Our Alaric Moment

Posted on July 20, 2023 by thezman

Note: If you enjoy the sound of me droning on about things like affirmative action, then you will enjoy this show I did with Jose Nino. I am not the best interviewee, but this one turned out better than most of them. Jose is a good host.

If you were living in the Western Roman Empire in the fourth century you probably knew that things were not going well. This assumes that you were prosperous enough to have time to think about these things. You could see that the infrastructure was failing and that the empire was struggling to maintain order. On the other hand, the decline had been happening for a long time so things may have seemed normal. Without some way to compare the present to the past, you only have instinct.

Today we have mountains of facts and figures to tell us how things are doing in the Global American Empire. There was a time not so long ago when these facts and figures made up the bulk of news coverage. Economists became court wizards, explaining the latest unemployment figures or trade numbers. They were also called upon to bless whatever polices were being debated in Congress. In the Obama years, economic data was the way we measured the glories of the empire.

That has all changed now. One reason is no one in their right mind takes anything the government says at face value. People had grown used to the way the media biased the numbers depending upon who was in office, but the mortgage crisis cratered the public’s confidence in the numbers themselves. If all of the court wizards explaining the numbers could not see the mortgage fiasco coming, then why should anyone believe them about unemployment or inflation?

Then you have the general lying that has become a feature of government. The lying about Covid not only disgraced the medical profession, but it finished off whatever trust people had in the official numbers. If the government lies about how many people are dying from Covid just to move more product for the drug makers, the government will lie about how many people are working or the inflation numbers. No one trusts the numbers because no one trusts the people issuing the numbers.

There may be something else at work. Into the 1980’s, the numbers out of the stock markets were predictable. The markets went up as the economy improved out of a recession and the markets went down before a recession. In between the blue-chip stocks maintained a consistent price-to-earnings ratio between 14.00 and 16.00, which was the gold standard of the market. You could compare a stock’s performance to the S&P 500 to gauge the stability of the company.

That changed in the 1980’s with the new global currency arrangements. The P/E ratio of the S&P 500 as of this moment is 26.43. That looks high compared to the historic averages, but it is low compared to recent times. Just before the mortgage crisis the number climbed to 123.73. It collapsed soon after, but even in the midst of what they said was a near death experience for the financial system, the P/E ratio for the S&P 500 only dropped down into the historic average range.

The point here is we cannot trust the numbers if the numbers have no relationship to anything we have experienced. When the end of the world has the same numbers as what most consider to be a golden era for the empire, those numbers cease to have any meaning to us. Throw in the fact that most people do not feel like they are richer than their ancestors and those inflated stock figures carry even less weight. We are left to rely on our instincts to judge things.

Of course, our sense of things, that gut feeling, is the result of a many small things that we experience every day. Three-quarters of Americans think the country is going in the wrong direction because they go to the grocery store every week. They see that despite the crowing about inflation coming down, food remains expensive. Granted, no one is starving in America due to a lack of affordable food, but it is that thing they see every day that gives people a sense of things.

Think about something simple like a pint of premium ice cream. A few years ago, a pint was sixteen ounces. “A pint is a pint the world around” was true from peak of the British empire until just a few years ago. Now a pint is fourteen ounces. The price for the new pint is not the same as the old pint. The price is more than the old pint. A few years ago, the old pint of ice cream was five dollars. That is about 31¢ per ounce. Today the new pint is over seven dollars or 51¢ per ounce.

That is a seventy percent change in the price. This is one example and probably not a representative one, given that butterfat prices drive dairy prices. Even so, this is something people see all over the marketplace. Shrinkflation is a word because it is a thing that exists. People notice that the containers are getting smaller, or they are getting less full in the case of things like snacks. Meanwhile, prices go up. This subtly tells people that something is going wrong.

This is probably why we are no longer getting a parade of court wizards analyzing the latest economic numbers. According to the numbers, Joe Biden should be dozing into reelection with an insurmountable lead, as his court wizards flood the airwaves with the good news about the economy. Instead, no one talks about the numbers and Biden is as popular as rectal cancer. It is possible he could lose the election to a man sitting in prison or be deposed by the secret police.

This brings us back to where we started. There were those in the Roman Empire who sensed the true state of affairs. No doubt some of them lived and died expecting things to fall apart, only to stagger on long past their time. Then there were others who internalized this reality and just accepted that no matter how grim things might appear, the empire was a permanent feature of life. The people probably just tried to make the best of things, even as they noticed the decline.

All of that changed on August 24, 410 AD when Alaric led the Visigoths into the eternal city, sacking Rome and setting off the collapse of the Western empire. The empire staggered on for a bit longer, but it was over at that point. All of those bad signs people had sensed probably seemed obvious in retrospect. Even so, the sack of Rome by the Visigoths was a shock to the world. The signs seemed obvious, but people still thought that the imperial order was permanent.

This is most likely the fate of the American empire. There are lots of signs that things are going poorly for the empire. Getting whipped by a collection of bronze age goatherds in the graveyard of empires should have been a wakeup call, but the empire is now picking fights with Russia and China. Meanwhile things deteriorate domestically, both economically and culturally. Yet, we stagger on, but somewhere out there is an Alaric moment just waiting to happen.

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The Future Of Fed Plenty

Posted on May 30, 2023 by thezman

Americans have been conditioned to believe we live in a market economy where producers chase customers. The subtext to American politics for generations has been protecting the marketplace from the socialists. In reality, America is more of a command economy than a market economy. We do not think of it as a command economy because that phrase brings to mind commissars arguing about why the left shoe factory has a different quota than the right shoe factory.

While we have never had five-year plans or an official industrial policy, the people in charge have always had a tight grip on the economy. The primary lever since the 1980’s has been the money supply. The bank of all banks, the Federal Reserve, controls the flow of money in the system. While it does not decide how many shoes get made, it does decide the shoe maker’s cost of money. The Fed can create a recession to reduce demand and it can create plenty through cheap money.

This is not the only lever of our command economy. The regulatory state exerts an enormous amount of power on the economy. Right now, the EPA is plotting to kill off the gas stove market in order to please Gaia. The claim is gas stoves give people the cooties or something, but the real reason is the people in the EPA are primitives who follow a spirit religion. They can and often do change economic activity based on what their shaman has to say about Gaia.

