Tag Archives: economic inequality

The fundamental crisis of the West

Posted on by
1

By Veniamin Popov

Source: New Eastern Outlook

A growing number of media outlets in America and in Europe have recently reached the conclusion that “rules-based international order” long espoused by the West has failed.

In essence, this means that the position of the Western powers in the world has weakened: they have failed to destroy the Russian economy by imposing sanctions, and the war in Gaza has demonstrated that the US and the Western European countries are far from all-powerful.

The media frequently claim that Russia’s special military operation in Ukraine has changed the international situation, in that it has made clear the limited capabilities of the West and deepened the rift between the West and the Global South.

The Ukrainian conflict and the war in Gaza have demonstrated to the whole world, and above all to ordinary people in the West, that their ruling elites are unable to grasp this reality, lack strategic vision and are generally guided by their own personal interests.

The ruling elites in the West have demonized Russia in every possible way and have come to believe the myth that Russia can be strategically defeated. This is a huge miscalculation and this conclusion will become obvious to all in the very near future. The present author is reminded of the junker Grushnitsky, in Lermontov’s “A Hero of Our Time,” a fantasist who plays the role of an unworldly romantic for so long that he begins to believe it himself.

As Vladimir Putin has aptly put it, “Russophobia, like any other ideology based on racism, national superiority and exclusivity, blinds the person who subscribes to it and deprives them of reason.”

The state of the “rules-based international order” is becoming increasingly alarming for many Western powers. According to an article published in the weekly journal the Economist on February 15, so-called national conservatives, who “suspect free markets of being rigged by the elites,” are gaining in influence in the US and Europe. They are also hostile to migration, despise pluralism, especially multiculturalism, and are obsessed with dismantling institutions they see as tainted by globalism.

Despite their differences, these national conservatives are united by their hostility to shared enemies, including migrants, especially Muslims, globalists and all their perceived enablers. Donald Trump is leading in the polls in America. The far right is expected to make gains in the European Parliament elections in June. In Germany last December, support for the far-right Alternative for Germany party (AFD) reached a record high of 23 percent, according to polls. Anticipating Rishi Sunak’s loss in the elections, the right wing of Britain’s Conservative Party are hoping to grab power in the party. In 2027, Marine Le Pen may well become president of France.

According to the Economist, the current authorities need to take people’s legitimate concerns seriously: the public in many Western countries see illegal migration as a source of unrest and a drain on the public purse. They worry that their children will grow up poorer than they are. They are concerned about losing their jobs to new technologies. They believe that institutions such as universities and the press have been hijacked by hostile, illiberal, left-wing elites. They view the globalists who have flourished over the last few decades as members of a self-serving, arrogant caste.

These complaints have real merit and mocking them only confirms how detached from reality the elites have become.

The position of Washington and its hangers-on in Europe in relation to Israel’s war crimes against the Palestinians in Gaza has added significantly to the public’s distrust of the West’s ruling elites. By openly supporting the actions of the Netanyahu government, the governments of the Western powers are convincing everyone, including their own populations, of their own policy of double standards: only the lives of Israelis are valued and massacres of Arabs are allowed.

As the Saudi newspaper Arab News reports, Arab and Muslim Americans, and 60 percent of all other Americans, have for months wanted President Joe Biden to pressure Israel into agreeing to an immediate ceasefire in Gaza. The White House has, in effect, ignored these pleas.

In response to this stance, Muslim Americans in nine potentially wavering states met in Dearborn, Michigan, in December 2023 under the slogan “Abandon Biden, Truce Now.” They have vowed not to vote for Biden in the presidential election unless he changes the policies that are enabling Israel’s genocide in the Gaza Strip possible.

The US journal Foreign Affairs, in an article entitled “Gaza and the End of the Rules-Based Order” quotes one G7 diplomat: “We have definitely lost the battle in the Global South. All the work we did with the Global South (around Ukraine) was lost. … Forget the rules, forget the world order. They will never listen to us again.”

The economic recession, which has become a permanent situation for many European states, also provides little room for optimism. In the US, the high inflation and huge government debt are expected to worsen this spring and summer, according to some analysts. The most closely watched indicator of opinions about the economy, a monthly poll conducted by the University of Michigan, has reported that public confidence is at an exceptionally low ebb, about the same level as during the 2007-2009 global financial crisis.

With the presidential election just nine months away, this gloomy mood has become a serious problem for the Democrats. President Joe Biden is already facing a host of challenges to his bid for a second term, starting with concerns about his fitness for office as an 80-year-old man. Another major obstacle to his election bid is the opinion polls that give him low marks for his management of the economy.

The current economic problems are exacerbated by growing inequality, the worsening drug crisis and the proliferation of firearms. The promotion of non-traditional sexual orientation and the encouragement of same-sex couples have cause legitimate outrage to many conservative religious people.

In the European Union between June 6 and 9, more than 400 million voters in 27 countries will elect 720 MEPs to represent them for the next five years. Observers predict an increase in the influence of right-wing conservative parties. One major reason for the heightened interest in the upcoming election is the unprecedented corruption scandal that erupted in the European Parliament in December 2022, when the vice president and several other officials, including three MEPs, were accused of taking bribes. The investigation is ongoing, but it has already revealed instances of illegal activities and immoral behavior on the part of MEPs. Conservatives accuse the EU of being an opaque bureaucracy with vastly overpaid staff, which is disconnected from the reality experienced by ordinary residents of the EU member states, and which spends its vast budgets – totaling hundreds of trillions of euros – not for the common good but for the personal whims and fantasies of its leaders. Inflation and the cost of living are still rising in many European nations, while many blame EU bureaucrats in Brussels for policies such as the Green Deal that have made life more expensive for Europeans by raising the prices of fuel, food and most other essentials. In addition, anti-Russian sanctions, which have led to the rejection of cheap energy from Russia by a number of European countries, have had a negative impact on the well-being of ordinary citizens.

