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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

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

3 days ago

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

4 days ago

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

7 days ago

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

10 days ago

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

14 days ago

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

16 days ago

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

17 days ago

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

21 days ago

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

23 days ago

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

24 days ago

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

25 days ago

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

27 days ago

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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No, The Fed Will Not “Save the Market”–Here’s Why

February 27, 2020

The greater the excesses, speculative euphoria and moral hazard, the greater the reversal.
A very convenient conviction is rising in the panicked financial netherworld that the Federal Reserve and its fellow dark lords will “save the market” from COVID-19 collapse. They won’t. I already explained why in The Fed Has Created a Monster Bubble It Can No Longer Control (February 16, 2020) but it bears repeating.
Contrary to naive expectations, the Fed’s primary job isn’t inflating stock market and housing bubbles, though punters are forgiven for assuming that, given the Fed has inflated three gargantuan bubbles in a row, each of which burst (1999-2000, 2007-08 and now 2019-2020).
The Fed’s real job is protecting the banking/financial sector from a richly deserved and

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When Will We Admit Covid-19 Is Unstoppable and Global Depression Is Inevitable?

February 25, 2020

Given the exquisite precariousness of the global financial system and economy, hopes for a brief and mild downturn are wildly unrealistic.
If we asked a panel of epidemiologists to imagine a virus optimized for rapid spread globally and high lethality, they’d likely include these characteristics:
1. Highly contagious, with an R0 of 3 or higher.
2. A novel virus, so there’s no immunity via previous exposure.
3. Those carrying the pathogen can infect others while asymptomatic, i.e. having no symptoms, for a prolonged period of time, i.e. 14 to 24 days.
4. Some carriers never become ill and so they have no idea they are infecting others.
5. The virus is extremely lethal to vulnerable subpopulations but not so lethal to the entire populace that it kills its hosts

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Covid-19: Global Retrenchment Will Obliterate Sales, Profits and Yes, Big Tech

February 22, 2020

If you think global demand will rebound as global debt and confidence implode, you better not be making consequential decisions based on Euphorestra-addled magical thinking.
Even before the Covid-19 pandemic, the global economy was slowing for two reasons: 1) everybody who can afford it already has it and 2) overcapacity. One word captures the end-of-the-cycle stagnation: saturation.
Everyone who can afford a smartphone (or can borrow to buy one) already has one. Everyone who can afford an auto loan already has a car.
Everyone who could afford an overpriced house already bought one. Everyone who can afford a tablet or laptop already has one. And so on.
This saturation isn’t just in the consumer market–the corporate market is equally saturated. Corporations

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The World Is Awash in Oil, False Assurances, Magical Thinking and Complacency as Global Demand Careens Toward a Cliff

February 19, 2020

This collapse of price will manifest in all sorts of markets that are based on debt-funded purchases of desires rather than a warily prudent priority on needs.
Since markets are supposed to discover the price of excesses and scarcities, it’s a mystery why everything that is in oversupply is still grossly overpriced as global demand slides off a cliff: oil, semiconductors, Uber rides, AirBNB listings and many other risk-on / global growth stories are still priced as if pre-Covid-19 demand was still guaranteed.
Punters are still buying semiconductor stocks based on out-of-touch projections that are the equivalent to counting the number of fairies on the head of a pin, ignoring the fundamental reality that very few people actually need a new mobile phone, vehicle,

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The Fed Has Created a Monster Bubble It Can No Longer Control

February 16, 2020

The Fed must now accept responsibility for what happens in the end-game of the Moral-Hazard Monster Bubble it created.
Contrary to popular opinion, the Federal Reserve didn’t set out to create a Monster Bubble that has escaped its control. Also contrary to popular opinion, the Fed will be unable to “never let stocks fall ever again–ever!” for the simple reason that the monster it has created– a monster mania of moral hazard in which all risk has vanished because the Fed will never let stocks fall ever again–ever!–is now beyond its control.
And that’s a problem for the Fed, which above all else needs control of interest rates, financial markets and the economy.
The problem is that bubbles always pop, and they pop regardless of what central banks do. This is

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China’s Fatal Dilemma

February 11, 2020

Ending the limited quarantine and falsely proclaiming China safe for visitors and business travelers will only re-introduce the virus to workplaces and infect foreigners.
China faces an inescapably fatal dilemma: to save its economy from collapse, China’s leadership must end the quarantines soon and declare China “safe for travel and open for business” to the rest of the world.
But since 5+ million people left Wuhan to go home for New Years, dispersing throughout China, the virus has likely spread to small cities, towns and remote villages with few if any coronavirus test kits and few medical facilities to administer the tests multiple times to confirm the diagnosis.
(It can take multiple tests to confirm the diagnosis, as the first test can be positive and the

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Controlling the Narrative Is Not the Same as Controlling the Virus

