it is a religion.
It demands a peculiar faith in nonsense: for example, the environment–Nature– is merely a subset of the economy. When we’ve stripped the seas of wild fish (and totally destroyed the ecology of the oceans), no problem–we’ll substitute farmed fish, which are in economic terms, entirely equal to wild fish.
In other words, the natural world cannot be valued in our current mock-science religion of economics.
Other absurdities abound. Stripping the seas of wild fish adds to GDP, so it’s all good, right? Dismantling newly constructed buildings and building a replacement structure also adds to GDP, so it’s an excellent source of “growth.”
As Max-Neef points out, conventional economists have absolutely no understanding of poverty. If you need a sobering account of just how this abject willful ignorance works in the real world, I recommend reading The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good.
Gail Tverberg (among others) has shown how the existing economic model no longer makes sense of the actual economy we inhabit: The Economy Is Like a Circus.

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The Left’s Descent to Fascism

April 19, 2017

The Left is morally and fiscally bankrupt, devoid of coherent solutions, and corrupted by its embrace of the Corporatocracy.
History often surprises us with unexpected ironies. For the past century, the slide to fascism could be found on the Right (conservative, populist, nationalist political parties).
But now it’s the Left that’s descending into fascism, and few seem to even notice this remarkable development. By Left I mean socialist-leaning, progressive, internationalist/globalist political parties.
What is fascism? There is no one tidy definition, but it has three essential elements:
1) State and corporate elites govern society and the economy as one unified class.
2) This status quo (i.e. The Establishment) seeks to impose a conformity of values and opinion that support the dominant narratives of the status quo via the mass (corporate) media and the state-controlled educational system.
3) Dissent from any quarter is suppressed via mass-media ridicule, the judicial crushing and silencing of whistleblowers, and all the other powers of the central state: rendition, extra-legal imprisonment, political gulags (in our era, disguised as drug-war gulags), character assassination, murder by drone, impoverishing dissenters via firings and blacklists, and on and on.

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Millennials Are Abandoning the Postwar Engines of Growth: Suburbs and Autos

April 14, 2017

Where’s the growth going to come from as the dominant generation makes less, borrows less, spends less, saves more and turns away from long commutes, malls and suburban living and abandons the worship of private vehicles?
If anything defined the postwar economy between 1946 and 1999, it was the exodus of the middle class from cities to suburbs and the glorification of what Jim Kunstler calls Happy Motoring: freeways, cars and trucks, ten lanes of private vehicles, the vast majority of which are transporting one person.
Ol’ 55 (freeway cars and trucks) (written by Tom Waits, performed by The Eagles)
The build-out of suburbia drove growth for decades: millions of new suburban homes, miles of new freeways, sprawling shopping malls, and tens of millions of new autos, trucks, and SUVs, transforming one-car households into three vehicle households. Then there was all the furnishings for those expansive new homes, and the credit necessary to fund the homes, vehicles, furnishings, etc.
Now the Millennial generation is turning its back on both of these bedrock engines of growth. As various metrics reveal, the Millennials are fine with taking Uber to work, buying their shoes from Zappos (return them if they don’t fit, no problem), and making whatever tradeoffs are necessary to live in urban cores.

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Who’s Playing The Long Game–and What’s Their Game Plan?

April 13, 2017

Take a moment to consider the Neocon camp’s over-reaction to the inchoate challenge to its dominance posed by the Trump administration.
When we speak of The Long Game, we speak of national/alliance policies that continue on regardless of what political party or individual is in office. The Long Game is always about the basics of national survival: control of and access to resources, and jockeying to diminish the power and influence of potential adversaries while strengthening one’s own power and influence.
As I have been discussing for years, there are inevitable conflicts within the inner circle that executes The Long Game within each nation/alliance. In periods of active confrontation, the various factions tend to rally round the core game plan–for example, in the Cold War with the USSR, the U.S. Long Game was containment. Anyone arguing for all-out war or appeasement was quickly marginalized.
In eras in which everything is up for grabs, these internecine conflicts broaden and intensify. We are in just such an era. This is why I have consistently claimed that the group responsible for playing America’s Long Game–the Deep State–is now splitting into two main camps:
1. The dominant Neocon camp that seeks to actively intervene on a global basis (mostly civilian).
2.

