Our brainy friend Charles Hugh Smith posted this chilling essay about the “limits to growth” mankind faces in this century at his essential Of Two Minds blog. As he points out, the innovations of recent decades have more often than not served to destroy jobs, not create them. (I can’t source this because someone told me this conversationally, but apparently there is one factory, owned by Samsung, that manufactures nearly all of the world’s supply of a certain size HD flatscreen (not the entire TV, just the screen). The factory, I was told, employs fewer than twenty workers! Keep that in mind as you read the following).

The common feature of the transformative technologies of the 20th and 21st centuries is that they were one-offs that cannot be duplicated.

What if the engines of global growth that worked for 65 years (since 1945) have not just stalled but broken down? The primary “engines” have been productivity gains from industrialization, real estate development and expansion of consumption based on the continual expansion of debt and leverage—in short-hand, financialization.

The Status Quo around the globe has responded to the obvious endgame of financialization (the 2008 financial crisis) by doing more of what has failed: expanding credit and leverage, flooding the global economy with liquidity (money available for borrowing), credits and subsidies for real estate development and a near-religious belief in “the next industrial revolution” that will spark rapid growth in employment, profits and productivity.

“The usual suspects” for the next engine of growth include nanotechnology, biotechnology, unconventional energy and Digital Fabrication, i.e. 3-D printing and desktop foundries. But are any of these capable of not just replacing jobs and revenues in existing industries, but creating more jobs and expanding revenues and profits?

There is a growing literature on this very topic, as many start questioning the quasi-religious faith that there will “always” be another driver of growth, i.e. the expansion of wealth, profit, employment and assets.

The Status Quo dares not even entertain this question because the only way to service the fast-rising mountain of debt that is sustaining the Status Quo is to “grow our way out of debt,” i.e. expand the real economy faster than debt.

The past 250 years has been one long “proof” that we can indeed “grow our way out of debt” because the low-hanging fruit of industrialization and cheap, abundant energy enabled wealth to be created at a faster pace than debt.

Clueless Keynesians mock those questioning the possibility that the low-hanging fruit has been plucked by noting that doomsdayers were actively decrying the ballooning debt of the British Empire in the mid-1700s. We all know how that story ended: what looked like crushingly massive debt in 1780 was reduced to a trivial sum by the rapid expansion of industrialization.

But suppose the end of cheap, abundant energy (replaced by abundant, costly energy) and the Internet spells the end of centralized models of growth? What if all the innovation currently bubbling away only produces marginal returns?

Take biotechnology for example. Those with little actual knowledge of biotech are quick to latch onto the potential for genetic engineered medications, biofuels, etc. What they don’t ask is if these technologies can scale up while costs decline, i.e. the computer technology model where everything progressively gets cheaper and more powerful.

Biofuels may have promise, but it still takes “old fashioned” energy to collect the feedstock, and it is a non-trivial task to keep micro-organisms alive on the scale that would be needed to produce a useful amount of liquid fuels, i.e. a few million barrels every day. Some processes may not scale up, and others may not see any significant reduction in fuel costs once the full input costs are calculated.

Genetic engineering also may not scale up—it may be limited by key barriers of individual patient complexity and by intrinsic costs that do not drop enough to make a difference.

Consider the diseases that have almost been eradicated—polio, for example—and the lifestyle diseases such as diabesity. The wave of diseases that were eradicated were caused by bacteria or viruses: a vaccine or agent that disabled or killed the bacteria/virus wiped out the disease.

Diabesity, cancer and heart disease are not caused by a single virus or bacteria. The “one med/vaccine works for all” model has failed and will always fail because diabesity and other lifestyle diseases have multiple, non-linear causes that are beyond the reach of a single “solution.” These diseases may well be tied to epigenetic factors, for example, the interaction of “junk DNA” with environmental stresses that extend back into the individual genome.

What we face is the confusion of symptoms and effects with causes. Lowering cholesterol is not the “magic bullet” many hoped for, and neither was hormone therapy.

In the technology sector, it is clear that the Internet is destroying entire sectors of employment. The jobs that have been lost for good have not been replaced by jobs created by the Internet, nor is there any credible evidence to support this hope: automated software continues chewing up one industry after another, and the politically protected fiefdoms of healthcare (sickcare), education and government have yet to taste the whip of real innovation.

Rather than add jobs, we will lose tens of millions of jobs as faster-better-cheaper breaches the walls of these massive politically protected fiefdoms.

Healthcare spending is clearly in terminal marginal return: our collective health continues to decline in key metrics even as spending doubles, triples and quadruples. The same can be said of defense, education and many other industries.

Sectors such as agriculture have already seen employment decline by 98% even as production rose; there are still improvements in agriculture (robotic milking machine, for example) but the low-hanging fruit in agriculture as well as in medicine, education, etc. have all been picked.

The next wave of innovation will destroy protected profit centers and employment; even the Armed Forces are not immune, as the “ships of the future” will have relatively small crews and robotic drones will replace high-cost, high-employment weapons systems.

The semi-magical belief that technological innovation will create wealth in such quantities that all other problems become solvable may well be false. We may have entered an era of marginal returns, where innovations destroy jobs, wealth, assets and debt—the very foundations of “growth.”

I have begun to speculate about a future where energy might be abundant but few can afford to consume much: money and income may be scarcer than energy.

The one innovation that might energize an entirely new field of employment is digital fabrication, the decentralization and distribution of production. But this will also creatively destroy jobs dependent on the present supply chain.

National governments have over-promised entitlements to their citizens on a vast scale, and the current “solution” to the mismatch of promises to national surplus is to borrow monumental sums to fund the promises. If innovations actually shrinks employment, incomes and wealth, then the base for taxes and debt will quickly shrink to the point that the debt is unserviceable. The Status Quo will collapse financially, even if energy and labor are both abundant.

Consider END OF GROWTH - six headwinds: demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt. (via Zero Hedge)

The point made in this lengthy essay is a powerful one: the common feature of the transformative technologies of the 20th and 21st centuries is that they could only happen once. They are one-offs that cannot be duplicated. Doing more of what has failed will only set up a grander failure as returns on all our debt-based “investments” become ever more marginal and the return on increasing complexity drops into negative territory. Once complexity yields negative returns, the systems that depend on complexity quickly destabilize and implode.

Read more
No More Industrial Revolutions?

The Collapse of Complex Business Models

This is a cross-post from Charles Hugh Smith’s Of Two Minds blog. You should bookmark it and read him daily. Charles Hugh Smith’s newest book is Why Things Are Falling Apart and What We Can Do About It

 
With the holiday shopping season about to shift into high gear (I’m sure I’m not the only one who heard Christmas carols prior to Halloween… what’s that all about anyways?) here’s an early tip for that thoughtful, philosophical type on your list, the newest book by our esteemed, super-smart pal Charles Hugh Smith, Why Things Are Falling Apart and What We Can Do About It:

Things are falling apart—that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

This week only there is a 20% discount on the Kindle edition: $7.95 (normal retail $9.95). There is also a print edition of Why Things Are Falling Apart and What We Can Do About It.

Read daily essays from Charles Hugh Smith at his Of Two Minds blog.

 
A guest post from our esteemed, super-smart friend, Charles Hugh Smith, publisher of the Of Twos Minds blog and author of the new book, Resistance, Revolution, Liberation: A Model for Positive Change

Aldous Huxley imagined a world in which the Status Quo satisfies its lust for power by “suggesting people into loving their servitude.”

Yesterday I discussed the Convergence of Marx, Orwell and Kafka as a means of understanding the global crisis. It’s not just financial fraud on a vast scale, or debt or leverage or derivatives or a hundred other arcane mechanisms of parasitic predation; it’s the partnership of a mindlessly expansive Central State with Monopoly Capital and the media machine that serves them.

I considered including Aldous Huxley in the convergence, as he too anticipated the essential nature of modern life. But perhaps his insights are more complementary than convergent, for he understood the media and State’s capacity to not only present a deranged and destructive Status Quo as “normal” but to persuade the serfs to embrace it.

