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A Tale of Two Recessions: One Excellent, One Tumultuous August 12, 2022
Events may show that there are no winners, only survivors and those who failed to adapt.
Some recessions are brief, necessary cleansings in which extremes of leverage and speculation are unwound via painful defaults, reductions of risk and bear markets. Some are reactions to exogenous shocks such as war or pandemic. The uncertainty triggers a mass reduction of risk which recedes once the worst is known and priced in. Far less frequently, structural recessions are lengthy, tumultuous upheavals that can set the stage for excellent long-term expansion or unraveling and collapse. In these structural recessions, 10% to 20% of the workforce loses their jobs as entire sectors are obsoleted and jobs that depend on excesses of debt and speculation go away. In the U.S. economy of today, this would translate into a minimum of 14 million jobs vanishing, never to return in their previous form and compensation. The old jobs don't come back and new jobs demand different enterprises, training and skills. Unemployment remains elevated, spending is weak and productivity is low for years as enterprises and workers have to adjust to radically different conditions. If the economy and society persevere through this transition, the stage is set for the reworked economy to enjoy an era of renewed prosperity and opportunity. If an economy and society can't complete this transition, stagnation decays into collapse. I've annotated a St. Louis Federal Reserve chart of U.S. recessions since 1970 to show the taxonomy described above. The stagflationary 1970s / early 1980s were a lengthy, tumultuous structural upheaval; the 1990-91 recession was triggered by the First Gulf War; the Dot-Com Bust in 2000-2002 was largely the unwinding of speculative excesses in the technology sectors (similar to the radio-technology bubble of the 1920s); the Global Financial Meltdown (aka the Global Financial Crisis) was the structural reckoning of unregulated global financialization excesses, and the 2020 recession was the result of policy responses to the Covid pandemic. Each of these resulted in a multi-quarter decline in GDP, the classic (though flawed) definition of recession. Recessions that cleanse the system of financial deadwood are necessary and yield excellent results. Per the Yellowstone Analogy ( The Yellowstone Analogy and The Crisis of Neoliberal Capitalism (May 18, 2009) and No Recession Ever Again? The Yellowstone Analogy (November 8, 2019), the deadwood of excessive speculation, leverage, fraud and debt issued to poor credit risks must be burned off lest the deadwood pile up and consume the entire forest in a conflagration of the sort that was narrowly averted in 2008-09 when fraud and risk-taking had reached systemically destructive extremes. The problem with letting deadwood pile up so it threatens the entire forest is the policy reaction creates its own extremes. The coordinated central bank policies unleashed in 2008 and beyond established new and unhealthy expectations and norms, the equivalent of counting on central bank water tankers to fly over and extinguish every firestorm of excessive risk-taking and fraud. Those emergency measures create their own deadwood, distortions and risk, and are not a replacement for prudent forest management, i.e. maintaining a transparent market where excessive risk is continually reduced to ashes in semi-controlled burns. When systemic changes in the economy and society demand structural transitions, the resulting tumult can either creatively rework entire sectors, weeding out what no longer works in favor of new methods and processes, or those benefiting most from the old structure can thwart desperately needed evolution to protect their gravy trains. If change is stifled as a threat, the entire economy enters a death-spiral to collapse. Some eras present an economy with a stark choice: adapt or die. Adaptation in inherently messy, as new approaches are tried in a trial-and-error fashion and improvements are costly as the learning curve is steep. Sacrifices must be made to achieve greater goals. as I outlined yesterday in A Most Peculiar Recession, in the 1970s the U.S. economy was forced to adapt to three simultaneous structural changes: 1. The peak of U.S. oil production and the dramatic repricing of oil globally by newly empowered OPEC oil exporters. 2. The pressing need to reconfigure the vast U.S. industrial base to limit pollution and clean up decades of environmental damage and become more efficient in response to higher energy prices. 