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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

Consumer Spending Will Not Rebound–Here’s Why

5 days ago

Any economy that concentrates its wealth and income in the top tier is a fragile economy.
There are two structural reasons why consumer spending will not rebound, no matter how “open” the economy may be. Virtually everyone who glances at headlines knows the global economy is lurching into either a deep recession or a full-blown depression, depending on the definitions one is using. Everyone also knows the stock market has roared back as if nothing has happened.
While most financial pundits have accepted that a V-shaped recovery is not possible, few (if any) observers have discussed two factors that will cause consumer spending to crash harder than generally expected:
1. The top 10% of households account for about half of all consumer spending, and these are the

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The Collapse of Main Street and Local Tax Revenues Cannot Be Reversed

9 days ago

The core problem is the U.S. economy has been fully financialized, and so costs are unaffordable.
To understand the long-term consequences of the pandemic on Main Street and local tax revenues, we need to consider first and second order effects. The immediate consequences of lockdowns and changes in consumer behavior are first-order effects: closures of Main Street, job losses, massive Federal Reserve bailouts of the top 0.1%, loan programs for small businesses, stimulus checks to households that earned less than $200,000 last year, and so on.
The second-order effects cannot be bailed out or controlled by central authorities. Second-order effects are the result of consequences have their own consequences.
The first-order effects of the pandemic on Main Street are

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The Way of the Tao Is Reversal

13 days ago

As Jackson Browne put it: Don’t think it won’t happen just because it hasn’t happened yet.
We can summarize all that will unfold in the next few years in one line: The way of the Tao is reversal. This is the opening line of Chapter 40 of Lao Tzu’s 5,000-character commentary on the Tao, The Tao Te Ching. There are many translations of this slim volume, and for a variety of reasons I favor the 1975 translation by my old professor at the University of Hawaii, Chang Chung-yuan (1907-1988), whom I would occasionally see doing Tai Chi late at night on his front yard in Manoa Valley.
Professor Chang–who would often write Chinese characters on the blackboard with great energy to make a point–rendered this line in English as Reverse is the movement of Tao. Others have

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Surviving 2020 #3: Plans A, B and C

15 days ago

Readers ask for specific recommendations for successfully navigating the post-credit/speculative-bubble era and I try to do so while explaining the impossibility of the task.
As the bogus prosperity economy built on exponential growth of debt implodes, we all seek ways to protect ourselves, our families and our worldly assets. There are any number of websites, subscription services and books which offer two basic “practical recommendations:”
1. Buy gold (and/or silver) and don’t worry about timing the market as everything else will become worthless.
2. Establish a heavily armed and well-supplied hideaway before everything implodes.
My problem with these suggestions is that they are predicated on a decisive “end of the world as we know it” collapse of

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Where the Rubber Meets the Road

19 days ago

Longtime correspondent Paul B. suggested I re-publish three essays that have renewed relevance. This is the second essay, from July 2008. Thank you, Paul, for the suggestion.
I received this timely inquiry from astute reader Paul B.:
I’m interested in # 1, while you seem to take into account 300 million people in your writings–would you comment on rubber-meets-the-road impacts and proactive actions we can take to help shield ourselves (and our local communities) from the economic problems we’re facing?
Would you consider including concrete actions “average” people could take to protect themselves in one of your future columns? I’d certainly appreciate it and I bet many others would, too. (emphasis added, CHS)
That’s big challenge but I’ll give it a shot. None of

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The Art of Survival, Taoism and the Warring States

20 days ago

Longtime correspondent Paul B. suggested I re-publish three essays that have renewed relevance. This is the first essay, from June 2008. Thank you, Paul, for the suggestion.
I’m not trying to be difficult, but I can’t help cutting against the grain on topics like surviving the coming bad times when my experience runs counter to the standard received wisdom.
A common thread within most discussions of surviving bad times–especially really bad times–runs more or less like this: stockpile a bunch of canned/dried food and other valuable accoutrements of civilized life (generators, tools, canned goods, firearms, etc.) in a remote area far from urban centers, and then wait out the bad times, all the while protecting your stash with an array of weaponry and technology

