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Credit Exhaustion Is Global

Credit Exhaustion Is Global

Europe is awash in credit exhaustion, and so is China.

The signs are everywhere: credit exhaustion is global, and that means the global growth story is over: revenues and profits are all sliding as lending dries up and defaults pile up.

What is credit exhaustion? Qualified buyers don’t want to borrow more, leaving only the unqualified or speculators seeking to save a marginal bet gone bad with one more loan (which will soon be in default).

Lenders are faced with a lose-lose choice: either stop lending to unqualified borrowers and speculators, and lose the loan-origination fees, or issue the loans and take the immense losses when the punters and gamblers default.

Europe is awash in credit exhaustion, and so is China. China’s situation is unique, as credit expansion has been propping up the entire economy, from household wealth to corporate speculation to the export sector.As this article explains, The China Story That Is Far Bigger Than Apple, China’s trade balance–trade surpluses for decades–is close to slipping into trade deficits.

At the same time, China’s once-mighty pool of savings has diminished as consumption has risen. As a result, China now needs foreign investment more than it did in the previous era.Chinese businesses have borrowed around $2 trillion in US dollar-denominated debt, requiring the acquisition of dollars to service the debt.So far this sounds like a typical case of a fast-growth economy maturing into a trade-deficit, debt-dependent consumption economy.

What the article misses is the staggering rise in the cost of living in China over the past two decades. Some services are still affordable to the masses–subway fares are extremely cheap–and private healthcare is a mere fraction of healthcare costs in the U.S.But other costs–housing, food, clothing, etc.–…

 …click on the above link to read the rest of the article…

Sometimes the Best Solution Is To Leave Things As They Are

Sometimes the Best Solution Is To Leave Things As They Are

We must distinguish between the oft-lauded creative destruction of what is obsolete and destruction in pursuit of fleeting fashion.

I recently received an insightful email from a reader who had come across my archives of free-lance articles and essays on home and urban design. I wrote dozens of articles for S.F. Bay Area newspapers from 1988 to 2006, and a handful are listed here.

The one the reader is responding to is Best Remodel Might Be None At All (2006). Here are the reader’s comments:

“I thoroughly enjoyed the articles you penned for the SF Examiner that you’ve linked to on your website, these being written close to two decades ago.

Especially noteworthy was your response to the homeowner inquiring about a kitchen remodel where you recommended that the best course of action might be no course of action. This was an wonderful response and it caught my attention because it belies the common sales oriented suggestions generally offered by those writing about remodeling, and especially about kitchens. Usually you see writers busy extolling the gutting and replacement of a kitchen with wild zeal talking about how wonderful it will be to pour coffee or to butter toast once the kitchen area has been refurbished… and how in the sheer pleasure of a new kitchen you might even choose to drink two cups of coffee just for the fun of it!

In the old craftsman style house or bungalow it would mean new plumbing and upgrading the electrical wiring to go with new appliances and new cabinetry.

In the era when that house was constructed the cabinets were typically built on site, matching the cabinetry to the design and work flow of the kitchen.

 …click on the above link to read the rest of the article…

What Happens When More QE Fails to Reverse the Recession?

What Happens When More QE Fails to Reverse the Recession?

The smart money is liquidating assets, paying off debt and moving capital into collateral that isn’t impaired by debt or speculative valuations.

The Federal Reserve’s sudden return to “accommodative” dovishness in response to the stock market’s swoon telegraphs its intent to fire up QE once the recession kicks into gear. QE (quantitative easing) are monetary policies designed to ease borrowing and the issuance of credit, and to prop up assets such as stocks and real estate.

The basic idea is that the Fed creates currency out of thin air and uses the new money to buy Treasury bonds and other assets. This injects fresh money into the financial system and lowers the yield on Treasury bonds, as the Fed will buy bonds at near-zero yield or even less than zero in pursuit of its policy goals of goosing assets higher and increasing borrowing/spending.

This is pretty much the Fed’s only lever, and it pulls this lever at any sign of weakness in stocks or the economy. That sets up an obvious question that few seem to ask: what happens when QE fails? What happens when the Fed launches QE and stocks fall as punters realize the rally is over? What happens when lowering interest rates doesn’t spark more borrowing?

