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Here’s How “Prosperity” Ends: Global Bubbles Are Popping

Here’s How “Prosperity” Ends: Global Bubbles Are Popping

So here we are: the global credit-asset bubbles are popping, and the illusory “prosperity” generated by the bubbles is about to tumble off a cliff.

There are two kinds of prosperity, one fake, one real. Bogus “prosperity” depends on credit-asset bubbles inflating, magically creating “wealth” not from labor, production or improving productivity, but from the value of assets soaring as bubbles inflate.

This bubble-generated “wealth” then fuels a vast expansion of credit and consumption as assets soaring in value increases the collateral available to borrow against, and the occasional sale of soaring assets generate capital gains, stock options, etc. which then fund sharply higher consumption.

When the value of a modest home skyrockets from $200,000 to $1,000,000 in a few years, that $800,000 in gain was not the result of any improvement in utility. The house provides the same shelter it did when it was worth 20% of its current value. The $800,000 is gain is the result of the abundance of low-cost credit and the global search for a yield above zero.

Eventually, this vast expansion of “money” chasing yields and seeking places to park all the excess cash trickles into the real economy and the result is inflationary. Consider how soaring home prices affect rents.

When an investor bought the modest home for $200,000, the costs of ownership were low due to the costs being linked to the value: the property tax, insurance and mortgage were all based on the valuation. (The costs of maintenance were unrelated to valuation, of course, being based on the age and quality of construction.) Let’s say the modest house rents for $1,500 per month.

…click on the above link to read the rest…

The Race to the Bottom Accelerates

The Race to the Bottom Accelerates

When competence, transparency and accountability are all punished, the Race to the Bottom accelerates.

Race to the Bottom describes the process of competitive devaluation, where value is gutted to remain competitive with those who are grabbing market share by stripping out quality, value, durability, transparency, accountability and competence.

We see the global Race to the Bottom in everyday products: the quality of goods has plummeted as manufacturers compete to reduce costs to maintain high profit margins by stripping out the quality and durability of components. We see it in shrinkflation, where the cereal box contains less cereal while the price ratchets higher.

We see it when cereals that once contained no sugar are now sickly-sweet because the manufacturer is losing market share to less healthy sugar-bomb cereals.

We see it in healthcare where costs have been so ruthlessly stripped out to boost profits that it takes months to get an appointment and overworked caregivers no longer have the “luxury” of providing the care they were trained to provide. Routine procedures and hospital stays now carry pricetags equal to four years college tuition or a modest house.

The Race to the Bottom isn’t limited to goods and services. Consider the bedrock of the social order, civility. Civility in discourse is now rarer than sightings of UFOs / UAPs.

In politics, scoring cheap points while ignoring the nation’s social decay and unsustainable bubble economy is another example of the Race to the Bottom. Is getting to the bottom of the Taylor Swift ticketing “fiasco” really the most pressing issue that politicians need to address? It would seem so.

…click on the above link to read the rest…

Contrarian Thoughts on the Petro-Yuan and Gold-Backed Currencies

Contrarian Thoughts on the Petro-Yuan and Gold-Backed Currencies

Rather than cheer the concept of a new currency, we’re better served to look at the velocity of that currency and the cycles of investing that currency in assets denominated in that currency for a low-risk return.

Longtime readers know not to expect me to rubber-stamp anything, be it the status quo or proposed alternatives. Our interests are best served by screening everything through the mesh of independent analysis, a.k.a. contrarianism. Which brings us to the two sources of alt-media excitement in the currency space, the petro-yuan and another wave of proposed <i<>gold-backed currencies.

I’m all for competing currencies. The more transparent and open the market for currencies, the better. In my view, everyone should be able to buy and trade whatever currencies they feel best suits their goals and purposes.

In all the excitement over de-dollarization, some basics tend to get overlooked.