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Why Assets Will Crash

21 days ago

This is how it happens that boats that were once worth tens of thousands of dollars are set adrift by owners who can no longer afford to pay slip fees.
The increasing concentration of the ownership of wealth/assets in the top 10% has an under-appreciated consequence: when only the top 10% can afford to buy assets, that unleashes an almost karmic payback for the narrowing of ownership, a.k.a. soaring wealth and income inequality: assets crash.
Most of you are aware that the bottom 90% own very little other than their labor (tradeable only in full employment) and modest amounts of home equity that are highly vulnerable to a collapse of the housing bubble.
(The same can be said of China’s middle class, only more so, as 75% of China’s household wealth is in real

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With Superfluous Demand in Free-Fall, What’s the Upside of Re-Opening a Small Business?

27 days ago

Since superfluous demand was the core driver of most consumer spending, and that demand is in free-fall, what’s the upside of re-opening?
The mainstream view assumes everyone will be gripped by an absolutely rabid desire to return to their pre-pandemic frenzy of borrowing and spending and consuming, the more the better. While the urge to believe the Titanic scraping the iceberg will have no consequence and the collision was nothing but a spot of bother is compelling (so party on!), many people will reassess their pre-pandemic lives and ask: do I really want to go back to circling the pavement in a dead end?
Being away from the crazy-busy churn invites reassessment, especially for small business owners who are facing the near-certainty of uncertain sales and

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The Crash Has Only Just Begun

28 days ago

Everything, including a rational, connected-to-reality, effective financial system, is on back-order and unlikely to ship any time soon.
While the stock market euphorically front-runs the Fed and a V-shaped recovery, the reality is the crash has only just begun. To understand why, look at income and debt. Income–earned and unearned–is in free-fall, while debt–which must be serviced by income–is exploding higher.
Bailouts are not a permanent substitute for income. In the short-term, bailouts–in the form of payments to everyone who’s lost their source of earned income, i.e. their job–is a necessary substitute for lost income. But longer term, subsidizing income with borrowed money weakens the currency and the economy, as productivity stagnates.
As for servicing

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Overcapacity / Oversupply Everywhere: Massive Deflation Ahead

April 19, 2020

The price of a great many assets will crash, out of proportion to the decline in demand.
Oil is the poster child of the forces driving massive deflation: overcapacity / oversupply and a collapse in demand. Overcapacity / oversupply and a collapse in demand are not limited to the crude oil market; rather, they are the dominant realities in the global economy.
Yes, there are shortages in a few high-demand areas such as PPE (personal protective equipment), but across the entire spectrum of global supply and demand, there is nothing but a vast sea of overcapacity / oversupply and a systemic decline in demand as far as the eye can see.
Here’s a partial list of commodities that are in Overcapacity / oversupply:
1. Overvalued assets
2. Overpriced income streams (as

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Between a Rock and a Hard Place: Pandemic and Growth

April 18, 2020

There is no way authorities can limit the coronavirus and restore global growth and debt expansion to December 2019 levels.
Authorities around the world are between a rock and a hard place: they need policies that both limit the spread of the coronavirus and allow their economies to “open for business.” The two demands are inherently incompatible, and so neither one can be fulfilled.
The problem is the intrinsic natures of the virus and the global economy. This virus is highly contagious during its asymptomatic phase, which is long (5 to 20 days), and therefore impossible to control with the conventional tools of identifying people with symptoms and isolating them, and tracking their contacts with others.
While there is much we do not know for certainty about

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There’s No Going Back, We Can Only Go Forward

April 14, 2020

What I see is a global collapse of intangible capital that is invisible to most people.
It’s only natural that the conventional expectation is a return to the pre-pandemic world is just a matter of time. Whether it’s three months or six months or 18 months, “the good old days” will return just as if we turned back the clock.
I think the situation is much more akin to being injured. Since I worked for decades in construction, I’ve had numerous potentially serious injuries, including slipping off roofs, being perched on ladders that fell, my finger sliced open by a steel stud, high winds peeling a heavy sheet of plywood off a stack and sending it flying into me, etc.
Immediately after impact, your first instinct is to assess how badly you’re injured.
Of course we

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Buy The Tumor, Sell the News

April 13, 2020

The fictitious valuation of the stock market will eventually re-connect with reality in a violent decline.
No, buy the tumor, sell the news ™ is not a typo: the stock market is a lethal tumor in our economy and society. Buy the rumor, sell the news encapsulates the old traders’ wisdom that markets rise on the sizzle of hope, promises, projections, Federal Reserve pimping (see below), tax cuts, etc. etc. etc., not on the actual steak of sales and profits.
Buy the tumor, sell the news ™ encapsulates the fatal sickness of the past 20 years of “buy the dip because the Fed has our back”, the toxic certainty that the Fed will never let the stock market decline to fair value because that would reduce the wealth of the Fed’s cronies: the banks, the parasitic corporate

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If Lockdown Is a Needless Over-Reaction, Then Why Did China Lockdown Half its Economy?