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When the “Solutions” Become the Problems

April 4, 2017

Those benefiting from these destructive “solutions” may think the system can go on forever, but it cannot go on when every “solution” becomes a self-reinforcing problem that amplifies all the other systemic problems.
We are living in an interesting but by no means unique dynamic in which the solutions to problems such as slow growth and inequality have become the problems. This is a dynamic I have often discussed in various contexts. In essence, a solution that was optimized for an earlier era and situation is repeatedly applied to the present–but the present is unlike the past, and the old solution is no longer optimized to current conditions.
The old solution isn’t just a less-than-optimal solution; it actively makes the problem worse.
As a result, the old solution becomes a new problem that only exacerbates the current difficulties. The status quo strategy is not to question the efficacy of the old solution–it is to apply the old solution in heavier and heavier doses, on the theory that if only we increase the dose, it will finally resolve the problem.
Take borrowing from the future, i.e. debt, as a prime example of this dynamic.

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Do the Roots of Rising Inequality Go All the Way Back to the 1980s?

April 1, 2017

Unless we change the fundamental structure of the economy so that actually producing goods and services and hiring people is more profitable than playing financial games with phantom assets, the end-game of financialization is financial collapse.

I presented this chart of rising wealth inequality a number of times over the past year. Do you notice something peculiar about the inflection points in the 1980s?

US Household Wealth, 1917 – 2017(see more posts on U.S. Household Debt, ) – Click to enlarge

Correspondent W.S. noted that the inflection point for the top .1% (late 1970s) preceded the inflection point of the bottom 90% (around 1986): both increased their share of household wealth from 1978 to 1986, and then the share of the top .1% took off, essentially tripling from 8% to over 22%, while the share of the bottom fell precipitously from 36% to 23%.

(Note that the data stops at 2012; if we extend the trends to the present, the lines have certainly crossed and the share of the .1% now exceeds that of the bottom 90%.)

US Household Wealth, 1917 – 2017(see more posts on U.S. Household Debt, ) – Click to enlarge

So what happened between 1978 and 1986? The first phase of the financialization of the U.S. economy.

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Forget ObamaCare, RyanCare, and any Future ReformCare-the Healthcare System Is Completely Broken

March 27, 2017

It’s time to start planning for what we’ll do when the current healthcare system implodes.
As with many other complex, opaque systems in the U.S., only those toiling in the murky depths of the healthcare system know just how broken the entire system is. Only those dealing daily with the perverse incentives, the Kafkaesque procedures, the endlessly negative unintended consequences, the soul-deadening paper-shuffling, the myriad forms of fraud, the recalcitrant patients who don’t follow recommendations but demand to be magically returned to health anyway, and of course the hopelessness of the financial future of a system with runaway costs, a rapidly aging populace and profiteering cartels focused on maintaining their rackets regardless of the cost to the nation or the health of its people.
Ask any doctor or nurse, and you will hear first-hand how broken the system is, and how minor policy tweaks and reforms cannot possibly save the system from imploding. Based on my own first-hand experience and first-hand reports by physicians, here are a few of the hundreds of reasons why the system cannot be reformed or saved.
Say 6-year old Carlos gets a tummy-ache at school. To avoid liability, the school doesn’t allow teachers to provide any care whatsoever.

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The Deep State’s Dominant Narratives and Authority Are Crumbling

March 26, 2017

This is why the Deep State is fracturing: its narratives no longer align with the evidence.
As this chart from Google Trends illustrates, interest in the Deep State has increased dramatically in 2017. The term/topic has clearly moved from the specialist realm to the mainstream. I’ve been writing about the Deep State, and specifically, the fractures in the Deep State, for years.
[embedded content]
Amusingly, now that “Progressives” have prostituted themselves to the Security Agencies and the Neocons/Neoliberals, they are busy denying the Deep State exists. For example, There is No Deep State (The New Yorker).
In this risible view, there is no Deep State “conspiracy” (the media’s favorite term of dismissal/ridicule), just a bunch of “good German” bureaucrats industriously doing the Empire’s essential work of undermining democracies that happen not to prostrate themselves at the feet of the Empire, murdering various civilians via drone strikes, surveilling the U.S. populace, planting bugs in new iPhones, issuing fake news while denouncing anything that questions the dominant narratives as “fake news,” arranging sweetheart deals with dictators and corporations, and so on.

