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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…

The Illusion of Stability, the Inevitability of Collapse

September 4, 2021

The Illusion of Stability, the Inevitability of Collapse

Beneath the illusory stability of rising GDP, the extremes of debt, leverage, stimulus and speculative frenzy required to keep the ‘phantom wealth bubble’ from imploding are all rising parabolically.

Imagine being at a party celebrating the vast wealth generated in the last ten months in stocks, cryptocurrencies, real estate and just about every other asset class. The lights flicker briefly but the host assures the crowd the generator powering the party is working perfectly.

Being a skeptic, you slip out on the excuse of bringing in more champagne and pay a visit to the generator room. To your horror, you find the entire arrangement held together with duct tape and rotted 2X4s, the electrical panel is an acrid-smelling mess of haphazard frayed wire and the generator is over-heated and vibrating off its foundation bolts. Whatever governor the engine once had is gone, it clearly won’t last the night.

The party is the U.S. economy, and the generator room is the Federal Reserve, its proxies and the U.S. Treasury, all running to failure. What we’re experiencing in real time is the illusion of stability and the inevitability of collapse. I’ve prepared a few charts to illuminate this reality graphically.

Here’s the illusion of stability in a nutshell: while the broadest measure of the economy, gross domestic product (GDP) has continued marching higher (in both nominal and real/inflation-adjusted terms), the amount of Federal Reserve stimulus and Federal debt required to keep pushing GDP up at the same rate has exploded higher and is tracking a parabolic blow-off.

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

Cracks in the supply chain: Is metastable turning into unstable?

July 14, 2020

Cracks in the supply chain: Is metastable turning into unstable?

You who are reading this sentence are metastable systems. So, is the biosphere, and so is all of human society. A metastable system is one that remains stable so long as the inputs necessary to maintain its stability are available.

For humans this includes food (energy) and water. For the biosphere the key element is the energy input from the Sun. For human society, which is a subset of the biosphere, the Sun is also the key energy input. Much of the energy used by humans is stored in the form of wood, coal, natural gas and oil which all ultimately come from living organisms dependent on the Sun for energy.

Hydropower is also a product of the Sun which drives the water cycle on Earth and therefore allows hydroelectric dams to be filled. Wind and solar energy are, of course, products of the Sun as well. The energy harvested by humans gets expressed in manufacturing and transportation in machines. It gets expressed in human labor, but also in the thought, planning, and communications needed to make things happen.

What we are witnessing as a result of this pandemic is a widespread challenge to metastable systems upon which our societies depend. The most obvious are those related to hospitals and health care products. We often read in the news that hospitals are near “the breaking point” as if the hospital walls will burst when too many patients crowd into the building.

What this really means, of course, is that beyond certain levels of activity, the normal systems of a hospital will not function properly for want of people to provide services, for want of supplies needed to provide those services—tests for the COVID-19 virus come to mind—for want of space to examine all those seeking medical attention and for want of money to finance it all.

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

Victor Gorshkov: a life for the biosphere.

May 18, 2020

Victor Gorshkov: a life for the biosphere.

The basic concept of the biotic regulation of Earth’s temperature according to Gorshkov et al, 2002. The figure shows the potential function U(T) for the global mean surface temperature. Stable states correspond to pits, unstable states to hills. The modern value of +15°C (288 K) approximately corresponds to an unstable state (2, thin line). Physically stable states correspond to a frozen Earth (state 1) and a red-hot Earth (state 3). We are precariously living in a shallow minimum of potential energy that defines the habitable zone for the biosphere. This state can be created and maintained only by a healthy biosphere.

On May 10th, 2019, Victor Gerogievic Gorshkov died in St. Petersburg after a life dedicated to scientific research that he continued to perform up to nearly the last moment. One year later, I thought I could publish this small homage to his figure and his work. His longtime coworker and companion, Anastassia Makarieva, was also kind enough to write a summary of Victor’s life and work for this blog.
In many ways, science follows the 20/80 rule, sometimes called the “Pareto’s rule,” which tells that 80% of the work is performed by just 20% of the performers. Maybe Pareto was an optimist and it may be that science works because, as Newton said long ago, a small number of “giants” emerge out of the general mediocrity. One of these creative people, a true giant of science, was Victor Gorshkov (1935-2019), researcher at the Petersburg Nuclear Physics Institute, in Russia.