April 6, 2020

Recall that the initial deaths and related costs are only the first-order effects; policy makers have to consider the second-order effects.
Everyone who reckons that the lockdown is needless and more destructive than the pandemic that triggered it has to answer this question: then why did China lockdown half its economy?
The reasoning of those who reckon the lockdown is needless can be summarized as follows:
1. The lockdown is based on poorly executed extrapolations of faulty data; the death rate is much lower than expected, and most cases are mild or asymptomatic.
2. Therefore, the lockdown is doing far more economic damage than simply letting the pandemic run its course.
3. Alternatively, the pandemic and the lockdown are planned operations of elites, the goal

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When Bulls Are Over-Anxious to Catch the Rocketship Higher, This Isn’t the Bottom

April 5, 2020

Everyone with any position in today’s market will be able to say they lived through a real Bear Market.
In the echo chamber of a Bull Market, there’s always a reason to get bullish: the consumer is spending, housing is strong, the Fed has our back, multiples are expanding, earnings are higher, stock buybacks will push valuations up, and so on, in an essentially endless parade of self-referential reasons to buy, buy, buy and ride the rocketship higher.
The classic Bull Market reason to get extremely bullish is, yes, bearish sentiment: sentiment is terrible, and bearish sentiment is the surefire marker of a stock market bottom.

The more bearish the sentiment, the more reasons to get bullish and start buying with abandon: max out the margin account, hock the farm,

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The Wonderful Insanity of Globalization

April 2, 2020

So here’s an April Fools congrats to globalization’s many fools.
The tradition here at Of Two Minds is to make use of April Fool’s Day for a bit of parody or satire, but I’m breaking with tradition and presenting something that is all too real but borders on parody: the wonderful insanity of globalization.
Like the famous emperor with no clothing, globalization’s countless glorious benefits have been flogged by neoliberal elites and its corporate media shills with such relentlessly manic enthusiasm (let’s call it what it is: a form of greed-fueled insanity) that the average worker has come to accept the wonderfulness of globalization as a natural force much like gravity: it’s inescapable.
Meanwhile, the globalization emperor has no clothes. Globalization has

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The New (Forced) Frugality

March 30, 2020

There are only two ways to survive a decline in income and net worth: slash expenses or default on debt.
In post-World War II America, the cultural zeitgeist viewed frugality as a choice: permanent economic growth and federal anti-poverty programs steadily reduced the number of people in deep economic hardship (i.e. forced frugality) and raised the living standards of those in hardship to the point that the majority of households could choose to be frugal or live large by borrowing money to enable additional spending.
Either way, rising income and net worth would raise all ships, frugal and free-spending alike.
For everyone above the bottom 20%, frugality was viewed as a sliding scale of choice: if you couldn’t increase your income fast enough, then borrow

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The Pandemic Is Accelerating the Breakdown That Began a Decade Ago

March 26, 2020

The feedback loop has reversed: by saving more, people will spend, borrow and speculate less, draining the fuel from any broadbased expansion.
In eras of confidence and certainty, people save less and spend more freely. When we’re confident that good times are not only here but will continue, we not only spend more freely, we’re more inclined to borrow money and speculate on the shimmering promises of more good times ahead.
In eras of uncertainty, people save more and spend, borrow and speculate less. There is an obvious feedback loop here: if people feel confident about their future prospects and have a measure of certainty about the general economic trend, they spend more, borrow more and speculate more, all of which feed the expansive mood that then encourages

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Helicopter Money: Short-Term Relief Won’t Cure our Financial Disease