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The Deep State’s Dominant Narratives and Authority Are Crumbling

March 24, 2017

This is why the Deep State is fracturing: its narratives no longer align with the evidence.
As this chart from Google Trends illustrates, interest in the Deep State has increased dramatically in 2017. The term/topic has clearly moved from the specialist realm to the mainstream. I’ve been writing about the Deep State, and specifically, the fractures in the Deep State, for years.
[embedded content]
Amusingly, now that “Progressives” have prostituted themselves to the Security Agencies and the Neocons/Neoliberals, they are busy denying the Deep State exists. For example, There is No Deep State (The New Yorker).
In this risible view, there is no Deep State “conspiracy” (the media’s favorite term of dismissal/ridicule), just a bunch of “good German” bureaucrats industriously doing the Empire’s essential work of undermining democracies that happen not to prostrate themselves at the feet of the Empire, murdering various civilians via drone strikes, surveilling the U.S. populace, planting bugs in new iPhones, issuing fake news while denouncing anything that questions the dominant narratives as “fake news,” arranging sweetheart deals with dictators and corporations, and so on.

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Solutions Abound–on the Local Level

March 20, 2017

Rather than bemoan the inevitable failure of centralized “fixes,” let’s turn our attention and efforts to the real solutions: decentralized, networked, localized.
Those looking for centralized solutions to healthcare, jobs and other “macro-problems” will suffer inevitable disappointment. The era in which further centralization provided the “solution” has passed: additional centralization (Medicare for All, No Child Left Behind, federal job training, Universal Basic Income, central banking “free money for financiers”, etc.) have all entered Diminishing Returns.
The systemic costs of centralization–corruption, cronyism, soaring prices, declining quality, over-reach, insider rackets, regulatory capture by corporations and oligarchs– are soaring as the benefits of centralization plummet.
ObamaCare was the penultimate flowering of centralization: every self-serving healthcare cartel and racket had a say in the centralized sausage-making, and the results were entirely predictable: highly profitable to the healthcare cartels and rackets, and soaring costs that rendered the program unaffordable.

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Now That Everyone’s Been Pushed into Risky Assets…

March 16, 2017

A funny thing happened on the way to a low-risk environment: loans in default (non-performing loans) didn’t suddenly become performing loans.
If we had to summarize what’s happened in eight years of “recovery,” we could start with this: everyone’s been pushed into risky assets while being told risk has been transformed from something to avoid (by buying risk-off assets) to something you chase to score essentially guaranteed gains (by buying risk-on assets).

The successful strategy for eight years has been buy the dips because risk-on assets always recover and hit new highs: housing, stocks, bonds, bat guano futures–you name it.
Those who bought the dip in hot housing markets have seen spectacular gains since 2011. Those who bought every dip in the stock market have been richly rewarded, and those buying bonds expecting declining yields have until recently logged reliable gains.
The only asset class that’s lower than it was in 2011 is the classic risk-off asset: precious metals.
Investors who avoided risk-on assets–stocks, bonds, REITs (real estate investment trusts) and housing in hot markets–have been clubbed, while those who piled on the leverage to buy every dip have been richly rewarded.
Those who bet volatility–once a fairly reliable reflection of risk–would finally rise have been wiped out.

