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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

Our No-Win “Kobayashi Maru” Economy

4 days ago

It’s time to reprogram the conditions of the economy to serve the many rather than the few.
Star Trek’s Kobayashi Maru training exercise tests officer candidates’ response to a no-win scenario:any attempt to rescue the crippled ship’s crew results in the destruction of the candidate’s ship, while standing by and taking no action results in the loss of the Kobayashi Maru’s crew.
Captain Kirk famously defeated this no-win scenario by reprogramming the simulation to “change the conditions of the test.” This can be viewed as either cheating or as creative problem-solving via “thinking outside the box.”
The Kobayashi Maru is a very apt description of both the U.S. and the global economies, which are currently running a real-world no-win scenario called “Profits,

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The Difference Between a Forecast and a Guess

7 days ago

Every forecast or guess has one refreshing quality: one will be right and the rest will be wrong.
What’s the difference between a forecast and a guess? On one level, the answer is “none”: the future is unknown and even the most informed forecast is still a guess. The evidence for this is the remarkable number of informed forecasts that prove to be as completely off-base as the wildest guesses.
On another level, there is a big difference between an informed forecast and a guess–if the informed forecast has the consequential system dynamics right. The world is complicated and discerning the consequential dynamics in the tangle of complexity is difficult.
Context and perspective matter. So do incentives. To take one example of many, war planners in the Vietnam era

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Could Retail “Bagholders” Spark a Rally “Smart Money” Will Be Forced to Chase?

12 days ago

There would be some deliciously karmic justice in the “dumb money” driving a rally that forced the “smart money” to cover their shorts and chase the rally that shouldn’t even be happening.
Being cursed with contrarianism, as soon as a trade gets crowded and the consensus is one way, I start looking for whatever is considered so unlikely that it’s essentially “impossible.” Sorry, I can’t help myself.
The crowded trades are 1) long the Commodity Super-Cycle and 2) long hurricane-force recessionfor all the persuasive reasons we all know: global scarcities, geopolitical tensions, soaring US dollar and interest rates, de-risking, crazy-stupid levels of debt and speculation, etc.
The consensus holds that “Smart Money” rotated out of tech stocks and other over-valued

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What Happens When the Workforce No Longer Wants to Work?

14 days ago

Workers are voting with their feet, and that’s difficult to control. When values and expectations change, everything else eventually changes, too.
What happens when the workforce no longer wants to work? We’re about to find out. As with all cultural sea changes, macro statistics don’t tell the full story. The sea change is better illuminated by anecdotal evidence: workers constantly quitting to take better jobs; zero loyalty to corporate employers; workers cutting hours from full-time to part-time; workers going out for lunch and never coming back; workers giving up on selling sugar-water for the rest of their lives (echoing Steve Jobs’ famous challenge to John Scully: “Do you want to sell sugared water for the rest of your life? Or do you want to come with me

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There’s No Stopping a Recessionary Reckoning

20 days ago

If there was only one causal factor nudging the economy into recession, it might be a mild, brief recession. But with all five conditions in confluence, this recession will be unlike any other.
Recessions reliably arise from the confluence of these conditions. Note that any one condition can trigger a recession, but no one condition guarantees a recession. Severe, long-lasting recessions occur when multiple conditions arise at the same time.
1. The business cycle. The business cycle reflects human nature interacting with finance: as credit loosens, people borrow more to spend and invest, and this generates a self-reinforcing virtuous cycle of expansion.
Profits expand, speculation is rewarded and the positive vibes notch up to euphoric confidence in future

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“Pay-to-Play” for the Rest of Us

23 days ago

The more kafkaesque quagmires you’ve slogged through, the more you hope “pay-to-play for the rest of us” beomes ubiquitous.
You know how “pay-to-play” works: contribute a couple of million dollars to key political players, and then get your tax break, subsidy, no-bid contract, etc., slipped into some nook or cranny of the legislative process that few (if any) will notice because the legislation is hundreds of pages long or a “gut and replace” magic wand was wielded at the last minute.
As the essential systems of everyday life break down and become increasingly dysfunctional, I predict the rise of what I’m calling “pay-to-play” for the rest of us: if you pay for expedited service, concierge service, etc., you will get the kind of service everyone used to get, i.e.