What happens is the smart money sells everything that isn’t nailed down, a process that is arguably already well underway.

Why sell assets when QE has guaranteed gains in the past? Answer: exhaustion. There are limits to everything financial, and once those limits are reached, no amount of goosing will push the limits higher. Rather, further goosing only increases the fragility and vulnerability of the system.Price-earnings ratios only go so high before reversing, rents only go so high before reversing, and so on.

 …click on the above link to read the rest of the article…

We’re Overdue for a Sell-Everything/No-Fed-Rescue Recession

We’re Overdue for a Sell-Everything/No-Fed-Rescue Recession

We’re way overdue for a sell-everything recession, one that the Fed will only make worse by pursuing its usual policies of lowering interest rates and goosing easy money.

As I noted last week, central banks, like generals, always fight the last war–until the war is lost. The global economy is careening into recession (call it a “slowdown” if you are employed by the Corporate-State Media), and while we don’t yet know just how deep and wide this recession will be, we can make an educated guess that it won’t be a repeat of any of the previous five recessions: 1973-74, 1981-82, 1990-91, 2001-02 or 2008-09.

Recessions triggered by energy or financial crises tend to be short and shallow as the crisis soon eases; recessions caused by structural imbalances tend to be enduringly brutal. Many recessions are structural, but the triggering event is a short-term crisis.Some recessions savage specific sectors but leave most of the economy relatively unscathed. Others disrupt virtually everything, even the generally impervious-to-recession government sector.

Let’s run down the general outlines of the previous five recessions. If you’ve lived long enough, you’ve experienced the suffering firsthand. Younger readers will have difficulty relating firsthand, but understanding the dynamics is the goal here, and so direct experience is a bonus, not an essential.

1973-74: the Oil Shock to the U.S. economy as OPEC raised prices and punished the U.S. for supporting Israel in the 1973 Yom Kippur war created havoc–long lines at gas stations and a sharp downturn (a.k.a. recession). Though the economy supposedly recovered statistically in 1975, the structural issues that were laid bare by the recession continued eroding the economy for the next six years.

 …click on the above link to read the rest of the article…

2019: The Three Trends That Matter

2019: The Three Trends That Matter

Look no further than Brexit in Britain, the yellow vests in France and the Deplorables in the U.S. for manifestations of a broken social contract and decaying social order.

Among the many trends currently in play, Gordon Long and I discuss three that will matter as 2019 progresses2019 Themes (56 minutes)

1. Final stages of the debt supercycle

2. Decay of the social order/social contract

3. Social controls: Surveillance capitalism, China’s Social Credit system, social globalization

The basic idea of the debt supercycle is simple: resolving every crisis of over-leveraged speculative excess, evaporation of collateral and over-indebtedness by radically increasing debt eventually leads to an implosion of the entire credit-based financial system.

The final stages of the current debt supercycle are manifesting all sorts of interesting cross-currents: de-dollarization and the unprecedented expansion of debt in China to name just two.

De-dollarization describes the efforts of many nations to reduce their dependence on U.S. dollars for trade and reserves. Since the USD remains the largest reserve currency in both trade and reserves, this trend threatens to reorder the entire global financial system, with potentially disruptive consequences not just to the USD but to a variety of institutions and norms.

China’s total systemic debt has soared from $7 trillion in 2008 to $40 trillion in 2018. This is of course only a rough estimate, as China’s enormous Shadow Banking System is famously opaque, as are many of its institutional and corporate balance sheets.

China has embraced the narrative of “growing our way out of stagnation by quintupling debt,” but the banquet of consequences of this speculative orgy is finally being served: China’s dramatic slowdown in 2018 is just the appetizer course of the banquet of consequences.

This excerpt of a recent (and immediately censored) talk given by a Chinese economist illuminates the result of debt-fueled mal-investment and speculation on a grand scale:

 …click on the above link to read the rest of the article…

he Coming Global Financial Crisis: Debt Exhaustion

The Coming Global Financial Crisis: Debt Exhaustion

The global economy is way past the point of maximum debt saturation, and so the next stop is debt exhaustion.Just as generals fight the last war, central banks always fight the last financial crisis. The Global Financial Crisis (GFC) of 2008-09 was primarily one of liquidity as markets froze up as a result of the collapse of the highly leveraged subprime mortgage sector that had commoditized fraud (hat tip to Manoj S.) via liar loans and designed-to-implode mortgage backed securities.