Aldous Huxley foresaw a Central State that persuaded its people to “love their servitude” via propaganda, drugs, entertainment and information-overload. In his view, the energy required to force compliance exceeded the “cost” of persuasion, and thus the Powers That Be would opt for the power of suggestion.

He outlined this in a letter to George Orwell:

“My own belief is that the ruling oligarchy will find less arduous and wasteful ways of governing and of satisfying its lust for power, and these ways will resemble those which I described in Brave New World.
Within the next generation I believe that the world’s rulers will discover that infant conditioning and narco-hypnosis are more efficient, as instruments of government, than clubs and prisons, and that the lust for power can be just as completely satisfied by suggesting people into loving their servitude as by flogging and kicking them into obedience.”

As prescient as he was, Huxley could not have foreseen the power of electronic media hypnosis/addiction as a conditioning mechanism for passivity and self-absorption. We are only beginning to understand the immense addictive/conditioning powers of 24/7 social and “news” media. What would we say about a drug that caused people to forego sex to check their Facebook page? What would we say about a drug that caused young men to stay glued to a computer for 40+ hours straight, an obsession so acute that some actually die? We would declare that drug to be far too powerful and dangerous to be widely available, yet the Web is now ubiquitous.

Servitude comes in many gradations and forms. Relying on the Federal Reserve to constantly prop up our pension and mutual funds lest reality cause them to collapse is a form of servitude; we end up worshipping the Fed’s every word and act as mendicants worship their financial saviors.

That the Fed is unelected and impervious to democracy or the will of the people is forgotten; all that matters is that we love our servitude to it.

I have discussed the atomizing nature of social media and the way it conditions self-absorption in 800 Million Channels of Me (February 21, 2011), and the way that the consumerist ethos generates insecurity, alienation and social defeat. The only “cure” for social defeat is to love the servitude of consumption, convenience and the resulting debt-serfdom: The Last Refuge of Wall Street: Marketing To Increasingly Insolvent Consumers (December 12, 2011).

I have covered these topics in depth in my books Resistance, Revolution, Liberation: A Model for Positive Change and Survival+: Structuring Prosperity for Yourself and the Nation.

The Central State has the power via welfare (individual and corporate) and bailouts to buy complicity. Since the human mind rebels against hypocrisy and insincerity—we can all spot a phony—we subconsciously persuade ourselves of the rightness and inevitability of servitude and self-absorption.

And that is how we come to love our servitude; we persuade ourselves to believe it’s acceptable and normal rather than deranged and destructive.

This is a guest post from Charles Hugh Smith, publisher of the Of Twos Minds blog and author of the new book, Resistance, Revolution, Liberation: A Model for Positive Change

 
A guest post from our esteemed, super-smart friend, Charles Hugh Smith, publisher of the Of Twos Minds blog and author of the new book, Resistance, Revolution, Liberation: A Model for Positive Change
 
The global crisis is best understood as the convergence of the modern trends identified by Marx, Orwell and Kafka. Let’s start with Franz Kafka, the writer (1883-1924) who most eloquently captured the systemic injustices of all powerful bureaucracies—the alienation experienced by the hapless citizen enmeshed in the bureaucratic web, petty officialdom’s mindless persecutions of the innocent, and the intrinsic absurdity of the centralized State best expressed in this phrase: “We expect errors, not justice.”

If this isn’t the most insightful summary of the Eurozone debacle, then what is? A lawyer by training and practice, Kafka understood that the the more powerful and entrenched the bureaucracy, the greater the collateral damage rained on the innocent, and the more extreme the perversion of justice.

The entire global financial system is Kafkaesque: the bureaucracies of the Central State have two intertwined goals: protect the financial Elites from the consequences of their parasitic predation, and protect their own power and perquisites.

While Marx understood the predatory, parasitic nature of Monopoly Capitalism, he did not anticipate the State’s partnering with Cartel/Crony Capitalism; in effect, the State has appropriated the appropriators, stripmining the citizenry to protect the financial sector from the consequences of their “business model” (leverage, fraud, embezzlement and the misrepresentation of risk). But the State doesn’t merely enable (“regulate”) the predation of financiers; it also stripmines the citizenry to fund its own expansion into every nook and cranny of civil society.

This is where Orwell enters the convergence, for the State masks its stripmining and power grab with deliciously Orwellian misdirections such as “the People’s Party,” “democratic socialism,” and so on.

Orwell understood the State’s ontological imperative is expansion, to the point where it controls every level of community, markets and society. Once the State escapes the control of the citizenry, it is free to exploit them in a parasitic predation that is the mirror-image of Monopoly capital. For what is the State but a monopoly of force, coercion, data manipulation and the regulation of private monopolies?

What is the EU bureaucracy in Brussels but the perfection of a stateless State?

As Kafka divined, centralized bureaucracy has the capacity for both Orwellian obfuscation (anyone read those 1,300-page Congressional bills other than those gaming the system for their private benefit?) and systemic avarice and injustice.

The convergence boils down to this: it would be impossible to loot this much wealth if the State didn’t exist to enforce the “rules” of parasitic predation. In China, the Elite’s looting proceeds along somewhat different rules from the looting of Europe and the U.S., but the end result is the same in all financialized, centrally managed economies: an expansive kleptocracy best understood as the convergence of Marx, Orwell and Kafka.

This has been a guest post from Charles Hugh Smith, publisher of the Of Twos Minds blog and author of the new book, Resistance, Revolution, Liberation: A Model for Positive Change

 
A guest post from our esteemed, super-smart friend, Charles Hugh Smith, publisher of the Of Twos Minds blog and author of the new book, Resistance, Revolution, Liberation: A Model for Positive Change

So the root problem is the system, human nature, blah blah blah. There are no “solutions” that can fix those defaults. Thus the “solution” is collapse.

Policies create incentives and disincentives. Some are intended, some fall into the category of unintended consequences. Regardless of their intention, policies that create windfalls (“easy money”) or open spigots of “free money” (or what is perceived as free money by the recipient) quickly gather the allegiance of everyone reaping the windfall or collecting the free money.

This allegiance is soon tempered into political steel by self-justification: humans excel at rationalizing their self-interest. Thus my share of the swag is soon “absolutely essential.”

Humans don’t need much incentive to pursue windfalls or free money—seeking windfalls in the here and now is our default setting. Taking the pulpit to denounce humanity’s innate greed, avarice and selfishness doesn’t change this, as seeking short-term windfalls has offered enormous selective advantages for hundreds of thousands of years.

That which is painful to those collecting free money will be avoided, and that which is easy will be pursued until it’s painful. Borrowing $1.5 trillion a year from toddlers and the unborn taxpayers of the future is easy and painless, as toddlers have no political power. So we will borrow from the powerless to fund our free money spigots until it becomes painful.

It won’t become painful to borrow from our grandkids for quite some time, and it will probably not become progressively painful, either, because we will suppress the pain with superlow interest rates and other trickery. The pain will more likely be of the sudden, unexpected, “this can’t be happening to me” heart-attack sort: the free-money machine will unexpectedly grind to a halt in some sort of easily predictable but always-in-the-future crisis.

“Solutions” that turn off the free money spigots are non-starters, not just from self-interest but from ideology. Any attempt to tighten the spigots steps on ideological toes, as each spigot is ideologically sacred to one political camp or another.

Liberals don’t want to hear about scamming of their sacred “we must help everyone in need” welfare programs, and conservatives don’t want to hear about cartel looting of their sacred “free enterprise” system.

And so we have gridlock, what I call profound political disunity. Everybody at each trough of free money fights tooth and nail to keep their spigot wide open, and so the “solution” is to borrow 10% of the nation’s output in “free money” every year until the free-money machine breaks down.

Each ideology worships their own version of cargo-cult economics: if we wave the dead chicken over the enchanted rocks while dancing the humba-humba, prosperity and abundance will magically return and we can “grow our way out of debt.”

We’re like a sprawling family bickering over the inheritance: we’ll keep arguing over who deserves what until the inheritance is gone. That will trigger one final outburst of finger-pointing, resentment and betrayal, and then we’ll go do something else to get by.