Understanding Gorshkov’s work and ideas takes some time and patience. He was trained as a theoretical physicist and his approach was very different from the way most western scientists operate.

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

The Greatest Threat to World Stability No One Knows About

September 20, 2019

The Greatest Threat to World Stability No One Knows About

stuxnet opened a pandora's box of risk for the rest of the world

The absolute greatest threat to world stability is a threat that oddly receives virtually no publicity. It’s not nuclear arms, it’s not a US stock market crash, it’s not a global bond market crash and it’s not a real estate market crash. The greatest threat to world stability is one that originates within the realm of cyberwarfare. Before you state, “Yeah, I’ve heard that many times before” and dismiss this article, there is a very low probability that your understanding of the magnitude of this risk is anywhere near complete simply due to the fact that the great majority of people do not have a clear understanding of how much of their daily modern lives depend upon a functioning internet. There is a massive threat to all infrastructure that exists in virtually every modern nation in the world today, because of the invention of the Stuxnet virus by US and Israeli intelligence agencies that inadvertently spread around the world. And virtually no one is discussing the greatest threat to world stability, one much greater than the threat of conventional warfare, outside of the opaque confines of State intelligence agencies. In fact, due to the release of Stuxnet into cyberspace, the safest places in the world may be, as of right now, the least developed nations technologically, that possess few or no life-sustaining key infrastructure controlled by computers. On the contrary, the nations subject to the highest risk from the greatest threat to world stability are the most technologically advanced that possess all critical infrastructure controlled by computers and that are now at a fairly advanced stage of adoption in regard to the IoT (Internet of Things).

Why the Creation and Discovery of the Stuxnet Code in 2010 Forever Altered Global Security for the Worse

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

The Crash In US Economic Fundamentals Is Accelerating

May 3, 2019

The Crash In US Economic Fundamentals Is Accelerating

When looking at the health of an economic system it is impossible to gauge growth or stability by only taking two or three indicators into account. The problem is, this is exactly what central banks and governments tend to do. In fact, governments and central banks wildly and deliberately promote certain indicators as the signals everyone should care about while ignoring a whole host of other fundamentals that do not fit their “recovery” narrative. When these few chosen indicators don’t read well either, they rig the numbers in their favor.

The most promoted and and by extension most rigged indicators include GDP, unemployment, and inflation. I would include stock markets to a point in this list, but as I’ve always said, stocks are a trailing indicator and never tell us accurately when an economic crash is taking place. If anything, stocks are and always have been a placebo for the masses, a psychological crutch meant to lull them to sleep while the crash begins. Other than that, they have no value in determining the health of the system. As a lagging indicator, we will cover stocks at the end of this analysis.

GDP rigging is mostly a government affair, as much of how GDP is calculated today includes government spending. So, even though the government has to steal your money through taxation in order to then spend money, government spending is still counted as “production”. This includes programs like Obamacare, which despite assumptions among some conservatives, continues to operate today. “Official” establishment estimates of government spending as a percentage of GDP stand at around 20%. More accurate estimates accounting for ALL expenditures show that US government spending accounts for around 35% of GDP. This is an enormous fraud.

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

Stability without Growth: Keynes in an Age of Climate Breakdown

December 5, 2018

What do Keynesian Democrats think about the movement for post-growth and de-growth economics? Dean Baker, a senior economist at the Center for Economic Policy Research in Washington, DC, has given us some insight into this question. In a recent blog post, republished by Counterpunch, he takes aim at two articles that I wrote for Foreign Policy in which I argue that it is not feasible to reduce our emissions and resource use in line with planetary boundaries while at the same time pursuing exponential GDP growth.

Baker agrees — thankfully — that we need to dramatically reduce emissions and resource use to prevent ecological collapse. But he thinks that this is entirely compatible with continued GDP growth.

Let’s imagine, he says, that a new government imposes massive taxes on greenhouse gas emissions and resource extraction while at the same time increasing spending on clean technologies, with subsidies for electric vehicles and mass transit systems. Baker believes that this will shift patterns of consumption toward goods that are less emissions and resource intensive. People will spend their money on movies and plays, for example, or on gyms and nice restaurants and new computer software. So GDP will continue growing forever while emissions and resource use declines.

