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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 This Why Productivity Has Tanked and Wealth Inequality Has Soared?

6 days ago

Needless but highly profitable forced-upgrades are the bread and butter of the tech industry.
One of the enduring mysteries in conventional economics (along with why wages for the bottom 95% have stagnated) is the recent decline in productivity gains (see chart). Since gains in productivity are the ultimate source of higher wages, these issues are related. Simply put, advances in productivity are core to widespread prosperity.

US Productivity Growth, 1980 – 2016 – Click to enlarge
But that’s only half the problem–productivity gains have flowed to the top of the income-wealth pyramid as financialization and cartels have replaced real-world wealth creation as the source of wealth-income.

Cumulative Change, 1945

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Forget the Bogus Republican “Reform”: Here’s What Real Tax Reform Would Look Like

7 days ago

The point is to end the current system in which billionaires get all the privileges and financial benefits of owning assets in the U.S. but don’t pay taxes that are proportional to the benefits they extract.
As has been widely noted, the Republicans’ proposed “tax reform” is not only just more BAU (business as usual, i.e. cut taxes for the wealthy), it’s also not real reform. At best, it’s just another iteration of D.C. policy tweaks packaged for PR purposes as “reform.”
You want real tax reform? This is what real tax reform would look like:
1. Shred the entire 2,700 page tax code and replace it with a 25-page code. As I explained in The Fetid Swamp of Tax Reform (November 10, 2017), the 2,700 page current tax code

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The Fetid Swamp of Tax Reform

8 days ago

The likelihood that either party will ever drain the fetid swamp of corruption that is our tax code is zero, because it’s far too profitable for politicos to operate their auction for tax favors.
To understand the U.S. tax code and the endless charade of tax reform, we have to start with four distasteful realities:
1. Ours is not a representational democracy, it’s a political auction in which wealth casts the votes that count. Those seeking political influence over issues such as taxation place their bids in the political auction via campaign contributions and lobbying. The winner of the political auction gets favorable treatment, and everyone else ends up subsidizing the gains of the winner.
2. The wealthy pay the

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Where are Europe’s Fault Lines?

9 days ago

Beneath the surface of modern maps, numerous old fault lines still exist. A political earthquake or two might reveal the fractures for all to see.
Correspondent Mark G. and I have long discussed the potential relevancy of old boundaries, alliances and structures in Europe’s future alignments.Examples include the Holy Roman Empire and the Hanseatic League, among others.
In the long view, Europe has cycled between periods of consolidation and fragmentation for two millennia, starting with the Roman Empire and its dissolution. Various mass movements of tribes/peoples led to new political structures and alliances, and a dizzying range of leaders rose to power and schemed their way through an equally dizzying array of

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Our Culture of Rape

10 days ago

These are the poisoned fruits of a neofeudal system in which power, wealth and political influence are concentrated in the apex of the wealth-power pyramid.
Stripped of pretense, ours is a culture of rape. Apologists for the system that spawned this culture of rape claim that this violence is the work of a few scattered sociopaths. The apologists are wrong: The system generates a culture of rape.
The engine of our culture of rape is the elevation of the entitled-insider class to untouchability: they are above the law, and more equal than others in their freedom to impose every sick sociopathology known to humanity on the powerless peasants imprisoned in our noxious neofeudal system.
For the true sickness of our

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How Will Bitcoin React in a Financial Crisis Like 2008?

14 days ago

If the ownership of bitcoin is as concentrated as some estimate, then the liquidity issue distills down to the actions of the top tier of owners.
Whenever I raise the topic of bitcoin and cryptocurrencies, I feel like an agnostic in the 30 Years War between Catholics and Protestants. There is precious little neutral ground in the crypto-is-a-bubble battle; one side is absolutely confident that bitcoin and the other cryptocurrencies are in a tulip-bulb type bubble, while the other camp is equally confident that we ain’t seen nuthin’ yet in terms of bitcoin’s future valuation.
I’ve stated here more than once that in my view the real value of bitcoin will only be revealed in a financial/market crisis/crash like