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Who’s Going to Fix What’s Broken?

25 days ago

When nobody cares that systems have broken down and there is no will or interest in fixing essential systems, there is no happy ending.
Who fixes systems when they break down? The answer appears to be: nobody. Here are three everyday examples from my own life, breakdowns which may be random and rare but which the odds suggest are systemic. Let’s assume I’m not an unlucky one in a million but just another recipient of systemic breakdown.
1. U.S. Mail forwarding six month late. Millions of Americans move every year, and the US Postal Service, like other large-scale systems serving the public, has a system that automates change of address forms online. My previous experience is that mail forwarding might be a week or two late but it’s been reliable.
In 2021–not so

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Why America Decays: The Tyranny of Self-Interest

28 days ago

Only those societies which still have a functional public interest / common good will survive; those ruled by the tyranny of self-interest will fall.
I’ve discussed the moral rot consuming the American Project in blog posts and my books. This moral rot–perhaps better described as civic decay–is so pervasive and ubiquitous that we are forgiven for assuming “this is the way it’s always been.”
This inability to discern the rot is the result of the gradualness of the decay. There are many analogies: the slowly boiled frog, the way in which weight gain creeps up on us, and so on. This is the result of humanity’s finely tuned knack to habituate to any new environment and normalize what would have been intolerable in the recent past.
We adapt to changing expectations,

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Livelihoods in a Degrowth Economy

May 30, 2022

The sooner we start preparing for degrowth, the better off we’ll be. A Chinese proverb captures this succinctly: By the time you’re thirsty, it’s too late to dig a well.
Let’s consider livelihood options in an unsustainable economy of extremes that are unraveling, an economy that is being forced to transition to Degrowth.
Nassim Taleb’s book Antifragile explains the differences between fragile systems (systems that cannot survive instability), resilient systems (systems that can survive instability and stay the same) and antifragile systems (systems that adapt and emerge stronger).
The ideal way of life is antifragile: resilient enough to survive adversity and adaptable enough to evolve solutions to whatever comes our way.
The key antifragile traits are

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Checking In On Five Long-Term Cycles

May 17, 2022

The decline phase of S-Curves can be gradual or a cliff-dive.
Way back in 2007 I charted five long-wave cycles that I reckoned consequential:
1. Public debt (accumulating federal deficits)
2. Inflation
3. Oil (energy)
4. Interest rates
5. Speculative fever
Fifteen years ago, my chart look-ahead was about three years, to 2010, with the basic idea being that these long-term cycles had already turned or were about to turn. Looking back, I should have added a few other long cycles: demographics, for example.
I have two takeaways looking at this chart 15 years later. You probably have similar takeaways.
1. I underestimated the status quo’s ability to kick the can down the road for a decade. The motivation to kick the can down the road was never in doubt; what was in

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Curveballs in the Housing Bubble Bust

May 16, 2022

All these curveballs will further fragment the housing market.
Oh for the good old days of a nice, clean housing bubble and bust as in 2004-2011: subprime lending expanded the pool of buyers, liar loans and loose credit created speculative leverage, the Federal Reserve provided excessive liquidity and the watchdogs of the industry were either induced (ahem) to look away or dozed off in a haze of gross incompetence.
The bubble burst was also straightforward: unsustainable debt, leverage, fraud and speculation all unwound in 2009-2011. The cause was obvious and the effect easily predictable.
Alas, today’s housing bubble and bust has these curveballs:
1. A stupid amount of cash sloshing around the world.
2. Who has the cash and an interest in using it to buy houses.

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Herd on the Street

May 15, 2022

The casino has become complex and there are no easy answers or predictable paths.
The Wall Street herd had it easy from 2009 to 2021. Life was simple and life was good: markets were easy to predict. As long as the Federal Reserve kept interest rates near-zero and increased its balance sheet to buy Treasury bonds, the stock market rose.

As long as the Fed increased its balance sheet to buy mortgage-backed securities, housing rose.
If the Fed tried to reduce its balance sheet, the market would quiver and shake and throw a tantrum, and the Fed would go back to keeping interest rates near-zero and increase its balance sheet.
To make money all one had to do was buy the dips.
Alas, life is not so simple these days, and the herd doesn’t know quite which way

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What Happens When Complexity Unravels?