The “solution” is thus collapse. This model has been very effectively explored in The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization by Thomas Homer-Dixon. The basic idea is that when the carrying costs of the society exceed its output, the whole contraption collapses.

The political adjunct to this systemic implosion is that the productive people just stop supporting the Status Quo because it’s become too burdensome. The calculus of self-interest shifts from supporting the bloated, marginal-return Status Quo to abandoning it.

So the root problem is the system, human nature, blah blah blah. There are no “solutions” that can fix those defaults. The “solution” is collapse, as only collapse will force everyone to go do something more sustainable to get by.

Until then, arguing about “solutions” is a sport to be enjoyed sparingly.

Here’s my latest YouTube presentation with Gordon T. Long on “Peak Everything.” Lots of interesting charts:

 
Charles Hugh Smith’s new book is Resistance, Revolution, Liberation: A Model for Positive Change. Read the Introduction and Chapter One here.

 
A guest editorial from our super smart pal, Charles Hugh Smith, cross-posted from his essential Of Two Minds blog.

There are really only three ways to cripple Wall Street’s democracy-killing concentration of wealth and power: take our money out of Wall Street and the TBTF banks, eliminate private money from elections and abolish Wall Street’s dealer, the Federal Reserve.

3. Abolish Wall Street’s dealer, pusher and protector, the Federal Reserve.

My reasoning is very simple:

Everything else people want to see happen cannot happen if:

1) Wall Street and the SDI (systemically dangerous institutions) a.k.a. too big to fail banks, control most Americans’ financial assets and debts

2) The Federal Reserve exists to enable and protect the SDI’s wealth and power via Primary Dealers, the discount window and other pusher/dealer mechanisms

3) Wall Street and the other SDIs can use the billions of dollars they skim from our accounts, IRAs, 401Ks and pensions to buy political influence and protection from regulation and competition.

Therefore these are the necessary foundations of any real change.

As long as Wall Street and the other SDIs control much of the nation’s financial markets, assets and debts, and the Federal Reserve exists to protect and enable their predation and parasitic skimming, they will have the means to reap billions in profits which can then be funneled into our cash-corrupted political system of for-sale toadies and apparatchiks.

The only real leverage we have is our money and our compliance. Leaving our money in Wall Street and the Too Big to fail banks enables their dominance. Leaving our money in checking accounts, money market funds, savings accounts and brokerage accounts, and then using credit and debit cards issued by the SDIs, is to remain deeply complicit in their dominance.

This concept is now entering the cultural dialog, for example this recent entry on Zero Hedge: Want To Defeat The Banks? Stop Participating In The System!

Frequent Of Two Minds contributor Harun I. summed the argument up even more forcefully:

I applaud this movement only if people are coming to the recognition that, collectively, we as a nation have been wrong and now need to move in a different direction. We must now engage in discussing how best to do so.
However, I remain skeptical. Why are the TBTF banks still operating? From fraud to extortion to money laundering for drug cartels, the list of crimes against humanity is quite clear and long. Exactly what does it take before people will stop doing business with demonstrably corrupt entities?

And now there is a General Strike scheduled. I am all for it. But understand that our government will borrow the shortfall and nothing meaningful other than an increase in public debt will occur.

However, if you want to see an instantaneous and dramatic effect, every person close every account they have with all the TBTF banks and their subsidiaries on the same day.

Immediately or almost immediately they would have to be taken into receivership, their assets marked to market and sold off. The End.

Why destroy the TBTF banks? Most of them are Primary Dealers. The Fed then comes under pressure as it becomes the only lender of resort.

Then, once we have gotten their attention we tackle monetary reform, lobbying, and term limit in Congress and the Supreme Court.

It is time for government to “fear the people”. Rest assured that if government does not fear the people, nothing will change.

As for the Supreme Court’s legalist worship of the Corporate State: I believe this court will be remembered by history as the court which veered close enough to Corporate-State fascism to give it a big wet kiss. Corporate “rights” of personhood? No problem, you got it! The “right” to fund unlimited campaign contributions? No problem, you got it!

“Fascism should more properly be called corporatism because it is the merger of state and corporate power.” Benito Mussolini

We might profitably ask how the Founding Fathers would have responded to calls that the U.S. Constitution should contain a clause granting the East India Company the same rights of personhood as U.S. citizens, and then further granting it the unlimited right to buy political favors as a function of “free speech.”

One wonders how any of the Revolutionary War veterans among the Founding Fathers might have responded to such toadying claptrap. Yet this is precisely what the corporate toadies in the flowing black robes claim is “defended” by the U.S. Constitution.

A close reading of the Constitution reveals no amendments or clauses granting private corporations personhood, or granting them the right to inject unlimited sums of money to sway elections. If we turn to the Federalist Papers, we find fear of a “tyranny of the minority”—and what is a private corporation but an extreme minority bent on purchasing a limited but oppressive, exploitative and parasitical tyranny?

The legalist lackeys on the Supreme Court have hidden far too long behind the reputation of the Court—a reputation punctured by history, we might note—as a forum of disinterested legal debate. Rather, the court is nothing but another collection of imperfect human beings who are easily swayed by the tenor of the times and the ideological agendas of the wealthy and powerful. (“These are not the campaign reforms you’re looking for. Move along.”)

Given that we have a court that worships Corporate-State fascism slicked over with a thin veneer of democracy for public relations purposes—every single attempt to limit corporate campaign contributions has been struck down by the court—then our only choice as a people is to ban all private money contributions and institute a system of 100% publicly financed elections. Yes, it’s imperfect, and yes, it’s messy and costly, but nowhere near as corrupting and costly to liberty as the Corporate-State fascism we now endure.

Libertarians may be aghast at this option, but we have been reduced by the legalist lackeys in the Supreme Court to this choice: either we continue to be ruled by the corrupting corporate-State nexis of unlimited corporate/private Elites funding of elections, or we go with public financing. Thanks to the Supreme Court, there is no other choice.

As a lagniappe thought: one of the primary concerns of many “OWS/we are the 99” supporters is rising income disparity. That is a legitimate concern in any nation claiming to be a democracy with a free-market economy. Yet a close examination of the roots of income disparity and rising poverty leads straight to the Federal Reserve.

Winners And Losers: The New Economy (Zero Hedge)

What Mr. Gross and Mr. Frank and many others don’t see is that it is the creation of fiat money that destroys wealth and misdirects the investment of capital into less productive assets. That is, monetary inflation destroys capital (wealth). The reason why the production of goods and services do not bear higher yields than financial assets is that the production of goods and services suffers from a lack of real capital. Remember that real capital comes only from the saved profits of production and from the savings of workers from wages earned in production.

You obviously cannot print wealth, but if you try that fiat money distorts the entire economy by directing investment to things which appear to appreciate but what is really happening is that the dollar is depreciating. As a result, fiat money and real capital are invested in financial assets because they appear to have greater yields than returns from the production of goods. Prices rise (price inflation) and it creates the inevitable boom which always busts. The fall out is that we are stuck with things people don’t want (in the present re/depression it is housing). And we fall for it every time.

Allow me to simplify the argument:

1. The Federal Reserve has financialized the economy as an intrinsic expression of its reason for being.

2. Financialization necessarily creates systemically rising income disparity.

I think that’s all we need to understand to grasp the utmost importance of abolishing the Federal Reserve, a private banking monopoly created and protected by our Congress. Limiting Wall Street and the TBTF banks is structurally impossible as long as the Federal Reserve exists.

Written by Charles Hugh Smith, cross-posted from Of Two Minds.

Charles Hugh Smith, author of Survival+ and An Unconventional Guide to Investing in Troubled Times discusses why the Great Recession is here to stay, the structural unemployment that will affect many people and the future of the US economy. Plus, investing your money and time in your own life and in your own community and not getting burned by a publicly traded company you’ve never personally visited. Charles Hugh Smith blogs daily at Of Two Minds.com.
 

 

 
Another guest essay from Charles Hugh Smith, cross-posted here from his essential Of Two Minds blog:

The U.S. is due for another cultural revolution, led by the younger generations, perhaps including a fifth Great Awakening.