Over the past few weeks, thousands of farmers from across Europe, particularly from Germany, France, Poland, Spain, and Belgium, have taken to the streets to protest against additional spending on Ukraine and against new EU environmental policies that make farming unviable.

The short-sighted policy of the Western elites with regard to the crises in Ukraine and the Gaza Strip is leading to a loss of confidence in the ruling authorities on the part of ordinary citizens. It is easy to imagine their reaction in the event of any further military setbacks by Ukraine or any worsening of the situation within the country.

The position taken by many developing nations with regard to the current international processes is highly symptomatic. In an editorial for the Arabic international newspaper Asharq Al-Awsat, Editor-in-Chief Grhassan Charbel writes: “Zelensky’s position reminded me of remarks by the late Egyptian President Hosni Mubarak to former Iraqi Foreign Minister Hoshyar Zebari, that ‘the one who is covered by the Americans is naked.’ The same phrase could be said by Putin to Zelensky.

Putin has the right to be sarcastic. The leaders of the West did not accept that he could not lose… That he went to Ukraine to punish the entire West and to launch a major coup against a world that was born from the collapse of the (Berlin) Wall and the disappearance of the Soviet Union.”

It is no coincidence that the ruling circles of Western Europe are currently not hiding their anxiety about what they refer to as the “threat posed by Trump and Russia.”

In fact, everything we see happening testifies to the inadequacy of the current ruling elites in the West, who are unable to reasonably and rationally assess the emerging situation, guided as they are solely by short-term personal interests.

It is very possible that they will be swept away by a wave of new unexpected events, and new leaders will come to power.

It is therefore highly likely that 2024 will be a turning point in many respects.

Economic Earthquake Ahead? The Cracks Are Spreading Fast

Posted on by
Reply

By Brandon Smith

Source: The Burning Platform

One of my favorite false narratives floating around corporate media platforms has been the argument that the American people “just don’t seem to understand how good the economy really is right now.” If only they would look at the stats, they would realize that we are in the middle of a financial renaissance, right? It must be that people have been brainwashed by negative press from conservative sources…

I have to laugh at this notion because it’s a very common one throughout history – it’s an assertion made by almost every single political regime right before a major collapse. These people always say the same things, and when you study economics as long as I have you can’t help but throw up your hands and marvel at their dedication to the propaganda.

One example that comes to mind immediately is the delusional optimism of the “roaring” 1920s and the lead up to the Great Depression. At the time around 60% of the U.S. population was living in poverty conditions (according to the metrics of the decade) earning less than $2000 a year. However, in the years after WWI ravaged Europe, America’s economic power was considered unrivaled.

The 1920s was an era of mass production and rampant consumerism but it was all fueled by easy access to debt, a condition which had not really existed before in America. It was this illusion of prosperity created by the unchecked application of credit that eventually led to the massive stock market bubble and the crash of 1929. This implosion, along with the Federal Reserve’s policy of raising interest rates into economic weakness, created a black hole in the U.S. financial system for over a decade.

There are two primary tools that various failing regimes will often use to distort the true conditions of the economy: Debt and inflation. In the case of America today, we are experiencing BOTH problems simultaneously and this has made certain economic indicators appear healthy when they are, in fact, highly unstable. The average American knows this is the case because they see the effects everyday. They see the damage to their wallets, to their buying power, in the jobs market and in their quality of life. This is why public faith in the economy has been stuck in the dregs since 2021.

The establishment can flash out-of-context stats in people’s faces, but they can’t force the populace to see a recovery that simply does not exist. Let’s go through a short list of the most faulty indicators and the real reasons why the fiscal picture is not a rosy as the media would like us to believe…

The “miracle” labor market recovery

In the case of the U.S. labor market, we have a clear example of distortion through inflation. The $8 trillion+ dropped on the economy in the first 18 months of the pandemic response sent the system over the edge into stagflation land. Helicopter money has a habit of doing two things very well: Blowing up a bubble in stock markets and blowing up a bubble in retail. Hence, the massive rush by Americans to go out and buy, followed by the sudden labor shortage and the race to hire (mostly for low wage part-time jobs).

The problem with this “miracle” is that inflation leads to price explosions, which we have already experienced. The average American is spending around 30% more for goods, services and housing compared to what they were spending in 2020. This is what happens when you have too much money chasing too few goods and limited production.

The jobs market looks great on paper, but the majority of jobs generated in the past few years are jobs that returned after the covid lockdowns ended. The rest are jobs created through monetary stimulus and the artificial retail rush. Part time low wage service sector jobs are not going to keep the country rolling for very long in a stagflation environment. The question is, what happens now that the stimulus punch bowl has been removed?

Just as we witnessed in the 1920s, Americans have turned to debt to make up for higher prices and stagnant wages by maxing out their credit cards. With the central bank keeping interest rates high, the credit safety net will soon falter. This condition also goes for businesses; the same businesses that will jump headlong into mass layoffs when they realize the party is over. It happened during the Great Depression and it will happen again today.