It is not just the federal administrative state with power over the economy. The states have their own junior varsity administrative state. In Maryland, for example, they have decreed that all new homes must be equipped with sprinkler systems, like the sort you see in office buildings. The National Fire Sprinkler Association just happens to be located in Maryland. Their members, conveniently enough, have the exclusive right to install and maintain sprinkler systems.

That is the other level of the command economy. Large private operators can exert enormous pressure on the administrative and politics systems. They also get favors that small players cannot purchase. Every Walmart in America enjoys free infrastructure and tax abatements from local government. One reason the big box store eliminated the small retailer is they colluded with the state. Like the Bolsheviks in the 1920’s, America’s ruling party prefers consolidation into controllable industries.

The Bolsheviks liked large enterprises because they assumed they would be easier to control, and they would drive off the vestiges of capitalism. They were somewhat right about the last part, as we see today. The first part they never got right. By the 1970’s, the Soviet system grew increasingly complicated as it became less efficient, because the scale of the system outpaced the ability to manage it. There were too many variables and too many interactions between those variables.

The American command economy would have faced the same problems, and it was headed in that direction in the 1970’s, but a couple of big things happened. For starters, the decision was made to ship the manufacturing base overseas. Instead of trying to centrally manage an industrial economy, production was handed over to the third world so they could do it. The Fed could use the money supply to control the flow of manufactured goods into the system.

The other thing that happened was the microprocessor revolution. The Soviets recognized this as their way out of the complexity problem, but they were already past the point of diminishing returns by the time cheap computers and trained computer programmers were in sufficient supply. America escaped this fate, as the economic planners were able to harness these new tools to control the economy. The managerial state would not be possible without computers.

The trouble is our system is now suffering from the same problems the Soviets faced in their command economy. The complexity is overwhelming the system. The Federal Reserve has been fighting inflation for two years now. At the same time, spending has spiraled upward with no hope of arresting the growth. This forces the Fed to create more money through various means. The recent debt ceiling drama suggests there is no political way to solve the fiscal crisis.

It may not feel like a crisis as there are plenty of jobs and there is plenty of money to buy consumer goods. People have lots of complaints, but few of them are about the economy, as far as anyone knows. Given the monolithic nature of the media, we cannot assume that what we see in the press is reality. Even so, there are no bread lines and sales of houses and consumer goods are strong. Whatever problems that exist are not showing up in consumer behavior.

Of course, the years following the death of Stalin were good times in the Soviet Union, as their economy grew faster than any economy in the West. After recovering from the devastation of the war, shops were full of basic goods and the Soviet system seemed to be working better than capitalism. The Russians were ahead of the West in the space race, and they enjoyed a missile gap. Then red plenty slowly ground to a halt and their system fell into a generation long decline.

The fed plenty that American has been enjoying for the last thirty years may be about to turn negative for the same reasons. The system has become too complicated for the masters of the system to operate. In the Soviet times, the result was too many left shoes or mountains of concrete with shortages of winter coats. In this age, it means bans of gas stoves and diversity programs because companies care more about ESG scores than the desires of their customers.

This was always the argument against command economies. It was not so much that some unelected authority made decisions. It was that over time, they would always succumb to complexity. The lack of price signals subjected the economic trade-offs to political jockeying. In the Soviet system, the politically favored got what they wanted, even when it made no economic sense. In our system, we see the same phenomenon but colored with liberal jargon.

Perhaps this is where AI steps into the breech. The next great leap in data processing and decision making will overcome the complexity issue. Instead of armies of analysts with economics degrees pouring over data to draft reports for the managers, AI systems will do the work in real time, making changes to the flow of money and information in the system to overcome bottlenecks and political jockeying. Fed Plenty will become the objective of the robots put in charge of the economy.

More Bank Shenanigans

Posted on April 27, 2023 by thezman

Just as the last bank crisis was fading from memory, a new bank crisis is emerging, this time staring First Republic Bank. Despite upbeat earnings, the bank’s stock has collapsed this week. The market cap has fallen below one billion for the first time in the bank’s existence. They are currently begging the big banks to shift some of their deposits into Republic to stem the outflow. Depositors are worried that the Feds may shutter the bank, putting their deposits at risk.

If this sounds like the crisis that brought down Silicon Valley Bank or Credit Suisse, that is because it is the same problem. Large depositors and insiders got worried and began to shift their money out of the bank. Because there are no secrets in this age and the plutocracy is relatively tiny, it does not take long for word to get out and the other large depositors begin to pull their money. Banks that rely on large dispositors will always be prone to these sorts of bank runs.

Oddly, this reveals some Dirt People wisdom. Silicon Valley Bank did not cater to the Dirt People, so Dirt People did not put their money in the bank. Instead, Dirt People end up at the big banks. The whole too big to fail thing in the prior financial crisis taught the regular guy a good lesson. The big banks are friends with the regime, so the regime will always protect them. If you want to protect your money against shenanigans from crooked bankers, put your money in a big bank.

The trouble comes when insiders in a particular industry, like the tech sector, want to conduct shenanigans away from the prying eyes of other oligarchs. This is why Silicon Valley Bank existed in the first place. It was the bank for the connected in the tech sector, so they could conduct shenanigans amongst other tech insiders. If you wanted to know what would be promoted as the next big thing in tech, you needed to be at that insider table, so doing business at SVB was necessary.

Since the American economy is nothing but shenanigans by insiders, it means all of the other areas have their insider tables too. That is where these other regional banks come into play. They will serve the large developers in a region, for example, who will park lots of cash in these banks. Those developers will draw in local warlords and potentates to their shenanigans, who will put their cash in the same local banks, so that moving money and information is simpler.

The information portion is the key to modern shenanigans. The reason the hedge funds operate in sleepy villages in Connecticut is that it is much easier to conduct shenanigans in person at a dinner party or on the golf course. If you are in New York, someone could hear you talking or you may be tempted to trust the wrong person via e-mail, so it is much safer to deal in person out in the leafy suburbs, free from the hoi polloi and the ambitious government regulator.