May 10, 2022

Those glancing at the appearances will be assured all is well and it will all sort itself out. Those who look behind the screen will move away as fast as they can.
When finances tighten, there are two choices: cut expenses or increase revenues. Monopolies, cartels and governments can increase revenues by increasing taxes or the price of goods and services because users / customers / taxpayers have no alternative. The rest of us have to cut expenses.
Making lasting cuts in expenses generally requires reducing sources of expense, and within institutions and enterprises, complexity is one systemic source of expense.
But reducing complexity is difficult, so it’s rarely pursued unless the only remaining choice is bankruptcy / collapse.
The problem is there are many

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Not the 1970s or the 1920s: We’re in Uncharted Territory

May 8, 2022

All of these similarities and differences are setting up a sea-change revaluation of capital, resources and labor that will be on the same scale as the extraordinary transitions of the 1920s and 1970s.
The awakening of inflation after decades of slumber has triggered a flurry of comparisons to the 1970s accompanied by a chorus of projections for 1970s-type stagflation, defined as inflation plus economic stagnation– limited or negative growth and high unemployment.
A less popular comparison is with the 1920s: a massive expansion of debt, an equally massive speculative bubble in assets and extreme wealth-income inequality, all against a backdrop of slowing growth and debt saturation.
Each of these eras shares certain characteristics with the present, but beneath

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The Contrarian Curse

May 7, 2022

What if all the new consensus memes are as wrong as the ones they replaced?
I have the Contrarian Curse, and I have it bad. The Contrarian Curse is: as soon as the herd adopts your previously contrarian view, you start questioning the new consensus, just as you questioned the previous consensus.
Example #1: fiat currencies are doomed. After all, if creating “money” out of thin air solves all our problems, why not just let everyone print as much as they want at home? Oh, wait, only the super-wealthy and powerful get the newly created “money”? Oh, that makes it really sustainable, doesn’t it?
Now the hot meme is the US dollar is expiring and gold / commodity-backed currencies will replace it atop the heap. Many of us on the fringes have pondered alternatives to fiat

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Is Housing a Bubble That’s About to Crash?

May 5, 2022

We are all prone to believing the recent past is a reliable guide to the future. But in times of dynamic reversals, the past is an anchor thwarting our progress, not a forecast.
Are we heading into another real estate bubble / crash? Those who say “no” see the housing shortage as real, while those who say “yes” see the demand as a reflection of the Federal Reserve’s artificial goosing of the housing market via its unprecedented purchases of mortgage-backed securities and “easy money” financial conditions.
My colleague CH at recently posted charts calling this assumption into question. The first chart (below) shows the U.S. population growth rate plummeting as housing starts soar, and the second chart shows housing unit per capita, which has

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Doom Porn and Empty Optimism

April 29, 2022

If we can’t discern the difference between doom-porn and investing in self-reliance, then solutions will continue to be out of reach. I’m often accused of calling 783 of the last two bubble pops (or was it 789? Forgive the imprecision). Like many others who have publicly explored the notion that the status quo isn’t actually sustainable despite its remarkable tenaciousness, I am pilloried as a doom-and-gloomer (among other things, ahem).
Fair enough, and I’m fine with the doom-and-gloom label (we have more fun!) as a generality. But many take any skepticism of the sustainability of the status quo as extending into some perverse delight in the prospect of collapse leading to a Zombie Apocalypse featuring black gunships and firefights over the planet’s last case of

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Crash Is King

April 26, 2022

This may be one of many revaluations of capital vis a vis labor and resources and core vis a vis periphery. You’ve heard the expression “cash is king.” Very true. But it’s equally true that “crash is king:” when speculative excesses collapse under their own extremes, the crash crushes all other narratives and becomes the dominant dynamic.
Everything that the mainstream uses to predict “value,” market action and “the future” is tossed out the window. Price-earnings, “growth,” “innovation,” cash flow, yields, the bat-guano-quatloo carry trade, etc., etc., etc.-none of it stops the crash or makes sense of the crash, which happens for systemic reasons beyond conventional explanations.
In the context of conventional concepts of “value” and central bank power, crashes

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What’s Your Plan A, B and C?