Cracks in the foundation

We saw cracks in the narrative of the financial structure in 2023 with the banking crisis, and without the Federal Reserve backstop policy many more small and medium banks would have dropped dead. The weakness of U.S. banks is offset by the relative strength of the U.S. dollar, which lures in foreign investors hoping to protect their wealth using dollar denominated assets.

But something is amiss. Gold and bitcoin have rocketed higher along with economically sensitive assets and the dollar. This is the opposite of what’s supposed to happen. Gold and BTC are supposed to be hedges against a weak dollar and a weak economy, right? If global faith in the dollar and in the U.S. economy is so high, why are investors diving into protective assets like gold?

Again, as noted above, inflation distorts everything.

Tens of trillions of extra dollars printed by the Fed are floating around and it’s no surprise that much of that cash is flooding into the economy which simply pushes higher right along with prices on the shelf. But, gold and bitcoin are telling us a more honest story about what’s really happening.

Right now, the U.S. government is adding around $600 billion per month to the national debt as the Fed holds rates higher to fight inflation. This debt is going to crush America’s financial standing for global investors who will eventually ask HOW the U.S. is going to handle that growing millstone? As I predicted years ago, the Fed has created a perfect Catch-22 scenario in which the U.S. must either return to rampant inflation, or, face a debt crisis. In either case, U.S. dollar-denominated assets will lose their appeal and their prices will plummet.

“Healthy” GDP is a complete farce

GDP is the most common out-of-context stat used by governments to convince the citizenry that all is well. It is yet another stat that is entirely manipulated by inflation. It is also manipulated by the way in which modern governments define “economic activity.”

GDP is primarily driven by spending. Meaning, the higher inflation goes, the higher prices go, and the higher GDP climbs (to a point). Eventually prices go too high, credit cards tap out and spending ceases. But, for a short time inflation makes GDP (as well as retail sales) look good.

Another factor that creates a bubble is the fact that government spending is actually included in the calculation of GDP. That’s right, every dollar of your tax money that the government wastes helps the establishment by propping up GDP numbers. This is why government spending increases will never stop – It’s too valuable for them to spend as a way to make the economy appear healthier than it is.

The REAL economy is eclipsing the fake economy

The bottom line is that Americans used to be able to ignore the warning signs because their bank accounts were not being directly affected. This is over. Now, every person in the country is dealing with a massive decline in buying power and higher prices across the board on everything – from food and fuel to housing and financial assets alike. Even the wealthy are seeing a compression to their profit and many are struggling to keep their businesses in the black.

The unfortunate truth is that the elections of 2024 will probably be the turning point at which the whole edifice comes tumbling down. Even if the public votes for change, the system is already broken and cannot be repaired without a complete overhaul.

We have consistently avoided taking our medicine and our disease has gotten worse and worse.

People have lost faith in the economy because they have not faced this kind of uncertainty since the 1930s. Even the stagflation crisis of the 1970s will likely pale in comparison to what is about to happen. On the bright side, at least a large number of Americans are aware of the threat, as opposed to the 1920s when the vast majority of people were utterly conned by the government, the banks and the media into thinking all was well. Knowing is the first step to preparing.

The second step is securing your own financial future – that’s where physical precious metals can play a role. Diversifying your savings with inflation-resistant, uninflatable assets whose intrinsic value doesn’t rely on a counterparty’s promise to pay adds resilience to your savings. That’s the main reason physical gold and silver have been the safe haven store-of-value assets of choice for centuries (among both the elite and the everyday citizen).

How to Navigate Our Low-Trust, Increasingly Dysfunctional Society and Economy

Posted on by
Reply

By Charles Hugh Smith

Source: Of Two Minds

Politicians and corporate managers have an enviable record of self-enrichment but very little to show in terms of putting the long-term interests of the citizenry above their own short-term gains.

This week’s focus is on self-reliance, a topic of increasing relevance than is more complex that it may seem.

Sociologists differentiate between high-trust and low-trust societies: in high-trust social orders, citizens tend to trust institutions and each other to conform to social norms, enabling strangers to trust a vast circle of transactions and socio-economic ties. Low-trust societies are plagued with distrust of authority and institutions and fear of getting taken advantage of by strangers, so the circles of trust are small, inhibiting social mobility and economic growth.

Economies and political systems can also be understood as high-trust or low-trust. If the political system excels at rewarding insiders and incumbents while leaving critical problems unsolved, citizens have little reason to trust the system.

The same is true of economies that greatly enrich insiders and incumbents at the expense of the citizenry via monopoly/cartel price-gouging, shrinkflation, degrading the quality of goods and services and the immiseration of standard services, forcing customers to “upgrade” from wretched to merely dismal.

Conventional pundits and economists are constantly whining that Americans “just don’t get it”: they tout our soaring per capita wealth, i.e. we’re getting richer, so everyone should be delighted, yet only 20% of the public are “satisfied with the way things are going.”

What the well-compensated pundits and economists are ignoring (or are paid to ignore) is the decay of the U.S. from a high-trust-functional to a low-trust-dysfunctional society and economy: Americans will still go out of their way to aid strangers, but their trust in institutions has plummeted to lows, as has their trust in the political-corporate elites’ leadership: politicians and corporate managers have an enviable record of self-enrichment but very little to show in terms of putting the long-term interests of the citizenry above their own short-term gains.

People understand the name of the game now is to spout all the expected optimistic PR of “innovation” and “serving the public” while maximizing their private gain at the expense of the nation. Offshoring America’s essential industrial supply chains wasn’t done to serve the nation; it was done to maximize profits, 90% of which flow to the top 10%. Pushing us into debt servitude is highly profitable, but it isn’t benefiting us or the nation.