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Let’s Clear Up One Confusion About Bitcoin

14 days ago

If bitcoin can be converted into fiat currencies at a lower transaction cost than the fiat-to-fiat conversions made by banks and credit card companies, it’s a superior means of exchange.
One of the most common comments I hear from bitcoin skeptics goes something like this: Bitcoin isn’t real money until I can buy a cup of coffee with it.
In other words, bitcoin fails the first of the two core tests of “money”: that it is a means of exchange and a store of value. If we can’t buy a cup of coffee with bitcoin, it obviously doesn’t qualify as a means of exchange.
The confusion here is the same one that plagues the conventional understanding of the foreign exchange markets: people confuse exchange and convertibility,

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The Big Reversal: Inflation and Higher Interest Rates Are Coming Our Way

16 days ago

This interaction will spark a runaway feedback loop that will smack asset valuations back to pre-bubble, pre-pyramid scheme levels.
According to the conventional economic forecast, interest rates will stay near-zero essentially forever due to slow growth. And since growth is slow, inflation will also remain neutral.
This forecast is little more than an extension of the trends of the past 30+ years: a secular decline in interest rates and official inflation, which remains around 2% or less. (As many of us have pointed out for years, the real rate of inflation is much higher–in the neighborhood of 7% annually for those exposed to real-world costs.)
The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August

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What’s Driving Social Discord: Russian Social Media Meddling or Soaring Wealth/Power Inequality?

18 days ago

The nation’s elites are desperate to misdirect us from the financial and power dividethat has enriched and empowered them at the expense of the unprotected many.

– Click to enlarge

There are two competing explanatory narratives battling for mind-share in the U.S.:
1. The nation’s social discord is the direct result of Russian social media meddling– what I call the Boris and Natasha Narrative of evil Russian masterminds controlling a vast conspiracy of social media advertising, fake-news outlets and trolls that have created artificial divides in the body politic, or exacerbated minor cracks into chasms.
2. The nation’s social discord is the direct result of soaring wealth/power inequality– the vast expansion of

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What the Kennedy Assassination Records Reveal: Uncontrollable Incompetence

19 days ago

Imagine Harvey Weinstein wielding a “top secret” stamp to block any exposure of the uncomfortable truth and you have the FBI, CIA and NSA.
One way to interpret the intelligence community’s reluctance to let all the Kennedy assassination archives become public is that the archives contain evidence of a “smoking gun”: that is, evidence that the intelligence agencies of the United States of America were complicit in the assassination of the President.
I think the agencies fear something larger: exposure of their gross incompetence, their “cowboy” recklessness and their disavowal of elected-civilian control. Their fear of this exposure is based on one simple fact: nothing’s changed since 1963. They were unaccountable and

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Observations on Wealth-Income Inequality (from Federal Reserve Reports)

20 days ago

There’s a profound difference between assets that produce no income and those that produce net income.
To those of us nutty enough to pore over dozens of pages of data on wealth and income in the U.S., the Federal Reserve’s quarterly Z.1 reports and annual Survey of Consumer Finances (SCF) are treasure troves, as are I.R.S. tax and income reports.
Allow me to share a few observations on family wealth and income drawn from my review of these documents:
Changes in U.S. Family Finances from 2013 to 2016 (42 pages)
Financial Accounts of the United States (198 pages)
Corporate profits clock in at $2.135 trillion annually, around 11% of the nation’s GDP (gross domestic product). (Page 10 of Z.1) This has changed very

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Where To Invest When (Almost) Everything’s in a Bubble

21 days ago

Many things that are scarce and thus valuable cannot be bought on the global marketplace.
Now that almost every asset class is in a bubble, the question of where to invest one’s capital has become particularly vexing. The ashes of wealth consumed by the 2008-09 Global Financial Meltdown are still warm, at least to those who never recovered, and so buying assets at nosebleed valuations in the hopes of earning another 5% aren’t very compelling to anyone pursuing common-sense risk management.
As it happens, I wrote a whole book on this vexing question, An Unconventional Guide to Investing in Troubled Times.
I can’t summarize all the ideas presented in the book in one brief blog entry, but some basic principles will

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What Could Pop The Everything Bubble?

