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The Illusion of Control: What If Nobody’s in Charge?
The Illusion of Control: What If Nobody’s in Charge?
The last shred of power the elites hold is the belief of the masses that the elites are still in control.
I understand the natural desire to believe somebody’s in charge: whether it’s the Deep State, the Chinese Communist Party, the Kremlin or Agenda 21 globalists, we’re primed to believe somebody somewhere is controlling events or pursuing agendas that drive global responses to events.
I submit whatever control we discern is illusory, as the dynamics unleashed by the pandemic have already escaped the control of elites. The fundamental reason the elites have lost control is that all the systems they depend on have been broken for 12 years, but were successfully papered over by doing more of what broke them in the first place. This papering over of broken systems generated an illusion of functionality: everything appeared to function as before even as dysfunction spread into every corner of every system.
As doing more of what broke the systems in the first place is failing, the illusion of functionality has been shredded. Now that the illusion of functionality has been lost, control of the narrative via institutional authority has also been lost.
I’ve often written about the difference between force and power; elites often mistakenly believe the two are equivalent, but they are worlds apart. Those who wield power persuade the masses to obey without being coerced, and to accept the self-serving narratives of the elite without question. Power leverages institutional authority and cultural myths and beliefs.
Force is costly, as coercion is costly. Force is a poor substitute for power, not only because the costs are so burdensome, but because the masses are not acting on their own volition; they are obeying only because the costs of not obeying are so high.
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Unstoppable: The Greatest Depression and the Reverse Wealth Effect
Unstoppable: The Greatest Depression and the Reverse Wealth Effect
We are entering The Greatest Depression because there is no exit.
I’ve endeavored to explain why The Greatest Depression is unstoppable in recent posts:
The Covid-19 Dominoes Fall: The World Is Insolvent March 16, 2020
Pandemic Pandemonium: The Tides of Globalization and Financialization Reverse March 31, 2020
Here’s Why the Economy Won’t Recover–and No, It’s Not Covid-19 or the Lockdown April 23, 2020
What’s Collapsing Can’t Be Saved: Our Fraudulent Economy April 22, 2020
Why Assets Will Crash May 4, 2020
Our Inevitable Collapse: We Can’t Save a Fragile Economy With Bailouts That Increase Fragility May 1, 2020
Globalization and Financialization Are Dead, and so Is Everything That Depended on Them May 15, 2020
Our Fate Is Sealed, Vaccines Won’t Matter: Four Long Cycles Align May 19, 2020
Consumer Spending Will Not Rebound–Here’s Why May 18, 2020
This Is How Systems Collapse May 30, 2020
I’ll try to summarize all this as simply as possible:
1. The global economy’s cost structure has been fatally distorted by central bank policies of inflating asset bubbles and reducing interest rates to near-zero.
2. Earnings from labor have stagnated or eroded since the era of globalization / financialization took off around 2000.
3. Everything costs too much, i.e. is no longer affordable from earnings alone, so the only way to maintain the current costly lifestyle is to borrow money and use it to pay current expenses. This is true for every sector: household, corporate and government.
4. As a result, everyone now needs every dollar of income just to pay their expenses, including interest and principal on their rising debts. There is no slack (buffers) in the system at all.
5. This can be visualized as a row of dominoes. Once the first domino falls, every domino will be toppled.
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This Sucker’s Going Down: The Destruction of Demand
This Sucker’s Going Down: The Destruction of Demand
Demand based on debt, unfulfilled promises and unaffordable habits is burning down.
The first-order effect of the lockdown was demand destruction as shelter-in-place orders and business closures restricted consumers’ ability to spend.
The second-order effect will be the permanent destruction of demand because people will realize they’re better off reducing their consumption of high-cost, questionable-value goods and services. Let’s start with the resurgence of savings, the most basic form of security you actually control and the most basic form of hedging against promises of a return to wonderfulness failing to arrive in the real world.
Comically, security you actually control, i.e. savings, are viewed by the status quo as a mortal threat to the economy: how dare you keep some of your own money rather than squander all of it! Notice how this bit of twisted CNN humor labels savings “hoarding,” as if retaining a bit of your hard-earned wages is evil “hoarding” rather than prudent self-sufficiency.