Americans were told to trust long, hyper-globalized single-source supply chains as “efficient” (i.e. profitable) and trustworthy, yet they’ve discovered these supply chains are vulnerable and fragile. Americans were told that corporate monopolies were selling them “innovations” when in fact they were being sold highly addictive (and therefore highly profitable) goods and services.

Americans were told that their financial security was increasing even as the U.S. economy became increasingly dependent on hyper-financialized asset bubbles and central bank bailouts, the precise opposite of stability. Rather than producing more financial security for the bottom 80%, these “innovations” greatly expanded the gulf between the wealthy and the increasingly precarious bottom 80%.

Americans were told to trust that the hyper-centralization of political and financial power would benefit them, when the evidence is piling up that this hyper-centralization has increased the dysfunction of core institutions and the fragility of essential systems.

Doesn’t it ring hollow to glorify our soaring wealth while households declare bankruptcy due to medical bills, college students sign up for a lifetime of debt servitude to pay tuition and inflation has destroyed 20% of every wage earner’s paycheck just since January 2020? All that “soaring wealth” is asymmetrically distributed, but let’s not talk about that, let’s talk about statistics that mask that asymmetry.

What the well-compensated pundits and economists are paid to ignore is the concentration of the vast majority of all this new wealth and income in the top 10%. Soaring wealth only widens wealth inequality; it doesn’t benefit the nation, it weakens its foundations by accelerating the decay of trust in core institutions and systems.

What happens when high-trust decays to low-trust is the circle of reliable, trustworthy sources and people shrinks to the local, decentralized level. Rather than trust Big Ag, Big Fast-Food and supply chains of highly processed glop to feed us, we start turning to local sources of real food.

In the same way, we rediscover the value of thinking for ourselves rather than accepting self-serving memes-of-the-day. We rediscover the value of what Ralph Waldo Emerson wrote about in his 1841 essay Self-Reliance (free text, Project Gutenberg).

Emerson counsels us to “be our best selves,” and not to count property wealth above all else. (“They measure their esteem of each other by what each has, and not by what each is.”)

Emerson understood that the values of a society are the foundation of its economic order. A system lacking any principles and values other than greed and self-enrichment is a rotten structure doomed to collapse. It is not just the larger socio-economic order that needs a rock-solid value system; each individual must ground their choices and actions in a value system they have embraced on their own. (“Nothing can bring you peace but yourself. Nothing can bring you peace but the triumph of principles.”)

What Emerson is espousing is self-reliance, in thought, in values, and in economic and financial matters. In today’s world of crumbling hyper-globalization, self-reliance extends to the practical world of where our essential goods and services are coming from.

Gordon Long and I discuss these and many other aspects of Self-Reliance in the 21st Century in our wide-ranging podcast Self Reliance (45 min).

We discuss how the American economy has changed over the past 40 years, to the detriment of the nation’s values and the security of its citizenry, and what self-reliance means today– the topic of my book Self-Reliance in the 21st Century. (Read the first chapter for free.)

How can we best navigate our low-trust, increasingly dysfunctional society and economy? By strengthening our own self-reliance.

Could America Have a French-Style Revolution?

Posted on by
Reply

By Charles Hugh Smith

Source: Of Two Minds

Combine all these factors and the result is a potentially volatile mixture awaiting a catalyst.

In the past, I reckoned the odds of America experiencing a revolution akin to France 1789 were low due to the different political, economic and cultural conditions present then and now, but recently I’ve considered the possibility that America’s extremes of wealth, income and power inequality are a powder keg awaiting ignition.

By French-Style Revolution I don’t mean a violent overthrow of the ruling elite as much as a tumultuous reset of how resources and power are distributed. Systems become vulnerable to such resets when they become highly asymmetrical in how they distribute resources and power, and rigid in their defense of the extreme inequality of the distribution.

The fundamental source of democracy’s stability is the dynamic competition of various interests and the dynamic equilibrium of the three branches of the state each balancing the others by restraining the dominance of any one branch or interest.

But extremes of inequality undermine this stability, as the wealthiest elites now bring such a preponderance of wealth to bear that each of the three branches of the state are now beholden to the interests of the few, leaving little recourse to the many.

When the agenda and narratives have been shaped by the wealthiest elites’ foundations, think tanks, corporate PR and lobbyists, then electing different representatives has little effect on the power structure.

The masses can still influence cultural / social policies by voting in a liberal or conservative slate, but the distribution of wealth, power and resources remains unchanged.

As wealth and power are concentrated into ever fewer hands, the mythology of broad-based access to prosperity has vastly expanded the pool of second-tier elites who feel entitled (via implicit promises made by the system) to their fair share of income, wealth and power–financial security and political agency, i.e. a say in public decisions.

These second-tier elites are primarily university graduates and the offspring of upper-middle class households who have been led to expect a secure slot in the upper reaches of the economy or state is a birthright gained by their education and class.

That there are no longer enough slots for this class means those left out constitute the raw material of a potently dissatisfied and potentially angry political class. Historian Peter Turchin presents this as the result of the overproduction of elites, a dynamic he has traced back to previous eras of tumultuous upheaval.

Another common factor driving the masses to revolt is when the essentials of life are no longer affordable or available in sufficient quantity. Historian David Hackett Fischer has documented the perilous impact of inflation, i.e. the collapse of the purchasing power of wages.