22 days ago

As central bank policies are increasingly fingered by the mainstream as the source of soaring wealth-income inequality, policies supporting credit/asset bubbles will either be limited or cut off, and at that point all the credit/asset bubbles will pop.
I’ve long held that if a problem can be solved by creating $1 trillion out of thin air and buying a raft of assets with that $1 trillion, then central banks will solve the problem by creating the $1 trillion out of thin air—nothing could be easier.
This is the lesson of the past eight years: if a problem can be solved by creating new money and buying assets, then central banks will solve that problem.
Problem: stock market is declining. Solution: create new money and

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Stagnation Nation: Middle Class Wealth Is Locked Up in Housing and Retirement Funds

24 days ago

The majority of middle class wealth is locked up in unproductive assets or assets that only become available upon retirement or death.
One of my points in Why Governments Will Not Ban Bitcoin was to highlight how few families had the financial wherewithal to invest in bitcoin or an alternative hedge such as precious metals.
The limitation on middle class wealth isn’t just the total net worth of each family; it’s also how their wealth is allocated: the vast majority of most middle class family wealth is locked up in the family home or retirement funds.
This chart provides key insights into the differences between middle class and upper-class wealth. The majority of the wealth held by the bottom 90% of households is in

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Why Governments Will Not Ban Bitcoin

26 days ago

Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are snapping up most of the bitcoin.
To really understand an asset, we have to examine not just the asset itself but who owns it, and who can afford to own it. These attributes will illuminate the political and financial power wielded by the owners of the asset class.
And once we know what sort of political/financial power is in the hands of those owning the asset class, we can predict the limits of political restrictions that can be imposed on that ownership.
As an example, consider home ownership, i.e. ownership of a principal residence. Home ownership topped out in 2004, when over 69% of all

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Which Rotten Fruit Falls First?

October 23, 2017

I predict the current investigations will widen and take a variety of twists and turns that surprise all those anticipating a tidy, narrowly focused denouement.
The theme this week is The Rot Within.
To those of us who understand the entire status quo is rotten and corrupt to its core, the confidence of each ideological camp that their side will emerge unscathed by investigation is a source of amusement. The fake-progressives (fake because these so-called “progressives” support Imperial over-reach and a status quo whose only possible output is soaring wealth and income inequality) are confident that a “smoking gun” of corruption will deliver their most fervent dream, the impeachment of President Trump, while Trump

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GDP Is Bogus: Here’s Why

October 22, 2017

Here’s a chart of our fabulous always-higher GDP, adjusted for another bogus metric, official inflation.
The theme this week is The Rot Within.
The rot eating away at our society and economy is typically papered over with bogus statistics that “prove” everything’s getting better every day in every way. The prime “proof” of rising prosperity is the Gross Domestic Product (GDP), which never fails to loft higher, with the rare excepts being Spots of Bother (recessions) that never last more than a quarter or two.
Longtime correspondent Dave P. of Market Daily Briefing recently summarized the key flaw in GDP: GDP doesn’t reflect changes in the balance sheet, i.e. debt.
So if we borrow money to pay people to dig holes and

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Fraud, Exploitation and Collusion: America’s Pharmaceutical Industry

October 22, 2017

The rot within manifested by the pharmaceutical industry almost defies description.
The theme this week is The Rot Within.
America’s Pharmaceutical industry takes pride of place in this week’s theme of The Rot Within, as the industry has raised fraud, exploitation and collusion to systemic perfection.
What other industry can routinely kill hundreds of thousands of Americans and suffer no blowback? Only recently has the toll of needless deaths from the opioid pandemic finally roused a comatose corporate media and bought-and-paid-for, see-no-evil Congress to wonder if maybe there should be some limits placed on Big Pharma and its drug distributors.
The Drug Industry’s Triumph Over the DEA (WaPo)
Explosive ’60 Minutes’

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The Fading Scent of the American Dream