You can be sure this used to happen at Silicon Valley Bank. Part of what they provided to clients was introductions to other clients. One tech insider could socialize with another insider at his friend the banker’s house. If after a few drinks there were some shenanigans, who would know? This sort of thing plays out across the economy and regional banks often operate as junction points. A part of their service is putting likeminded investors together for shenanigans.

In the world of shenanigans, there is no honor, so when the money could find better deals outside of tech startups, they no longer needed Silcom Valley Bank and they pulled their money. A similar problem is happening in the commercial real estate sector, which is facing tough times. The work from home craze kicked off by Covid is here to stay, so that has cratered demand for office space. Crime waves in cities are killing urban commercial and retail properties.

The big drag on commercial real estate, as far as the banks are concerned, is the way in which property owners manage debt. If you own an apartment building, you never pay down the debt on the property. Instead, you keep borrowing against it as rents pay down the debt. That is the source of income. Of course, there are investors, who get paid from these periodic withdrawals of equity. Commercial real estate is not about the rents, but the equity, which can be pledged as collateral.

Imagine you have a property worth a million dollars. The rents far exceed the cost of maintaining the property, so it has a remarkably high cash flow. It means you pay taxes on those profits. If on the other hand, you take a mortgage against the property, the cash flow decreases, along with the taxes, but you now have a pile of cash to do things like buy another property. As rents pay down the debt, you periodically refinance the property to create a big pile of cash.

The trouble is interest rates are going up at the same time that occupancy is going down, which is driving down the value of properties. The bank is not only demanding more in interest payment, but they are also willing to loan less against the property, because of the declining occupancy. What is happening in commercial real estate is similar to what happened when the housing bubble popped. All of a sudden, lots of people are upside down on their mortgages.

This is what is pressuring regional banks. A bank that primarily works with commercial real estate is seeing a sharp decline in deposits, but also a sharp decline in many of the assets they are holding on their books. This is why everyone is suddenly nervous about the regional banks. Many of them were tied into the regional real estate markets, which are now in decline due to rising interest rates. First Republic Bank is probably the first shoe to drop in what will be another banking crisis.

Of course, the question that lingers over all of this is whether the Federal Reserve can keep the plates spinning while they work out decades of bad policy. As of this week, the Feds are not coming to rescue the local banks. They were not going to rescue Silicon Valley Bank until they had no choice. Commercial real estate has just as many powerful oligarchs as the tech sector, maybe more. That means everyone is going to be betting on yet another massive bailout of the banking sector.

All of this is a good reminder that America stopped being a market economy a long time ago due to the outsized role of banking. When you have control of the global currency, you can conjure money from thin air. When you have that power, you use it to command things of the economy that otherwise would not exist. That means this command economy is going to keep faltering as the people commanding it lose their power to command it to do things it should never have done.

Currency Wars

Posted on March 28, 2023 by thezman

One of the most overused phrases in economic discussions is “petrodollar”, especially by those inclined to doomsday theories. Right behind it is the phrase “reserve currency”, which gets tossed around almost as much as petrodollar. For most people, these are terms that no longer have a practical meaning. They are words that are supposed to mean something bad. The petrodollar as the world’s reserve currency is the tool of the evil money men in Washington.

For starters, the petrodollar is not a real thing. It is simply a term to express the fact that in the 1970’s the large oil producing countries agreed to use the dollar. If you want to buy crude from the Saudis, they accept dollars and dollar equivalents. They will accept Chinese yuan or Vietnamese dong, but they will be converted to dollars. In the case of Vietnam, they may discount the exchange due to administrative costs. Otherwise, they turn the dong into dollars.

This agreement to price energy products in dollars is what makes the dollar the world’s primary reserve currency. Everyone needs energy, so if the energy guy will always take dollars for payment, then the world will always keep a supply of dollars around, not just for energy purchases, but as a reserve. In other words, the dollar’s position as the primary reserve currency is tied to the fact that energy is priced in dollars, so everyone has to have dollars around to buy energy.

Now, why did the Saudis agree to price everything in dollars. The main reason is they got something for it in return. What they got is a guarantee that the United States would protect the kingdom from threats in the region and never side with the wrong faction among the Saudi royal family. That last part is important. Joe Biden, as Vice President, sided with the faction opposing Mohammed bin Salman, the current Crown Prince and Prime Minister of Saudi Arabia.

This is why the Saudis are now open to pricing their energy products in Chinese yuan and maybe other currencies. Since Russian products are now priced in rubles, the ruble has become one of the strongest and most stable currencies in the world. Lots of countries now need to hold rubles, because lots of countries need to buy Russian energy and agricultural products. Lots of people need to buy Chinese manufactured goods, so you can see the appeal there as well.

To finish the thought on the Saudis, they no longer see Washington holding up their end of that bargain struck fifty years ago. Russia and China, on the other hand, are willing to help in that regard. The Chinese brokered a deal between the Saudis and Iran, which is an enormous development. Iran backs the rebels in Yemen and the Saudis back anti-regime forces in Iran. This new deal solves a problem for both countries and makes the Chinese the honest broker of the region.

Further up the road, the Russians have slowly been putting together a deal between the Turks and the Syrians to end the long bloody war in Syria. That war is the result of regime change efforts by Washington aimed at Syria. The Turks had been party to that scheme, but they have changed teams and now oppose regime change. The looming settlement of this problem, brokered by the Russians, will alter the dynamics in the region and further push Washington out of the picture.

Taken together, the regional players are now looking to Russia and China to help keep the peace and be the honest broker. Getting back to that old deal between Washington and Riyad, if Washington is no longer keeping the peace, then why only accept Washington’s money for energy products? If the world is increasingly comfortable holding yuan, to buy Chinese goods, and rubles, to buy Russian products, why not hold those currencies and accept them for payment?

This is why arguments like this one promoted by Darren Beatty at Revolver News miss the point of what is happening with the dollar. The writer just assumes that because things have always been this way, they will always be this way. It is as if he thinks the dollar has magical qualities that make it the primary reserve currency. The dollar’s value in the world is pegged to practical things. If those practical things decline in value or disappear, then the dollar loses its power.

What is taking shape is that the global conflict between the Global American Empire and the emerging power centers of the world will include a currency war. Both China and Russia clearly get this aspect of the conflict. Both countries are working to not only make their currencies more stable, but they are also building out the infrastructure to make dealing in their currencies easier. China and Russia are making it easier to do business with them in their currency.

