Author: Charles Hugh Smith

You identified two problems but do not propose any solutions to either one, and you missed the two real problems. This open letter from a young customer support employee of Yelp in San Francisco to her CEO has garnered a variety of comments that display a common bifurcation: some are sympathetic to her struggle to get by in a very costly region on a modest salary, while others wonder if the letter is an Onion parody of clueless entitlement: An Open Letter To My CEO. My B.A. is in philosophy, which has a similar market value to your degree in English, i.e. near-zero. But … Continue reading →

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The key take-away: focus on owning income-producing assets, not a primary residence. One truism of investing is to follow the lead of those who are building wealth.This chart reveals the foundation of the wealth of the top 1% and the next 9%; business equity, i.e. ownership of enterprises. Compare the assets boxed in red: The wealthiest households’ primary wealth is businesses and shares in businesses. The bottom 90% depend on the family residence as a store of wealth, and on debt as a means of funding asset purchases and consumption. Primary residences were once a reliable store of wealth–a store … Continue reading →

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The ultimate cost of protecting the privileges of the few at the expense of the many is the dissolution of the social order that enabled the rule of the privileged few. When I write about the demise of unsustainable systems, readers often ask me to describe the collapse I see as inevitable. This is a tough assignment, as there are as many kinds of collapse as there are systems: fragile ones can collapse suddenly, and resilient ones can decay for years or even decades before finally imploding or withering away. Another way of describing collapse is: complex systems become much … Continue reading →

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If the risk-on euphoria of punters borrowing billions of dollars in margin debt doesn’t materialize, stocks could languish for years after falling 50%. The financial service industry’s Prime Directive is to exploit humanity’s core drives of Greed and Fear. Financial service companies promise high returns (fulfilling our greed) that are low-risk, i.e. “safe” (placating our fear of losing our nest-egg). But the safety of many supposedly low-risk investments is illusory. The risk is not actually near-zero; rather, the risk has been buried, masked or obscured, for the obvious purpose of persuading the marks (i.e. the investing public, non-financial institutions, etc.) … Continue reading →

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If the “solution” doesn’t enable the accumulation of capital in all its forms by individuals and households, it isn’t a real solution–it’s just another top-down scheme that institutionalizes subsistence serfdom. Phrases like reviving the American Dream emit the lingering stench of empty political rhetoric mouthed by bought-and-paid-for candidates. But if we wave aside this foul smell, we’re left with a very profound topic: reviving broad-based opportunity. Longtime collaborator Gordon T. Long and I discuss what it will take to revive opportunity in a new 27-minute video Reviving the American Dream. The status quo “solution” to the decline of opportunities for … Continue reading →

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Once the power to manage expectations has been lost, the central bank bag of tricks is empty. No one knows precisely how and when the global unraveling will impact their corner of the planet, but we do know one thing with absolute certainty: central banks are out of tricks. Like all good conjurers, the major central banks will claim that their magical powers to inflate asset valuations and inspire the animal spirits of risk, borrowing and spending are unimpaired, but this time the audience knows the truth: their magic is threadbare and their trick-bag is empty. Obfuscation and doublespeak are … Continue reading →

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This erosion of a self-employed, independent middle class was an important pre-condition for the collapse of Rome and the French Revolution. I have devoted many blog posts to the erosion of the middle class, for the specific reason that when the middle class–the layers of the economy between the Power Elites and landless laborers/state dependents–erodes away, the nation/empire is destabilized and descends into crisis. A society without a functioning middle layer of economic and social activity is not stable, though repression can mask this for a time. As historian Peter Turchin explained in his book War and Peace and War: … Continue reading →

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The scale of the global epidemic of obesity, metabolic syndrome and diabetes are truly staggering. Though evidence of a looming global healthcare crisis is plainly visible, few seem to realize the consequences will be catastrophic to individuals, households and national economies. Here is a list—by no means exhaustive—of major health issues threatening hundreds of millions of people globally. Air & Water Pollution Photos such as these provide graphic evidence that air and water pollution are serious health hazards in many developing nations around the world: Source: Kyodo News Source: Independent.co.uk The statistics are equally horrendous: roughly 40% of all deaths … Continue reading →