October 18, 2017

The theme this week is The Rot Within.
It’s been 10 years since I devoted a week to the theme of The Rot Within (September 17, 2007). Back in 2007, I listed 16 systemic sources of rot in our society, politics and economy; none have been fixed. Instead, the gaping holes have been filled with Play-Do and hastily painted to create the illusion of shiny solidity.
We live in a simulacrum society in which the fading scent of the American Dream is more a collective memory kept alive for political purposes than a reality. Even more disturbing, the difference between a phantom prosperity (or in homage to the Blade Runner film series, shall we say a replicant prosperity?) and real prosperity has been blurred by layers of

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About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service

October 17, 2017

The quality, durability, utility and enjoyment-of-use of our products and services has been plummeting for years.
One of the more mysterious aspects of the official inflation rate is the hedonic quality adjustments that the Bureau of Labor Statistics makes to the components of the Consumer Price Index (CPI).
The basic idea is that when innovations improve the utility (and pleasure derived from) a product, the price is adjusted to reflect this improvement.
So if television screens become larger, while the price per TV remains the same, the hedonic quality adjustment adjusts the price down when calculating the CPI.
In other words, since we’re getting more for our money–more quality, more features, more goodies, more

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Migration of the Tax Donkeys

October 16, 2017

Dear local leadership: here’s the formula for long-term success.
A Great Migration of the Tax Donkeys is underway, still very much under the radar of the mainstream media and conventional economists. If you are confident no such migration of those who pay the bulk of the taxes could ever occur, please consider the long-term ramifications of these two articles:
Stanford Says Soaring Public Pension Costs Devastating Budgets For Education And Social Services
Which American Cities Will File Bankruptcy Next?
Allow me to summarize for those who aren’t too squeamish: a lot of cities and counties are going to go broke, slashing services and jacking up taxes, all to no avail. The promises made by corrupt politicos cannot

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Are You Better Off Than You Were 17 Years Ago?

October 15, 2017

We tend to measure what’s easily measured (and supports the status quo) and ignore what isn’t easily measured (and calls the status quo into question).
If we use gross domestic product (GDP) as a broad measure of prosperity, we are 160% better off than we were in 1980 and 35% better off than we were in 2000. Other common metrics such as per capita (per person) income and total household wealth reflect similarly hefty gains.

But are we really 35% better off than we were 17 years ago, or 160% better off than we were 37 years ago? Or do these statistics mask a pervasive erosion in our well-being? As I explained in my book Why Our Status Quo Failed and Is Beyond Reform, we optimize what we measure, meaning that once a

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The Consent of the Conned

October 12, 2017

Every single line item in our entire Bernie Madoff scam of a system is cooked.
My theme this week is The Great Unraveling, by which I mean the unraveling of our social-political-economic system of hierarchical, centralized power. Let’s start by looking at how the basis of governance has transmogrified from consent of the governed to consent of the conned.
In effect, our leadership leads by lying. As we know, when it gets serious, you have to lie to preserve the perquisites and power of those atop the wealth-power pyramid, and well, it’s serious all the time now, so lies are the default setting of the entire status quo.
But all too many of us are willing to accept the lies because they’re what we want to hear.
As any

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Be Careful What You Wish For: Inflation Is Much Higher Than Advertised

October 10, 2017

What the Federal Reserve is actually whining about is not low inflation–it’s that high inflation isn’t pushing wages higher like it’s supposed to.
It’s not exactly a secret that real-world inflation is a lot higher than the official rates–the Consumer Price Index (CPI) and Personal Consumption Expenditures PCE). As many observers have pointed out, there are two primary flaws in the official measures of inflation:
1. Big-ticket expenses such as rent, healthcare and higher education–expenses that run into the thousands or tens of thousands of dollars annually–are severely underweighted or mis-reported. While rents are soared, the CPI uses an arcane (and misleading) measure of housing costs: owners equivalent rent. Why

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What If the Tax Donkeys Rebel?