Yet another potentially explosive factor is the supreme confidence of the wealthiest elites that the system they rule could ever turn against them or crumble beneath their feet–in a word, a hubris as extreme as their wealth and power. The resignation of the masses and the ease of distracting them with ginned-up controversies and crises and consumerist novelties has fed elite confidence that their supremacy is unassailable.

This hubris leads to the elite becoming tone-deaf to their own excesses and the instability their excesses are generating within the system, an instability that’s currently hidden beneath the resignation and distraction of the masses and the mute frustration of the second-tier elites facing lifetimes of insecurity.

Another factor is the promises made by the state generations ago can no longer be met without creating new money on a scale that guarantees destabilizing inflation. This new money is issued as Treasury bonds which are purchased for income by the wealthy, further exacerbating wealth and income inequality.

The power elite are incapable of demanding sacrifices of the wealthy as the prime directive of the status quo is to defend the current asymmetry of wealth and power. This undermines the collective consensus needed to take the collective action needed to reset the system.

Combine all these factors and the result is a potentially volatile mixture awaiting a catalyst. The confidence of the status quo that it is essentially omnipotent (the Federal Reserve will always save us, etc.) and eternal is itself a factor in the mix.

The key factor is the rigidity or flexibility of the power structure. If the structure is incapable of resetting to a more flexible, symmetric distribution of power as resources, it will come apart as pressures mount.

When Shelter Becomes a Speculative Asset, Society Unravels

Posted on by
Reply

By Charles Hugh Smith

Source: Of Two Minds

Does anyone really believe that the renunciation of massive, sustained stimulus of speculation in housing would leave housing valuations unchanged because valuations are solely the result of “shortages”?

Let’s begin by stipulating that speculation (i.e. gambling) is part of human nature. The role of regulations and policy is to limit the damage that gambling inevitably inflicts when “sure things” cliff-dive into losses.

In other words, where the speculative frenzy and money flows matters. When the South Sea Bubble expanded circa 1713-1720, this flood tide of speculative capital did not distort the cost of shelter and bread in England; it was limited to a purely financial marketplace of shares in the company. When the bubble imploded in 1720, the losses fell mostly on wealthy investors like Isaac Newton.

The same can be said of the speculative mania of the dot-com era: the bubble and collapse were limited to the tech sector and those participating in the sector and the speculative frenzy. The cost of rent and bread did not double due to the speculative bubble’s inflation or bursting.

In contrast, when speculation floods into shelter / housing, it fatally distorts the cost of housing non-speculators must pay. I say fatally because shelter, along with food, energy and water (the FEW resources), are essential to life. These are not discretionary things we can decide not to have. When the price of essentials soars due to speculation that only rewards the speculators at the expense of non-speculators, the fuse of social disorder is lit.

Anyone who believes policies that encourage the wealthy to hoard housing to the point that the bottom 80% (or the bottom 95% in some areas) cannot afford to buy a home are just peachy is overdosing Delusionol. The social consequences are severe and uncontainable once the worm turns.

Exhibit #1 in Shelter Becoming a Speculative Asset is a modest house in the San Francisco Bay Area that sold for $135,000 in mid-1996. By modest I mean small, old, and on a small lot in a neighborhood of other small lots and homes. (A screenshot of the Zillow history is below.)

Today the home’s value is estimated to be about ten times higher: $1.35 million. Let’s do some basic math to understand just how distorted this market has become.

The median household income in 1996 was about $39,000. For a house costing $135,000, this represents 3.5 ratio of income to housing, well within the traditional ratio of 4 to 1 (4 X income = cost of the home).

Median household income has almost doubled to $75,000, roughly in line with inflation according to the Bureau of Labor Statistics. According to the BLS, the house that cost $135,000 in July 1996 would now cost $264,000 when adjusted for inflation, and the $39,000 median income would be $76,000.

Let’s say the house appreciated above the rate of inflation to $300,000 today. That’s still within the 4 to 1 ratio of income to house cost (4 X $75,000 = $300,000.) So even though the house rose 2.2X in cost, it would still be affordable to a median household.

At a value of $1.35 million, a household would need to make $337,500 annually–an income that is in the top 5% of households–to buy the house today. In other words, an income that is 4.5 times the median household income is the minimum needed to buy this modest house.

The house is now worth 4.5 times what it would have been worth if it had appreciated well above inflation.

The conventional argument holds that this four-fold increase in housing costs is due solely to a shortage of housing. Let’s consider some data before concluding this is the only dynamic in play.

Chart #1: Case Shiller housing index: this chart shows two massive housing bubbles in the past 20 years.

Chart #2: Federal Reserve’s purchases of mortgage backed securities (MBS) to goose the housing market. The “housing shortage” argument claims the unprecedented Fed purchases of trillions of dollars of MBS is not correlated to the housing bubble, but this claim makes no sense: dropping mortgage rates to unprecedented lows while soaking up trillions of dollars in securitized mortgages was like injecting speculative crack cocaine into the housing market. Gosh, how did we survive without the Fed buying $2.5 trillion in mortgages?

Chart #3: the current housing bubble compared to the 2000-2006 housing bubble: today’s bubble is even more extreme than housing bubble #1.

Chart #4: housing per capita (per person) has reached a new high: if there’s such a severe shortage of housing, how can the housing per capita be at an all-time high? Population rose 4 million in the past 4 years while 5 million housing units were added–plus a pig-in-a-python of housing in the pipeline.

Chart #5: household net worth is $50 trillion above trend, the direct result of massive monetary and fiscal stimulus. Tens of trillions of dollars were borrowed into existence and pumped into so-called risk assets–assets such as housing that the wealthy buy for speculative appreciation.