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The Next Domino to Fall: Commercial Real Estate

March 12, 2017

Unless the Federal Reserve intends to buy up every dead and dying mall in America, this is one crisis that the Fed can’t bail out with a few digital keystrokes.
Just as generals prepare to fight the last war, central banks prepare to battle the last financial crisis–which in the present context means a big-bank liquidity meltdown like the one that nearly toppled thr global financial system in 2008-09.
Planning to win the next war by assuming it will be a copy of the last confict is an excellent strategy for losing the next war. The same holds true for the next financial crisis: reckoning that it will be a repeat of 2008 is an excellent way to be caught completely off-guard.
Crises may rhyme, but they don’t repeat. The next Global Financial Meltdown won’t start in subprime mortgages–that sector has been wiped out, written down, or passed on to the poor tax-donkey taxpayers.
The next crisis also won’t arise on money-center banks, either. Central banks have figured out how to bail out the banks, and have rebuilt the bank balance sheets by stripping hundreds of billions of dollars in interest from savers.
(Sorry, widows and orphans–your interest income had to be transferred to the big banks.

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Are Central Banks Losing Control?

March 11, 2017

Eight years after the crisis of 2008-09, central banks are still injecting $200 billion a month into the global financial system to keep it from imploding.
If you want a central banker to choke on his croissant, read him this quote from socio-historian Immanuel Wallerstein: “Countries (have lost the ability) to control what happens to them in the ongoing life of the modern world-system.”
Stated another way, Wallerstein is asking: what do central banks no longer control?
The quote is from Wallerstein’s recent meditation on China: China is Confident: How Realistic?
“The question is how realistic is this self-assessment of China? There are two premises embedded in China’s self-confidence, whose validity need to be investigated. The first is that countries, or rather the governments of states, can actually control what is happening to them in the world-economy. The second is that countries can effectively contain popular discontent, whether by suppression or by limited concessions to demands.
If this was ever even partially true in the modern world-system, these assertions have become very dubious in the structural crisis of the world capitalist system in which we find ourselves today.

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Are Central Banks Losing Control?

March 11, 2017

Eight years after the crisis of 2008-09, central banks are still injecting $200 billion a month into the global financial system to keep it from imploding.
If you want a central banker to choke on his croissant, read him this quote from socio-historian Immanuel Wallerstein: “Countries (have lost the ability) to control what happens to them in the ongoing life of the modern world-system.”
Stated another way, Wallerstein is asking: what do central banks no longer control?
The quote is from Wallerstein’s recent meditation on China: China is Confident: How Realistic?
“The question is how realistic is this self-assessment of China? There are two premises embedded in China’s self-confidence, whose validity need to be investigated. The first is that countries, or rather the governments of states, can actually control what is happening to them in the world-economy. The second is that countries can effectively contain popular discontent, whether by suppression or by limited concessions to demands.
If this was ever even partially true in the modern world-system, these assertions have become very dubious in the structural crisis of the world capitalist system in which we find ourselves today.

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Why Is the Cost of Living so Unaffordable?

March 3, 2017

Strip away the centralized power that protects and funds cartels, and prices would plummet.
The mainstream narrative is “the problem is low wages.” Actually, the problem is the soaring cost of living. If essentials such as healthcare, housing, higher education and government services were as cheap as they once were, a wage of $10 or $12 an hour would be more than enough to maintain a decent everyday life.
Here are some examples from the real world. In 1952, it cost $30 to have a baby in an excellent hospital. If we adjust that by official inflation as measured by the Bureau of Labor Statistic’s inflation calculator to 2017, the cost would be $275. ($1 in 1952 = $9.16 in 2017).
What does it cost to have a baby delivered in a hospital today? $5,000? $10,000? Who even knows, given the convoluted billing process in today’s sickcare system?
The pharmaceutical cartel jacks up medication costs per dose from $3 tp $600, even when the medication has been around for decades: the Pinworm prescription jumps from $3 to up to $600 a pill Parents, doctors angry over drug price gouging (via John F.)
My father paid 1.8% of his wages for “hospital group insurance” in the early 1950s (for a household of four kids and two adults.