New threat to the economy: Americans are saving like it’s the 1980s
For those who weren’t alive to experience the 1980s, it was a boom era of widespread prosperity. In a functional economy, savings are understood as one of the foundations of prosperity. In today’s insanely dysfunctional neofeudal economy, savings are a despicable evil because they take the bread right out of the bankers’ and corporate elites’ mouths. How dare you rob poor Jamie Dimon and Jeff Bezos with your awful, horrible, cruel savings of money that you actually control, money that protects you and gives you some security!
In other words: how dare you serve your own needs and interests rather than our monomaniacal obsession with increasing our profits at your expense.
…click on the above link to read the rest of the article…
The Way of the Tao Is Reversal
The Way of the Tao Is Reversal
As Jackson Browne put it: Don’t think it won’t happen just because it hasn’t happened yet.
We can summarize all that will unfold in the next few years in one line: The way of the Tao is reversal. This is the opening line of Chapter 40 of Lao Tzu’s 5,000-character commentary on the Tao, The Tao Te Ching. There are many translations of this slim volume, and for a variety of reasons I favor the 1975 translation by my old professor at the University of Hawaii, Chang Chung-yuan (1907-1988), whom I would occasionally see doing Tai Chi late at night on his front yard in Manoa Valley.Professor Chang–who would often write Chinese characters on the blackboard with great energy to make a point–rendered this line in English as Reverse is the movement of Tao. Others have translated it as Reversal is the movement of Tao.Given the obscurity and ambiguity of Taoist concepts, this line has many interpretations. I prefer the way of the Tao is reversal because the Tao is fundamentally about virtue, power and what we might call authenticity. Thus all that is presented as permanent will be revealed as impermanent, all that is presented as true will be revealed as false and all that is presented as virtuous will be revealed as fraud.
In the present era, we can discern these potential reversals:
1. The all-powerful Federal Reserve will lose control and its power will dissipate into thin air.
2. Rather than linger at zero or negative rates as expected, interest rates will reverse and start moving inexorably higher.
3. What was presented as permanent–the value of national currencies and assets–will be revealed as impermanent.
4. What was presented as the power to force compliance will be revealed as powerlessness.
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The Outlines of a Better World Are Emerging
The Outlines of a Better World Are Emerging
Once the government’s ability to sustain its enforcement with money created out of thin air vanishes, the entire order vanishes along with it.
The era of waste, greed, fraud and living on borrowed money is dying, and those who’ve known no other way of living are mourning its passing. Its passing was inevitable, for any society that squanders its resources is unsustainable. Any society that makes private greed the primary motivator and priority is unsustainable. Any society that rewards fraud above all else is unsustainable. Any society which lives on money borrowed from the future and other forms of phantom capital is unsustainable.
We know this in our bones, but we fear the future because we know no other arrangement other than the unsustainable present. And so we hear the faint echo of the cries of alarm filling the streets of ancient Rome when the Bread and Circuses stopped: what do we do now?
When the free bread and entertainments disappeared, people found new arrangements. They left Rome.
The greatest private fortunes in history vanished as Rome unraveled. All the land, the palaces, the gold and all the other treasures were no protection against the collapse of the system that institutionalized corruption as the ultimate protector of concentrated wealth.
The most zealously guarded power of government is the creation of money, for without money the government cannot pay the soldiers, police, courts and administrators needed to enforce its rule. Western Rome created money by controlling silver mines; in the current era, governments create money (currency) out of thin air.
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The Art of Survival, Taoism and the Warring States
The Art of Survival, Taoism and the Warring States
Longtime correspondent Paul B. suggested I re-publish three essays that have renewed relevance. This is the first essay, from June 2008. Thank you, Paul, for the suggestion.
I’m not trying to be difficult, but I can’t help cutting against the grain on topics like surviving the coming bad times when my experience runs counter to the standard received wisdom.