What is happening is that as we move from the monopolar world of the post-Cold War era to the multipolar world, we are sliding into a currency war. As a practical matter, Washington will no longer be able to abuse the dollar as it has recklessly done for the last thirty years. This means Washington will not be able to export inflation in the form of excess dollars to other countries. Those other countries will now have choices, with regards to investment and reserves.

This does not mean the collapse of the dollar or a collapse of the empire, at least it is not a foregone conclusion. Instead, it means Washington must enter a period of reform similar to what followed the Second World War and the collapse of the gold-backed dollar in the 1970’s. Currency wars are the result of changing political and economic relationships that demand changes in money relations. The petrodollar solved a problem at the time and its end solves a problem of this time.

Whether or not there is the talent in the ruling class to pull off the needed reforms is the great question that looms over this currency war. The Fed chair is obviously in over his head, but there is no one in Washington noticing this. The current administration is staffed by lunatics and buffoons. The Republican side is trapped in the last century, unable to accept that the world has moved on from the 1980’s. Prospects for reform are grim at the moment, which is what makes for a crisis.

Even so, we are entering a period similar to the 1970’s in that we will have periods of inflation along with declining real growth. Unreliable money relations make for unreliable economic relations. America emerged from the last century as the global hegemon because she won the currency wars of the last century. The disposition of the American empire will be defined by the new currency war and what comes out the other side of the process will also be defined by the currency war.

We Are Argentina Now

Posted on March 20, 2023 by thezman

Note #1: Behind the green door is a post about stupid people, a post about those rotten kids and their pivot tables and the Sunday podcast. You can sign up for a green door account at SubscribeStar or Substack.

The Federal Reserve and European Central Bank have for a long time now been wrestling with a problem that is truly novel. They find themselves in an interest rate trap, which means they need to restore borrowing rates to something close to the historic norm, but doing so puts the global banking system at risk. The political class is just as hooked on cheap money as the bankers, so their is no appetite for a Paul Volker like approach to solving the money problem in the West.

For a long time, the problems were abstract. Everyone knew that near zero interest rates would one day create big problems, but in the here and now they made all of the important people happy. The reckless and insane response to Covid by Western ruling classes moved the problem into the domain of reality. Massive spending by government put enormous amounts of cash into the hands of regular people, not just the bankers, and those regular people started spending it.

Compounding this was the decline in global demand for dollars. Since the 1990’s, the Chinese economy was able to soak up extra dollars and euros. Other parts of Asia could also be counted on to take dollars in the form of investment. The massive liquidity in the banking system was, in effect, sequestered from the retail economy of Western countries, so the impact was low. That and the rest of the world was happy to hold euros, dollars and bonds in those currencies.

Covid was an accelerant in many ways, but one very important way was in regards to the Chinese economy. Central to the long term plans of China is to boost domestic demand and reduce her dependence on exports to the West. Lock downs and the subsequent decline in global commerce accelerated the process. China came out of Covid with far less demand for Western investment. Those extra dollars and euros are retuning to their makers.

It is looking like the insane response by the collective West to the war in the Ukraine is another accelerant to a process that was slowly building steam. Cutting Russia off from the “rules based international order” was a wake up call for the large, non-Western economies of the world. China understood right away that the dollar was Washington’s primary weapon in international affairs. The Saudis also came to see the problem with depending upon Washington to abide by the rules.

More important, the Russian economy survived the assault by Washington and she successfully defended the ruble. When Russia demanded payment in rubles from Western nations and they went along with it, the world changed. All of a sudden, the multipolar world with multiple competing currencies came into focus. China, Russia, India and the OPEC countries have now set off on a path where the dollar and euro no longer have a special place in global trade.

The enormity of this politically and economically cannot be overstated. This week the ruler of China is making a visit to Moscow. Generations of American policy makers have worked to avoid this meeting, but the current crop in charge of American foreign policy wrecked all of that and now we have an alliance between Russia and China. The world’s largest economy is now a strategic partner with the world’s biggest nuclear power, in opposition to the Global American Empire.

The global realignment does not stop there. The Russians have been brokering a peace between the Turks and the Syrians. The goal is to squeeze out the Americans, who are in Syria stealing Syrian oil and gas. China has brokered a deal between Saudi Arabia and Iran, which promises to reorder the region. The oil producing hub of the world is suddenly in the orbit of China and Russia. Economics follows politics, so it is not hard to see what this does to the dollar and euro.

For the last year, the Fed and ECB have been facing a problem. There is far too much money in the system and the demand for their money is in decline globally, which means they have to remove money from the system. They tried to ignore the problem by spinning yarns about inflation being transitory, but rocket high food bills made that story impossible to maintain. The politicians demanded the Fed “fix” the economy for them, so the Fed started to raise rates.

That is what brings us back to the interest rate trap. The entire Western banking system depends on exclusive access to cheap money. This is their margin. They no longer provide much in the way of essential services. Much of what the banking system does could be automated at this point. The profits come from operating a casino in which the house arbitrages the difference between what it pays for money and what the suckers on the other side pay for money.

If all of a sudden the price the house pays for money closes with that which the suckers are paying, then the casino goes bust. That is what we are see now. Silicon Valley Bank and Signature Bank were just money laundering schemes for plutocrats. Once interest rates went up just a little, they were no longer viable. Credit Suisse was just bailed out by the Swiss National Bank for the same reason. These banks could only exist in the world of free money to the banks and their clients.

Over the weekend, the Fed with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank announced a global bailout of the Western banking system. They are offering unlimited cash in exchange for the illiquid assets on the bank’s books. The reason they did this is they know that every bank in the West has the same problem as Credit Suisse. That is their liabilities outweigh their assets so they are effectively broke.

Of course, you cannot fight inflation while showering the system with cash, which means the effort to rein in inflation has come to an end. The Fed will try to limit the swapping of bad assets for cash by substituting treasuries, but this sort of legerdemain is just so they can continue the game of make believe. High inflation is now the new normal in the West because it is impossible to raise rates. The West has turned itself into Argentina through bad policy and worse politics.