Chart #6: total debt–private and public–soared from $20 trillion in 1996 to $95 trillion now. Is it merely coincidental that this is $55 trillion above the trendline of inflation, which would have placed total debt at $40 trillion today?

Chart #7: net worth of the top 1% households, which soared from 23% of all net worth to 32%: this 9% gain in the percentage of all household net worth represents a gain of $14 trillion above and beyond the $28.7 trillion in gains registered by the 23% they owned in 1990.

1990 total net worth: $21 trillion, 23% = $4.8 trillion; 2023 total net worth: $146 trillion, 23% = $33.5 trillion; $33.5 trillion – $4.8 trillion = $28.7 trillion.

This unprecedented bubble in housing valuations is due not to shortages but to decades of massive financial stimulus that incentivized speculative capital to flood into housing as a low-risk way to skim stupendous gains for creating zero gains in productivity. If you doubt this, then run this scenario and tell us what happens:

The Fed dumps its entire portfolio of mortgage backed securities and stipulates it will never buy any again. It also renounces all the other stimulus gimmicks that incentivized expansions of debt and speculation.

Does anyone really believe that the renunciation of massive, sustained stimulus of speculation in housing would leave housing valuations unchanged because valuations are solely the result of “shortages”? If so, there’s a little shack under the Brooklyn Bridge I’ll let you have for a couple of million. I’m sure the Airbnb rent will mint you millions.

We’re Living in a Neofeudal Bubble

Posted on by
1

By Charles Hugh Smith

Source: Of Two Minds

If you listen to conventional economists, everything’s rosy: thanks to the expansion of alt-energy like wind and solar, energy is getting cheaper, batteries will power the new global economy, we’re getting smarter — just look at the rising number of advanced college degrees, wages are finally growing, inflation is trending down, household balance sheets and corporate profits are strong, debt loads are not an issue yet and GDP is rising.

All this happy news is backed by statistics, of course, but there’s one little problem: all the conventional cheerleaders are living in a bubble of like-minded elites who are insulated from the neofeudal realities of life in the real world.

Outside the bubble of wealthy, protected elites that generate the statistics and the “news,” the global economy is completely, totally neofeudal–and so is the American economy. What does neofeudal mean? It refers to a two-tiered socio-economic system in which an aristocracy owns the vast majority of the wealth and collects the lion’s share of the income, and uses this financial dominance to buy political and narrative dominance.

In a neofeudal arrangement, the machinery of governance protects and enforces elite dominance. Cartels and monopolies have free rein to price-fix and exploit, tax revenues flow freely to cartels, elite organizations such as family trusts get tax breaks, and so on.

In other words, “the market” is rigged and the government maintains the status quo.

Toiling away to enrich the aristocratic owners of capital are the serfs and peasants, who own a tiny shred of income-producing capital. Their primary assets–the family home and vehicles–are actually income streams for the wealthy who collect the mortgage and auto-loan interest paid by the serfs.

The core dynamic in neofeudalism is the already-wealthy increase their share of the wealth, and everyone else sees their meager share diminish. As the charts below show, the vast majority of financial gains generated by the US economy flow to the top 0.1% of households. The top 1%’s share has risen by 40% while the bottom 50%’s share of the wealth has slipped to 3%–essentially signal noise.

Social mobility is limited to the occasional serf clawing their way into the technocrat class, the top 5% who slavishly serve the interests of the financial aristocracy. This class lives in a self-contained, protected bubble: an echo chamber of privilege, residential enclaves, jetting around the world, and so on: everything’s great because we’re doing great.

Life is good in the bubble because there’s no homeless encampment a block away, there’s plenty of money coming in and our wealth–401Ks, inherited bonds and rental property, university pensions, corporate stock options, and so on–increases smartly, year after year and decade after decade.

The Wealthy Are Not Like You and Me–Our Terminally Stratified Society (8/3/23)

That all this wealth expansion is the result of unprecedented central bank intervention is left unsaid. As noted above, the role of the state and central bank is to maintain the status quo of the already-wealthy increasing their share of the national wealth and income, and loading more (very profitable) debt on the serfs. (See student loan debt chart below.)

Outside the technocrats’ privileged bubble, wages’ share of the economy have been stripmined by the aristocracy for 45 years. Oh dear; could this be why I’m having such trouble finding low-wage reliable “help”?

While wages inch up, costs of shelter, utilities, debt, vehicles, public transport, childcare and other essentials soar. Please glance at the chart of wages and rents below. This is neofeudalism in a nutshell. Wages have flatlined (or fallen when measured in purchasing power) while rent has steadily increased, eating away at the serfs’ disposable income.

Inside the technocrat class bubble, everything’s wunnerful. AI will boost profits (all of which flow to the aristocracy, so that’s wunnerful), energy’s getting cheaper and more abundant, and so on.

Oh, wait. Alt-energy only looks cheap because all the full lifetime costs have been ignored (i.e. externalized), and these modest additions to our vast hydrocarbon consumption aren’t actually replacing hydrocarbons, they’re simply adding more energy for us to consume.

Thousands of Old Wind Turbine Blades Pile Up in West Texas

Avangrid agrees to pay $48 million to terminate offshore wind deal

Models Hide the Shortcomings of Wind and Solar

In other words, conventional economists and the other technocrats maintain their privileged bubble by clinging to a delusionally disconnected-from-the-real-world mindset. There’s always a slew of academic papers or think-tank / corporate reports to bolster the inside-the-bubble confidence that everything’s great, because generating positive narratives that leave the neofeudal structure untouched in the primary industry of the technocrat class.