There seems to be a 40-year cycle of cultural change in American society. The classic exploration of generational types and cycles, The Fourth Turning, identified a four-generational, 80-year cycle of profound crisis and transformation:

1781 - end of the Revolution and establishment of the nation
1861 - Civil War
1941 - Global war and end of the Depression
2021 - end of the Savior State and debt-based “prosperity,” Peak Everything and geopolitical conflict over resources

In terms of cultural revolutions, these seem to sweep through every 40 years or so, a two-generational cycle within the longer cycle. It’s not an exact cycle, but consider these dates and eras:

1740: The First Great Awakening: The Protestant evangelical movement of the 1740s played a key role in the development of democratic concepts in the period of the American Revolution and helped foster a demand for the separation of church and state.

1776-1781: Revolutionary War, cultural shift away from the British Empire and toward an American identity.

1820: Second Great Awakening: sparks the rise of the Abolitionist movement which sets the cultural, social and spiritual stage for the Civil War.

1860: the Civil War

1890s: The Gay 90s, a period of American expansion and new freedoms of expression, clouded by the Panic of 1893 which sent the economy into a 6-year depression.

This era was the culmination of the Gilded Age, the industrialization of the U.S. economy between 1865 and 1900. By the beginning of the 20th century, per capita income and industrial production in the United States led the world, with per capita incomes double that of Germany or France, and 50% higher than Britain. Not coincidentally, the birth of the modern industrial labor union occurred around 1890.

1925-30: The Roaring Twenties, an era “marked by a general feeling of discontinuity associated with modernity and a break with traditions. Everything seemed to be feasible through modern technology. Formal decorative frills were shed in favor of practicality in both daily life and architecture. At the same time, jazz and dancing rose in popularity, and as such the period is also known as the Jazz Age.”

1967-1970: The Counterculture, which included the culmination of the Civil Rights Movement and the birth/expansion of the feminist movement, Eastern spirituality in the U.S., back-to-the-land self-sufficiency, rock music as a cultural force, the nonviolent anti-war movement, the anti-nuclear movement, experimentation with communal living and drugs, Futurist concepts, and a widespread expansion of freedom of self-expression and experimentation. Many observers believe this ear also launched a Fourth Awakening as evangelical denominations expanded and “Jesus freaks” found religious inspiration outside mainline churches.

The book What the Dormouse Said: How the 60s Counterculture Shaped the Personal Computer makes a strong case that this era set the stage for the ultimate technological medium of experimentation and self-expression, the personal computer, which then led irresistably to the World Wide Web (all the foundational technologies of the Internet were in place by 1969—The first permanent ARPANET link was established on November 21, 1969, between UCLA and Stanford Research Institute.)

Which changed the world, of course. Those darn hippies!

1970 + 40 = 2010: That takes us to the present. Right now the nation is wallowing self-piteously in a fetid trough of denial and adolescent rage/magical thinking that the nation’s bogus, debt-based “prosperity” has crashed and cannot be restored, though Ben Bernanke and the clueless “leaders” the citizenry has fecklessly elected keep trying to glue Humpty Dumpty back back together again.

Unfortunately, all they’ve accomplished is to glue their own fingers together.

The “too big to fail” banks and Corporate Cartels effectively own the Federal machinery of governance, the Savior State’s fiefdoms are expanding their reach and power like uncontrollable cancers, and the “leadership”—mostly self-glorifying. grossly incompetent, self-absorbed, greedy Baby Boomers, but with a few equally clueless 40-somethings present just to prove that age is no protection against self-delusion and supreme greed—has resolved to surrender to the Financial Power Elites and State fiefdoms, and fiddle around with “extend and pretend” strategies until they can exit the stage with bulging bags of swag.

Their only goal is to not be the one blamed when the whole corrupt contraption finally collapses under its own weight. If there was ever a more pathetic, corrupt, cowardly and incompetent set of “leaders” in the nation’s history, they must have done their skimming during periods of relative prosperity. Now we need real leaders, not TV-ready simulacra spouting bloated slogans that contain the magic word “change.”

Gen X and Gen Y, this is your “lights, camera, action!” call, if not for political power, then for a cultural revolution. I for one am ready for a Fifth Awakening, a Cultural Revolution, and a restoration of self-rule and the real, non-financialized economy.

I hope that you all had a happy Bastille Day, yesterday. It’s time we tore down the Bank Bastille that’s imprisoning us all.

Another guest essay from Charles Hugh Smith, cross-posted here from his essential Of Two Minds blog:

 
A guest essay from our super-smart friend Charles Hugh Smith, cross-posted from his essential Of Two Minds blog. Charles is the author of Survival +: Structuring Prosperity for Yourself and the Nation.

Poverty is on the rise in America, and buying passivity with cheap bribes has limits when applied to a fraying middle class.

If jobs are not coming back, then we as a nation need a conversation about poverty in America. The Status Quo assumption is that this is just another garden-variety recession, and that employment will bounce back, along with the “animal spirits” that drive borrowing and spending.

As of August 2011, it will be three years since the global financial meltdown. In three years, the Savior State has borrowed and blown $6 trillion maintaining the Status Quo, and the Federal Reserve has printed almost $3 trillion and shoveled that vast sum into “risk assets” to keep housing on life support and the stock market rising. The Fed has also devalued and debased the dollar, stealing wealth from the citizenry and holders of U.S.-denominated debt in the process, to serve two goals: 1) spark inflation and thus avoid deflationary deleveraging of the nation’s fast-growing mountain of debt, and 2) to enable servicing that debt with cheaper dollars.

None of these grandiose manipulations has healed the economy or fixed the structural problems which made the meltdown inevitable. The irony here (among many) is that so many people believe the Power Elites controlling the nation have some sort of god-like ability to maintain their grip on the levers of power.

While it’s certainly true that the wealth of the Power Elites has increased as a result of the meltdown and Fed/Savior State response, ultimately the Financial and Political Elites’ power depends on the passivity and complicity of the citizens. This means the Power Elites must buy off or co-opt the majority of citizens to keep them politically neutered and mallable.

The Status Quo has two basic methods of buying the citizen’s complicity: a vibrant economy that supports a middle class that thus has a stake in maintaining the Status Quo, and cash bribes to everyone else to keep quiet, i.e. “social benefits” a.k.a. entitlements and welfare. This renders everyone either dependent on cash payments from the Savior State or a stakeholder in the Status Quo.

Corporate welfare is not a bribe but a mutually beneficial power grab. The Cartel Corporatocracy seeks to eliminate competition from below and guarantee low-risk profts via cartels and quasi-monopolies. It achieves these goals by purchasing the partnership of the Savior State, which smothers competition with thickets of regulations and greases the quasi-monopolies sought by the Corporatocracy. But it’s hardly a one-way exchange; in extending its control over the economy and society to serve the Corporatocracy’s interests, the Central State’s own Elites gain more power, too.

Some observers see the middle class as the natural enemy of the State and Corporatocracy, but this misses the essential relationship of the Power Elites to their citizenry: the need of the Elites to buy complicity and passivity by the cheapest methods available.

It’s certainly possible to use repression to keep a populace under control, but repression is expensive and it doesn’t encourage productive “buy-in”; rather, it encourages opting out and resentful compliance. This leaves less for the Elites to skim off.

Over time, it’s rather obvious that regimes that rely on heavy-handed repression tend to fall while those that offer a small, low-cost stake to citizens are much more profitable to the ruling Elites and also more stable.

The crumbling of the credit-bubble economy has mortally wounded the middle class, and this has created a serious problem for the Power Elites. In extending the credit-bubble economy—that is, “wealth” is created via exponential expansion of debt—to housing, the Power Elites undermined the multigenerational bedrock of middle class wealth.

With housing equity stripped away, the erosion of middle class income and non-housing wealth has now been exposed.

The Power Elites’ other wealth technique, globalization, has also gutted the middle class below the top 10% level of technocrats, and decimated the working class that had aspirations of joining the middle class, i.e. the lower middle class.

We Don’t Need No Stinkin’ Jobs (in the U.S.) (February 9, 2011) Global Corporate America has decoupled from the American middle class; its interests are now international rather than domestic.