For generations now people have warned about the long term cost of living on borrowed money, but they were mostly wrong. Living on borrowed money is self-correcting in that the lender eventually stops lending. What the West faces is a problem where the lender cannot not stop lending. The only way to sustain this now is for the people to be impoverished through systemic inflation. Inflation is now the banker’s friend, because it promises to keep the cheap money flowing.

The Great Reckoning

Posted on March 14, 2023 by thezman

For generations, going back to the middle of the last century, people have been warning about systemic problems in American society. Some of the warnings have been tricks to continue the cultural revolution. Some have been part of the financial legerdemain that defines so much of our economy and politics. There have been, however, many sincere warnings about long term structural problems. Out of necessity and expediency they were ignored, but that may be about to change.

The most obvious is the most immediate. Going back to the Clinton years people who understood money were warning about loose money policy. People forget that Clinton winning was a surprise. After all, Bush came into the election with a huge war victory and a solid economy. The Reagan expansion was viewed not only as a miracle of Republican policy, but a rebuke of left-wing economics. Then the economy soured before the elections and Clinton was president.

Much of official Washington blamed the tight money policies of Alan Greenspan for tanking the economy under Bush. Team Clinton made sure this could never happen again, especially with a Democrat in office. Loose money became official policy and only got worse with each administration. By the Obama years, we were in a world of Zero Interest Rate Policy. Now those ZIRP chickens are coming home to roost in the form of a systemic banking failure.

No one should be deceived by what is happening. Last weekend, the Federal Reserve decided that the banks are all broke due to holding assets that have a declining market value, so the Federal Reserve effectively nationalized the banks. The only way they can regain control of money policy is to eliminate the market for long dated bonds by promising to buy them at face value. The Federal Reserve has nationalized the banks by nationalizing the bond market.

This is required to avoid a bank collapse but also allow for the long overdue reorganization of the financial sector. A generation of free money has turned Wall Street into a drug addict. It is entirely organized around getting the narcotic of free money from the government, rather than the normal practice of banking. All of its schemes are designed not to create value in the economy but to generate the need for more free money, a portion of which ends up in executive pay.

This did not happen in isolation. The great auctioning off of the manufacturing base that began in the 1980’s has finally caught up to America. The subtext to the Ukraine war is the fact that America no longer has the ability to make the weapons it requires to wage war on the world. Russia, with a third of the population, can now make more weapons for war than America. Her production of ammunition dwarfs what America can muster, which is why Russia is slowly grinding down the Ukrainians.

Of course, one main reason for the auctioning off of the manufacturing base is it raised quick money to invest in the rigged casino that is Wall Street. This fact was masked to a great degree by cheap consumer goods. In fact, the culture of cheap consumer goods has justified all of the nation wrecking policies. Everything from open borders to wholesale political corruption have been justified by cheap lawn care and cheap products sold in big box stores.

The price tag for decades of cheap goods underwritten by the sale of the manufacturing base is now coming due. The only thing America makes now is sexual deviance and lectures in favor of sexual deviance. It turns out that there is no global market for rainbow colored marital devices and films promoting the culture around them, which means America does not have a real economy. The ongoing economic crisis is about to get much worse as that reality becomes clear.

In fairness, some of the proceeds from auctioning off of the manufacturing base went into the technology sector. In the fullness of time, the robot historians may remember America for having singlehandedly created the technological revolution. This has changed the world. The trouble is, the technological revolution ended decades ago, but Silicon Valley continues to consume trillions in money. With the collapse of SVB, that great money drain is now ending.

The war with Russia and the looming war with China has also brought other chickens home to roost. For a long time people have been warning about the military industrial complex and its addiction to expensive, high tech weapons. Those whiz-bang systems look great, but they are not what wins wars. What wins a war are the tools the average soldier uses to kill the enemy. We no longer bother making them and instead focus on rocket ships and space lasers.

What the war in Ukraine has revealed is that NATO would have to use nuclear weapons in a war against Russia, because NATO lacks the men and machines to fight a ground war against the Russians. Most NATO countries would run out of ammunition in a few weeks and have to surrender. Against China, the American military would deliver some serious early blows, but then run out of supplies. Chinese manufacturing capacity is now greater than America and Europe combined.

Overlaying all of this is the crisis of competence. The SVB fiasco is a great example of a problem that permeates American society. Instead of rewarding skill and accomplishment, our system is rigged to reward nonwhites at the explicit expense of whites, especially white males. The only market that is booming in America is the racial revenge market and the result is colorful people in positions of authority who lack the basic skills to do the jobs they have been given.

Thirty years ago, people warned about this. What started as tolerance in the 1980’s, became sensitivity in the 1990’s, then diversity in the new century. It has now turned into a full blown cult of anti-whiteness. While towns in Ohio suffer from an ecological disaster, the people in charge fret of racist sidewalks. Corporate America is more concerned with its ESG and DEI scores than its financial stability. We have combined demographic reality with anti-white fanaticism into a ruling ethic.

No society can run this way. Good luck fighting China with a rainbow coalition of drag diverse drag queens trying to operate space guns. Good luck weathering a reorganization of the financial system when the banks are run by people who were just recently coaxed from caves by European explorers. Imagine surviving an end of empire crisis with the productive portion of society seething with rage at the fanatics who brought about this disaster.

One could go on a long time listing the things that should never have been allowed to happen that are now turning up in the nation’s crisis list. All of these are the result of bad polices hatched in the late 20th century and used to loot the country by the new generations of rulers ushered in by the Clintons. The bill for the great bust-out is now coming due and there is no avoiding it. Like drunks at closing time, we await the bill for generations of reckless behavior.

Crisis In The Clouds

Posted on March 13, 2023 by thezman

Note #1: Behind the green door is a post about Kanye West, a post about the nuts and bolts of this bank crisis and the Sunday podcast. You can sign up for a green door account at SubscribeStar or Substack.

Note #2: The White Art Collective is putting together a film and they issued a casting call for those interesting in acting. They have crowdfunded the project and produced a trailer for the film. Details on how to contact them are here.

Note #3: Some may have noticed that my Twitter account has been restored and I have created a Rumble channel. I doubt I will do much with the Twitter account, but I am kicking around the idea of doing some live shows on Rumble.