April 22, 2022

Nothing unravels quite as dramatically as systems which are presumed to be rock-solid and forever. Here’s the default Bullish case for stocks and the economy: let’s call it Plan Zero.
1. The economy and equities can grow forever (a.k.a. infinite growth on a finite planet in a waste-is-growth Landfill Economy)
2. Higher energy costs have near-zero effect on the economy and stocks.
3. The Federal Reserve will deliver a soft landing which reduces inflation back to near-zero while the economy and stocks continue lofting higher.
4. Higher food costs and global food scarcities have near-zero effect on the economy and stocks.
5. Supply chains unraveling has near-zero effect on the economy and stocks.
6. Deglobalization has near-zero effect on the economy and stocks.

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A Couple of Thoughts on Big Numbers

April 20, 2022

Let’s ask “cui bono” of the $33 trillion in added debt and the $9 trillion added to GDP: to whose benefit?
I’ve been thinking about how hard it is to get our heads around big numbers. Technical analyst Sven Henrich (@NorthmanTrader) recently provided one method to grasp the immense wealth of Elon Musk: How to become as wealthy as Elon Musk? Easy. Get paid $1 Million every single day. For 750 years in a row and you’re there.
How can we get a handle on the $33 trillion we’ve added in total debt since 2010? We can start by noting that’s a 60% increase in debt in about a decade, while the population of the U.S. rose by 7%.

Are we 60% better off than we were 12 years ago? How do we measure “better off”? GDP went up by 60% as well, but are we 60% more efficient

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Debt Saturation: Off the Cliff We Go

April 19, 2022

When the system can’t borrow more and distribute the insolvency, it implodes
I started writing about debt saturation back in 2011. The basic idea is we can continue to borrow and spend as long as one of two conditions hold: 1) real (inflation-adjusted) income is rising, so there’s more income to service additional debt, or 2) the cost of borrowing declines so the same income can support more debt.
After 13 long years of declining interest rates and stagnant incomes for the bottom 90%, we’ve finally reached debt saturation: after dropping to near-zero, interest rates are now rising, pushing the cost of debt service higher, while wages are losing purchasing power (a.k.a. inflation), so there’s less disposable income left to service debt.

The game plan for

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Yes, It Is Different This Time

April 15, 2022

Most people would be horrified by a 40% decline in their “investments.” When bubbles pop, speculative assets don’t drop 40%, they drop 90% or even 98%.
The irony of the sudden panic about real-world inflation generated by rising wages is two-fold:
1. The status quo never mentions the rampant inflation in assets, because the already-wealthy got wealthier, so asset inflation is wonderful and deserves to be permanent
Look at the chart below (courtesy of Mac10) of the S&P 500 / wages adjusted for the CPI (consumer price index): corporate profits have soared against wages since 2009.
2. Wages have been hammered since 1975, as RAND Corporation research found $50 trillion has been transferred from the workforce to capital in the past 45 years. (see chart below)

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For Freak’s Sake, People, Even the Crash Test Dummies Are Nervous

April 8, 2022

Those trusting the Fed to be visibly weak, corrupt and incompetent forever might be in for an unwelcome surprise.
When even the crash test dummies are nervous, it pays to pay attention. Being in a mild crash isn’t too bad if all the protective devices inflate as intended. But in a horrific crash where nothing goes as planned, it’s like speeding in a ready-to-explode Pinto and being side-swiped by a semi on Dead Man’s Curve.
The stock market is in the Pinto, and the smell of gasoline is so strong it’s overpowering the smell of old Cheetos and stale beer. The Federal Reserve is driving, and it’s got a crazy glint in its eyes that everyone dismisses–to their immense regret when the Pinto goes off the cliff and flames envelop the wreckage.
We’re talking

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It’s All the Aliens’ Fault

April 3, 2022

As for our central banks’ defaulting on their lines of credit with the Martian Central Bank–that’s another alien intervention we’ll live to regret.
I hope this won’t shock the more sensitive readers too greatly, but I’ve discovered undeniable evidence that all our planet’s problems are the result of alien intervention. Yes, aliens exist and are actively intervening in humanity’s activities, to our great detriment.
Wars, plagues, The Illuminati, the World Economic Forum, the Great Reset, locust swarms, mega-droughts, endless spam, robo-calls, strange lights, billionaires’ cupidity, Windows 11, iOS 15, the futility of trying to reach the IRS by phone, the astounding rise of irrationality, that weird feeling of being watched and the grotesque decline of

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Calm Before the Storm?