1. The yuan remains pegged to the US dollar, so it remains a proxy for the USD. It will only become a true reserve currency when China lets the yuan float freely on the global FX market and yuan-denominated bonds also float freely on global bond markets. In other words, a currency can only be a reserve currency rather than a proxy if the price and risk of the currency is discovered by global markets, not centralized monetary/state authorities.

2. Most commentators stop on first base of the oil-currency cycle: China buys oil from exporting nations by exchanging yuan for oil. So far so good. But what can the oil exporters do with the yuan? That’s the tricky part: the petro-yuan has to work not just for China but for the oil exporters who will be accumulating billions of yuan.

…click on the above link to read the rest…

Want to Know Where the Economy Is Going? Watch The Top 10%

Want to Know Where the Economy Is Going? Watch The Top 10%

Should the wealth effect reverse as assets fall, capital gains evaporate and investment income declines, the top 10% will no longer have the means or appetite to spend so freely.

Soaring wealth-income inequality has all sorts of consequences. As many (including me) have noted, the concentration of wealth and income in the top 0.1% has enabled the few to buy political influence to protect their interests at the expense of the many and the common good.

In other words, extreme wealth-income inequality dismantles democracy. There is no way to sugarcoat this reality.

But the concentration of wealth and income isn’t limited to the top 0.1% or top 1%. The top 5% and top 10% have increased their share of household wealth and income, too, and this has far-reaching consequences for the economy, as the top 10% accounts for the bulk not just of income but of spending.

According to the Federal Reserve, ( Distribution of Household Wealth in the U.S. since 1989), the top 1% owned 22.7% of all household wealth in 1989. Their share increased to 30.6% in 2022. The share of the 9% below the top 1% (90% to 99%) remained virtually unchanged at 37.4%. The top 10% own 68% of all household wealth.

But this doesn’t reflect the real concentration of income-producing assets, i.e. investments. Total household wealth includes the family home, the F-150 truck, the snowmobile, etc. What separates the economic classes isn’t their household possessions, it’s their ownership of assets that generate income and capital gains.

As the chart below shows, the top 10% own the vast majority of business equity, stocks/bonds and income-producing real estate, between 80% and 90% of each category.

This means the tremendous increases in asset valuations of the past two decades have flowed almost exclusively to the top 10%, with the important caveat that the vast majority of the gains in income and wealth have flowed to the top 0.1%, top 1% and top 5%.

…click on the above link to read the rest…

Who Will Save Us From Ourselves?

Who Will Save Us From Ourselves?

We have the capacity to learn from previous civilization’s errors–rising inequality, hubris, over-reach, decay of production and trade, parasitic elites, and so on–yet we go right ahead and repeat those same errors.

After listening to my explanation of the many cycles human civilizations track first to glory and then to decay, podcast host Tommy Carrigan asked a key question: why don’t we stop ourselves from self-destructing? Tommy and I had a free-range conversation on this and related topics (plus a lot of laughs) that you can listen to here: UFOs & Cycles of Humanity (1:36 hrs)

We have the capacity to learn from previous civilization’s errors–rising inequality, hubris, over-reach, decay of production and trade, parasitic elites, and so on–yet we go right ahead and repeat those same errors.

What explains our inability to learn from history and take corrective actions by maintaining the dynamics of adaptive advances? (Transparent governance, the sharing of knowledge, incentivizing trade and enterprise, competition, stable money, rule of law / fairness, social mobility and limits on elites’ plundering / exploitation.)

Why do we allow the decay, over-reach, greed, hubris, institutional sclerosis and parasitic elites that lead to collapse gain the upper hand time and again? Why do we not act on what can be learned from history?

For those of us steeped in science fiction and the study of AI, this question inevitably leads to discussions of the potential immutability of historic cycles (Asimov’s Foundation Trilogy, which posited that cycles could not be annulled but the decay/collapse phase could be reduced in duration), the deus ex machina of contact with extraterrestrial civilizations and the potential of super-intelligent AI to save us from ourselves.