March 24, 2020

Gordon and I discuss these topics in this 37-minute video:
The collateral supporting the global mountain of debt is crumbling as speculative bubbles deflate.
A great many freebies are being tossed in the Helicopter Money basket. That households experiencing declines in income need immediate support is obvious, as is the need to throw credit lifelines to small businesses. But beyond those essentials, the open-ended nature of Helicopter Money has unleashed a frenzy of political favors and giveaways that have little to do with helping households and everything to do with rewarding favored cronies, cartels and interest groups.
As Gordon Long and I explain, the short-term “pain relief” of Helicopter Money won’t cure the economy’s financial disease; rather, it will act

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The System Will Not Return to “Normal,” and That’s Good; We Can Do Better

March 23, 2020

Essential home lockdown reading.
The pandemic is revealing to all what many of us have known for a long time: the status quo was designed to fail and so its failure was not just predictable but inevitable.
We’ve propped up a dysfunctional, wasteful and unsustainable system by pouring trillions of dollars in borrowed money down a multitude of ratholes to avoid a reckoning and a re-set. And very predictably, that’s the “solution” to the unraveling triggered by the pandemic: borrow more trillions and pour most of it down the same old ratholes.
Here’s what we should be talking about: the entire global system desperately needs a re-set. We can do better, and we should do better. That’s what I’ve been writing about for the past 12 years.
To further the discussions we

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The Global Repricing of Assets Can’t Be Stopped

March 19, 2020

All bubbles pop, period.
The financial elites are pushing a narrative that asset prices, sales and profits will all return to January 2020 levels as soon as the Covid-19 pandemic fades. Get real, baby. Nothing is going back to January 2020 levels. Rather than the “V-shaped recovery” expected by Goldman Sachs et al., the crash in asset prices will eventually gather momentum.
Why? It’s simple: for 20 years we’ve over-invested in speculative bubbles and squandered borrowed money on consumption and under-invested in productivity-increasing assets. To understand why the market value of assets will relentlessly reprice lower–a process sure to be interrupted with manic rallies and false dawns of hope that a return to speculative good times is just around the corner–let’s

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Covid-19 Helicopter Money: Go Big Now or Go Home

March 17, 2020

This is why it’s imperative to go big now, and make plans to sustain the most vulnerable households and small employers not for two weeks but for six months–or however long proves necessary.
That governments around the world will be forced to distribute “helicopter money” to keep their people fed and housed and their economies from imploding is already a given. Closing all non-essential businesses and gatherings will crimp the livelihood of millions of households and small businesses that lack the financial resources to survive weeks without any revenues.
The only question is whether governments which can borrow or print fresh currency will get ahead of the implosion or fall behind, creating a binary choice: go big now or go home.
Half-measures in helicopter money

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The Covid-19 Dominoes Fall: The World Is Insolvent

March 16, 2020

Subtract their immense debts and they have negative net worth, and therefore the market value of their stock is zero.
To understand why the financial dominoes toppled by the Covid-19 pandemic lead to global insolvency, let’s start with a household example. The point of this exercise is to distinguish between the market value of assets and net worth, which is what’s left after debts are subtracted from the market value of assets.
Let’s say the household has done very well for itself and owns assets worth $1 million: a home, a family business, 401K retirement accounts and a portfolio of stocks and other investments.
The household also has $500,000 in debts: home mortgage, auto loans, student loans and credit card balances.
The household net worth is thus $1,000,000

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Goodbye to All That: The Demise of Globalization and Imperial Pretensions

March 15, 2020

The decline phase of the S-Curve is just beginning.
Globalization and Imperial Pretensions have been decaying for years; now the tide has turned definitively against them. The Covid-19 pandemic didn’t cause the demise of globalization and Imperial Pretensions; it merely pushed the rickety structures over the edge.
It’s human nature to reckon the current trend will continue running more or less forever, and that temporal, contingent structures are permanent. Globalization flourished because a unique set of conditions created fertile ground for the transfer of production to China and other emerging economies and the global expansion of the magic elixir of skyrocketing consumption, credit.
Credit-starved economies which are suddenly flooded with credit (for example,

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And Then Came the Lawsuits: Pandemic in a Litigious Society