The central bank “solution” to institutionalized, commoditized fraud was to lower interest rates to zero and enable tens of trillions in new debt. As a result, total debt in the U.S. has soared to $70 trillion, roughly 3.5 times GDP, and global debt has skyrocketed from $84 trillion to $250 trillion. Debt in China has blasted from $7 trillion 2008 to $40 trillion in 2018.

A funny thing happens when you depend on borrowing from the future (debt) to fund growth today: the new debt no longer boosts growth, as the returns on additional debt are increasingly marginal. This leads to what I term debt exhaustion: lenders can no longer find creditworthy borrowers, borrowers either don’t want more debt or can’t afford more debt, and the cost and risk of the additional debt far outweigh the meager gains. Whatever credit is issued is gambled in speculations that the current bubble du jour will continue indefinitely.

Unfortunately, all central banks know how to do is goose liquidity to inflate asset bubbles and juice the issuance of more debt. If asset bubbles start to deflate, then central banks start buying mortgages, empty flats, stocks and bonds to prop up markets that would otherwise implode.

 …click on the above link to read the rest of the article…

A Recession Survival Guide

A Recession Survival Guide

The funny thing about slashing your budget to survive a recessionary storm is that it works wonders whether the recession is deep or shallow. 

We know that after 10 years of expansion, a recession is baked in. Trees don’t grow to the moon, etc. 

We also know that some people will hardly notice the recession while others are devastated. I addressed this in The Recession Will Be Unevenly Distributed(January 10, 2019). A retiree on Social Security and a bit of income from Treasury bonds isn’t going to be affected much, and a power couple in Washington DC who are high up the food chain in the federal government will also shrug off the recession.

What we don’t know is what kind of recession we’re going to get. It’s been almost 40 years since the U.S. experienced a “real recession,” i.e. a downturn that was severe and not limited to narrow slices of the economy.

The recession of 2008-09 was over before it started, and the damage was largely limited to the speculative housing-mortgage sectors and finance and everyone who was over-leveraged in the housing market.

The recession of 2000-02 was limited to the tech sectors that were exposed to the dot-com meltdown and investors in speculative dot-com companies. 

The recession of 1991-92 was brief and shallow by historical standards.

The “real recession” of 1981-82 laid waste to numerous sectors and spread devastation throughout the economy. Interest-sensitive industries were crushed, and this impacted sectors such as government that are typically impervious to recessions.

Even further back, the Oil Shock recession of 1973-74 was also an economy-wide upheaval.

Those pundits who aren’t denying a recession is baked in are busy assuring us it will be a mere slowdown. What the well-paid pundits of the status quo can’t or won’t discuss is the economy’s fragility and vulnerability to self-reinforcing declines.

 …click on the above link to read the rest of the article…

The Ruling Elites Love How Easily We’re Distracted and Turned Against Each Other

The Ruling Elites Love How Easily We’re Distracted and Turned Against Each Other

No wonder the ruling elites love how easily we’re distracted and divided against ourselves: it’s so easy to dominate a distracted, divided, blinded-by-propaganda and negative emotions populace.

Let’s say you’re one of the ruling elites operating the nation for the benefit of the oligarchy. What’s the best way to distract the populace from your self-serving dominance in a blatantly neofeudal system?

1. Provide modern-day versions of Bread and Circuses to distract the commoners from what actually matters: “the golden age of TV” and binge-watching; a cultural obsession with glorifying oneself via selfies posted on Facebook and Instagram; tweeting outrage and indignation on Twitter; a corporate-state media which magnifies insignificant events into social crises, political “leaders” who intentionally inflame polarization and conflict and so on.

Combine all these distracting circuses into one 24/7 system-overload, and what do you get? A populace so distracted, so stressed, so emotionally dazed that they are unable to focus on the predatory exploitation of the ruling elites, much less figure out how to change the neofeudal status quo.