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Virtue-Signaling the Decline of the Empire

February 28, 2017

Virtue-signaling doesn’t signal virtue–it signals decline and collapse.
There are many reasons why Imperial Rome declined, but two primary causes that get relatively little attention are moral decay and soaring wealth inequality. The two are of course intimately connected: once the morals of the ruling Elites degrade, the status quo seeks to mask its self-serving rot behind high-minded “virtue-signaling” appeals to past glories and cost-free idealism.
Virtue signaling is defined as “the conspicuous expression of moral values by an individual done primarily with the intent of enhancing that person’s standing within a social group,” “the practice of publicly expressing opinions or sentiments intended to demonstrate one’s good character or the moral correctness of one’s position on a particular issue” and “Saying you love or hate something to show off what a virtuous person you are, instead of actually trying to fix the problem.” Yes, yes and yes.
“Virtue-signaling” expresses two other key characteristics of an empire in terminal decline: complacency and intellectual sclerosis.

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There’s a Difference: Fake News and Junk News

February 25, 2017

Media junkies on the tragic path to extinction believe the junk news, non-junkies see through the manipulation.
The mainstream media continues peddling its “fake news” narrative like a desperate pusher whose junkies are dying from his toxic dope. It’s slowly dawning on the media-consuming public that the MSM is the primary purveyor of “fake news”– self-referential narratives that support a blatantly slanted agenda with unsupported accusations and suitably anonymous sources.
Many of these Fake News Narratives are laughably, painfully bogus: that President Trump is a Russian tool, to take a current example. (That President Obama was a tool of the neocon Deep State–no mention of that. According to the MSM, America doesn’t even have a Deep State–har-har…the joke’s on you if you are credulous enough to swallow this risible absurdity.)
But the real danger isn’t fake news–it’s junk news. Junk News (the title of a 2009 book by an Emmy Award–winning journalist– Junk News: The Failure of the Media in the 21st Century) —is related to Junk Science and Junk Food.
Junk science is presented as “science” but cherry-picks data to support a specific but unstated agenda–an agenda that requires downplaying or overlooking conflicting data.
One common example of junk science is the approval of new medications by the FDA.

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The Problem with Gold-Backed Currencies

February 23, 2017

Any currency is only truly “backed by gold” if it is convertible to gold.
There is something intuitively appealing about the idea of a gold-backed currency -money backed by the tangible value of gold, i.e. “the gold standard.”
Instead of intrinsically worthless paper money (fiat currency), gold-backed money would have real, enduring value-it would be “hard currency”, i.e. sound money, because it would be convertible to gold itself.
Many proponents of sound money identify President Nixon’s ending of the U.S. dollar’s gold standard in 1971 as the cause of the nation’s financial decline. If our currency was still convertible to gold, the thinking goes, the system would never have allowed the vast pile of debt to accumulate.
The problem with this line of thinking is that it is disconnected from the real-world mechanisms of capital flows and the way money is created in our financial system.
This article explains why Nixon took the USD off the gold standard: since the U.S. was running trade deficits, all of America’s gold would have been transferred to the exporting nations. America’s gold reserves would have disappeared, leaving nothing to back the dollar. The U.S. Empire Would Have Collapsed Decades Ago If It Didn’t Abandon The Gold Standard.

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The Criminalization of Financial Independence

February 22, 2017

Independent enterprises are a source of political and financial independence–and any independent class is dangerous to the ruling elites.
Just as the “war on drugs” criminalized and destroyed large swaths of African-American and Latino communities, the “war on cash” will further criminalize the few remaining avenues to financial independence and freedom. The introduction of “entitlement” welfare in the 1960s generated a toxic dependency on the state that institutionalized worklessness, a one-two punch that undermined marriage and family in America’s working class of all ethnicities.
The “war on drugs” launched in the 1970s turned millions of American males into felons with severely restricted rights and opportunities in mainstream America.
Now we see the same destructive pattern repeating with “disability” being the new “welfare” and “legal” synthetic heroin (oxycotin etc.) being the new street-smack that lays waste to entire communities. Once you’re dependent on the state for disability and synthetic smack, you are owned by the government, lock, stock and barrel.
When the temptation to sell your $3 Medicaid prescription for synthetic smack for a quick $1000 becomes too much to resist, bang, you’ve got a one-way ticket into the Hell of America’s criminal “justice” system.