The Power Elites’ response—borrow and blow trillions to prop up the engine of their own wealth, the banks, borrow trillions from future taxpayers to maintain the current Status Quo, and devalue the U.S. dollar—have all failed to reflate housing or middle class incomes. Rather, these actions only succeeded in enriching the top 10% who own the majority of stocks. The prop-job in stocks has yielded a propaganda coup, as the Status Quo has successfully identified a rising stock market as “proof the recovery is here,” but this propaganda is starting to wear thin as 90% of the populace are realizing they are still poorer than they were three years ago.

Buying Off Washington To Kill Financial “Reform.”

The Power Elites cannot understand why making credit cheap isn’t creating jobs. Like decrepit generals fighting the last war, they keep sending waves of credit into the system to overpower deflation and reignite “animal spirits,” but the waves of credit are being mowed down by deleveraging and the exhaustion of credit as a stimulus.

In other words, they are clueless to the reality that conventional economics has failed. They have no Plan B. Their only plan, such as it is, is to borrow more money and spend it propping up the current Status Quo. Unfortunately for them, the middle class is unraveling at the edges, and the surest evidence of that is the loss of middle class jobs.

Without good-paying jobs with benefits and rising housing equity, then the citizens have no stake left in the Status Quo.

That leaves entitlements and welfare as the cash bribes for keeping quiet. What’s remarkable about the current pastiche of social benefits is how cheap it is to the Power Elites; extended unemployment ($158 billion), food stamps ($68 billion), Section 8 housing ($20 billion), and Veterans Administration medical care for vets ($47 billion)—all together that’s $293 billion, a mere 7.7% of Federal spending.

(These statistics are drawn from:
Is the Recovery “Self-Sustaining”? Here’s a Test (March 22, 2011)
Social Welfare, Socialism and Healthcare (May 19, 2009)
Can We Please Stop Pretending the GDP Is “Growing”? (June 2, 2011)
.
And of course it’s the taxpayers who will foot the bill for the deficit spending, not the Elites

The ideological political-theater stages faux “combat” over welfare, but this is for show: outside the circus, cash bribes for complicity and silence work equally well for both flavors of the Status Quo political Elite.

The “Left’s” concern for the poor is transparently phony; the “Left’s” only concern is to keep the underclass fat, dumb and distracted while enriching its own private fiefdoms such as education: public school fiasco in Atlanta. What terrifies the “Left” is the same thing that terrifies the “Right”—that the citizenry might break free of the bonds of dependency on the Savior State and start demanding a real stake in the economy rather than just a cash bribe to keep quiet.

This is why welfare and middle class entitlements (in various flavors) have continued growing for decades, under both “Left” and “Right” regimes.

It’s been quite a scam: the Savior State borrows immense sums from future taxpayers to bribe the current crop of citizenry, and these same citizenry pay the rising interest on that growing debt via their taxes.

In other words, the debt-serfs pay for the bribes that keep them complicit.

The problem is that the Status Quo has overshot systemic equilibrium. To keep the game going, the debt load is rising at almost $2 trillion a year at the Federal Level, and the Fed’s manipulations are requiring a cool trillion a year in printed money shoveled into risk assets.

The interest on that skyrocketing debt will eventually crimp the borrowing binge, and the Fed’s games are igniting not job growth but inflation, which further saps what’s left of middle class purchasing power.

The Fed’s manic manipulations are losing their effectiveness. Like insulin in a pre-diabetic patient, the Fed’s massive injections of money are not stimulating jobs or productive investment; each new announcement of “easing” generates a smaller jolt of ever-shorter duration. At some point the economy will respond to the Fed’s “easing” injection by going straight into diabetic shock.

There are two cultural issues in play as well. One of the key characteristics of the middle class is high expectations for future power and prosperity. The poor have lower expectations and so it’s relatively easy to buy them off with small sums.

The middle class, however, is less satisfied with crumbs, and getting paid to stay home and watch TV does not appeal to their values or expectations of life in America.

The other issue is the destructive nature of dependence on the Savior State, a dynamic I explored in The Cycle of Dependency and the Atrophy of Self-Reliance (July 2, 2011).

Making people dependent on the Savior State is not “ending poverty”—it is creating a deeper, more pervasively destructive poverty of lost opportunity and shriveled enterprise. People naturally want to contribute to something meaningful and to be respected, and being paid to sit home watching TV does neither. What it does do is fuel a low-intensity resentment against dependency and a pathological incentive for victimhood, neither of which are healthy for the society or those reduced to dependency on the Savior State.

The Power Elites are slowly losing their grip on the middle class. Once people no longer have a stake in the Status Quo, then they might become dissatisifed with the cheap bribes to stay home and rot away, consuming Pringles and “entertainment” on the telly.

Those citizens who are paying the tab for the Power Elites’ debt excesses are also seeing their stake in the Status Quo slip in value: being reduced to a tax donkey does not fulfill their expectations.

The bottom line is poverty on several levels is rising in America, and cash bribes are not a stable “solution,” though they certainly are a cheap one to the Power Elites.

This is a guest essay from Charles Hugh Smith, cross-posted here from his essential Of Two Minds blog

 
Another guest essay from our super smart friend, Charles Hugh Smith, cross-posted from his essential Of Two Minds blog. If you like what he writes here, please share it on social media.

Here’s a thought: How much would it cost to buy congress back from special interests who now own it?

We all know special interests own the U.S. Congress and the Federal machinery of governance (i.e. regulatory capture). How much would it cost the American citizenry to buy back their Congress? The goal in buying our Congress back from the banking cartel et al. would not be to compete with the special interests for congressional favors—it would be to elect a Congress which would eradicate their power and influence altogether.

A tall order, perhaps, but certainly not impossible, if we’re willing to spend the money to not just match special interest contributions to campaigns but steamroll them.

A seat in the U.S. Senate is a pricey little lever of power, so we better be ready to spend $50 million per seat. Seats in smaller states will be less, but seats in the big states will cost more, but this is a pretty good average.

That’s $5 billion to buy the Senate.

A seat in the House of Representatives is a lot cheaper to buy: $10 million is still considered a lot of money in this playground of power. But the special interests—you know the usual suspects, the banks, Wall Street, Big Pharma, Big Insurance, Big Tobacco, the military-industrial complex, Big Ag, public unions, the educrat complex, trial lawyers, foreign governments, and so on—will fight tooth and nail to maintain their control of the Federal machinery, so we better double that to $20 million per seat. Let’s see, $20 million times 435….

That’s $8.7 billion to buy the House of Representatives.

It seems we’re stuck with the corporate toadies on the Supreme Court, but the President could scotch the people’s plans to regain control of their government, so we better buy the office of the President, too.

It seems Obama’s purchase price was about $100 million, but the special interests will be desperate to have “their man or woman” with the veto power, so we better triple this to $300 million.

Add these up and it looks like we could buy back our government for the paltry sum of $14 billion. This is roughly .0037% of the Federal budget of $3.8 trillion, i.e. one-third of one percent. That is incredible leverage: $1 in campaign bribes controls $300 in annual spending—and a global empire.

Once we bought back our government, what would be the first items on the agenda? The first item would be to eradicate private bribes, a.k.a. private campaign contributions and lobbying.

If you allow $1 in campaign contributions, then you also allow $10 million. There is no way to finesse bribery, so it has to be cut and dried: no member of Congress can accept any gift or contribution of any nature, monetary or otherwise, and all campaigns will be publicly financed.

Is this system perfect? Of course not. There is no perfect system. But the point here is that a system which allows even a $1 private contribution to a campaign cannot be restricted; after the courts have their say, then all attempted limitations prove worthless.

So it’s really all or nothing: either we put our government up for auction to the highest bribe, or we ban all gifts and private campaign financing and go with public financing of all elections in the nation.

That is the only practical and sane solution. Any proposal that seeks to finesse bribery will fail, just like all previous attempts at campaign finance reform.

Any member of Congress who accepts a gift, trinket, meal, cash in an envelope, etc. will lose their seat upon conviction of accepting the gift. Once again, you can’t finesse bribery. It has to be all or nothing, and the only way to control bribery is to ban it outright.