It sounds wonderful, doesn’t it? I, for one, would embrace such an outcome. After all, if growth was green, why would anyone have a problem with it? Baker makes the mistake of believing that degrowthers are focused on reducing GDP. We are not. Like him, we want to reduce material throughput. But we accept that doing so will probably mean that GDP will not continue to grow, and we argue that this needn’t be a catastrophe — on the contrary, it can be managed in a way that improves people’s well-being.

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

Paul Volcker’s Fed Criticism Hints at Potential Recession

October 29, 2018

Paul Volcker’s Fed Criticism Hints at Potential Recession

paul volcker federal reserve

From Birch Gold Group

In the 1980’s, amidst out-of-control inflation, former Fed chairman Paul Volcker employed a controversial economic strategy of high interest rates to combat the issue.

In that case, the economic band-aid, dubbed “The Volcker Rule”, worked.

Volcker is 91 now, and as reported in the New York Times, his respect for the Fed is “all gone.” In a recent interview about his memoir, not only did Volcker take the opportunity to travel down memory lane, he also lambasted the Fed’s “2 percent rate target”:

“I puzzle at the rationale,” he wrote. “A 2 percent target, or limit, was not in my textbook years ago. I know of no theoretical justification.”

With a laugh, he told me that he believed the policy was driven by fears of deflation. “And we haven’t had any deflation in this country for 90 years!”

During the interview, he also made an eerie blanket statement summarizing his thoughts about the U.S., the Fed, and the economy.

He stated clearly, “We’re in a hell of a mess in every direction”. Talking about the stability of banks later in the interview, Volcker revealed an unsettling thought (emphasis ours):

They’re in a stronger position than they were, but the honest answer is I don’t know how much they’re manipulating.

He finished the interview saying, “We need stronger supervisory powers”. It’s tough to disagree with that.

Especially after the Dow dropped 1,400 points two weeks ago, and a slight recovery dropped dramatically again this week, the worry in the markets is clear.

On October 3, the Dow sat at 26,828. Market optimists were singing the praises of a market on the way to the top. But things have turned around dramatically.

Today, the Dow closed at 24,984, for an overall drop of 1,844 points in only 22 days. It has lost almost everything it gained in 2018.

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

How Things Fall Apart: Extremes Aren’t Stable

September 10, 2018

How Things Fall Apart: Extremes Aren’t Stable

A funny thing happens on the way to stabilizing things by doing more of what’s failed: the system becomes even more unstable, brittle and fragile.

A peculiar faith in pushing extremes to new heights has taken hold in official circles over the past decade: when past extremes push the system to the breaking point and everything starts unraveling, the trendy solution in official circles is to double-down, pushing even greater extremes. If this fails, then the solution is to double-down again. And so on.

So when uncreditworthy borrowers default on stupendous loans they were never qualified to receive, the solution is to extend even more stupendous sums of new credit so the borrower can roll over the old debt and make a few interest payments for appearance’s sake (also known as “saving face.”)

A funny thing happens on the way to stabilizing things by doing more of what’s failed: the system becomes even more unstable, brittle and fragile.

Central banks and states have latched onto a solution akin to a perpetual-motion machine: the solution to all problems is simple: print or borrow another trillion. If the problem persists, repeat the print/borrow another trillion until it goes away.

Consider China, a nation (like many others) dependent on a vast, never-ending expansion of credit. So what happens when defaults start piling up in the shadow banking system? The central bank/state authorities conjure up a couple trillion yuan (a.k.a. liquidity) so defaults go away: here, Mr. Bad-Risk-Default, is government-issued credit so you can pay off your defaulted private-sector loan. Everybody saves face, private losses have been transferred to the public sector/state, problem solved.

Small banks over-extended and technically insolvent? Solution: print or borrow another trillion and give the insolvent bank the dough. Problem solved!

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

Here’s Why Rip-Roaring Inflation Is Inevitable

August 4, 2018

Here’s Why Rip-Roaring Inflation Is Inevitable

The stability of America’s status quo is illusory.

One of the enduring mysteries of the past decade is why inflation has remained tame while the central bank and government have pumped trillions of dollars of newly created money into the economy. Millions of words have been written about this, and so some shortcuts will have to be taken to make sense of it in one essay.

Let’s start with the basics.

1. Adding newly created money but not generating new goods and services of the same value reduces the purchasing power of existing money. To keep it simple: say the economy of a country is $20 trillion. (Hey, the US GDP is $20 trillion…) Say its money supply is $10 trillion.

