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Musings Report 2020-3 1-18-20 What an Extraordinary Moment in History
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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.
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What an Extraordinary Moment in History
Immersed as we are in the river of time, the extraordinary nature of the present often escape us. The present seems "normal" in the daily flow, but if we imagine looking back on this moment from the future, we may well marvel at the extremes that are deforming the zeitgeist, pushing the system to the precipice of crisis / sudden change.
1. Consider the extraordinary duality of skyrocketing homelessness and the stock market hitting new highs almost every day.
My friend Adam Taggart recently posted a video of a vast homeless encampment which sprouted up in the past few months in Sonoma County, CA, not far from his house. Falling Through The Cracks: The poverty crisis is hitting home.
The suddenness of this is shocking; there wasn't a single tent in this stretch when I visited Sonoma last summer.
The rapid expansion of homeless encampments in the S.F. Bay Area shocked me last year, as streets in industrial Oakland and downtown Berkeley went from being empty to sprawling homeless encampments seemingly overnight.
As Adam observed, this expansion is already geometric / parabolic, and we're in the "greatest economy ever" with unemployment at 60-year lows (3.5%) and the stock market hitting new all-time highs every week, month after month, in a similarly geometric /parabolic euphoria.
What happens when the economy slumps?
Just as remarkable is the speed with which the Bay Area populace has habituated to soaring homelessness as the "new normal," a combination of resignation and compassion depletion. When apartments rent for $2,400 a month and decaying bungalows sell for $1 million, there is no quick solution.
It's easy to criticize this resignation, but as someone who has cleaned up human waste on my entry numerous times when in Berkeley, I can report that there's not much an individual can do about homeless encampments a block away. The social services system is overwhelmed, and when "affordable" housing units cost $400,000 each to build, there's little room for solutions within the status quo.
One response that's within reach is securing encampments and providing toilets / water and possibly showers. Micro-homes (plywood shelters) with no plumbing are another "temporary" solution that's increasingly looking permanent. But efforts to reduce human misery are being overwhelmed by the sheer numbers of people living on the streets. It's sobering to realize the numbers could rise much higher should a deep recession slash jobs while rents remain high.
Imagine looking back on a recent era characterized by astounding wealth concentration while fast-expanding homeless encampments become "normal." Wouldn't this dichotomy be recognized as the precursor to social disorder and political crisis?
Yet here we are, habituated to the rich getting richer as homeless encampments and human misery increase geometrically, apparently blind to the inevitability of these extremes unleashing some form of equally extreme social convulsion.
2. The process of impeaching the President, one of the most extreme Constitutional measures, is underway but the stock and financial markets are soaring in a generalized euphoria that global growth is restarting and whatever happens to Trump doesn't really matter.
The lack of public engagement is extraordinary to anyone who lived through the Watergate Era. The public engagement in that era was intense and serious; even people who did not follow politics were interested and informed. To the frustration of those trying to assess the precedents and constitutional law, the public has divided into three camps: those who feel completely disconnected / disinterested, those who are convinced Trump's actions are impeachable offenses and those who are equally confident that the entire proceedings are political vendetta.
It's undeniable that impeachment is political, as the case isn't tried in the Supreme Court but in Congress. We may look back on this era as one in which extremes of partisanship became normalized, much as homelessness became normalized.
3. The current stock market bubble has exceeded the astounding extremes of the Dot-Com bubble in late 1999 - early 2000.
This is an extraordinary mania by any historical measure: price to sales, the percentage of stocks caught up in the bullish trend, stock market value as a percentage of the nation's GDP, and so on.
Manias are self-reinforcing, of course: the higher stocks go, the more people who join in. When something becomes "can't lose," the mania bursts.
But there's always a "story" that justifies the mania. In the dot-com bubble, it was "the Internet will continue growing rapidly for decades." In the housing bubble, it was "with low interest rates and a rising population, housing will never go down."
Today's stock market mania is justified by two "stories": the Federal Reserve will "print" such vast sums of money essentially forever that stocks can rise forever, and global growth, which sagged last year, is about to rebound smartly, pushing corporate profits higher.