One of the underappreciated properties of managerialism is how the managerial elite begin to look like the elite of a bureaucracy. The people at the top of the various pillars of power begin to think like the people in charge of the Post Office in that they care primarily for the power and privilege’s of their power center. We are getting a glimpse of this with the evolving financial crisis that was set in motion by the collapse of Silicon Valley Bank last week.

The bank started to run into trouble when the Federal Reserve started raising rates in order to combat inflation. Rates have been near zero for so long that it became the new normal, leading to activity that otherwise would never get financed. When money is cheap, the appetite for risk-taking is high. When money has been cheap for a generation, risk-taking is no longer seen as risk-taking. It is simply how things are done, until money stops being cheap, which is what is happening now.

Despite the bizarre devotion to the cult of diversity by the people running SVB, the bank itself does not appear to have been poorly managed. To date no violations of the law have been suggested. Instead, the bank was the victim of changing conditions that suddenly made their model unworkable. In the world of banking, when your model becomes unworkable it means you are running out of money. A bank without money is an abandoned building.

SVB’s clients were mostly startups, tech companies and their corresponding venture capital firms. The bank helped facilitate funding for new companies and existing companies that are growing. Private investors kept their money at the bank and the firms they were bankrolling also kept their money at the bank. Because borrowing rates were near zero, the bank could lend to the customers of their preferred customers, the private investors, at attractive rates.

When the Federal Reserve started raising interest rates to combat inflation, everything based on cheap money was thrown into crisis. Those private investors suddenly had more attractive options than startups. Those startups suddenly found it hard to borrow money at tolerable rates. The startups then started to draw down on their cash reserves and the private investors began to move their money to more profitable places, thus creating a cash crisis for the bank.

That is the second problem, the very serious problem, that has broad implications for the entire system. To raise cash, Silicon Valley Bank first elected to sell assets like treasuries and mortgage backed securities. In the near zero interest rate world, these were as good as cash. In the time of rising rates, these very low yield instruments are not in demand, so they had to be heavily discounted. SVB had to take a two billion dollar write down when they sold these assets.

Since every bank in America, possibly the Western world, holds treasuries and long dated mortgage backed securities, it means every bank has the same problem as this bank in that they have assets with a book value above market value. Some estimates suggest there is a trillion dollar gap in the system due to this problem. In 2008 when the system came close to collapse, the problem was about a trillion and half, so you can see why the bankers are in a panic.

This is where we see the bureaucratic nature of the system. Pournelle’s Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people: First, there will be those who are devoted to the goals of the organization. Secondly, there will be those dedicated to the organization itself. The Iron Law states that in every case the second group will gain and keep control of the organization. It will write the rules, and control promotions within the organization.

That is what we see with the bankers. The people running the system care only about the system, not the alleged goals of the system. No one ever asked if near zero interest rates was good for the economy. They do not care. What mattered is what is good for the financial system and the people running it. When inflation promised to become dangerous to their position in the system they raised rates, but now that raising rates is threatening the system, they will stop raising rates.

We are about to have another banking crisis because no one in the system bothers questioning what happens in the system, outside of those things that threaten the position of those atop the system. Cheap money underwriting you-go-girl capitalism makes them feel good, so they do it. If the polices warp the overall economy and puts the middle-class at risk, they do not care. All that matters is the internal dynamics of the system and how it impacts the people in it.

Replicate this silo mentality across the empire and you can easily see why the ruling class appears to be out of touch with reality. The reason is their reality is not our reality, but the artificial reality of the system. Right now, banking regulators are telling each other they are heroes for working the weekend to stem a bank run, while the rest of us see another trillion getting printed up and handed to the greed-heads who have been looting the economy for generations.

Of course, none of these silos of power are independent. The political silo will get in on the act when Joe Biden mumbles something about it this morning. Expect to hear lots of statements beginning with “we did…” from various political operatives, claiming that they are the real heroes of this crisis. The media will adopt their usual bunker mentality, defending the people who control their scripts. Here is an early example of what we will see this week from the content creators.

What all this means for the rest of us is the grocery bill will rocket up this year as the bankers are bathed in free money to save the system. We will get new narratives from the Cloud People about how the food bill is a conspiracy theory or maybe it is the work of the Chinese, who are the new bogeyman. The people at the top will sleep well knowing they have once against defended the system from the barbarians of reality who threatened to crash through the gates.

The End Is Nigh

Posted on February 8, 2023 by thezman

A popular narrative among libertarians, gold bugs, doomsday types and other pessimists involves the end of the dollar. Because of the structural flaws in fiat money, the abuse of the dollar’s reserve status, excessive money printing, the prettiness of gold or other factors, the world will one day decide that it no longer wants to use dollars and the dollar will collapse. Peter Schiff has built a media career using a combination of these causes to predict the end of the dollar.

There is an old joke about the market pessimists having predicted ten of the last three market crashes that applies here. The people predicting the end of the dollar, or the petrodollar as many prefer, have been making this prediction since Nixon closed the gold window fifty years ago. All of the predications have turned out to be wrong, but that has had no impact on the dollar pessimists. It turns out that there is good money to be made in being wrong about the dollar.

There are a number of reasons why the dollar remains the global currency, despite the abuse of it by the Global American Empire. This post on Revolver by an anonymous former U.S. Treasury official covers some of the major ones. The simple elevator speech on why the dollar remains the reserve currency is that the major powers of the global economy prefer it for now. China, Russia, India and the OPEC cartel continue to use the dollar as they work on the coming alternative.

That last bit is an important part of understanding what will come in the next decade with regards to global currency. The unipolar world controlled by Washington is slowly slipping away, being replaced by a multipolar world. For ideological and practical reasons, Washington is fighting this with all of its might. It is a losing fight as a unipolar world was an accident of 20th century history. It turns out that Samuel Huntington was right and Francis Fukuyama was wrong.

The great challenge of this age, it turns out, is that the emerging civilization centers of the world are emerging into the unipolar world. On the one hand, they need to remake the world order to reflect this new reality. On the other hand, they still depend in significant ways on the old structures from the unipolar order. They cannot overthrow the old order without incurring significant costs. Of course, there is the Global America Empire, which stands athwart history yelling “stop!”