3. The national security / geopolitical need to encourage the first wave of Globalization in the 1960s and 1970s to support the mercantilist economies of America's European and Asian allies to counter Soviet influence. Coincidentally, this last goal required the U.S. expand the exorbitant privilege of the U.S. dollar, the primary reserve currency by exporting dollars to fund overseas expansion of U.S. allies like Japan and Germany and running permanent trade deficits to benefit mercantilist allies. These measures created their own distortions which led to the Plaza Accord in 1985 and other structural adjustments. Ultimately, the U.S. managed to adapt to a knowledge economy (Peter Drucker's phrase) and a more efficient means of production, resulting in a much cleaner environment and a leaner, more adaptable economy. The deadwood of hyper-financialization and the distortions of hyper-globalization have now piled up so high that they threaten the entire global economy. Those who have feasted most freely on hyper-financialization and hyper-globalization must now pay the heavy price of adjusting to definancialization and deglobalization. Those who have been living on expanding debt and soaring exports are in for a drawn-out, wrenching structural adjustment to the reversal of these trends and the fires sweeping through the deadwood that's piled up for the past two decades. There will winners and losers in this global structural upheaval. Mercantilist economies that feasted on 60 years of export expansion will be losers because there is no domestic sector large enough to absorb their excess production, and those who feasted on the expansion of debt to inflate asset bubbles will find their reluctance to conduct controlled burns of their speculative debt-laden deadwood will exact a devastating price when their entire financial system burns down. Those who didn't rely on exports for growth will find the transition much less traumatic, as will those who maintained a regulated, transparent market for credit that limited excesses of leverage and high-risk debt. Those who adjust to structurally higher energy costs by becoming more efficient and limiting waste via Degrowth will prosper, all others will sag under the crushing weight of waste is growth Landfill Economies. I explain why this is so in my new book Global Crisis, National Renewal. Recessions which are allowed to clear the deadwood and encourage adaptation yield excellent results. Those which don't lead to the entire forest burning down. Economies optimized for graft, corruption, opacity and benefiting insiders will burn down, along with those that optimized speculative extremes of debt and those too rigid and rigged to allow any creative destruction of insiders' skims and scams. Events may show that there are no winners, only survivors and those who failed to adapt and slid into the dustbin of history. Chart courtesy of St. Louis Federal Reserve Database (FRED) 
Recent podcasts/videos: Save Money On Food, Get Free Gold & Silver, Beat Price Inflation (1:08 hrs) It's Time To End The Fed & Return To A Decentralized Currency (X22 Report, 38 min) Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (FRA Roundtable, 30 min) Tectonic Shift of Mercantilism Revalued (Gordon Long, Macro-Analytics, 42 min) My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com. My recent books: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF). A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF). Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World (Kindle $5, print $10, audiobook) Read the first section for free (PDF). Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF). The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF) Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free Become a $1/month patron of my work via patreon.com. My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal ( $18 print, $8.95 Kindle ebook; audiobook) 
When I burned out, what I wanted but could not find was a practical guide by someone who had experienced burnout
themselves. None of the material I found spoke to what I was experiencing or to my sense that our
economy is now optimized to burn people out.
I decided to write the guide I wanted but could not find. This is my experience of burnout, reckoning and renewal. This book is my account of what helped me. The intended audience is other burnouts and those who want to better understand the experience of burnout. Burnout is a life-changing experience in a good way, as absurd as that may sound to those in the depths of burnout. To paraphrase Samuel Beckett: I can’t go on but I must go on. There is a way forward. Read the first section for free (PDF). The Introduction
The Epidemic Nobody Talks About: Burnout
Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States ( $22.50 print, $9.95 Kindle ebook, audiobook) 
Nations that embrace Degrowth and social cohesion will survive. Those that cling to "waste is growth" economies
and destabilizing extremes of inequality will perish.