So banks and/or the government create $2 trillion in new money but the value of goods and services only expands by $1 trillion. the “extra” $1 trillion of newly created money (either “printed” or borrowed into existence) reduces the value of all existing money.

In effect, the new money robs purchasing power from all existing money.Those holding existing money have lost purchasing power while the recipients of the new money receive purchasing power they didn’t have prior to receiving the new money.

We can see how this works by looking at a chart of GDP to debt. As debt has soared (and remember, debt is “new money” that was loaned into existence), GDP has risen at a much lower rate, so the ratio of debt to GDP has skyrocketed. (see chart below)

2. Where “inflation” (higher prices for the same item) shows up depends on who gets the newly created money: the wealthy few or the wage-earning many. As I have explained many times, in our system, all newly issued money goes to banks, financiers and corporations–the super-wealthy few.

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

When Long-Brewing Instability Finally Reaches Crisis

July 26, 2018

When Long-Brewing Instability Finally Reaches Crisis

Keep an eye on the system’s buffers. They look fine until they suddenly collapse.

The doom-and-gloomers among us who have been predicting the unraveling of an inherently unstable financial system appear to have been disproved by the reflation of yet another credit-asset bubble. But inherently unstable / imbalanced systems can stumble onward for years or even decades, making fools of all who warn of an eventual reset.

Destabilizing systems can cling on for decades, as the inevitable crisis doesn’t necessarily resolve the instability. History shows that when systems had enough inherent wealth to draw upon, they could survive for centuries, thinning their resources, adaptability and buffers until their reservoirs were finally drained. Until then, they simply did more of what’s failed to maintain the sclerotic, self-serving elites at the top of the Imperial food chain.

If we want to trace back the systemic instabilities and imbalances that culminated in China’s revolution in 1949, we can start in 1900 with the Boxer Rebellion, which was itself a reaction to the Opium Wars of the 1840s that established Western influence and control in China.

But is this far enough back in time to understand the Communist Revolution in the 1940s? If we want a comprehensive understanding, we must go back to 1644 and the demise of the Ming Empire, and perhaps even farther back to the Mongol victory over the Song dynasties in the late 1200s.

In the same fashion, we can trace the current crisis of global-finance Capitalism back to the expansion of globalization, affordable fossil fuels and credit in the early 1900s. Affordable fossil fuels enabled rapid industrialization and the growth of transportation and communication networks. Add the expansionary effects of globalization and credit, and the consumer-finance economy took off like a rocket until the inevitable consequences of providing leverage and credit to marginal producers, buyers and speculators led to the Great Depression.

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

Cursed to live in interesting times

April 19, 2018

Cursed to live in interesting times

In this article I connect the fall in the growth rate, with its roots in the rising costs of energy extraction and generation, to declining resilience in the economic system. These are in turn related to a more conflict ridden geo-politics. There is an increased vulnerability to shocks which will be catastrophic unless and until there is a new conventional wisdom in society about what is wrong and what has to be done about it. Things would still be hard if we had a better understanding of what is wrong but society would be in a better position to do something about the predicaments that face us all. Unfortunately those with a vested interest in current arrangements are not likely to change their world view any time soon. With their control over an extraordinarily servile mass media there is a grave obstacle to society understanding its predicament and responding appropriately. The global system is entering an extremely dangerous phase for life on the planet.

Growth and stability go together – like balance and momentum on a bike

Let me start by using the metaphor of riding a bicycle. With forward momentum it is possible to balance on a bicycle – as soon as the bike and passenger stops it becomes almost impossible. There is an analogy here for the capitalist economy. If it is growing a capitalist economy will stay economically stable. If it is not growing then, after a time, it automatically becomes unstable. Account books can be balanced, bills paid and debts serviced when individuals, households, companies and government are in surplus because incomes are rising. However a surplus requires growth. In general terms in a contracting system the incomes are more likely to be inadequate to cover outgoings. Some of the costs cannot be paid when revenues do not cover those costs.

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

An Unexpected Warning From Goldman Sachs: “Markets Themselves” Will Cause The Next Crash

March 19, 2018

An Unexpected Warning From Goldman Sachs: “Markets Themselves” Will Cause The Next Crash

It all started nearly 9 years ago to the day, when in April 2009 we wrote, “The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans“, in which we explained how as a result of the growing influence of HFT, quants and central banks, the market itself was breaking.