A common thread within most discussions of surviving bad times–especially really bad times–runs more or less like this: stockpile a bunch of canned/dried food and other valuable accoutrements of civilized life (generators, tools, canned goods, firearms, etc.) in a remote area far from urban centers, and then wait out the bad times, all the while protecting your stash with an array of weaponry and technology (night vision binocs, etc.)
Now while I respect and admire the goal, I must respectfully disagree with just about every assumption behind this strategy. Once again, this isn’t because I enjoy being ornery (please don’t check on that with my wife) but because everything in this strategy runs counter to my own experience in rural, remote settings.
You see, when I was a young teen my family lived in the mountains. To the urban sophisticates who came up as tourists, we were “hicks” (or worse), and to us they were “flatlanders” (derisive snort).
Now the first thing you have to realize is that we know the flatlanders, but they don’t know us. They come up to their cabin, and since we live here year round, we soon recognize their vehicles and know about how often they come up, what they look like, if they own a boat, how many in their family, and just about everything else which can be learned by simple observation.
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No, This Is Not Another 1929, 1973, 1987, 2000, or 2008
No, This Is Not Another 1929, 1973, 1987, 2000, or 2008
Basing one’s decisions on analogs from the past is entering a fool’s paradise of folly.
Like addicts who cannot control their cravings, financial analysts cannot stop themselves from seeking some analog situation in the past which will clarify the swirling chaos in their crystal balls. So we’ve been swamped with charts overlaying recent stock market action over 1929, 1987,2000 and 2008–though the closest analogy is actually the Oil Shock of 1973, an exogenous shock to a weakening, fragile economy.
But the reality is there is no analogous situation in the past to the present, and so all the predictions based on past performance will be misleading. The chartists and analysts claim that all markets act on the same patterns, which are reflections of human nature, and so seeking correlations of volatility and valuation that “worked” in the past will work in 2020.
Does anyone really believe the correlations of the past decade or two are high-probability predictors of the future as the entire brittle construct of fictional capital and extremes of globalization and financialization all unravel at once?
Here are a few of the many consequential differences between all previous recessions and the current situation:
1. Households have never been so dependent on debt as a substitute for stagnating wages.
2. Real earnings (adjusted for inflation) have never been so stagnant for the bottom 90% for so long.
3. Corporations have never been so dependent on debt (selling bonds or taking on loans) to fund money-losing operations (see Netflix) or stock buybacks designed to saddle the company with debt service expenses to enrich insiders.
4. The stock market has never been so dependent on what amounts to fraud–stock buybacks–to push valuations higher.
…click on the above link to read the rest of the article…
Here’s Why the Economy Won’t Recover–and No, It’s Not Covid-19 or the Lockdown
Here’s Why the Economy Won’t Recover–and No, It’s Not Covid-19 or the Lockdown
When reality and truth become the sworn enemies of society’s political and economic elites, the society is well and truly doomed.
The risks of Covid-19 and the lockdown have been explored across a wide spectrum of opinion. To hit just a few of too many to count:
— Permanent loss of civil liberties under the guise of “pandemic controls.”
— Failure of control measures to limit the pandemic in any sort of economically manageable manner.
— Schemes for ID Cards identifying those with antibodies may fail as immunity might be fleeting, or low antibody counts may not confer immunity.
These visible risks arise directly from the pandemic and efforts to control it, but the reasons why the economy won’t recover were in force long before the pandemic:
1. Unsustainable dependence on expanding debt to fund consumption as earned income stagnated.
2. Unsustainably high costs imposed by cartels, monopolies, insider-skims/scams, institutionalized fraud, hyper-financialization, exploitation, etc. (Please see What’s Collapsing Can’t Be Saved: Our Fraudulent Economy)
3. The economy-wide creation of self-serving simulations of trust, credibility, transparency and accountability as substitutes for actual trust, credibility, transparency and accountability.
This ceaseless spew of simulacra to cloak self-serving corruption is hidden from view lest the truth–that authentic trust, credibility, transparency and accountability have been dismantled because they inhibit the profiteering and exploitation of insiders and elites– undermine the entire status quo.