The threats to the republic are unprecedented, and conventional responses are an accelerant of collapse: the status quo is now the problem rather than the solution. We have an opportunity to redraw America’s Grand Strategy from the ground up. Should we fail to do so, the United States will fail, along with all the other nation-states that are incapable of grasping degrowth and social unity as solutions. This revolutionary Grand Strategy will be the deciding factor between nation-states that fail and the few (if any) that will not just survive but actually thrive. Read Chapter One for free (PDF). Read the Introduction Podcast discussing the book: A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)
Recent entries: A Tale of Two Recessions: One Excellent, One Tumultuous August 12, 2022 A Most Peculiar Recession August 10, 2022 Are Older Workers Propping Up the U.S. Economy? August 8, 2022 Rather Than Focus on What You Don't Control ("The News"), Focus on What You Do Control: What You Grow, Eat and Own August 5, 2022 China at the Crossroads August 3, 2022 Can We "Export Inflation?" Yes We Can, Yes We Are August 1, 2022 What Can The Beatles Teach Us about Management? July 30, 2022 How Much of "Inflation" Is the Price Being Jacked Up Under the Excuse of "Inflation"? July 29, 2022 There Won't Be Any Winners Because The Status Quo Is Corrupt Everywhere July 27, 2022
What's Truly Important? The Global Revaluation Is Accelerating
July 25, 2022
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"There is no security on this earth; there is only opportunity." (Douglas MacArthur) "We are what we repeatedly do." (Aristotle) "Do the thing and you shall have the power." (Ralph Waldo Emerson) "Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius and a lot of courage to move in the opposite direction." (E.F. Schumacher, via Tom R.) "He who will not risk cannot win." (John Paul Jones) "When we drink coffee, ideas march in like the army." (Honore de Balzac) "Progress is not possible without deviation." (Frank Zappa, via Richard Metzger) "Victory favors those who take pains." (amat victoria curam) "The man who has a garden and a library has everything." (Cicero, via Lee Bentley) "A healthy homecooked family meal and a home garden are revolutionary acts." (CHS) "Do you know what amazes me more than anything else? The impotence of force to organize anything." (Napoleon Bonaparte) "The way of the Tao is reversal" Or "Reversal is the movement of Tao." (Lao Tzu) "Chance favours the prepared mind." (Louis Pasteur) "Success consists of going from failure to failure without loss of enthusiasm." (Winston Churchill) "Where there is ruin, there is hope for treasures." (Rumi) "The realm of gratitude is boundless." (CHS, 11/25/15) "History doesn't have a reverse gear." (CHS, 12/22/15) Smith's Law of Conservation of Risk: Every sustained action has more than one consequence. Some consequences will appear positive for a time before revealing their destructive nature. Some consequences will be intended, some will not. Some will be foreseeable, some will not. Some will be controllable, some will not. Those that are unforeseen and uncontrollable will trigger waves of other unforeseen and uncontrollable consequences. (July 8, 2014)(thanks to Lew G. for retitling the idea.) Smith's Neofeudalism Principle #1: If the citizenry cannot replace a kleptocratic authoritarian government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only. The Smith Corollary to Metcalfe's Law (The Network Effect): the value of the network is created not just by the number of connected devices/users but by the value of the information and knowledge shared by users in sub-networks and in the entire network. (CHS, 4/6/16) My Credo of Liberation: I no longer care if the power centers of our society--the distant, fortified castles of our financial feudal system--are changed by my actions, for I am liberated by the act of resistance. I am no longer complicit in perpetuating fraudulent feudalism and the pathology of concentrated power. I no longer covet signifiers of membership in the Upper Caste that serves the plutocracy. I am liberated from self-destructive consumerist-State financialization and the delusion that debt servitude and obedience to sociopathological Elites serve my self-interests. (Thank you, Klaus-Peter L., for reminding me) "We've become a culture of excuses rather than solutions: solutions always require sustained effort and discipline." (CHS 4/9/16) "Fraud as a way of life caters an extravagant banquet of consequences." (CHS 4/14/16) "Creativity = problem solving = value creation." (CHS 6/4/16) "Truth is powerful because it is the core dynamic of solving problems." (CHS 7/21/17) "We live in a system of human emotions that masquerades as a science (economics)." (CHS 1/1/18) "Always remember, your focus determines your reality." (George Lucas) "Diversity is for poor people. Sameness is for the successful." (GFB) "When power dissipates suddenly, it dissipates completely." (CHS 7/14/19) "Disobedience is the true foundation of liberty. The obedient must be slaves." (Henry David Thoreau) "Markets cannot price in the value of non-monetized natural assets such as diverse ecosystems." (CHS 7/14/19) "Magical thinking isn't optimism, it is folly." CHS 1/3/22) "Tune in (to degrowth), drop out (of hyper-consumerism and debt-serfdom) and turn on (relocalizing capital and agency)." (CHS 1/5/22) |
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