If you want to understand the neofeudal reality, study these charts. There are no rebuttals, there are only sputtering obfuscations: b-b-but the mission to Mars! Taylor Swift raked in a billion bucks! OnlyFans pulled in $5 billion! Stocks are rallying! Everything’s great!

Sure–if your dose of Delusional is high enough. Then you can go back to complaining about air travel delays, finding someone to repair your pool pump and bragging about how well your investments are doing.

I Know Why Can’t We Fix Homelessness

Posted on by
1

By Peter Van Buren

Source: We Meant Well

“What stands out for visitors?” I asked our guide during a Honolulu Chinatown tour with my out-of-town guests. “Always the same, the homeless. Even Mainlanders from big cities like San Francisco and New York are surprised how many we have here. I’m waiting to see how the Japanese and Korean guests respond when they start traveling again.”

You can’t miss his point. During our brief walk through Chinatown’s markets we saw a disturbed man dressed only in his underwear touching himself, several seriously street-worn people begging, and watched the fire department respond to a prone homeless man who was dead or simply drugged into paralysis. When someone in our party needed the toilet, the shopkeeper apologized for having to keep it locked to prevent misuse by vagrants. Many places simply had signs saying “no public toilet.” Despite some great tasting food, it was hard to keep up a holiday spirit. Same for when we passed the tent cities and parks overtaken by homeless along a drive on the Windward side.

The numbers only begin to tell the story. Pre-COVID, there were an estimated 6,458 homeless in Hawaii. The Big Island saw the biggest jump in homelessness from 2019-2020, a 16 percent increase. On Oahu the homeless population is up 12 percent. San Francisco before COVID counted over 8,000 homeless persons, and while COVID-era numbers are hard to pin down, one measure is overdose deaths among the homeless, which have tripled. New York has the highest homeless population of any American metropolis, close to 80,000 and growing. The number of homeless there today is 142 percent higher than it was 10 years ago, and currently at the highest level since the Great Depression. Some 3,000 human beings make their full-time home in the subway.

Estimates for the United States as a whole run well over half a million people living homeless. The number shoots up dramatically if one includes people living in their cars, people on their way to exhausting the good will of friends who offered a couch, and those who slide in and out of motels as money ebbs and flows. Some 21 percent of American children live in poverty, homeless or not. In the end nobody actually knows how many people are living without adequate shelter except that it is a large number and it is a growing number and there is nothing in line to lower it, only to find new ways to tolerate it.

We have in many places already surrendered our public parks and libraries. The hostile architecture of protrusions and spikes which make it impossible to sleep on a park bench are pretty much sculpted into the architecture of the city, markers of the struggle for public space. The idea even has its own Instagram account. A security firm offers tips: restrict access to sidewalk overhangs protected from inclement weather, remove handles from water spigots, and keep trash dumpsters locked. If things get too bad, the company, for a price, will deploy “remote cameras with military-grade algorithms capable of detecting people in areas they shouldn’t be in.”

Keep in mind that all of these homeless people coexist in a United States whose wealthiest citizens have their own spaceships. NYC alone is home to 70 billionaires, more than any other American city. New York is also home to nearly one million millionaires, more than any other city in the world. How is it that the nation’s wealthiest city and poorest city are the same place?

All the solutions seem to fail. There are not enough shelters we are told but even when more shelters are built the homeless are too paranoid to move in,or the shelters become too dirty, too dangerous, chaos compacted, so the transition from an encampment to supportive housing isn’t easy. In ravaged San Francisco, one out of 10 of the city’s already existing supportive housing units are empty, with the director of the Department of Homelessness (!) placing the blame on individuals. So the homeless problem becomes a mental health problem which becomes a drug and alcohol problem which becomes a public health problem. Our society will not force people into care, and it will not deport the homeless against their will to desert camps. Instead we simply do nothing absent throwing a few bucks into food programs as an expedient over stepping around too many bodies in the street. Meanwhile nobody asks why nothing seems to work.

When you look at history with enough perspective you see very little happens without cause and effect. Things are connected. Casualty matters more than randomness. Answering the question of what to do about homelessness requires first answering the question of why we have the problem in the first place. Because while homelessness exists elsewhere in the developed world, you simply do not see it at pandemic proportions in equally-developed nations across Europe, and certainly not in the economic superstates like China, Japan, Singapore, et al. Scale and size matter and America wins on both. Why?

Because the American economic system requires homelessness. That’s why we can’t solve homelessness; no matter how much solving you do the system just makes more.

The Democratic arguments over raising the minimum wage are a smokescreen. As long there is a minimum wage and businesses do not have to compete for workers, there have to be homeless people. Think of the homeless as run-off, the unfortunate but necessary waste product of an economic system designed to exploit workers for the benefit of space-traveling overlords. The homeless — no wagers — are the endpoint of an economic spectrum dominated by the minimum wagers, people whose salary and hours, and thus whose chance at lifetime wealth status, are capped by agreement between the government and industry.

Until slavery ended, human beings were considered capital, just like stock today. Now we’re “human resources” so everything’s better. Bringing up race hides the real story of how long this has been going on and how deep a part of our way of life it is. The line between controlling someone with a whip and controlling someone through ever-lower wages gets finer and finer over time.