October 8, 2017

I would hazard a guess that an increasing number of tax donkeys are considering dropping out as a means of increasing their happiness and satisfaction with life.
Since federal income taxes are in the spotlight, let’s ask a question that rarely (if ever) makes it into the public discussion: what if the tax donkeys who pay most of the tax rebel? There are several likely reasons why this question rarely arises.
1. Most commentators may not realize that the vast majority of income taxes are paid by the top 10%–and that roughly 60% are paid by the top 4% of households. (A nice example of the Pareto Distribution, i.e. the 80/20 rule, which can be extended to the 64/4 rule.)
As David Stockman noted in Trump’s 1,500-word

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Surprise! The Rules Will Change (But Not to Your Benefit)

October 6, 2017

These expedient fixes end up crippling the mechanisms that are needed to actually solve the systemic sources of the crisis.
We can add a third certainty to the two standard ones (death and taxes): The rules will suddenly change when a financial crisis strikes.
Why is this a certainty? The answer is complex, as it draws on human nature, politics and the structure of societies/economies ruled by centralized states (governments).
The Core Imperative of the State: Expand Control
As I explain in my book, Resistance, Revolution, Liberation, the core (i.e. ontological) imperative of every central state is to expand its reach and control.  This isn’t just the result of individuals within the state seeking more power; every

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This Chart Defines the 21st Century Economy

October 4, 2017

There is nothing inevitable about such vast, fast-rising income-wealth inequality; it is the only possible output of our financial and pay-to-play political system.
One chart defines the 21st century economy and thus its socio-political system: the chart of soaring wealth/income inequality. This chart doesn’t show a modest widening in the gap between the super-wealthy (top 1/10th of 1%) and everyone else: there is a veritable Grand Canyon between the super-wealthy and everyone else, a gap that is recent in origin.

Household Income Inequality, 1980 – 2014 – Click to enlarge

Notice that the majority of all income growth now accrues to the the very apex of the wealth-power pyramid. This is not mere chance, it is

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Stagnation Is Not Just the New Normal–It’s Official Policy

October 4, 2017

Japan is a global leader is how to gracefully manage stagnation.
Although our leadership is too polite to say it out loud, they’ve embraced stagnation as the new quasi-official policy. The reason is tragi-comically obvious: any real reform would threaten the income streams gushing into untouchably powerful self-serving elites and fiefdoms.
In our pay-to-play centralized form of governance, any reform that threatens the skims, privileges and perquisites of existing elites and fiefdoms is immediately squashed, co-opted or watered down.
So the power structure of the status quo has embraced stagnation as a comfortable (except to those on the margins) and controllable descent that avoids the unpleasantness and uncertainty

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Dear Jamie Dimon: Predict the Crash that Takes Down Your Produces-Nothing, Parasitic Bank and We’ll Listen to your Bitcoin “Prediction”

September 20, 2017

This is the begging-for-the-overthrow-of-a-corrupt-status-quo economy we have thanks to the Federal Reserve giving the J.P. Morgans and Jamie Dimons of the world the means to skim and scam the bottom 95%.

Dear Jamie Dimon: quick quiz: which words/phrases are associated with you and your employer, J.P. Morgan? Looting, pillage, rapacious, exploitive, only saved from collapse by massive intervention by the Federal Reserve, the source of rising wealth inequality, crony capitalism, privatized profits-socialized losses, low interest rates = gift from savers to banks, bloviating overpaid C.E.O., propaganda favoring the financial elite, tool of the top .01%, destroyer of democracy, financial fraud goes unpunished, free

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Yes, This Time It Is Different: But Not in Good Ways

September 18, 2017

Yes, this time it’s different: all the foundations of a healthy economy are crumbling into quicksand.
The rallying cry of Permanent Bulls is this time it’s different. That’s absolutely true, but it isn’t bullish–it’s terrifically, terribly bearish. Why is this time it’s different bearish going forward? The basic answer is that nothing that is structurally broken has actually been fixed, and the policy “fixes” have fatally weakened the global financial system.
Let’s go over a handful of the many ways that this time it’s different, starting with the unprecedented level of central bank support of asset prices via the purchase of financial assets such as stocks and bonds.
Central Banks Have Purchased $2 Trillion In

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