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The decline of middle-class capital is partly self-inflicted. Conventional explorations of why the middle class is shrinking focus on economic issues such as the decline of unions and manufacturing, the increasing premiums paid to the highest-paid workers and the rising costs of higher education and healthcare. All of these factors have a role, but few comment on the non-economic factors, specifically the values that underpin the accumulation of capital that is the one essential project of middle-class households. Daniel Bell’s landmark 1976 book The Cultural Contradictions of Capitalism held that“capitalism–and the culture it creates–harbors the seeds of its own downfall … Continue reading →

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If it takes more than $126,000 to fund a qualitatively defined middle-class lifestyle, what sense does it even make to call this “middle”? The Pew Research Center’s recent report The American Middle Class Is Losing Ground: No longer the majority and falling behind financially made a media splash, as it reported that less than 50% of adults are members of the Great American Middle Class. My analysis suggests that by more qualitative measures, no more than a third of U.S. households qualify as middle class: claiming 49% of the nation’s households are still middle class is a gross exaggeration. My … Continue reading →

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The injustice of central-bank enforced neofeudalism cannot be suppressed like interest rates. In traditional feudal systems, serfs were the landless peasantry who worked the land of their feudal lords in exchange for protection. In our present-dayneofeudal system, serfdom has a different definition: present-day serfs own little or no productive capital and have few opportunities to ever acquire any. The Marxist term wage-slaves describes those who, lacking capital, have only their labor to sell. This describes the vast majority of people in both capitalist and socialist systems, but what makes the present system neofeudal is the central banks: by extending essentially … Continue reading →

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The upside is ephemeral, illusory or wishful thinking; the downside is real and lasting. There’s no upside left–not just in the real economy, but in jobs, politics or policy tweaks. Yes, there will be huge relief rallies in the stock market–relief that the Fed is still omnipotent, that the Fed didn’t destroy the world by withdrawing liquidity, etc., etc., etc.–but in terms of sales and profits, there’s no upside left: an increasingly nervous upper middle class is reining in profligate spending, while everyone below the top 10% is running out of credit cards, student loans, etc. to tap. Whatever surplus … Continue reading →

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Proponents claim Basic Income can be paid by redirecting existing welfare programs, but a quick review reveals this as nonsense. Finland made the news recently by proposing a pilot program of guaranteed income for all, also known as Universal Basic Income: Desperate Finland Set To Unleash Helicopter Money Drop To All Citizens. The goal is two-fold: by providing every household with a minimum income, regardless of what other income the individuals might earn, the program does two things: it provides everyone enough money to get by and it removes the disincentive to work inherent in the conventional welfare model: in … Continue reading →

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If the American Dream depends on skyrocketing debt built on a weakening foundation of stagnant productivity and income, then it is indeed over. Despite a ceaseless propaganda campaign declaring all is well with the U.S. economy, the Status Quo is fragile–and voters know it. Not only do they know the economy–and their financial security–is one crisis away from meltdown, they’re also fed up with all the official gerrymandering of data to make the economy appear healthy. The Economy Is Better — Why Don’t Voters Believe It? The American Dream–characterized by plentiful jobs offering living wages, security and opportunities to get … Continue reading →

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The game of enabling more debt by lowering interest rates and loosening lending standards is coming to an end. If we define Christmas as consumer spending going up while earnings are going down, 2015 will be the last Christmas in America for a long time to come. In broad brush, Christmas (along with all other consumer spending) has been funded byfinancialization, i.e. debt and leverage, not by increased earnings. The primary financial trick that’s propped up the “recovery” for seven years is piling more debt on stagnating incomes. How does this magic work? Lower interest rates. In a healthy economy, … Continue reading →

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