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This Is How the Status Quo Unravels: As the Pie Shrinks, Everybody Demands Their Piece Should Get Bigger

February 17, 2017

Fragmentation, discord, discontent, class war: this is the inevitable result of a shrinking pie.
The politics of the past 70 years was all about horsetrading who got what share of the growing pie: the “pie” being cheap energy, government revenues and consumption, sales and profits.
Horsetrading over a growing pie is basically fun. There’s always a little increase left for the losers, so there is a reason for everyone to cooperate in a broad political consensus.
Horsetrading over a shrinking pie is not fun. Everybody is shrilly demanding their piece of the pie should either grow or be left untouched; any cuts must come out of someone else’s slice.
Everyone turns on their most compelling emotion-based defense: “we wuz promised” is a reliable standard, as is “we need more money to defend the nation from the rising threat of XYZ.” “Help those in need” plays the heartstrings effectively–as long as the “help” comes out of somebody else’s pocket.
Everyone sharpens their knives, the better to carve a slice off somebody else’s slice of the pie. A passive-aggressive free-for-all ensues as everyone reacts with aggrieved defensiveness to any attempt to diminish their slice, even as they launch shrill attacks on everyone else’s defense.

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Want to Bring Back Jobs? It’s Impossible Unless We Fix these Four Things

February 14, 2017

It’s your choice, America–you can keep your cartels and the captured government that enables and protects them, or you can fix what’s broken and unaffordable.
If there is any goal that might attract support from across the political spectrum, it’s creating more fulltime jobs in the U.S. But this laudable goal is dead-on-arrival (DOA) unless we first fix these four things. Why is job growth stagnating? Many point to automation, and yes, that is a systemic dynamic that will only expand going forward.
But much of the stagnation is the direct result of the high costs and structural failures in these four inputs to the job market. U.S. healthcare costs more than twice as much per person as healthcare per person in our advanced-economy competitors. Why would anyone open a business in a nation so poorly run that healthcare costs twice as much as it does everywhere else?
The American people are not healthy. Obesity / obesity-related diseases and opiate addiction are both epidemic. Workers struggling with lifestyle-caused chronic diseases cost more to hire and to help.
If you set out to destroy the nation’s ability to create jobs, you’d impose the unaffordable healthcare system we have, and the overly complex and costly tax / regulation system we have.

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The Colonization of Local-Business Main Street by Corporate America

February 9, 2017

This is what our mode of production optimizes: ugliness, debt-serfdom, and servitude to politically dominant corporations.
An insightful correspondent recently remarked on the striking transition of American neighborhoods from commercial districts dominated by locally owned businesses to streets lined with look-alike outlets of Corporate America. This transition is so obvious that few even comment on it, much less ask if this wholesale replacement is in the best interests of residents and consumers.

I have long suggested starting any inquiry with a simple question: cui bono— to whose benefit? Let’s add a second essential question: what does the system optimize?
By this I mean: what is optimized by the infrastructure, regulations, political structure, etc.–what we call the mode of production.
I think it’s abundantly clear that our mode of production optimizes large-scale global corporations, which have access to the capital and expertise needed to optimize production, management, employee training and discipline, supply chains and the purchase of political influence.

Corporate Profits After Tax 1950 – 2016 – Click to enlarge

The net result of nearly-free credit for corporations is a Corporatocracy that constantly expands its financial and political power.

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The Central Banks Pull Back: Now It’s Up to Fiscal Policy to “Save the World”

February 8, 2017

Another problem is the rise of social discord, for reasons that extend beyond the reach of tax reductions and increased infrastructure spending.
Have you noticed that the breathless anticipation of the next central bank “save” has diminished? Remember when the financial media was in a tizzy of excitement, speculating on what new central bank expansion would send the global markets higher in paroxysms of risk-on joy?
Those days are gone. Nowadays, central banks cautiously continue the bond buying programs they’ve had in place for years, but their policy initiatives are tepid at best: they talk about expanding asset-buying programs to include more stocks, or discuss notching interest rates higher in some cases; but the talk is subdued, as expectations are being consciously lowered.
The reason central bankers are pulling back from their previous “we can do no wrong, we’re saving the world” expansion is those policies have failed to bolster the real economy. Even conventional economists who never met a central bank expansion they didn’t love are grudgingly conceding that quantitative easing and all the other monetary expansions did little but make the rich richer and everyone else poorer. (see wealth chart below for data confirming this.