We also highlighted what the culmination of the market’s “breakage” could look like:

liquidity disruptions could and will lead to unexpected market aberrations, such as exorbitant bid/ask margins, inability to unwind large block positions, and last but not least, explosive volatility: in essence a recreation of the market conditions approximating the days of August 2007, and the days post the Lehman collapse…

We even laid out some likely catalysts for a possible market crash: “continued deleveraging in quant funds, significant pre-market volatility swings as quants rebalance their end of day positions, increasing program trading on decreasing relative overall trading volumes.”

One month ago, we saw all of the above elements briefly come together when on February 5 the market finally did break as its topology was torn apart by various, disparate elements, resulting in virtually all of the above materializing, if only for a short time.

To be sure, as time passed, others joined our warning that the market is becoming increasingly broken, with some of the most notable warnings coming from the likes of Bank of America’s Benjamin Bowler…

… who explicitly noted the market’s increasing fragility on numerous occasions…

… and how the Fed rushed to bail it out on every single occasion…

… as well as Fasanara Capital…

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

Why Financial Markets Underestimate Risk

January 23, 2018

Why Financial Markets Underestimate Risk

Today’s economy is in a “risk-on” period, when investors exchange safe-haven assets like US Treasury Bills for riskier ones, from real estate to carry-trade currencies. But when such behavior assumes that economic conditions are more stable than they are, as seems to be the case today, trouble inevitably follows.

CAMBRIDGE – During most of 2017, the Chicago Board Options Exchange Volatility Index (VIX) has been at the lowest levels of the last decade. Recently, the VIX dipped below nine, even lower than in March 2007, just before the subprime mortgage crisis nearly blew up the global financial system. Investors, it seems, are once again failing to appreciate just how risky the world is.

Known colloquially as the “fear index,” the VIX measures financial markets’ sensitivity to uncertainty – that is, the perceived probability of large fluctuations in the stock market’s value – as conveyed by stock index option prices. A low VIX signals a “risk-on” period, when investors “reach for yield,” exchanging US Treasury bills and other safe-haven securities for riskier assets like stocks, corporate bonds, real estate, and carry-trade currencies.

This is where we are today, despite the variety of actual risks facing the economy. While each of those risks will probably remain low in a given month, the unusually large number of them implies a reasonably strong chance that at least one will materialize over the next few years.

The first major risk is the bursting of a stock-market bubble. Major stock-market indices hit record highs in September, in the United States and elsewhere, and equity prices are high relative to benchmarks like earnings and dividends. Robert Shiller’s cyclically adjusted price-earnings ratio is now above 30 – a level previously reached only twice, at the peaks of 1929 and 2000, both of which were followed by stock-market crashes.

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

Why We’re Doomed: Our Economy’s Toxic Inequality

August 16, 2017

Why We’re Doomed: Our Economy’s Toxic Inequality

Anyone who thinks our toxic financial system is stable is delusional.

Why are we doomed? Those consuming over-amped “news” feeds may be tempted to answer the culture wars, nuclear war with North Korea or the Trump Presidency.

The one guaranteed source of doom is our broken financial system, which is visible in this chart of income inequality from the New York Times: Our Broken Economy, in One Simple Chart.

While the essay’s title is our broken economy, the source of this toxic concentration of income, wealth and power in the top 1/10th of 1% is more specifically our broken financial system.

What few observers understand is rapidly accelerating inequality is the only possible output of a fully financialized economy. Various do-gooders on the left and right propose schemes to cap this extraordinary rise in the concentration of income, wealth and power, for example, increasing taxes on the super-rich and lowering taxes on the working poor and middle class, but these are band-aids applied to a metastasizing tumor: financialization, which commoditizes labor, goods, services and financial instruments and funnels the income and wealth to the very apex of the wealth-power pyramid.

Take a moment to ponder what this chart is telling us about our financial system and economy. 35+ years ago, lower income households enjoyed the highest rates of income growth; the higher the income, the lower the rate of income growth.

This trend hasn’t just reversed; virtually all the income gains are now concentrated in the top 1/100th of 1%, which has pulled away from the top 1%, the top 5% and the top 10%, as well as from the bottom 90%.

The fundamental driver of this profoundly destabilizing dynamic is the disconnect of finance from the real-world economy.

The roots of this disconnect are debt: when we borrow from future earnings and energy production to fund consumption today, we are using finance to ramp up our consumption of real-world goods and services.

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

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