March 12, 2020

This is the upside of hyper-litigiousness: prevention is prioritized as the most effective means of limiting future liability.
Never mind prevention or vaccines; the big question is “who can we sue after this blows over to rake in millions of dollars?” Yes, this is pathetic, tragic, perverse and evil, but that’s reality in a hyper-litigious society like the U.S.
Many people are struck by the apparent over-reaction of Corporate America to the Covid-19 threat, but this is the only rational response in a hyper-litigious society: the number one priority in a hyper-litigious society is to limit liability. Everything–and yes, we mean everything–flows from this obsessive concern with limiting future liability.
Imagine the lawsuit brought by an employee of Corporate

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What the Fed Can Do: Print and Buy, Buy, Buy

March 9, 2020

Everyone with a pension fund or 401K invested in stocks better hope the Fed becomes the buyer of last resort, and soon.
Much has been written about what the Federal Reserve cannot do: it can’t stop the Covid-19 pandemic or reverse the economic damage unleashed by the pandemic.
But let’s not overlook what the Fed can do: create U.S. dollars out of thin air and use these dollars to buy assets either directly or through proxies.
Let’s also not overlook how much the Fed can print/buy. The Fed’s balance sheet currently stands at $4.24 trillion.
Doubling this to $8.5 trillion would bring the balance sheet to 39% of U.S. GDP ($22 trillion) and 7.5% of total U.S. household assets ($113 trillion). In the context of GDP and household assets, doubling the balance sheet would

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The Gathering Storm: Could Covid-19 Overwhelm Us in the Months Ahead?

March 6, 2020

Either the science is wrong and the complacent will be proven correct, or the science is correct and the complacent will be wrong.
The present disconnect between the science of Covid-19 and the status quo’s complacency is truly crazy-making, as we face a binary situation: either the science is correct and all the complacent are wrong, or the science is false and all the complacent are correct that the virus is no big deal and nothing to fret about.
Complacency is ubiquitous: readers on Facebook leave comments on my posts “this is silly.” Correspondents report that people don’t even cover their mouths when coughing, much less use a tissue.
People keep repeating like a mantra that a bad flu season kills 35,000 in the U.S. alone, and so why worry about a couple

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Did Covid-19 Just Pop All the Global Financial Bubbles?

March 3, 2020

Once confidence and certainty are lost, the willingness to expand debt and leverage collapses.
Even though the first-order effects of the Covid-19 pandemic are still impossible to predict, it’s already possible to ask: did the pandemic pop all the global financial bubbles? The reason we can ask this question is the entire bull mania of the 21st century has been based on a permanently high rate of expansion of leverage and debt.
The lesson of the 2008-09 Global Financial meltdown was clear: any decline in the rate of debt/leverage expansion is enough to threaten financial bubbles, and any absolute decline in debt and leverage will unleash a cascade that collapses all the speculative bubbles in stocks, real estate, collectibles, etc.
What’s the connection between

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The Limits of Force: A Bayonet in the Back Will Not Restore China’s Economy

March 2, 2020

Force cannot restore legitimacy, trust or confidence, nor can it magically erase the consequences of a still-unfolding national trauma.
The Chinese authorities threatening to punish workers who refuse to return to work are getting a lesson in the limits of force in an unprecedented national trauma: a bayonet in the back will not restore the legitimacy and confidence that have been lost.
There are two enormous blind spots in conventional media coverage of the pandemic:
1. The limits of force in restoring China’s economy to pre-pandemic levels.
2. The longer term (i.e. second-order) consequences of the immense trauma experienced by the Chinese people.
While the media focuses on questionable statistics and economic claims–factories are already back to 60% capacity,

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Could the Covid-19 Pandemic Collapse the U.S. Healthcare System?

February 29, 2020

Disregard these second-order effects at your own peril.
A great many systems that are assumed to be robust are actually fragile. Exhibit #1 is the global financial system, of course, but Exhibit #2 may well be the healthcare system globally and in the U.S.
Observers have noted that the number of available beds in U.S. hospitals is modest compared to the potential demands of a pandemic, and others have wondered who will pay the astronomical bills that will be presented to those who are treated for severe cases of Covid-19, as the U.S. system routinely generates bills of $100,000 and up for a few days in a hospital. Costs of $250,000 or more per patient for weeks of intensive care treating Covid-19 cannot be dismissed as “impossible.”
Beyond the possibility that the

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