As for lobbying, thanks to a Supreme Court dominated by corporate toadies, it will be difficult to ban lobbying outright. However, that doesn’t mean Congress shouldn’t try to force the toadies on the Supreme Court to make a distinction between a corporation with $100 billion in assets and billions to spend on bribes and a penniless citizen.

(Those two are not coincidental; in a nation run by and for corporations, the citizens all end up penniless unless they own or manage said corporations, or work for a Federal fiefdom which can stripmine the nation at will.)

Congress should pass a law banning paid-for lobbying. If a citizen wants to go to Congress and advocate a position, they are free to do so—but they can’t accept money to do so. If they receive any compensation from any agency, enterprise, foreign government, other citizen, you name it, from any source, then they will be sentenced to 10 years of fulltime community service in Washington D.C., picking up trash, etc.

If the Supreme Court toadies strike down that law, then here’s another approach:

Require all paid lobbyists to wear clown suits during their paid hours of work.

In addition, all lobbyists are required to wear three placards, each with text of at least two inches in height.

The first placard lists their total annual compensation as a lobbyist.

The second lists the special interest they work for.

The third lists the total amount of money that special interest spent the previous year on lobbying, regulatory capture, bribes to politicos and political parties, etc.

Every piece of paper issued by lobbyists must be stamped in large red letters, “This lobbying paid for by (special interest)”, and every video, Powerpoint presentation, etc. must also be stamped with the same message on every frame.

The second item on the agenda is a one-page tax form. The form looks like the current 1040 form except it stops at line 22: TOTAL INCOME. A progressive flat tax is then calculated from that line. Once again, you cannot finesse bribery or exemptions, exclusions, loopholes and exceptions. Once you allow exemptions, exclusions, loopholes and exceptions, then you’ve opened Pandora’s Box of gaming the system, and the financial Elites will soon plow holes in the tax code large enough to drive trucks through while John Q. Citizen will be paying full pop, just like now.

The entire charade of punishing and rewarding certain behaviors to pursue some policy has to end. Any deduction, such as interest on mortgages, ends up creating perverse incentives which can and will be gamed. It’s really that simple: you cannot finesse bribery or exemptions, exclusions and loopholes, because these are two sides of the same coin.

The tremendous inequality in income, wealth, power and opportunity which is distorting and destroying our nation all flow from the inequalities enabled by bribery and tax avoidance. The only way to fix the nation is to eliminate bribery (campaign contributions and lobbying) entirely, and eliminate tax avoidance entirely by eliminating all deductions, exemptions, loopholes, etc. State total income from all sources everywhere on the planet, calculate tax, done.

When you think about how tiny $14 billion is compared to the $3.8 trillion Federal budget and the $14.5 trillion U.S. economy, it makes you want to weep; how cheaply we have sold our government, and how much we suffer under the whip of those who bought it for a pittance.

Another guest essay from Charles Hugh Smith, cross-posted from his Of Two Minds blog. If you like what he writes here, please share it on social media.

 
A guest essay from Charles Hugh Smith, cross-posted from his Of Two Minds blog:

If we dare look at the plain facts of the matter, we have to conclude the U.S. is a kleptocracy not unlike Greece, only on a larger and slightly more sophisticated scale.

Yesterday, I noted that Greece Is a Kleptocracy; the U.S. is a kleptocracy, too. Before you object with a florid speech about the Bill of Rights and free enterprise, please consider the following evidence that the U.S. is now a kleptocracy worthy of comparison to Greece:

1. Neither party has any interest in limiting the banking/financial cartel. The original Glass-Steagal bill partitioning investment banking from commercial banking was a few pages long, and it was passed in a few days. Our present political oligrachy spends months passing thousands of pages of complex legislation that accomplishes essentially nothing.

As Federal Reserve Bank of Kansas City President Thomas Hoenig recently noted (in a rare admission by an insider—I wonder how long it will be before he “resigns to pursue other opportunities,” i.e. is muzzled):

The problem with SIFIs (“systemically important financial institutions,” a.k.a. too big to fail banks) is they are fundamentally inconsistent with capitalism. They are inherently destabilizing to global markets and detrimental to world growth. So long as the concept of a SIFI exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril.

Do you really think Dodd-Frank and all the other “fooled by complexity” legislation has accomplished anything? Hoenig cuts that fantasy off at the knees:

As late as 1980, the U.S. banking industry was relatively unconcentrated, with 14,000 commercial banks and the assets of the five largest amounting to 29 percent of total banking organization assets and 14 percent of GDP.

Today, we have a far more concentrated and less competitive banking system. There are fewer banks operating across the country, and the five largest institutions control more than half of the industry’s assets, which is equal to almost 60 percent of GDP. The largest 20 institutions control 80 percent of the industry’s assets, which amounts to about 86 percent of GDP.

In other words, nothing has really changed from 2008 except the domination of the political process and economy by the financial cartel has been masked by a welter of purposefully obfuscating legislation. This is of course the exact same trick Wall Street used to cloak the risk of the mortgage-backed derivatives it sold as “low risk” AAA rated securities: by design, the instruments were so complex that only the originators understood how they worked.

That is the current legislative process in a nutshell. Much of the 60,000 pages of tax code are arcane because they describe loopholes and exclusions written specifically to exempt a single corporation or cartel from Federal taxes.

The U.S. is truly a kleptocracy because its political leadership actually has no interest in limiting the banking/financial cartel. When questioned why their “reforms” are so toothless, legislators wring their hands and bleat, “Honest, I wanted to limit the banks but they’re too powerful.” Spoken like a true kleptocrat.

2. Our stock markets are dominated by insiders. It is estimated that some 70% of all shares traded are exchanged in private “dark pools” operated by the TBTF banks and Wall Street, and the majority of the remaining 30% of publicly traded shares are traded by high-frequency trading machines that hold the shares for a few seconds, or however long is needed to skim the advantages offered by proximity to the exchange and speed.

If that’s your idea of an “open market,” then you’re the ideal citizen for a kleptocracy.

3. The rule of law in the U.S. has been divided into two branches: one in name only for the financial Elites and corporate cartels, and one for the rest of us mere citizens. Between corporate toadies on the Supreme Court who have granted corporations rights to spend unlimited money lobbying and buying legislators as a form of “free speech”—ahem, how can something that costs billions of dollars be “free”?—and vast regulatory brueacracies that saw nothing wrong with MERS and the complete corruption of land and mortgage transfer rules, the U.S. legal system is now a perfection of kleptocracy.

As economist Hernando de Soto observed in The Destruction of Economic Facts, the ForeclosureGate mortgage mess is not just a series of petty paperwork mistakes—it is the destruction of the entire system of trustworthy transfer of property rights for non-Elites:

Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: “economic facts.”

Over the past 20 years, Americans and Europeans have quietly gone about destroying these facts. The very systems that could have provided markets and governments with the means to understand the global financial crisis—and to prevent another one—are being eroded. Governments have allowed shadow markets to develop and reach a size beyond comprehension. Mortgages have been granted and recorded with such inattention that homeowners and banks often don’t know and can’t prove who owns their homes. In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.

The results are hardly surprising. In the U.S., trust has broken down between banks and subprime mortgage holders; between foreclosing agents and courts; between banks and their investors—even between banks and other banks.

Frequent contributor Harun I. summarized the reality of this political and financial coup by kleptocrats:

As described by Georgetown University bankruptcy expert Adam Levitin, in testimony to subcommittee of the House Financial Services Committee, “If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever, [and] could cloud title to nearly every property in the United States.” It would also raise the question of the legality of the resulting millions of foreclosures on American homeowners, since the banks cannot prove “ownership” of the foreclosed property.

The statement above gets to the elemental issue that apparently is lost on many otherwise intelligent people. This is not about frivolous claims based on technicalities. This is about securities fraud (theft) on a ludicrously massive scale. These so-called securities were sold to governments, pension funds and other financial institutions globally. Trillions were made by banks selling what is becoming clearly understood to be worthless pieces of paper and when the jig was up, which ultimately led to the destruction of economies globally, they made ordinary citizens the losers by sliding their worthless pieces of paper to the balance sheet of taxpayers worldwide.