2. Divide the populace with calculatedly divisive cultural issues and turn the commoner class against itself: with no middle ground and no shared class identity allowed, the populace is easily sliced and diced into angry, disaffected tribes who blame whomever media propaganda has targeted as “the other” for the nation’s woes.

Correspondent Jonathan Twombly recently posted a description of this divide-and-conquer strategy of the ruling elites

I eschew conspiracy theories because I don’t feel humans are smart enough or cohesive enough to pull them off. Usually self-interested people pulling in the same direction create the conditions that some people view as conspiracies.

 …click on the above link to read the rest of the article…

France’s Ghosts of ’68: General Strike vs. Macron and the Technocrat Elites

France’s Ghosts of ’68: General Strike vs. Macron and the Technocrat Elites

The Paris elites and their enablers may find that the next general strike won’t immobilize Paris, it will strangle Paris from the periphery.
Eleven months ago, I posited in The Ghosts of 1968 (2/14/18) that the idealistic hope that mass demonstrations could trigger real reform had expired. The mass demonstrations of the gilets jaunes (yellow vests) in 2018 dramatically reinvigorated the topic.
I don’t see the yellow vest uprising as idealistically fueled; it’s fueled by desperation and what Francis Fukuyama termed the working classes’ “perception of invisibility” in a recent essay (Against Identity Politics (Foreign Affairs, Sept/Oct. 2018), a view echoed by French geographer / author Christophe Guilluy who said that “the French people are using the gilets jaunes to say we exist.
Guilluy: “Not only does peripheral France fare badly in the modern economy, it is also culturally misunderstood by the elite. The yellow-vest movement is a truly 21st-century movement in that it is cultural as well as political. Cultural validation is extremely important in our era.
One illustration of this cultural divide is that most modern, progressive social movements and protests are quickly endorsed by celebrities, actors, the media and the intellectuals. But none of them approve of the gilets jaunes. Their emergence has caused a kind of psychological shock to the cultural establishment. It is exactly the same shock that the British elites experienced with the Brexit vote and that they are still experiencing now, three years later.”
Interviewer: How have the working-classes come to be excluded?
Guilluy: “All the growth and dynamism is in the major cities, but people cannot just move there. The cities are inaccessible, particularly thanks to mounting housing costs. 

 …click on the above link to read the rest of the article…

As Germany and France Come Apart, So Too Will the EU

As Germany and France Come Apart, So Too Will the EU

If we follow the logic and evidence presented in these seven points, we are forced to conclude that the fractures in France, Germany and the EU are widening by the day.
When is a nation-state no longer a functional state? It’s an interesting question to ask of the European nation-states trapped in the devolving European Union. Longtime correspondent Mark G. recently posed seven indicators of dissolving national sovereignty; here’s his commentary:
“RE: The Ghosts of 1968 (February 14, 2018):
In France the “Ghosts of 1968” have become the Poltergeists of 2018. This looks like another real watershed in European and world history. Once again Parisian mobs have appeared and have collectively realized they now hold the real power. And their issues are all anti-EU (European Union) and anti-NWO. (New World Order)
I’m honing my German Collapse Scenario as more data flows in, as it is in ever-faster and larger quantities. ‘Germany’ will implode in parallel with the EU.
So-called ‘states’ with:
1. no effective military forces
2. no control of their own borders
3. no control of their currency and banks
4. a government with a ‘diverse’ population in which the majority either has no loyalty to Berlin (recent ‘refugee’ immigrants) or has dropped its loyalty (large parts of Bavaria and Baden-Wurttemberg), and which is also losing the allegiance of the many eastern European immigrants in Germany. These people are among the most energized opponents of the ‘refugee’ influx.
5. Fast rising anarchy and lawlessness by the recent ‘refugee’ immigrants, and which is well known to the population, as are the official orders to the police to minimize crime statistics reporting by not opening official cases.
and
6. A mass media believed by no one due to the bald lies it broadcasts 24/7 daily about numbers 1-5.
…will soon cease to exist. This is confirmed by:

…click on the above link to read the rest of the article…

The Decline and Fall of the European Union

The Decline and Fall of the European Union

This exhaustion of the neocolonial-neofeudal model was inevitable, and as a result, so too is the decline and fall of the European integration/exploitation project.

