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Musings Report 2018-45 11-10-18 How Close Are We to the Edge?
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
How Close Are We to the Edge?
I confess that witnessing the glow of Kilauea's volcanic eruption as it consumed 700+ homes and irreplaceable coastline, experiencing a hurricane that dumped over 40 inches of rain in 3 days and breathing the smoky aftermath of the monumental Camp Fire that consumed 6700+ homes several hundred miles north of the SF Bay Area has cast a somewhat apocalyptic pall over my world view.
But even more influential was an email I received from a reader who was responding to my blog post earlier this week in which I wrote: "An unknown but likely staggeringly large percentage of small business owners in the U.S. are an inch away from calling it quits and closing shop."
The reader stated that working for oneself was a nightmare due to high operating costs and taxes. I've written about the ever-rising challenges of self-employment for years, so this wasn't too surprising.
But his concluding sentence did surprise me: "Every day I want to toss my equipment into the nearest dumpster, board a plane, head off to another continent, and renounce my American citizenship."
It's not unusual for me to get email from readers who are exploring the idea of relocating outside the U.S. What's different about this statement is the sense of not just being fed up but of being on the crumbling edge of a precipice.
This isn't an isolated phenomenon. I see quite a bit of anecdotal evidence that a great many people are fed up with their work and their life and are ready to jettison the whole kit and caboodle at the first opportunity.
Exhibit 1: the extraordinary rise of the extreme early retirement movement, also known as Financial Independence and Early Retirement (FIRE). Websites that promote this goal garner millions of page views, and the Wall Street Journal recently profiled high-earners pursuing this path.
The general idea is to completely abandon consumerism and debt and live frugally enough to save 70% of one's after tax income, enough to amass a chunk of savings significant enough to fund a frugal low-income lifestyle decades before traditional retirement at 65.
Why are so many young people suddenly willing to abandon the American Dream of a debt-funded consumerist lifestyle paid for with a lifetime of labor?
The basic answers are:
1. They despise their work / work environment for a variety of easily understandable reasons
2. They don't want to sacrifice 20+ of their most productive years paying for needless consumption and debt
3. They no longer feel their job/career or conventional retirement plans are secure
This stands in stark contrast to the conventional view that retirement may no longer even be possible at 65, that everyone should consume as much (or more) as they can afford (i.e. acquiring status symbols is the goal of life), and that Social Security, pensions and 401Ks invested in stocks and bonds are rock-solid over the long haul.
The FIRE movement doesn't make sense if the economy is indeed rock-solid, advancing one's career is worth any sacrifice necessary and the rest of the conventional world view.
But it makes absolute sense if everything is close to the edge: precarious, untrustworthy and insecure.
As a generality, it's un-American to turn one's back on the American Dream, express the desire to leave the USA or be negative about one's work, career and future. Optimism is the expected attitude and any deviance from this sunny point of view is frowned upon as self-fulfilling defeatism.
But what if abandoning the rat-race of unfulfilling work and debt servitude is the New American Dream? Unlike the old version, a widespread embrace of a debt-free, low-consumption/DeGrowth lifestyle would collapse the current economy, which is entirely dependent on mass consumption funded by ever-expanding debt.
Highlights of the Blog This Past Week
Why Are so Few Americans Able to Get Ahead? 11/9/18
Is This "The Most Important Election of our Lives" or Just Another Distraction? 11/6/18
Turn Off, Tune Out, Drop Out 11/5/18
Best Thing That Happened To Me This Week
Longtime correspondent Stuart L. was kind enough to send me this from South America: "I continue to read and enjoy your writing. The content in my opinion is excellent and the writing style exceedingly clear." High praise, indeed--thank you, Stuart!
Musings on the Economy: Gale Force Headwinds
If we consider the recent downturn in global stock markets, we have to ask: what's changed in the past month?
Though they've been in the works for many months, two trends finally seem to be impacting perceptions and sentiment: China's slowing (or perhaps even shrinking) economy and rising interest rates.
Since China (via its unprecedented expansion of credit and money supply) has led global growth for the past decade, any downturn in China will affect the global economy.
As for interest rates, rising rates mean borrowers--and every entity that's rolling over existing debt--will be devoting more of their income to interest, leaving less for investment and consumption. Reduce investment and consumption enough and you get a recession.
Rising rates also increases the odds of marginal borrowers defaulting, as they simply can't afford higher payments.
The two headwinds are related, as economist Ken Rogoff explains in "A Chinese Recession Is Inevitable": Asian households famously save much more than their western counterparts, and this vast pool of capital has helped keep global interest rates low.
As China drags the rest of Asia into recession and all the regional asset bubbles deflate, household savings will decline as incomes and wealth drop. That reduction in global capital will push rates higher, regardless of what central banks do.
These headwinds become gale force winds once we factor is the consequences of higher rates and central banks reducing their balance sheets: corporations won't be able to borrow cheaply enough to continue funding hundreds of billions of dollars in stock buy-backs, and the reversal of central bank stimulus are double-whammies on global stocks.
Existing bonds lose value as rates rise, stock markets will drop as buy-backs falter, central banks slash stimulus and risk-off sentiment grows, and real estate will lose steam as rates rise. Add these together and headwinds become gale force winds.
From Left Field
U.S. Shale Has A Glaring Problem--it isn't profitable...
Hidden Tribes: A Study of America’s Polarized Landscape
This Is How We Radicalized The World
The Moral Animal: Why We Are, the Way We Are: The New Science of Evolutionary Psychology (via Maoxian)
This is how republics end
Geopolitics Trumps the Markets: America led a 30-year hiatus from history. It was nice while it lasted, but it’s over.
Consumer Companies Try Price Hikes As US Wages Climb
Chinese-style 'digital authoritarianism' grows globally: study
Bay Area tops U.S. in new office space, but lags in housing starts -- what happens when tech companies start laying off workers instead of adding more...?
The Great Debt Depression (via Michael H.)
Why Silicon Valley Income Inequality Is Just a Preview of What's to Come for the Rest of the U.S. -- top 10% reap all the income gains, and the top 1% collect the lion's share of the top 10%...
China's middle class tightens its belt--this is a real eye-opener, essential reading for China Bulls...
The Romance of Travel: Carcassonne
"Never interrupt your enemy when he is making a mistake." Napoleon Bonaparte
Thanks for reading--
charles |
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