And while some are quibbling over whether someone should get a free house, those who have perpetrated the greatest swindle in the history of mankind are about to get away with it, because they are “systemically important”, code for TBTF (too big to fail).

You think money laundering and tax evasion is a specialty only of Caribbean island “banking centers”? Think again; we have corporate oversight equivalent to that of Somalia. U.S.A. a haven for corporate money laundering: A little house of secrets on the Great Plains:

Among the firm’s offerings is a variety of shell known as a “shelf” company, which comes with years of regulatory filings behind it, lending a greater feeling of solidity. “A corporation is a legal person created by state statute that can be used as a fall guy, a servant, a good friend or a decoy,” the company’s website boasts. “A person you control… yet cannot be held accountable for its actions. Imagine the possibilities!”

“In the U.S., (business incorporation) is completely unregulated,” says Jason Sharman, a professor at Griffith University in Nathan, Australia, who is preparing a study for the World Bank on corporate formation worldwide. “Somalia has slightly higher standards than Wyoming and Nevada.”

The U.S. was declared “non-compliant” in four out of 40 categories monitored by the Financial Action Task Force, an international group fighting money laundering and terrorism finance, in a 2006 evaluation report, its most recent. Two of those ratings relate to scant information collected on the owners of corporations. The task force named Wyoming, Nevada and Delaware as secrecy havens. Only three states - Alaska, Arizona and Montana - require regular disclosure of corporate shareholders in some form.

4. Just as in Greece, taxes are optional for the nation’s financial Elites. In Greece, you don’t mention your swimming pool to avoid the “swimming pool tax.” Here in the U.S., that sort of tax avoidance is against the law (smirk). Here, you hire a Panzer division of sharp tax attorneys and escape taxation legally (well, mostly legally—whatever it takes to win).

If you are unfortunate enough to be a successful small entrepreneur who nets $100,000 a year, you pay 15.3% self-employment and 25% Federal tax on the bulk of your income, a combined rate of 40.3%, and a combined rate of 43.3% on all income above $82,400.

Those who net millions pay less than half that amount, somewhere between 17% for the top 1/10th of 1% and 21% for the top 1%: Citizens for Tax Justice, which looks at all taxes paid including federal, state and local taxes, said that in 2010 the top 1 percent of earners will pay 21.5 percent of taxes.

Note that the 21.5% paid by the top 1% includes all state and local taxes. Here in California, the small businessperson earning $100,000 pays between 5% and 9% state tax, so their combined state and Federal tax burden on their highest earnings is a whopping 50%. Then there are property taxes and the 9.5% sales tax, and endless junk fees skimmed from small business. Add all that together and the total taxes paid rises to the 60% level, or roughly triple what the top 1% pay.

(Bitter note from a tax donkey: To all those tax-and-spenders who whine that California has “low taxes,” please pay my “low” property tax bill, will you? It’s “only” $11,000 a year.)

Super Rich See Federal Taxes Drop Dramatically:

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.

Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called United for a Fair Economy. Their goal: Raise taxes on rich people like themselves.

Schoenberg, who now teaches a business class at Columbia University, said his income is usually “north of half a million a year.” But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than $2,000.

“I simply point out to people, ‘Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?’” Schoenberg said.

Do you really think you don’t live in a kleptocracy? Why? Because the truth hurts?

A guest essay from Charles Hugh Smith, cross-posted from his Of Two Minds blog:

 
A guest editorial courtesy of our super smart friend, Charles Hugh Smith. This essay is cross-posted from his essential Of Two Minds blog. Buy his book, Survival+

The guilty are powerful and free, the innocent burdened and oppressed: that is injustice.

There is a fundamental injustice that is poisoning the soul of the nation, and if it is not openly addressed then the nation will face the explosive consequences of institutionalized injustice.

Simply put, it is this: those responsible for the nation’s financial crisis and its catastrophic after-effects are not paying for the consequences of their actions—it is the innocent, those who were not responsible, who are paying the price.

You can call it whatever you want: the Anarchy of the Super-Rich (as per Paul Farrell), the Financial Power Elite, the financial Oligarchy, Plutocracy or Corporatocracy, or the unprecedented concentration of financial wealth and political power in a financialized post-industrial economy. Whatever you call it, we all know this class of financiers and its minions got away with high financial crimes.

Do the crime, do the time—unless it’s “white-collar” financial crime on a vast scale. Then you might pay a wrist-slap fine (a few million dollars from your treasure of embezzled hundreds of millions) and then you’re free to go on your merry way.

The after-effects are not just the losses which can be totalled on a calculator: the really catastrophic losses are to the foundations of democracy and the economy. Democracy has been subverted—oh please, spare us the happy-story propaganda about “reform” and “the system worked”—and the economy has been incentivized to favor poisonously addictive financialization and the shadow institutions of corruption, fraud, embezzlement, favoritism, collusion and misrepresentation of risk. This might be summarized as the protection of vested interests, engineered and overseen by the partnership of the ever more intrusive Central State and the nation’s Financial Power Elite.

The Central State, designed to protect the citizenry from an oppressive monarchy or Elite, now protects this Elite from the citizenry. That is how thoroughly the injustice has been institutionalized.

There is a second part to this fundamental injustice: look who will pay for the bailouts, guarantees and the interest on the borrowed trillions. Not the banks and bankers, to be sure. Who will pay? Those who the Central State can easily tap: taxpayers who earn most of their income from wages, and those politically weak players dependent on government payments.

Now that the bills of the bailout are coming due, the State isn’t going after GE for more taxes. Heavens no—if you try that, the Panzer Division of GE’s tax avoidance army would overrun you. No, the politically easy thing to do is raise taxes on wage earners and trim entitlements, because all the government needs to do is send down the orders and it is done: the taxes are withheld and the bennies trimmed.

To go after the Power Elite is just too difficult. They have the tax attorneys, the lobbyists, the campaign fundraisers, and all the rest.

The U.S. is just a third world kleptocracy on an Imperial scale. I explored the parallels with the Roman Empire in Survival+: the Elites increasingly avoided military service and taxation, the bedrock of Roman power, while the taxes on the middle class rose to such heights that this productive class was basically driven into serfdom. The bottom layer of State dependents was placated and made complicit with bread and circuses—yes, Rome had a vast “welfare state” and much of Rome’s population received free bread to keep them quiet and pliant.

That is of course a road to ruin: let the Elite plunder at will, protected by the Imperial Central State, tax the productive class to fund the armed forces and free bread, and then buy off the lower class with bread and circuses.

The only successful model of reconciliation and justice we have is the “truth commissions” in other post-oppression autocratic kleptocracies. In countries that were deeply divided and poisoned by institutionalized injustice and exploitation, the healing process requires a public, transparent “truth commission” in which the guilty are brought forth to confess their sins against the innocent and face the consequences of their actions.

If a society cannot rouse itself to cleanse the fundamental injustice at the heart of its institutions, then it is effectively choosing self-destruction.

So far, the U.S. is pursuing the Roman Imperial model with an institutional zeal unmatched since Rome’s fall.

Embedded institutional injustice has a price, a price which rises with every passing day of propaganda and prevarication. Some day the bill will come due and a terrible price paid in full. For those in power, the only concern is that it not be today or tomorrow.

Below, Charles Hugh Smith discusses his book Survival +
 

 
Does it seem odd to you that the Dow Jones Industrial Average is still north of 10,000 despite the fact that no one has any jobs, the economy is puking blood and a bruised and battered mainstream America long ago exited the stock market?

Why wouldn’t the stock market be thriving while the rest of us are on food stamps and living in tents? Wall Street and the banks got the bailout, they aren’t going to lend anybody anything and they are paying themselves FAT BONUSES with your tax dollars. Let there be no mistake about it. The financial class have tied up all the productive capital in this country and are skimming off the top to enrich themselves. That’s the way the game works. It’s all legal!