In this regard, the dollar is a symbol of the current crisis, because it is the symbol, the primary tool, of the old unipolar order. Just as removing the dollar as the reserve currency would bring about significant economic costs, removing America as the center of the global order brings serious risks. Not the least of those risks is an increasingly unstable political class armed with nuclear weapons. Joe Biden prattling on about nuclear war does not inspire confidence.

The result is the emerging new power centers are becoming extremely cautious as they proceed down the path toward a multipolar world. China could take Taiwan by force if it chose, but that brings risks it is unwilling to assume. It is not just the cost of war, which would be significant, but also the cost of victory. The sight of an American carrier, on fire, sinking into the Pacific could collapse the American empire. That would take the dollar with it and everything that counts on it.

Similarly, the Russians could have hit back at the West over the economic sanctions, but instead it has simply chosen to avoid them. The reality is, every European country is looking for ways around the sanctions. These workarounds are costly and they are hollowing out their economies, but they are the better than alternative. For Russia, the sanction regime is mostly a nuisance, but it buys time as they and the other emerging global power centers build their infrastructure.

In a way, we are seeing a real world example of what Joseph Tainter described in his book, The Collapse of Complex Societies. Collapse is only possible if there is no supporting structures surrounding the society. The Western Roman Empire collapsed because there was nothing around it. It was a complex society in isolation, as what surrounded it was a collection of tribal societies. America, in contrast, is deeply connected to the other complex societies.

Instead of collapse, what we are seeing is a controlled demolition. The Russians, for example, would welcome the return of rational governance in Europe, they would prefer to avoid radical change. An economic crisis could easily trigger a political crisis and unleash sudden political change. The last two times this happened have not been good for Russia. The first time brought Napoleon to Moscow. Of course, the last time it brought Hitler to Stalingrad.

China, India, the OPEC countries and even Brazil have similar concerns with what lies between the present order and the multipolar order that is coming. The Global American Empire, including its control of the global reserve currency, is an obstacle that lies between now and then, but it is a problem that must be carefully managed. The efforts by Washington provoke a crises in Asia and Europe are viewed as an effort to derail the transition from a unipolar world to a multipolar world.

This brings us back to the dollar. If the world avoids catastrophe, then it will avoid the sudden uncontrolled collapse of the dollar. Instead it will be a slow transition to a world of multiple trusted currencies that rely on separate financial systems. Those currencies will be linked to the only true global commodity, which is energy. The relative strength of each currency will reflect the trust and accuracy of the corresponding financial systems that make transacting in the currency possible.

What this means is the petrodollar will slowly become the petro. All the large global currencies, including the dollar, will be pegged to the supply of energy, plus or minus the relative trust of the political systems of the issuing society. Again, this assumes the world avoids catastrophe. If a controlled demolition of the Global American Empire proves impossible, then all of those off-grid living videos you watched will suddenly and explosively come in handy.

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Custodial Musings

Posted on December 13, 2022 by thezman

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Wawa is a local convenience store chain in the Mid-Atlantic. The typical store is a big gas station near a major road, along with a store selling the sorts of things working people would pickup during the day. Their big draw is a sandwich shop that makes a decent cold cut at a very good price. It is not gourmet eating, but it is far above what you would get from a fast food joint. Of course, being a convenience store, they have the quick items you would expect.

Another take on this is a chain calling itself Royal Farms. They have copied the model used by Wawa and many other chains. They used to be strictly a convenience store chain, but they have been building big gas stations. Many are something like a small truck stop, providing services to the big scary truck people. Like Wawa, they have a sandwich shop, but their hook is fried chicken. They claim to have the best take away fried chicken on the planet.

One interesting difference between the two chains in the Greater Lagos area is that Wawa hires mostly white people, while Royal Farms hires black people. Wawa will hire the occasional nonwhite, but the stores are 90% white. Royal Farm is 100% black at their stores. This turns up in the customer base too. Go into a Wawa at lunch time and it is all white working people. Go to Royal Farm and it is lots of black people, along with some Hispanics and white working-class people.

The one thing both chains have in common is a labor problem. Royal Farm is the most amusing in this regard. It is entirely possible to order a turkey sub and be handed a roll with just the condiments and then be told they are out of turkey. Alternatively, it is possible to order something but you get nothing or someone got tired of waiting and simply took your food when you were not looking. Of course, this all assumes the ordering kiosk is working, which is not always the case.

Like many take out chains, Royal Farms was an early adopter of the self-service kiosk in order to solve the quality control problem. Quality control in this case means the staff, who struggle to do the basics. Mother Nature does not always get it right and the defects end up working at Royal Farms. This problem has turned up all over the retail space, but Royal Farms seems to get the worst of the worst. There is a World Star Hip-Hip vibe to their hiring decisions.

No one is immune to the retail staffing problems and as a result these two competing chains have been in a technology war. The self-service kiosk for ordering was the first logical step to reduce errors in food orders. Both aggressively push their app and the use of delivery services. Both now have self-checkout kiosks that blow away the ones you see at the big retail chains like Home Depot. The goal, of course, is to reduce the staffing to the barest minimum.

What this points to is something that people have been warning about for decades and that is the great robot take over of the workplace. Go into one of these chains and you can easily imagine a time when you order your sandwich from the screen and a robot assembles it, wraps it up and delivers it to a pickup area. You pay for your items at a self-checkout kiosk using your bank app. The only interaction with a human is the guards who make sure you paid your bill.

This is not limited to retail. The mass layoffs at Twitter confirm what many people have suspected for a long time. There are lots of people sitting in office cubicles who have no real purpose. Maybe they are there to tick boxes. Maybe they perform some function mandated by the government, which could be automated. Maybe the marketplace has stopped functioning, allowing for massive overstaffing. That clearly has been the case at the giant tech firms like Twitter.

The people who have been warning about the automation revolution have always asked the question, what happens to the displaced workers? The teddy bear conservatives cling to is the great invisible hand of the marketplace. Sure, the robots will replace the people, but the magic of creative destruction will save the day. Look around the retail space and that is clearly not happening. It will certainly not be the case for the tens of thousands of people fired from Big Tech.