…click on the above link to read the rest…

It’s a New Era

It’s a New Era

This dynamic–making problems much worse by forcing more of whatever worked in the previous era into a saturated, increasing unstable new era–receives little attention or understanding.

Eras may last decades, and only those who’ve lived long enough to recall previous eras have experienced the transition from one era to the next. The era of financialization, globalization and low-cost, abundant oil/natural gas began over 40 years ago in 1981.

The era of digital / Internet technologies took off about 30 years ago. All of these dynamics accelerated in the early 2000s, roughly 20 years ago.

Only those 60 and older experienced working in a previous era (pre-1981).

All of these dynamics are entering a phase of nonlinear turbulence as the changes are outpacing these highly streamlined / optimized systems’ ability to self-correct.

This nonlinear instability is being accelerated by doing more of what worked in the previous era, in the mistaken belief that the 2020s are simply an extension of the eras that began 40 and 30 years ago.

The fixes that worked in the past won’t resolve the nonlinear instability because all these dynamics have reached saturation: adding more debt no longer generates organic expansion of productivity, all it does is inflate an even larger and more unstable credit-asset bubble.

Globalization has been optimized to the point of saturation: the potential downsides to national security outweigh any remaining marginal gains in corporate profitability.

Financialization has so distorted the economy that gambling on useless speculations is now viewed as the best (or only) way to get ahead.

When a system has absorbed all it can absorb, adding more is just a waste of resources.

We’ve entered a new era, and so the fixes and incentives that worked in the past 40 years no longer work.

…click on the above link to read the rest…

My One Prediction for 2023

My One Prediction for 2023

The question that should be on our minds is: how are my household’s buffers holding up?

Lists of predictions for the new year are reliably popular. Here’s 10 predictions, there’s 17 predictions, over here we have 23 and a half… let’s strip it all down to one prediction: everyone’s predictions will be wrong because 2023 isn’t going to follow anyone’s script.

There are several reasons for this. One is that the vast majority of predictions are based on historical comparisons to previous eras. If the current era is unique in its combination of dynamics and instability, previous pathways are not going to accurately predict what happens next.

Recency bias leads us astray. The past 50 years of relatively mild weather, the past 40 years of Bull Markets, the past 30 years of financialization and the supremacy of monetary policy–all of these offer a warm and fuzzy confidence that the future will be comfortingly similar to the recent past. This assumption works pretty well in stable eras but fails dismally in destabilizing, transitional eras.

Stability and instability are not evenly distributed, so every cherry-picked bias can be supported. You predict slow sales? Here’s an empty shopping mall. See, I’m right! You predict a return to the good old days? Here’s a crowded street fair. See, I’m right!

Those who happen to be living inside an island of coherence are inside a bubble that they mistakenly think encompasses the entire world. This is especially prevalent in the top 5% who shape the narratives that influence the rest of us. If real estate is sinking in their little corner of the world, they predict real estate will crash everywhere.

If everything’s rosy in their protected enclave, they predict a mild recession and steady growth, blah blah blah.

…click on the above link to read the rest…

How Things Fall Apart

How Things Fall Apart

That’s how things fall apart: insiders know but keep their mouths shut, outsiders are clueless, and the decay that started slowly gathers momentum as the last of the experienced and competent workforce burns out, quits or retires.

Outsiders are shocked when things fall apart. Insiders are amazed the duct-tape held this long. The erosion of critical skills and institutional knowledge is invisible to outsiders, while everyone inside who saw the unstoppable decay either left or burned out.

Those who remain are the ambitious who lack the experience to reverse the decline and the self-awareness to realize they’re way over their head. They’re ambitious enough to want the managerial title and power but don’t have the necessary experience and competence to lead a brutally difficult and painful turnaround.

So they either “stay the course” doing more of what’s failed or they flail around, trying one reorganization-fad-of-the-day after another, pushing the few remaining competent staffers to leave and thus steepening the decline.

Everyone who cared and was competent in the support staff either left or burned out trying to doing three jobs at once. The most prescient and experienced staffers noted the decline in managerial competence and the decay of the operational skills needed to keep the ship afloat, and so they found a better position elsewhere or retired early.