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Expropriation and Impoverishment: “Capitalist” Greece and “Socialist” Venezuela

February 7, 2017

Neocolonial “capitalist paradise” or crony “socialist paradise”: the net result is the same: expropriation and impoverishment.

Yesterday I noted that not all assets will make it through the inevitable financial re-set. ( Which Assets Are Most Likely to Survive the Inevitable “System Re-Set”?)
Those that are easy to expropriate will be expropriated, and those assets vulnerable to soaring taxes, inflation and currency devaluation will also be hollowed out.
There are two real-time examples of these dynamics we can profitably study: “capitalist” Greece and “socialist” Venezuela. Both nations have impoverished their citizenry to preserve an oligarchy and its cronies.
I hope it won’t be too great a shock that crony-capitalism and crony-socialism function in much the same fashion and generate the same result: the wealth of the nation is funneled (or expropriated) into the ruling Elites, impoverishing the non-elites.
The mechanisms differ in appearance but they produce the same results: expropriation and impoverishment. In Greece, two Ruling Elites stripmined the nation: the big European banks and the domestic oligarchs and their functionaries in the state.

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Which Assets Are Most Likely to Survive the Inevitable “System Re-Set”?

February 6, 2017

Your skills, knowledge and and social capital will emerge unscathed on the other side of the re-set wormhole. Your financial assets held in centrally controlled institutions will not.

Longtime correspondent C.A. recently asked a question every American household should be asking: which assets are most likely to survive the “system re-set” that is now inevitable? It’s a question of great import because not all assets are equal in terms of survivability in crisis, when the rules change without advance notice.
If you doubt the inevitability of a system implosion/re-set, please read Is America In A Bubble (And Can It Ever Return To “Normal”)? This brief essay presents charts that reveal a sobering economic reality: America is now dependent on multiple asset bubbles never popping-something history suggests is not possible.
It isn’t just a financial re-set that’s inevitable–it’s a political and social re-set as well. For more on why this is so, please consult my short book Why Our Status Quo Failed and Is Beyond Reform.

Share of Gross Domestic Income: Compensation of employees – Click to enlarge

The charts below describe the key dynamics driving a system re-set. Earned income (wages) as a share of GDP has been falling for decades: this means labor is receiving a diminishing share of economic growth.

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The Central Banks Face Unwelcome Realities: Their Policies Boosted Wealth Inequality, Failed to Generate “Growth”

February 5, 2017

Rather than be seen to be further enriching the rich, I think central banks will start closing the “free money for financiers” spigots.
Take a quick glance at these charts of the Federal Reserve balance sheet and bank credit in the U.S. Notice what happened to bank credit after the Fed “tapered” and stopped expanding its balance sheet?

U.S. Fed Summary – Click to enlarge

Bank credit exploded higher:

U.S. Bank Credit – Click to enlarge

Now look at corporate profits:
Once the Fed ended its $3.7 trillion “experiment” of vastly expanding its money-creation and bond-buying in early 2014, what happened to bank credit? Bank credit had expanded by a bit over $1 trillion in the early years of the Fed’s quantitative easing, but it really took off after QE3 ended, soaring roughly $2 trillion.
This was the policy goal all along: the Fed would do the heavy lifting to keep credit and the financial markets from imploding, and eventually private-sector credit would expand enough to fuel a self-sustaining recovery.

National Income Corporate Profits – Click to enlarge

While measures of employment and production have lofted higher, productivity, profits and wages for the bottom 95% have all stagnated. Is it coincidental than corporate profits began weakening once the Fed’s QE3 ended? Perhaps.

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