Dangerous Minds pal Charles Hugh Smith announces the publication of his new book Survival+ at his Of Two Minds blog. You can buy Survival + as a physical book, as an Amazon Kindle file, online in HTML or download the text in the form of a free PDF. Here’s what some respected thinker such as our current Dangerous Minds guest Michael Panzner have to say about Survival+:

“I’ve been a big fan of Charles Hugh Smith’s insights since the day I first stumbled across his Of Two Minds blog. In Survival+, he sets out a thoughtful and provocative vision of our future that should not be missed.”    Michael J. Panzner, author of When Giants Fall and Financial Armageddon

“Charles Hugh Smith is the savviest blogger in the USA these strange days. Nobody puts out a consistently wiser, truer, better-written message, day after day, than CHS. His views on surviving the hardships we face in economy and society are of the highest value and could not be more timely or astute.”    James Howard Kunstler, author of The Long Emergency and World Made by Hand

“Charles Smith provides a balanced, thoughtful, and prescient view regarding the dilemmas facing our fragile economy. From the collapse in the housing market to the growing power of the banking sector, our economic landscape is changing. Mr. Smith?

Our super smart friend Charles Hugh Smith posts another must-read essay at his Of Two Minds blog:

When it comes to post-bubble retraces, the fundamental reasons may not matter as much as the technical case for a full reversion to pre-bubble prices. We all know the fundamental reasons why housing shot up—a credit bubble of epic proportions plus securitization, fraud and low interest rates, to name but a few factors—and why housing has plummeted: foreclosures and inventory are rising, tightening of credit standards by private lenders, etc.

But the ultimate predictor of price is technical: speculative bubbles retrace to their pre-bubble prices, or in many cases even crash below those levels.

Those arguing the fundamentals are always grasping at various straws to support the case that prices won’t drop all the way back to pre-bubble levels, and they’re always wrong.

Read more at Of Two Minds

 
I am somebody who watches the price of gold rather closely—it’s actually the second thing I look at in the morning. We have no clocks in this house, so the first thing I do when I get out of bed is glance at the time in the corner of my computer, then click on the gold price widget on my desktop. When the price of gold wildly shoots upwards, it tends to mean that bad things are coming. But many times, such rocket-like fluctuation can be ascribed to group-think investor paranoia—or some barely justified Wall Street exuberance when gold drops in price—rather than any game-changing economic event. To be clear, I am very pro-gold, and think it’s a good solid investment, but I have watched it closely enough over the past few years to see the price drop even as the fundamentals of the economy got worse and worse. The opposite is supposed to happen. The price of gold does not change as “whimsically” as stock prices do, although gold is still most certainly subject to investor “moods”—moreso than any other commodity. That’s sort of the point, I suppose.

Lately gold has been on a bit of a tear with all of the doomsday “High Noon for the Dollar” type headlines and the rumors of China, Russia and the Arab states ending the US dollar’s almighty place in the scheme of “things” as the world’s reserve currency. (I’d wager Matt Drudge and Ambrose Evans-Pritchard must both have sizable gold holdings!).

Dangerous Minds pal Charles Hugh Smith presents a more nuanced view of the dollar’s fate at his Of Two Minds blog:

As the “news” continues to trumpet the decline/collapse of the U.S. dollar, many observers seem to have forgotten that the U.S. dollar is the defacto “shared currency” of the world’s largest economy and its biggest rising-star economy. Yes, the U.S. and the PRC—China. China’s currency (officially the renminbi, a.k.a. yuan) is transparently pegged to the U.S. dollar at about 6.8 yuan to the dollar, down from 8+ a few years ago.

Given that Japan is the world’s second-largest economy by most measures, and that the yen is informally pegged to the U.S. dollar (trading in a band of 90-110 yen for years on end), then it could be argued that the world’s three largest economies all “share” the U.S. dollar.

—snip—

Let’s establish the primary context of China’s leadership: 1 billion poor citizens seeking a better job/wage/life. Here is a puff piece by former U.K. prime Minister Tony Blair which makes one key point: most of China’s citizens are still very poor, and thus the leadership is obsessed with “growth” and jobs above all else: China’s New Cultural Revolution: The world’s largest country has a long way to go, but there’s no question it’s changing for the better. (WSJ.com)

Superficial stories about China are accompanied by glitzy photos of Shanghai skyscrapers and other scenes from the wealthy urban coastal cities, but the fact is that the consumer buying power of China is roughly equivalent to that of England (51 million residents).

Thus those who believe the vast Chinese manufacturing-export sector can suddenly direct its staggering output to domestic consumers in China are simply mistaken: Chinese consumption is perhaps a mere 1/10th of that needed to absorb the mighty flood of goods being produced by China.

Put yourself in the shoes of China’s leadership: what do you care about more: $2 trillion in U.S. bonds or creating jobs for 100 million people? It’s the jobs that matter, and despite its very public complaints about the slipping dollar, perhaps China doth protest too much—or more accurately, for domestic public consumption.

The consequences of a weakening dollar are neutral for Chinese exports to the U.S. but positive for exports to Japan and the European Union. Chinese exports to the EU and Japan have risen sharply in the past nine years, and a weak dollar keeps Chinese goods cheaper than rival exports in these key global markets.