The less prescient but competent then tried to compensate for failing management and poorly trained staff by doing more of the work themselves. First they do the work of one-and-half less competent employees, then of two and after that, three for a brief time until their health is destroyed and they burn out. They either go on medical leave, retire or quit as the sole means of retaining whatever health they still possess.

…click on the above link to read the rest…

I Used to Be Disgusted, Now I’m Just Tired

I Used to Be Disgusted, Now I’m Just Tired

The midterm elections, the “most important elections of our lifetimes,” are over. Whoever won, it wasn’t really going to change much. Today’s system is simply too deeply entrenched.

While the much-touted differences between America’s political parties get obsessive, hysterical attention, the sameness of Imperial corruption, waste and squalor regardless of who’s in power gets little notice.

Scrape away the differences — mostly in domestic and cultural issues — and we see the dead hand of Imperial Corruption is on the tiller.

The core of Imperial Corruption is the disconnect between the nation’s ideals of representational democracy and open markets and the sordid reality: elites serve their interests by corrupting both democracy and open markets.

Elites Against Democracy

Unfettered democracy and markets cannot be controlled by a tiny, self-serving elite. Stripped of corruption, democracy and markets are free-for-alls that are constantly evolving. This open-ended dynamism is the beating heart of both democracy and open markets.

But the dynamic adaptive churn of unfettered representative democracy and open markets are anathema to insiders, vested interests and elites. Each has gained asymmetric power by subverting democracy and markets to serve their private interests. They’ve destroyed the system’s natural dynamism.

When “competition” has been reduced to two telecoms, two healthcare insurers, two pork processors, etc., the system has been stripped of adaptability and resilience.

Democracy has been replaced by an auction of political power to the highest bidder.

Everything’s Up for Grabs

It rewards cronies and devotes all its resources not to solving the nation’s problems but to whipping up conflagrations of divisiveness and partisan hysteria that wash away the middle ground where problems can actually be addressed.

This crippling of the nation’s ability to actually solve difficult problems serves the interests of self-serving elites whose sole interest is accumulating personal wealth and power.

…click on the above link to read the rest…

The “Oil Curse” and Splashy PR Announcements of Oil Production Cuts

The “Oil Curse” and Splashy PR Announcements of Oil Production Cuts

It’s not just the price of oil that matters: how much disposable income consumers have left to buy more goods and services matters, too.

The Oil Curse (a.k.a. The Resource Curse) refers to the compelling ease of those blessed with an abundance of oil/resources to depend on that gift for the majority of state/national revenues. The risks and demands of developing a diverse, globally competitive economy don’t seem worth the effort when the single-source wealth of oil offers such a low-risk bounty of revenues.

This dependence becomes a curse when the market value of the oil/resources plummets. Having come to depend on that seemingly inexhaustible source of massive revenues, even states that have set aside prudent reserves soon find their expenses cannot align down to diminished oil revenues without unbearable political/social pain.

The ideal solution to this problem is to jawbone oil prices higher by splashily announcing major cuts in oil production and then ignoring the proposed cuts to pump as much oil as possible to restore spending to politically viable levels.

The problem is every other oil producer is pursuing the same game plan and so production doesn’t actually decline. As global demand continues sagging in a global recession, oil supply remains at high levels. Since oil and other commodities are priced on the margin, even modest misalignments of supply and demand can generate huge swings in price.

There is no real enforcement of heavily promoted production cuts. The pressure on every oil producer is to assure the world they’re complying to cover the reality that they’re not actually cutting production because they can’t afford to lose any more revenues.

The price of oil appears to be reflecting the global recession that’s baked into receding stimulus and liquidity and higher inflation

…click on the above link to read the rest…

 

Regardless of Who’s Elected, Imperial Corruption Rules the Nation

Regardless of Who’s Elected, Imperial Corruption Rules the Nation

But in the meantime, enjoy the political theatrics down on the sand-strewn floor of the Coliseum.