And so “success” (as in maximizing profits) in America is now a game of creating believable facsimiles of what was once authentic. Like all mammals, humans retain a sixth sense–commonly referred to as the “sniff test”, i.e. something doesn’t feel right–and so the simulacra are only partially successful in making us believe institutions are trustworthy, credible, transparently operated and governed in a way that enforces accountability.
As a result, the more all our dominant institutions press their claims of legitimacy, the more they erode their legitimacy.
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The World Has Changed More Than We Know
The World Has Changed More Than We Know
Put another way: eras end.
While the mainstream media understandably focuses on the here and now of the pandemic, some commentators are looking at the long-term consequences. Here is a small sampling:
Coronavirus, synchronous failure and the global phase-shiftCoronavirus Will Require Us to Completely Reshape the EconomyFlorence Hit by the Coronavirus: The Curse of Hyperspecialization
We’re not going back to normal: Social distancing is here to stay for much more than a few weeks. It will upend our way of life, in some ways forever (MIT Technology Review)While each of these essays offers a different perspective, let’s focus on the last two: Ugo Bardi’s essay on Hyperspecialization and the technological responses described in the MIT Technology Review essay.
As readers of the blog know, I’ve been differentiating between first-order and second-order effects: First order effects: every action has a consequence. Second order effects: every consequence has its own consequences.
We can think of these as direct (first order) and indirect (second order) effects.
The MIT Technology Review article focuses on direct effects, i.e. how to deploy technology to identify people with the virus, track their recent movements and who they might have exposed to the disease, tech-driven regulations that would limit the movements of infected (such as we see in China now), etc.
Bardi’s first-hand account from Northern Italy touches on an indirect effect: the profoundly negative impact of a hyperspecialized economy that is suddenly disrupted. In this case, the specialization is tourism, but there are other examples, many driven by hyper-globalization.
Specialization has long been central to capitalism’s relentless drive to increase efficiencies and thus profits, and globalization has pushed specialization to extremes globally dominant corporations can arbitrage currencies, wages, political corruption and lax environmental standards in ways that localized competitors cannot.
…click on the above link to read the rest of the article…
The Global Repricing of Assets Can’t Be Stopped
The Global Repricing of Assets Can’t Be Stopped
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 start with the basics: the only sustainable way to increase broad-based wealth is to boost productivity across the entire economy.That means producing more goods and services with less capital, less labor and fewer inputs such as energy.
Rather than boost productivity, we’ve lowered productivity via mal-investment and by propping up unproductive sectors with immense sums of borrowed money–money that accrues interest.
The poster child for this dynamic is higher education: rather than being pushed to innovate as costs skyrocketed, the higher education cartel passed its inefficiencies and bloated cost structure onto students, who have paid for the bloat with $1. 6 trillion in student loans few can afford. (See chart below.)
As for Corporate America squandering $4.5 trillion on stock buybacks (Wolf Richter)– the effective gains on productivity from this stupendous sum is not just zero–it’s negative, as the resulting speculative bubble suckered in institutions and individuals who’d been stripped of safe returns by the Federal Reserve’s low-interest-rates-forever policy.
What could that $4.5 trillion have purchased in terms of increasing the productivity of the entire economy? Considerably more than the zero productivity generated by stock buybacks.
…click on the above link to read the rest of the article…
Covid-19 Helicopter Money: Go Big Now or Go Home
Covid-19 Helicopter Money: Go Big Now or Go Home
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 work about as well as half-measures in quarantine, i.e. they fail to achieve the intended objectives. Dribbling out modest low-interest loans is a half-measure, as is cutting payroll taxes. Neither measure will help employees or small businesses whose income has fallen below the minimum needed to pay essential bills: rent, food, utilities, etc.
Meanwhile, the ruling elites will be under increasing pressure to bail out greedy financial elites and gamblers–the same scoundrels and parasites they bailed out in 2008-09. But this is not just another speculative bubble-pop, this is a matter of life and death and solvency for the masses of at-risk households and small businesses. It is a different zeitgeist and a different crisis, and bailing out greedy parasites (banks, indebted corporations, speculators, financiers, etc.) will not go over big while households and small businesses are going bankrupt.