When we look back a decade hence, what will characterize this era is the extraordinary extremes of Fed policy. After slowly reducing its balance sheet over 18 months by $600 billion, the Fed suddenly "printed" $400 billion in a matter of weeks, returning the balance sheet to crisis levels around $4.2 trillion.
What caused the Fed to panic? The answer in the moment is the "repo market," a key mechanism in the financial leverage that our system now depends on to keep from crashing.
But we may look back and recognize the Fed's inability to "normalize" its balance sheet as the precursor to the collapse of the entire central banking / debt / leverage regime we currently inhabit, even if most of us are unaware of how precarious and fragile this system has become.
4. The complacency of the present era is also extraordinary. The post-financial-crisis expansion is now the longest in recent history, the stock market is skyrocketing, central banks are panic-printing behind stolid facades designed to stimulate confidence in the system, and the response is a sigh of relief: there will be no recession, the expansion can continue for many more years.
In other words, the dominant belief is the business and credit cycles have been abolished, and so recessions have also been abolished.
What we might see from the perch of the future is the cost of suppressing the cleansing of bad credit and excesses that we label "recession" is higher than the costs of recession.
We might also discern the end of the "China story" that has driven global expansion for 30 years: China's ability to boost global GDP by expanding its own debt is fading, and so the restoration of global growth that China triggered in 2016 won't be repeated.
Geopolitical complacency is also extreme. Granted that the U.S. and Iran aren't geopolitically equivalent, it's still worth asking: what would the U.S. response be if Iran killed the head of the Joint Chiefs of Staff in a drone strike during his visit to Iraq? Outside the U.S., drone assassinations of state officials looks like the geopolitical equivalent of droit de seigneur (rights of the lord), and the complacency that there will never be any serious blowback or consequences is extraordinary.
5. The normalization of stagnant wages driving ever-higher debt while wealth is increasingly concentrated in the very apex of the wealth-power pyramid is extraordinary.
That we've been filling the widening gap between wages and expenses with borrowed money is accepted as "the way it is, there is no alternative" (TINA). Filling the gap between stagnant earnings and soaring costs with debt is not sustainable, even at zero interest rates, as the principal payments on rising debt eventually eat the borrower alive.
This is obvious, but as R.D. Laing observed in the tumult of the late 1960s, what's "obvious" to some is not obvious to others.
Here is my summary of what will characterize the present moment to those in the future looking back: the fix to extreme distortions is greater extremes, until the system breaks down.
Highlights of the Blog
If Promoting Wealth Inequality and Social Breakdown Is Evil, The Fed Is Evil 1/17/20
No Matter How Much Money the Fed Prints, We Still Can't Afford Nice Things 1/1/5/20
409Ks, 90% Gains, The Fed and Darth Vader's Warning 1/12/20
WTF: What The Fed? -- the webinar I was honored to participate in....
Best Thing That Happened To Me This Week
Completed the basement workshop project, now on to organizing the clutter of tools, connectors, odds and ends etc.
From Left Field
The Palace of the Future Is Nearly Complete-- a skeptical look at the utopian "Fully Automated Luxury Communism"
Make Europe Relevant Again -- nostalgia as policy...
California’s Latest Act of Idiocy: Killing Freelance Work-- when it doubt, don't hire anyone residing in CA....
Vaclav Smil on natural gas (ethane) and plastics
Can the Internet Survive Climate Change? How a warming world is sparking calls for a greener web.
Is the United States on the brink of a revolution? First, there’s tremendous economic inequality.
Peak Sand -- this is a joke, right? Apparently not...
Why Is America So Depressed? It’s no coincidence that our politics and our mental health have declined so rapidly, at the same time.
Solar Panels Produce Tons of Toxic Waste—Literally -- A closer look at solar panels opens a wide array of questions that need answers.
Our Neophobic, Conservative AI Overlords Want Everything to Stay the Same: "Empiricism-washing is the top ideological dirty trick of technocrats everywhere."
Foreign Policy: The limits of clean energy -- reality check...
'Why We Can't Sleep' Documents The Unique Pressures On Gen X Women (via Nicole D.)
More than a third of U.S. healthcare costs go to bureaucracy: "The average American is paying more than $2,000 a year for useless bureaucracy," said lead author Dr. David Himmelstein.
"There is no charm equal to tenderness of heart." Jane Austen
Thanks for reading--
charles |
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