While the much-touted differences between America’s political parties get obsessive, hysterical attention, the sameness of Imperial corruption, waste and squalor regardless of who’s in power gets little notice. Scrape away the differences–mostly in domestic issues–and we see the dead hand of Imperial Corruption is on the tiller.

The core of Imperial Corruption is the disconnect between the nation’s ideals of representational democracy and open markets and the sordid reality: elites serve their interests by corrupting both democracy and open markets.

Unfettered democracy and markets cannot be controlled by a tiny, self-serving elite. Stripped of corruption, democracy and markets are free-for-alls that are constantly evolving, as highly adaptive islands of coherence coalesce that influence the quasi-chaos, competing with other islands of coherence but never gaining dominance due to the open-ended dynamism of collaboration-competition that is the beating heart of both democracy and open markets.

The only way to control democracy and markets to serve the interests of the few at the expense of the many is to corrupt them completely by destroying the dynamism of collaboration-competition. Democracy is replaced by an auction of political power to the highest bidder that rewards cronies and devotes all its resources not to solving the nation’s problems but to whipping up conflagrations of divisiveness and partisan hysteria that wash away the middle ground where problems can actually be addressed.

This crippling of the nation’s ability to actually solve difficult problems serves the interests of self-serving elites whose sole interest is accumulating personal wealth and power…

…click on the above link to read the rest…

The Unintended Consequences of Unintended Consequences

The Unintended Consequences of Unintended Consequences

Decades of central bank distortions and regulatory / market-share capture by cartels and monopolies have completely gutted “markets,” destroying their self-correcting dynamics.

Unintended consequences introduce unexpected problems that may not have easy solutions. An entirely different set of problems are unleashed as unintended consequences have their own unintended consequences. This is the problem with complex emergent systems such as economies, societies and global supply chains: the system’s feedback, leverage points and phase-change thresholds are not necessarily visible or predictable, yet these dynamics have the potential to cascade small failures into systemic collapse.

The unintended consequences of unintended consequences are called second-order effects: consequences have their own consequences.

So for example, you juice your economy with massive stimulus after a lockdown that upended consumers and global supply chains, crushing both demand and supply, and suddenly you have rip-roaring inflation as demand comes back while supply chains remain tangled.

Shifting critical industrial production to frenemies so corporations could maximize profits while reducing the quality of goods and services seemed like a good idea until the potential costs of that dependence on frenemies become apparent.

Assuming oil and natural gas would always be in abundance made sense when they were abundant, but geopolitical forces kicked that assumption into the gutter. All the reassuring economic stories we told ourselves–energy is only 3.5% of the economy and the household spending budget, so cost really doesn’t matter–fall off the cliff when availability and supply become the paramount issues setting price.

That 3.5% loses meaning when there’s not enough to supply demand and somebody loses the game of musical chairs.

Then there’s the fantasy that monetary policy imposed by central banks control inflation. The inconvenient reality is central bank monetary policy is akin to building sand castles on the beach: when the tide is ebbing, the castles look magnificent. When the tide is rising, the sand castles are quickly washed away.

…click on the above link to read the rest…

Everything’s Fixed–Except What’s Broken

Everything’s Fixed–Except What’s Broken

Everything’s fixed except what’s no longer profitable to plunder. Underfunded, ignored, mismanaged by incompetents, it breaks.

Everything’s fixed–except what’s broken. Hmm. Maybe we need to read that again.

Everything’s fixed means it’s been “fixed” like a game or match has been fixed–rigged to benefit insiders while the unwary onlookers and punters have been led to believe that it’s “fair and open.” That con job is the critical cover to cloak the fix/rigging.

If a market or regulatory system can’t be rigged to benefit insiders, then it’s broken because if it isn’t profitable for insiders, it’s neglected until it breaks.