That a single currency, the euro, would fracture rather than unite Europe was understood long before the euro’s introduction as legal tender on January 1, 2002. The euro, the currency of 19 of the 28 member states of the European Union, is only one of the various institutions tying the member nations of the European union together, but it is the linchpin of the financial integration touted as one of the primary benefits of EU membership.

Skepticism of the benefits of EU membership is rising, as citizens of the member nations are questioning the surrender of national sovereignty with renewed intensity.

The technocrat elite that holds power in the EU is attempting to marginalize critics as populists, nationalists or fascists, overlooking the untidy reality that the actual source of tyranny is arguably the unelected bureaucrats of the EU who have taken on extraordinary powers to strip the citizenry of member states of civil liberties (i.e. the right to dissent) and of meaningful political enfranchisement.

As I have patiently explained since 2012, the underlying structure of the EU is neocolonialism, specifically, neocolonial-financialization. Stripped of artifice, the financial institutions of the EU core have colonized the EU periphery via the euro and the EU and imposed a modernized system of extractive serfdom on the citizenry of the core and periphery alike.

To understand the neocolonial-financialization model, we must revisit the classic model of colonialism. In the old model of Colonialism, the colonizing power conquered or co-opted the Power Elites of the region, and proceeded to exploit the new colony’s resources and labor to enrich the core or center, i.e. the Imperial nation and its ruling elites.

…click on the above link to read the rest of the article…

Where Will You Be Seated at the Banquet of Consequences?

The Banquet of Consequences is being laid out, and so the question is: where will you be seated? The answer depends on two dynamics I’ve mentioned many times: what types of capital you own and the asymmetries of our economy.

One set of asymmetries is the result of the system isn’t broken, it’s fixed, i.e. rigged to favor the few at the expense of the many. There are many manifestations of neofeudal asymmetry that divides neatly into two classes and two systems, the nobility and the serfs.

A rich kid caught with drugs gets a wrist-slap, a poor kid gets a tenner in the Drug Gulag.

Upper-middle class households are tax-donkeys, paying high taxes and getting few deductions, while mega-wealthy corporations and financiers enjoy offshore tax shelters of the kind exposed by the Panama Papers.

The stock market operators use high-frequency trading to front-run the market and generate profits that are inaccessible to serfs with retail trading accounts.

And so on. Given that the nobility control the machinery of governance (so-called democracy), there’s no way for commoners to influence the neofeudal cartel-state asymmetries short of shutting down the entire system.

Which leaves the asymmetries created by the dynamics of the 4th Industrial Revolution in which new technologies and business models are destabilizing every sector of the old economy.

The core dynamic here is value flows to what’s scarce and in demand. The asymmetric returns on capital and labor are the direct result of what’s scarce and what’s not scarce and what’s in demand and what’s not in demand.

Ordinary labor and college diplomas are not scarce and therefore command very little premium. Ordinary capital is also not scarce, and hence the low yield on ordinary capital.

…click on the above link to read the rest of the article…

The Recession Will Be Unevenly Distributed

The Recession Will Be Unevenly Distributed

Those households, enterprises and organizations that have no debt, a very low cost basis and a highly flexible, adaptable structure will survive and even prosper.

The coming recession will be unevenly distributed, meaning that it will devastate many while leaving others relatively untouched. A few will actually do better in the recession than they did in the so-called “recovery.”

I realize many of the concepts floated here are cryptic and need a fuller explanation: the impact of owning differing kinds of capital, fragmentation, asymmetry, opacity, etc. ( 2019: Fragmented, Unevenly Distributed, Asymmetric, Opaque).

These dynamics guarantee a highly uneven distribution of recessionary consequences and whatever rewards are generated will be reaped by a few.

One aspect of the uneven distribution is that sectors that were relatively protected in recent recessions will finally feel the impact of this one. Large swaths of the tech sector (which is composed of dozens of different industries and services) that were devastated in the dot-com recession of 2000-02 came through the 2008-09 recession relatively unscathed.