And it’s obscene. If the general population would stop watching Fox News and worrying about a “mosque” (that isn’t even a mosque) long enough to figure out how they’ve been fucked up the ass sans lube by the plutocrats, there would be rioting in the streets. Instead they think that what we really need are an extension of the Bush tax cuts for the wealthy and to repeal healthcare reform. (Shudders).

That’s why this new thought experiment/essay, by my super smart pal Charles Hugh Smith is so important to read and share with others. I was thrilled when I read this and I think you will be, too. Talk about a dangerous mind. Wow.

Think what this thought bomb, injected into the national conversation would do. Talk about this idea with your friends, post the essay on Facebook and call talk radio to seed this into the dialogue there.

Imagine if a meme like this spread and took hold. It could—easily—happen. It would turn the national conversation upside down! Now do your part!

What if the Fed and Treasury distributed $1.3 trillion directly to households rather than disburse it to prop up bank lending? At least some households would use the funds to pay down debt, meaning the money would flow to the banking sector anyway, but with one critical difference: household debt would actually decline, leaving household balance sheets in better shape and owing less interest every month.

With quantitative easing, the idea is to increase the debt load on households; with a helicopter drop of fresh cash, the idea would be to reduce the debt load that is crushing many households. Banks would benefit, too, as more consumer debt would be paid off in full compared to the current policy of promoting heavier debt loads. The negative consequences of pushing more debt on households is also obvious: more loans become uncollectible and go into default, creating more loan losses for banks.

If the cash transfers were broadly distributed, the subsequent spending would be more representative of sustainable demand than other means of stimulus, such as costly and ineffective “job creation” programs.

Most importantly, the status quo monetary policy distorts economic activity towards debt-based financial assets and debt-financed durable goods such as the “cash for clunkers” program to boost auto sales.

According to the status quo, adding more debt to households is the cure to our economic malaise. But for most households, high debt is the disease, not the cure, and adding more debt to “stimulate spending” is like trying to put out a fire with gasoline.

Some might argue that a direct deposit of freshly issued cash into households would be inflationary. But other economists argue that if inflation is a monetary issue, and a helicopter drop of cash is fundamentally fiscal, then the worry over sparking inflation is misplaced.

What seems clear is that expanding bank credit through quantitative easing policies of funneling trillions of dollars into banks isn’t working. Putting the same money thrown into banks ($4 trillion) into households’ accounts would certainly put the money where it could either be spent or used to pay down debt—both of which are direct “cures” to over-indebtedness and a no-growth economy.

The sums of money squandered on bailing out banks are difficult to grasp. So I’ll make it easy: if the Treasury printed up $1.3 trillion in cash, that would be enough to give $10,000 to all 130 million households in the U.S.

Even $10,000 to each household would enable a lot of debt to be paid off. Those without any debt could save/invest/spend it. That would certainly do more for the economy than throwing another $1.3 trillion to “extend and pretend” the banks’ insolvency.

Would such a distribution set up a political expectation for another $10,000 next election cycle? Very likely. Would that be positive? No. But all policy is a series of trade-offs, and a helicopter drop could be “sold” as one-time only.

Would it trigger massive inflation? Doubtful. The national debt is about $13 trillion, so adding 10% to it with a “helicopter drop” is not going to change the long-term debt problem much. The GDP is around $13-$14 trillion as well, so it would amount to a one-time 10% boost in GDP. Total personal income is around $8.4 trillion, so a $1.3 trillion helicopter drop of cash would be about a 15% boost to personal income.

Would it really do much to lower indebtedness of the American consumer? No. Total debt in the U.S. is about $52 trillion—governmental, corporate and private. Mortgage debt is around $10 trillion, and consumer debt is around $2.4 trillon. (These are approximate; a web search will confirm the round numbers.)

While $1.3 trillion won’t do much to change the outlook for inflation or future debt crises, it sure would give a lot of households one last chance to set things on a more positive course. $10,000 could wipe out a high-debt credit card without wiping out the creditworthiness of the household, or it could finance a move to a locale with more employment. It could replace a vehicle on its last legs with a better used car.

Would some people squander a one-time “last chance to set a new course” helicopter drop? Of course some people will. But that’s not the point. The point is that the nation has received zero value from trillions in quantitative easing, and so if even 10% of the 130 million households do something useful with their $10,000 in cash then that would be one heck of a lot more than we’ve gotten from the trillions thrown down the rathole of a venal, corrupted, insolvent banking sector.

Throwing money at banks hasn’t done anything but reward financial Power Elites via privatizing their gains and transferring their losses to the taxpayers. Throwing money at households won’t solve the nation’s problems either, but it would give households a one-time chance to do something useful with a chunk of cash. If 90% of the households blew it, then it would still end up somewhere in the economy, which is more than can be said of the trillions thrown away on QE.

In the long run, it wouldn’t make much difference to the nation’s fiscal situation, but to households on the edge, it might make a very significant difference.

Read the entire essay
What If We Ditched Quantitative Easing and Just Printed (and Distributed) Cash? (Of Two Minds)

 
Dangerous Minds pal Charles Hugh Smith has posted an open letter to the folks belonging to the so-called Millennials and Gen Y generations. Many older readers will probably agree with his thoughts on the matter, while younger readers will either be pissed off or agree themselves. I think this is one of those things where there’s never going to be agreement across the various age groups. If you’ve ever had conversations about this and similar “generation gap” type topics, you’ll know why I say this! Surely this is a controversial subject no matter what age you are.

Take it away, Charles:

Here are my first-hand observations of Millennials:

1. They can’t/won’t recycle. Here in a “green” capital of activism, very few American students can be bothered to recycle cardboard, paper or even aluminum. They stuff a cardboard box (unfolded) into a trash container, filling the container, and then pile the garbage on the side since they are too lazy to recycle the box (the recycling containers are right next to the trash cans) collapse the cardboard box or even press it down to make room for more garbage.

2. The males generally own their own vehicles; on my street, that includes Mustangs and Jeep SUVs sporting bumper stickers like “The environment is all we have.” The Millennial owner is apparently blind to the irony.

Most of the students who recycle with any sort of consistency (i.e. demonstrating their belief via actual action instead of bumper stickers) are Europeans.

3. At the end of the Spring semester, Millennials stuff dozens of huge 20-foot long containers with their waste and tossed-out “stuff”—trash bags full of barely worn shoes, perfectly good beds, desks, books, etc. I have no direct knowledge that any graduating student took all their perfectly good shoes, etc. to the Goodwill, a few blocks from the university. From my informal dumpster diving, I can attest they throw out tons of high-quality food—whole unblemished fruits, canned goods, etc. Based on my direct observation, I would say the Millennials are the most wasteful, profligately consumerist generation in history.

4. My brother-in-law reports that the vast majority of his students are in active denial about the economy or the interlocking problems of the nation and world. They express little to no interest in environmental issues or actions, or in Peak Oil, etc., even though it will most certainly impact them.

5. Local “progressive” politics is still completely dominated by Boomers and Gen Xers. If there is a Millennial political movement or zeitgeist, it is currently invisible in one of the great political hotbeds of the nation and world.

6. The over-arching emotion of the Millennials I have met and observed is fear: fear that they won’t get a cush job with bennies, fear that the “good life” which apparently means a secure job with high pay might not open up, fear that life might not work out easily.

It’s over, so move on to something better. The whole cheap oil, Savior State, consumerist/media/facebook solipsism has no future. Clinging to it in the hopes you can extract some meaning, security or swag is a losing proposition. Where is the excitement about changing things, rather than fearfully hoping the swag lasts long enough for you to get your share? Fearfully clinging to Mommy, Daddy and the Savior State is no path to greatness.

I even make an appearance at one point in the essay. Read more of Charles Hugh Smith’s An Open Letter to the Millennials/Gen-Y: Where Are You? (Of Two Minds)
 

Author Charles Hugh Smith discusses his latest book Survival+, an indispensable guide to understanding global turmoil and transformation, weaving a full spectrum of intellectual disciplines—history, political economy, ecology, energy demands, marketing, investing, health and the psychology of happiness—into a uniquely comprehensive book that offers practical principles, not just for surviving, but prospering in the difficult decades ahead.