It’s rather ironic, isn’t it? If you want a system to semi-function as advertised, it has be rigged to benefit insiders, as only then do insiders and major players devote enough attention and resources to keep it stumbling along, much as an organism is kept alive so parasites can continue feasting on it.

These zombie-systems rigged to benefit insiders only serve the public in a cursory, minimal-effort fashion. These systems excel at recruiting naive idealists who actually believe in the purported purpose of the organization: public service, education, quality products and services, etc.

These idealists soon lose their naivete as the learn that all that “serve the public” rah-rah is a PR facade to cover the expert pillage by insiders.

You, fine idealist, can be an adjunct for life here at this great university, earning $35,000 a year without tenure, job security, pension or benefits, while we insiders earn $350,000 as associate deans of diversity and other cushy insider gigs that have nothing to do with what students actually take away after they’ve been bled dry via student loans.

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

The EU’s Crisis Is Global: Neocolonialism, Hyper-Financialization and Hyper-Globalization Come Home to Roost

The EU’s Crisis Is Global: Neocolonialism, Hyper-Financialization and Hyper-Globalization Come Home to Roost

The EU’s crisis isn’t limited to energy. It is a manifestation of the global breakdown of Neocolonialism, Financialization and Globalization.

The European Union (EU) was seen as the culmination of a centuries-long process of integration that would finally put an end to the ceaseless conflicts that had led to disastrous wars in the 20th century that had knocked Europe from global preeminence.

Wary of the predations of the U.S. and rising Asian powers, European nations sought the economic and diplomatic strength of a confederation that would be greater than the sum of its parts, a union that would restore Europe’s rightful place as a global power.

This worthy goal was undermined by the destructive dynamics of the past forty years: Neocolonialism, Financialization and Globalization.

These dynamics are unstable due to their internal contradictions. In classical colonialism, the Core dominates the Periphery with force, extracting economic value by exploiting the subject states’ commodities and forcing the colonies to buy the valued-added finished goods produced by the colonial power’s domestic economy.

This extractive model was at odds with the liberal worldview of the colonial powers which held self-rule and open markets as necessary to stable prosperity. The contradictions of classical colonialism led to its collapse as colonies broke free and the colonial powers were forced to navigate a more open global economy.

Beneath the glossy vibe of strength through unity, the EU institutionalized a Neocolonial Model in which some EU members are more equal than others, a divide that was starkly revealed in the debt crisis of 2011-2012.

I described the EU’s version of the Neocolonial Model in 2012: The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

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

The Fed Can’t Stop Supply-Side Inflation

The Fed Can’t Stop Supply-Side Inflation

The Fed and other central banks have zero control of supply-driven inflation, period.

America’s financial punditry is bewitched by four fatal fantasies:

1. Inflation is demand-driven. If the Federal Reserve (or other central banks) reduce demand with monetary tools like raising interest rates, inflation will cool.

2. Substitution of high-cost goods with lower-cost goods reduces inflation, and substitution is infinite: there’s always cheaper chicken if beef gets too pricey.

3. Higher prices will lead suppliers to increase production, which will increase supply and reduce prices.

4. The Federal Reserve has control of all these inflation-reducing dynamics via interest rates and its balance sheet (buying or selling various durations of Treasury bonds).

All of these are fantasies, fantasies that are fatal because they’re flat-out false. The Fed has no control over supply-driven inflation, which is what we have now. Consider eggs. The price has skyrocketed not because consumers suddenly ramped up demand that is now outstripping supply, but because essential inputs to supply such as feed and energy have soared in price and constraints that have nothing to do with interest rates such as the spread of bird viruses.

These essential inputs are going up in cost due to factors completely unrelated to interest rates or monetary policy. Drought and weather extremes are constraining the supply of animal feed stocks, and energy prices are being driven by geopolitical forces completely outside central bank control.

Infinite substitution is also false. What’s the substitute for eggs? Silkworm goo squeezed into plastic eggs? Well, not yet… there are no substitutes for eggs. And with the soaring input costs of producing chickens, chicken is no longer that cheap.

…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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