This time it will be different. The build-out of mobile telephony merging with the web has been completed, social media has reached the stagnation phase of the S-Curve and many technologies that are widely promoted as around the corner are far from profitability.

Then there’s slumping global demand for mobile phones and other consumer items that require silicon (processors) and other tech components: autos, to name just one major end-user of electronics.

The net result will be mass layoffs globally across much of the tech sector.Research is nice but it doesn’t pay the bills today or quiet the restive shareholders as profits tank.

The public sector is also ripe for uneven distribution of recessionary impacts.Local government and its agencies in boomtowns such as the SF Bay Area, Seattle, Los Angeles, NYC, etc. have feasted on soaring tax revenues and multi-billion dollar municipal bonds.

…click on the above link to read the rest of the article…

If We Can No Longer Tell the Truth, We’ve Failed

If We Can No Longer Tell the Truth, We’ve Failed

The Gulag Archipelago is not a distant memory; it lives on in every modern state, cloaked with modern-day technologies and the well-worn tools of suppression.

The last thing addicts want to hear is the truth: the only thing more terrifying than the truth is the possibility that they will lose access to whatever they’re addicted to: smack, Oxy, coke, alcohol, sex, porn, power, etc.

If we fail to tell addicts the truth, we fail them and ourselves. As long as co-dependents remain complicit in the addict’s destructive state, as long as those who know better keep silent because they don’t want to deal with the trauma, the addict is free to maintain the illusion that he/she is in control, that his/her secret is safe, etc., and manipulate those around them with lies and victimhood.

Not wanting to deal with the trauma of forcing those in denial to face up to reality is understandable: who wants to deal with the shock, denial, anger and depression that characterize facing up to a terrifying truth?

But we fail ourselves if we’re too weak to speak the truth and grind through the denial, anger and depression. If we opt for the easy way out, we’re just like the addict, who is also opting for the easy way out, i.e. finding refuge in the labryrinthine Kingdom of Lies.

The status quo is a Kingdom of Lies. “Raw data”, i.e. facts collected without regard to future interpretaion, are “processed” into the “right kind of data,” i.e. data that supports the status quo interpretation, which is that everything’s just fine thanks to the wise leadership of our self-serving elites.

The deeper you dig into the statistical foundation of GDP, the unemployment rate, trade deficits, etc., the more questions arise about the accuracy and agenda behind the headline numbers.

…click on the above link to read the rest of the article…

2019: Fragmented, Unevenly Distributed, Asymmetric, Opaque

2019: Fragmented, Unevenly Distributed, Asymmetric, Opaque

Add up Fragmented, Unevenly Distributed, Asymmetric and Opaque and you get a world spinning out of centralized control.

Here are the key dynamics of 2019: fragmented, unevenly distributed, asymmetric, opaque. Want to know what’s happening with inflation, deflation, recession, populism, etc.?

It depends on what you own, when you own it, where you own it and its relative scarcity and stability–assuming you have trustworthy information on its scarcity and stability.

By ownership I mean all forms of capital: cash, tools, skills, social capital, trust in institutions, etc. Whatever forms of capital you own, the returns on that capital and its relative stability depend on the specifics of context and timing.

Will there be deflation or inflation? The right question is: Will there be deflation or inflation in my household?. In a rapidly fragmenting economy and society characterized by opacity, asymmetric information and unevenly distributed results, generalizations are intrinsically misleading / false. The only possible answers arise in a carefully limited context: my household, my neighborhood, my industry, my company, etc.

Here’s an example I’ve mentioned in the past: healthcare costs. If you’re one of the lucky households with heavily subsidized healthcare costs (for example, a government employee with limited deductibles, low per-visit costs and modest co-pays), your healthcare inflation is likely negligible.

But if your household doesn’t qualify for subsidies and has to pay market rates, you’re very likely to suffer double-digit healthcare inflation.

2019 is the year that central banks and states lose control of the narratives, the economy and the social contract, all of which are dynamic complex systems which excel in producing banquets of unintended consequences.

Control of the narrative requires harvesting “the right data” and spinning an interpretation that supports the status quo.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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Olduvai II: Exodus
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