Read More: The Forgotten Peg: Chinese Yuan and U.S. Dollar by Charles Hugh Smith

Dangerous Minds’ super smart pal Charles Hugh Smith has penned another must-read essay over at his Of Two Minds blog (we’re dangerous, but he’s got two!) about the issue that no one seems to want to talk about, structural unemployment. That’s what happens when the jobs that were lost never come back:

In “normal prosperity” then an uptick in unemployment is not too worrisome because people find another job within a year. But when the economy sheds jobs relentlessly, then people become long-term unemployed: they can’t find a job this year, or next year, or the year after that. This is also called structural unemployment.

What few are willing to accept is that the U.S. economy is entering a decades-long period of structural unemployment in which there will not be enough jobs for tens of millions of citizens. My January analysis remains conservative; given the end of the credit/debt bubble and other structural issues, it seems very likely that the U.S. economy might have about 100 million jobs in a few years—leaving some 35 to 40 million people without formal full-time work or employer-paid benefits.

Since we’re already at 26.3 million unemployed/under-employed, losing 10 million more jobs is really not much of a stretch. That would leave 36 million people without full-time work or any work at all and about 100 million still employed.

That’s just the set-up. It gets much bleaker!

Unemployment: The Gathering Storm by Charles Hugh Smith

Dangerous Minds pal Charles Hugh Smith has posted another must-read essay at Of Two Minds:

I just Googled “demand exhaustion” and came up with an obscure real estate paper from South Korea. Therefore I am claiming the right to coin this phrase as a general description of the end-state of global over-capacity and the saturation of U.S. consumer “demand” for more stuff.

Classic economic theory holds that consumer “demand” is insatiable and can never be completely filled. While that is true of the FEW resources (food, energy and water) and essential items which eventually wear out like say, tires, the “demand” for everything else appears to be largely artificial now, an urge prompted by relentless advertising and the accessibility of instant credit for more purchases (credit cards).

How much of the “demand” is organic, that is, flows from human desires for additional comfort and amusement? It could be argued that all of this is “organic demand”—or in the case of the dog bed and treats, “projected demand” (since the beloved pet probably would be just as happy or even happier with an old pillow and blanket).

On the other hand, it could also be argued that the returns on investment are increasingly marginal for most of these consumer goods. How much comfort and amusement can you wring from a second or third TV or your 40th shirt? How about that spa which gets used less and less as time marches on? Shall we label this “marginal demand” because the returns are increasingly marginal?

Every Day Is Christmas in America (as long as you have credit)

Following on from yesterday’s essay about the seismic changes in Japanese politics, today Dangerous Mind pal, Charles Hugh Smith wonders if a Third Party voter’s revolution would be possible in America. His conclusions are thought provoking and may surprise you:

Here are the key ingredients of a viable new party:

1. The usual suspects which fund the Old Guard must not find a new home: that would be the unions and all the other Power Elites: the investment banks, the pharmaceuticals, the “Defense” industry, the trial lawyers, etc. Their money and their participation must be politely rejected lest they co-opt and thus destroy the new party.

2. A few break-away Old School politicians who could provide credible leadership while the party grew.

3. Consumer advocates—middle-class citizens of all ages who are tired of being lied to and manipulated, tired of being ripped off, etc.

4. Young activists who are willing to devote their energies to investigating and exposing all that the political and corporate/banking Elites strive to keep obscured and secret. When the corruption, cronyism and collusion have been exposed, year after year after year, then eventually the general public—poorer, more insecure and frustrated than ever—will finally let go of the comforting illusion that they share any real interests with either of the two corrupt parties of collusion.

5. Insiders willing to expose the machinery of collusion and cronyism. The Status Quo will move rapidly and violently to suppress whistleblowers, but without these courageous citizens then the full extent of the rot cannot be exposed.

If these parts slowly self-assemble, a viable national party could become possible. We should note that it took 15 years for the process to reach critical mass in Japan; there were many half-starts and disappointments along the way.

Could a Viable Third Party Emerge in the U.S.? by Charles Hugh Smith

Dangerous Minds pal Charles Hugh Smith has posted an essential essay to read today at Of Two Minds if you want to understand the voter’s revolution that just occurred in Japan. The ruling party, the Liberal Democratic Party’s (LDP) is out, the Democratic Party of Japan (DPJ) is in and over 50 years of domestic and foreign policy is about to be turned on its head:

Transparency has no place in central planning. The major banks were crippled with massive bad debts, yet the planners moved glacially to force write-offs and renunciation of impaired debt. Even now, no one really knows how much uncollectable debt remains on the books in Japan, Inc.

One reason is cultural. Declaring a bank insolvent is a major loss of face for everyone involved. Thus the preferred solution was to keep “zombie banks” alive as a face-saving measure.

The tricks used were plentiful and clever. Say a commercial real estate loan went south and the borrower stopped paying. Hmm, that looks bad; why not loan the firm more money, as long as they agreed to use part of it to make some token payments which would allow the bank to keep the loan off the “in default” ledger?

Never mind the additional loans only made matters worse; face was saved and time was bought.

After 20 years of malaise, the citizenry’s patience finally ran out. Things are dire for the Japanese economy and nation: the birth rates have fallen dramatically, social security costs on the exploding elderly population are climbing, and an entire generation of younger workers has been relegated to dead-end part-time jobs at 7-11. Like other global manufacturers, to remain competitive Japan’s firms moved production to China and other parts of Asia; automation in Japanese factories eliminated many of the remaining domestic jobs.

Japan’s Bloodless Coup: Devolution of the Export/Central Planning Model

This is a caption about the video and what?