This is what “systematic” means: a system of public-private sector agreements codified as laws which push workers into a cesspool as grab-and-go disposable labor. Those who sink end up homeless. Those who tread water are guaranteed a life of maybe just enough, their place in society fixed for others’ goals, never their own. It also assures the sales of drugs, alcohol, and lottery tickets as the working poor try to convince themselves all this can’t be true. Can it?

The next step is clear. The working poor are allowed to exist at survival levels only because they are in jobs too expensive or difficult to automate. You think there are a lot of homeless now? Wait until self-driving vehicles click in and another job category simply disappears, leaving drivers and delivery people nowhere to go (there are more than 3.5 million truck drivers in the U.S., making driving one of the most popular occupations.) Same for fast food and other service jobs. Soon enough AI and/or remote online learning will make live teachers an expensive luxury for the children of the wealthy.

If you wanted a clever term about why we have and ignore and can’t address the homeless problem, you could call it systemic inequality in tune with the times’ nomenclature. A system designed to exploit will always exploit too much at its edges. It is supposed to, in order to keep driving the center downward, from 1950s middle class to 2022’s working poor.

But in the near term the issue isn’t confronting the reality of inequality, it is navigating the society it has created, much as my tour guide directed us around the homeless nests in Chinatown so we could sample the dim sum at leisure. “Don’t make eye contact” was some of his best advice.

Related Video:

I Used To Be Disgusted, Now I’m Disabused

Posted on by
2

By Charles Hugh Smith

Source: Of Two Minds

It’s certainly possible to be disgusted, but being disabused of the fantasy that the system is self-correcting is the healthier perspective.

I used to be disgusted, now I’m disabused: beneath all the self-serving narratives, fad-memes and over-simplifications regurgitated as serious analysis, these are the core dynamics I see:

1. Imperial corruption of democracy and open markets. I described this in Regardless of Who’s Elected, Imperial Corruption Rules the Nation: the dynamic adaptive churn of unfettered representative democracy and open markets are anathema to insiders, vested interests and elites, each of which has gained asymmetric power by subverting democracy and markets to serve their private interests rather than the public interest / common good–phrases that are meaningless to insiders, vested interests and elites except as simulacra used for PR.

2. The Deep State, the unelected and unaccountable Administrative State. I’ve been discussing the Deep State before it entered common use–for example:

Going to War with the Political Elite You Have (May 14, 2007)

The Dollar and the Deep State (February 24, 2014)

Is the Deep State Fracturing into Disunity? (March 14, 2014)

The Administrative State has existed in some form in every nation-state / empire, but the U.S. Deep State only gained its vast global powers in World War II and the Cold War, where the lesson learned was the public may choose unwisely (for example, choosing appeasement over preparation) and so the really important decisions needed to preserve the nation cannot be left to parochial politicos in elected office–those decisions must be in the hands of those who know what has to be done.

Democracy is the rubber stamp for doing what’s necessary. Beyond that, it’s a potentially fatal hindrance. That’s the mindset of the Deep State, and if you and I were in upper-echelon positions in the Administrative State, we’d agree with this mindset when things get serious.

This mindset is a self-reinforcing group-think feedback loop: those who believe the public should set policy are weeded out, either by self-selection or via being sent to bureaucratic Siberia.

We’re protecting you. That’s all you need to know.

This opens the door to functionaries who came to do good but stayed to do well, i.e. those with the right credentials and connections to enter the Power Circle to “serve the public” but soon become insiders maximizing their own private gains. That’s the problem with the Administrative State: it’s ultimately unaccountable, not just to the public or elected officials but to itself.

3. Vested interests block adaptions that threaten their share of the spoils. Any advance that increases efficiency and productivity and furthers the public good is squelched, suppressed or co-opted by vested interests who rightly fear their share of the spoils might be diminished by advances that obsolete their particular cartel, monopoly or other embedded skim, scam, fraud, embezzlement or simply unproductive dead weight.

The status quo is thus locked into a death spiral as gatekeepers, insiders, vested interests and sold to the highest bidder politicos will protect vested interests even as the engines flood and the ship begins its long descent into the void.

How do otherwise smart people become so blind to what’s going on? They believe the status quo is so wealthy, so powerful, so clever, etc., that it will overcome any obstacles or crises because it’s always done so in the past, and so it is permanent, immutable, forever, and our supping at the trough of free money couldn’t possibly weaken such an enduring Leviathan.

This is the fatal fantasy of every empire. We’re too successful to fail and collapse. But oddly enough, faith in the permanence of success leads to the very collapse that’s deemed “impossible.”

4. Concentrations of wealth, power, capital and production fatally distort the economy and the social order. When “competition” has been reduced to two telecoms, two healthcare insurers, two pork processors, etc., the system has been stripped of adaptability and resilience.

When 10,000 small farmers each have 100 chickens, the stock of 1 million chickens is spread over a wide geography and entrepreneurial network of suppliers, wholesalers, etc. Bird flu may spread widely but it’s far more difficult to wipe out 10,000 small farms’ poultry compared to the ease of bird flu spreading in one giant factory that concentrates 1 million chickens in one facility. Supply chains stripped of network resilience are equally fragile and prone to disruption and collapse.

Concentrating any form of capital, production and power renders the system vulnerable to collapse due to the inherent weaknesses generated by replacing complex networks with vertical-integration under the control of a few cartels, monopolies, autocrats, gatekeepers or regulators–the latter two being easily influenced by political pressure and/or private gain.

It’s certainly possible to be disgusted, but being disabused of the fantasy that the system is self-correcting is the healthier perspective. Everything is forever until systemic weaknesses reveal themselves, typically at the most inopportune junctures.