Even if the magic beans of capitalism are not the answer, it does not follow that there will be a neo-Luddite revolt against the machines. Again, you get a glimpse of the future in these retail chains. Go into a Wawa and people are happy to interact with a robot to get their food and checkout. Everything about that experience, in fact, everything about their lives has been reduced to a transaction. As long as people can get their extra large drink and snacks, they will not complain.

That is the lesson of Covid. Those fired Twitter people were in make work jobs and they knew they we in make work jobs. Here are some examples from conservative media that have been making the rounds. The reason these people liked working at home so much is they were not doing anything at work. Covid allowed them to pretend that goofing off at home was real work. The reason firms are struggling to get people back to work is many of their workers have no real purpose.

How big of a leap is it to slash the pointless people from the workforce and then give them busy work at home? Some parts of the country spent close to two years experimenting with this idea. It was like the old gag around Washington whenever there was a big snowstorm. Nonessential workers were told to stay home, which meant everyone working for the government. Something similar happened during Covid and we learned that most people were not essential.

Of course, Covid came with rules to make sure the suddenly idle were not going outside and getting into trouble. Short of a revolution, we will never know why the rulers all got on the lock down bandwagon, but one likely answer is they feared millions of idle people milling around looking for something to do. Making sure they stayed in their huts, plugged into the internet was a primary goal. The robot revolution will no doubt come with something similar to pacify the masses.

Stand around in a place like Wawa and it is not hard to see where this is all heading and then wonder if it can work. We are about to tip into a world with lots of useless people, kept busy by a custodial state. They will be given credits to buy the things they want and kept busy through various means. Some will be assigned busy work, while others will simply be amused into a catatonic state. Still others will be used to police their fellow inmates in the custodial state.

From the perspective of the managerial class, this seems like a great challenge that will give purpose to their lives, even though many will be assigned to busy work. Can a people live like this is another question. Note that during Covid there was not the predicted baby boom. It turns out that lots of idle people at home did not let nature take its course after all. Maybe such an unnatural way of living does not put one in the mood to bring new life into such a world.

Moral Distance

Posted on December 1, 2022 by thezman

Note: Whenever I attend a secret handshake society, I get emails and comments asking how one gets invited to these things. One way to get connected is to donate to a place like Counter-Currents. They have get togethers for donors, so if you are a donor you will get a chance to attend. You can donate here.

For close to half a century, Western elites have been trying to reverse many aspects of the industrial revolution that made the West possible. It started in the United States with the off-shoring of whole industries to the third world. Around the same time, the environmental movement shifted from conservation to proselytizing against the things that modern people take for granted. The fictional concept of climate change was invented as an authority to justify the great deindustrialization.

At the heart of it all is energy. You cannot watch a television program or view a YouTube clip without being hit on the head about good energy. They have lots of ways of saying good energy, like renewable energy, clean energy and green energy, but all of these slogans are just ways of saying good energy. Of course, that means there is bad energy and that is always the cheap energy. Gasoline is bad. Coal is bad. They may be efficient and cheap, but they are bad, very bad.

The thing about good and bad, as moral concepts, is they are usually judged by the distance from the person passing judgment. We are tuned to oppose immoral acts, so if we see one up close and personal, our response is stronger than if we hear about the same act third hand at a dinner party. The guy we do not know very well who is caught cheating on his wife effects us far less than seeing the neighbor having men over while her husband is away at work.

Moral distance is at the heart of the long running scheme by Western elites to remove from their sight the things they find immoral. They inherited from Marxism the notion that industrial work in dehumanizing. They do not want to see big dirty factories full of working class men sweating away to make their stuff. They do not want to give up the stuff, so the solution was to move the plant to Mexico or China. Replace the plant with a dog park and voila! The world is a better place.

The same mindset is at work with so-called green energy. The truth of the matter is all of the green energy schemes range from stupid to the impractical. The appeal is not economic or environmental. The appeal is aesthetic. The idea of windmills quietly generating electricity out there in the countryside where the beautiful people rarely visit makes for a pleasant image. The magical place that turns biomass into electricity sounds great as long as you do not live near it.

This is why nuclear remains on the bad list. If the image of the nuclear power plant was an underground facility, with a lovely little forest above it, the greens would love the idea of nuclear energy. Instead, the image of a nuke plant is the giant concrete cooling towers belching what the greens thing is bad stuff. It is just water vapor, but it looks bad so it must be bad. That windmill farm may be an abattoir for the eagle population but it looks nicer than the nuke plant.

This function follows form mentality of the bourgeois managerial class is at the heart of the current crisis in Europe. They hated the sight of their energy system, so they have been slowly shifting it out of sight. No one could see those giant gas pipelines or the massive holding facilities. Everyone could feel like heroes for closing the coal plants and refineries, while enjoying cheap energy. The ugliness of reality had been sent east to Russia, so it was out of sight and out of mind.

This arrangement worked great until Washington decided to pick a fight with Europe’s largest energy supplier. The entirety of the European economy has been based on cheap energy from the east, but now that is gone. Europe is now forced to buy expensive energy from other places. This is slowly cratering the economy of Europe, leading to a great deindustrialization of the continent. All of a sudden, those good aesthetics are coming with a very steep price.

The fact is, Europe can remain a modern society if it accepts the costs that come from being a modern society. Those costs are some sad women sobbing over the ugly cooling towers or the sight of men working in factories. Cheap food and warm homes come with smokestacks and refineries. When you pick up one end of that stick you must pick up the other end. Europe is plunging itself into darkness so the ruling class can continue to play make believe.

That is fundamentally the issue. The ruling classes of the West no longer have some external measure against which they can gauge their piety. Christianity has long ago been purged from the ruling elites. The old moral framework of liberalism was abandoned out of expedience. What has filled the void is a weird, sterile aesthetic that seeks to remove all traces of the human condition. The so-called green movement is central to this cult of reality avoidance.

Reality does not go away when you stop believing in it. This is what Europe is now facing with their energy crisis. Next up is a food crisis. This is against the backdrop of the demographic crisis, which is another aspect of the same disease. The unwillingness of elites to accept biological reality has the same roots as their unwillingness to accept the economic reality behind the modern age. We are ruled by people at war with humanity because they cannot face the human condition.

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