February 10, 2020

Are these claims even remotely plausible for a highly contagious virus that spreads easily between humans while carriers show no symptoms?
It’s clear that the narrative about the coronavirus is being carefully managed globally to minimize the impact on global sentiment and markets. Authorities are well aware of the global economy’s extreme fragility, and so Job One for authorities everywhere is to scrub the news flow of anything that doesn’t support the implicit official narrative:
1. The coronavirus is only an issue in China; it’s contained outside China.
2. The coronavirus will soon be contained in China, and global business will quickly return to normal.
In pushing this narrative, authorities around the world share the same goal: limit the damage to consumer

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Pandemic, Lies and Videos

February 7, 2020

Will we wonder, what were we thinking? and marvel anew at the madness of crowds?
When we look back on this moment from the vantage of history, what will we think? Will we think how obvious it was that the coronavirus deaths in China were in the tens of thousands rather than the hundreds claimed by authorities?
Will we think how obvious it was that the virus would spread around the globe, wreaking havoc on the global economy and social order, even as the authorities claimed only a handful of cases had arisen outside China?
Will we be amazed at the delusional confidence that the U.S. economy would be untouched by the virus as stock markets quickly soared to new all-time highs while the world’s largest economy ground to a halt in a desperate attempt to close the barn

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Brace for Impact: Global Pandemic Already Baked In

February 4, 2020

If we accept what is known about the virus, then logic, science and probabilities all suggest we brace for impact.
Here’s a summary of what is known or credibly estimated about the 2019-nCoV virus as of January 31, 2019:
1. A statistical study from highly credentialed Chinese academics estimates the virus has an RO (R-naught) of slightly over 4, meaning every carrier infects four other people on average.
This is very high. Run-of-the-mill flu viruses average about 1.3 (i.e. each carrier infects 1.3 other people while contagious).
Chris Martenson (PhD) goes over the study in some detail in this video.
Let’s say the study over-estimates the contagiousness due to insufficient data, etc. Even an RO of 3 means the number of infected people rises geometrically

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Second-Order Effects: The Unexpectedly Slippery Path to Dow 10,000

February 1, 2020

Dow 30,000 is “unsinkable,” just like the Titanic.
A recent Barrons cover celebrating the euphoric inevitability of Dow 30,000 captured the mainstream zeitgeist perfectly: Corporate America is firing on all cylinders, the Federal Reserve’s god-like powers will push stocks higher regardless of any other reality, blah blah blah.
While the financial media looked elsewhere for its amusement, the coronavirus epidemic in China just poured fentanyl in the Dow 30,000 punchbowl. The mainstream continues to guzzle down the punch, oblivious to the fentanyl, confident that the coronavirus will quickly fade and China will soon return to its winning role of growth chariot pulling the global economy to ever greater heights.
The media’s focus is solely on the first-order

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Could the Coronavirus Epidemic Be the Tipping Point in the Supply Chain Leaving China?

January 30, 2020

Everyone expecting a quick resolution to the epidemic and a rapid return to pre-epidemic conditions would be well-served by looking beyond first-order effects.
While the media naturally focuses on the immediate effects of the coronavirus epidemic, the possible second-order effects receive little attention: first order, every action has a consequence. Second order, every consequence has its own consequence.
So the media’s focus is the first-order consequences: the number of infected people and fatalities, government responses such as quarantines, and so on.
The general expectation is these first-order consequences will dissipate shortly and life will return to its pre-epidemic status with virtually no significant changes.
Second-order effects caution: not so

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The Future of What’s Called “Capitalism”

January 25, 2020

The psychotic instability will resolve itself when the illusory officially sanctioned “capitalism” implodes.
Whatever definition of capitalism you use, the current system isn’t it so let’s call it “capitalism” in quotes to indicate it’s called “capitalism” but isn’t actually classical capitalism.
Try a few conventional definitions on for size:
Capitalism allocates capital to its most productive uses. Does the current system actually do this? You must be joking.
Capitalism is based on private labor and capital freely choosing where to invest time/assets. Does the current system actually do this? You must be joking.
Capitalism enables comparative advantages which enrich everyone. Does the current system actually do this? You must be joking.
The core dynamics of

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Calling Things by Their Real Names

January 22, 2020

One does not need money to convey one’s thoughts, but what money does allow is the drowning out of speech of those without money by those with a lot of money.
In last week’s explanation of why the Federal Reserve is evil, I invoked the principle of calling things by their real names, a concept that drew an insightful commentary from longtime correspondent Chad D.:
Thank you, Charles, for calling out the Fed for their evil ways. We have to properly name things before we can properly address them. I would add that the Fed’s endless creation of “money” to hand out to connected bankers (not all bankers) is just one facet of the evil. The evil also manifests itself as extraordinary political-economical power in a system that allows legalized bribery disguised as free

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