The Federal Reserve, was just handed a lesson in the ineffectiveness of the usual monetary “bazooka” in bailing out the predatory-parasitic class of overleveraged gamblers.
…click on the above link to read the rest of the article…
The Covid-19 Dominoes Fall: The World Is Insolvent
The Covid-19 Dominoes Fall: The World Is Insolvent
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 minus $500,000 = $500,000.Let’s say a typical financial crisis and recession occur, and the household’s assets fall 30%. 30% of $1 million is $300,000, so the the market value of the household’s assets falls to $700,000.
Deduct the $500,000 in debts and the household’s net worth has fallen to $200,000. The point here is debts remain regardless of what happens to the market value of assets owned by the household.
Then the speculative asset bubbles re-inflate, and the household takes on more debt in the euphoric expansion of confidence to buy a larger house, expand the family business and enjoy life more.
Now the household assets are worth $2 million, but debt has risen to $1.5 million. Net worth remains at $500,000, since debt has risen along with asset values.
Alas, all bubbles pop, and the market value of the household assets decline by 30%, or $600,000. Now the household assets are worth $2,000,000 minus $600,000 or $1,400,000. The household net worth is now $1,400,000 minus $1,500,000 or negative $100,000. the household is insolvent.
On top of that, the net income of the family business plummets to near-zero in the recession, leaving insufficient income to pay all the debts the household has taken on.
…click on the above link to read the rest of the article…
Goodbye to All That: The Demise of Globalization and Imperial Pretensions
Goodbye to All That: The Demise of Globalization and Imperial Pretensions
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, China) experience an explosion of investment in production, infrastructure and in business and household consumption.In this boost phase of globalization, capital flows from stagnant developed economies to emerging economies to earn higher returns, and production moves to these low-cost economies to take advantage of low labor costs and lax environmental standards.
It’s a win-win dynamic for credit-starved emerging economies and stagnant developed economies, as the emerging economies get investment capital, jobs and technology transfers while the developed economies get higher profits due to the lower production costs and lower-priced goods and services.
Put another way: globalization is simply one manifestation of the financialization of the global economy. Developed-world central and private banks create trillions of dollars in fiat currencies that then slosh around the world, seeking the highest return. Whatever can be exploited in the short-term is exploited and then capital moves on, leaving environmental destruction and distorted economies in its wake.
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Could China’s Overlapping Crises Spiral Out of Control?
Could China’s Overlapping Crises Spiral Out of Control?
Threats, propaganda and the Orwellian dissolution of social trust cannot stop a withdrawal from the status quo.
Longtime readers know I’ve had an active interest in what differentiates empires/nations that survive crises and those that collapse. There is a lively academic literature on this topic, and it boils down to three general views:
1. Collapse is typically triggered by an external crisis that overwhelms the empire’s ability to handle it. Absent the external shock, the empire could have continued on for decades or even centuries.
2. Crises that could have been handled in the “Spring” of rapid expansion are fatal in “Winter” when the costs of maintaining complex systems exceeds the empire’s resources.
3. Civilization is cyclical and as population and consumption outstrip resources, the empire becomes increasingly vulnerable to external shocks.
External shocks include prolonged severe drought, pandemics and invasion. In many cases, the empire is beset by all three: some change in weather that reduces grain harvests, a pandemic introduced by trade or military adventure and/or invasion by forces from far-off lands with novel diseases and/or military technologies and tactics.
More controversial are claims that political structures become sclerotic and top-heavy after long periods of success, and these bloated, brittle hierarchies lose the flexibility and boldness needed to deal with multiple novel challenges hitting at the same time.
We lack internal-political records for most empires that have collapsed, but those records that have survived for the Western and Eastern Roman Empires suggest that eras of stability breed political sclerosis which manifests as a bloated, parasitic bureaucracy or as ruthless competition between elites that were once united in the expansive “Spring” phase.
By the “Winter” phase, the elite hierarchy is willing to sacrifice the unity needed to survive for its own short-term advantage.
…click on the above link to read the rest of the article…