March 28, 2022

Stocks don’t vanish when sold; somebody owns the shares all the way to the bottom. These owners who refuse to sell because they have convinced themselves the next dip will be the hoped-for resumption of the bullish trend are called “bagholders.”
Trends are tricky. Humans anticipate the present conditions will continue on into the future. In economics and finance, we call this continuation a “trend.” Trends continue until something fundamental changes and the trend takes a new course.
If asset prices, credit, sales, jobs, tax revenues and profits are all expanding, we call this trend “bullish.”
If the economy and asset prices are contracting, we call this “bearish.”
People are much happier in bullish trends because they’re making money without any effort as the

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Autocracy’s Fatal Weakness

March 23, 2022

This desire for compliance and consensus dooms the autocracy to failure and collapse because dissent is the essence of evolutionary churn and adaptation..The various flavors of autocracy (theocracy, kleptocracy, dictatorship, etc.) look remarkably successful at first blush but they all share a fatal flaw. To understand the flaw we must start with the dominant dynamic of all organisms, natural selection.
Things change. Those organisms which adapt quickly and successfully survive, those that don’t perish. Things change for many reasons and over different timespans. Drought slowly but surely makes regions unlivable for all the but hardiest creatures. A meteor strike can ruin an entire species’ prospects.
I try not to get too philosophical here, but bear with me

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Risk Accumulates Where No One Is Looking For It

March 17, 2022

All this decay is so incremental that nobody thinks it possible that it could ever accumulate into a risk that threatens the entire system.
The funny thing about risk is the risk that everyone sees isn’t the risk that blows up the system. The mere fact that everyone is paying attention to the risk tends to defang it as everyone rushes to hedge or reduce the risk.
It’s the risk that accumulates under everyone’s radar that takes down the system. There are several dynamics driving this paradox but for now let’s look at the paradox of optimization.
The paradox of optimization is that to optimize efficiency and output (i.e. profit) resilience must be sacrificed. This leaves the system vulnerable to collapse when the system veers beyond the parameters set in stone by

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March 15, 2022

Eventually the “flock of timid and industrious animals” changes their minds about how much exploitation by the few is acceptable.
You may have noticed the news flow beyond the hot war in Ukraine is largely focused on capital: financial capital (markets, liquidity, interest rates, commodities, central bank tightening, etc.) and political capital (geopolitical maneuvering, sanctions, revising energy and defense policies, etc.)
Notice who’s left out, unnoticed and invisible? The serfs, the bottom 90% who have been decapitalized in the developed world and exploited in the developing world for the past 45 years.
With capital ascendant, the vast majority of financial and political gains flowed to the top tier of speculative capital (banks and billionaires) while the

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The Upside of a Crushing Recession

March 11, 2022

Unbeknownst to those trembling in fear of a crushing recession, the crushing recession they fear is the only curative for a fatally distorted system which has lost touch with reality.

Everyone looking at the inevitability of recession with alarm is forgetting the many upsides of recession, especially one that crushes all attempts to reverse it with the usual tricks. Let’s not forget the simple joys of lighter traffic, faster commutes and the relative ease of getting a table at your favorite bistro–if it survives the bust.Graveyard levity aside, there really is no equivalent to the positive force of crushing recessions. Only recessions which defy the usual tricks of monetary easing (create trillions of new dollars) and fiscal stimulus (give away a few of those new

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If You Want to Build Back Better, Reshore Our Entire Supply Chain

March 9, 2022

It is entirely accurate to say that the U.S. is addicted to waste and distant sources of essentials.The downside of dependency is in the air. The U.S. has allowed itself to become dependent on other nations for essentials, a policy that I view as an insanity fueled by greed.
The problem with dependency is the cost can’t be calculated until it’s too late. Restoring independence is a massive, costly undertaking, but if you wait until the cost of dependency is clear to all, it’s too late to escape the collapse triggered by the cut-off of essentials from other nations.
The happy story of “free trade” (there is no such thing) is that everybody wins. The reality is everyone loses except corporate profiteers. The problem with deciding on the wunnerfulness of “free trade”

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