charleshughsmith
Executive Summary
- The dangerous unintended risks and consequences of central bank policies
- Returns diminish as you move along the expansion S-curve
- Why the current practice of moderating extremes will fail
- What comes next & how to prepare for it
If you have not yet read Part 1: The Inescapable Reason Why the Financial System Will Fail, available free to all readers, please click here to read it first.
In Part 1, we covered the financial system’s dependence on credit, and the central bank’s conundrum: they can’t raise rates without stifling the credit-binge-dependent “recovery” and asset bubbles, but they also can’t keep pushing asset bubbles higher without increasing systemic risks, as valuations are already stretched to historic extremes.
So what happens next? Can central banks raise rates without popping the bubbles the system needs to remain solvent? Or can they keep yields near zero and keep pushing asset valuations higher for years or decades to come?
I hate to spoil the ending, but the short answer is: these are incompatible goals. The central banks cannot raise yields (i.e. normalize rates to historically average levels) and push asset valuations higher, nor can they eliminate the systemic risk generated by extreme valuations and leverage.
Unintended Risks and Consequences
Extreme financial policies generate unintended consequences as a result of being extreme: a moderate policy wouldn’t have the “whatever it takes” impact, but it also wouldn’t jam all the levers to maximum.
Once the levers are on maximum, the extremes generate instability and blowback, as those who benefit from the extremes are incentivized to go even deeper into speculative gambles in the mistaken belief that “the central banks have my back” while those who did not benefit express their dissatisfaction in the political arena, a dynamic that is often dismissed or derided as “populism.”
Central banks have suppressed measures of volatility in an effort to mask the rising risk that their policy extremes will trigger… [enroll now to continue reading]
So What Comes Next & How Can We Prepare For It?
PREVIEWExecutive Summary
- The dangerous unintended risks and consequences of central bank policies
- Returns diminish as you move along the expansion S-curve
- Why the current practice of moderating extremes will fail
- What comes next & how to prepare for it
If you have not yet read Part 1: The Inescapable Reason Why the Financial System Will Fail, available free to all readers, please click here to read it first.
In Part 1, we covered the financial system’s dependence on credit, and the central bank’s conundrum: they can’t raise rates without stifling the credit-binge-dependent “recovery” and asset bubbles, but they also can’t keep pushing asset bubbles higher without increasing systemic risks, as valuations are already stretched to historic extremes.
So what happens next? Can central banks raise rates without popping the bubbles the system needs to remain solvent? Or can they keep yields near zero and keep pushing asset valuations higher for years or decades to come?
I hate to spoil the ending, but the short answer is: these are incompatible goals. The central banks cannot raise yields (i.e. normalize rates to historically average levels) and push asset valuations higher, nor can they eliminate the systemic risk generated by extreme valuations and leverage.
Unintended Risks and Consequences
Extreme financial policies generate unintended consequences as a result of being extreme: a moderate policy wouldn’t have the “whatever it takes” impact, but it also wouldn’t jam all the levers to maximum.
Once the levers are on maximum, the extremes generate instability and blowback, as those who benefit from the extremes are incentivized to go even deeper into speculative gambles in the mistaken belief that “the central banks have my back” while those who did not benefit express their dissatisfaction in the political arena, a dynamic that is often dismissed or derided as “populism.”
Central banks have suppressed measures of volatility in an effort to mask the rising risk that their policy extremes will trigger… [enroll now to continue reading]
Executive Summary
- The Importance of Adding New Income Streams
- Income-Producing Assets
- Taking Advantage of Subsidies
- Hedges, Cost-Controls & Other Strategies
- The 14 Steps to Prosperity
If you have not yet read Part 1: The Great Retirement Con, available free to all readers, please click here to read it first.
In Part 1, we revealed the woefully insufficient level of retirement savings — across IRAs, 401ks, and public pensions — America faces as it's largest demographic cohort, the Baby Boomers, now reaches retirement age. And eating quickly away at the scant savings that exist is the soaring cost of big-ticket essentials such as rent, higher education and healthcare that retirees can't avoid paying.
So what can we do about it?
There are only a few strategies that can make a real difference: own assets and income streams that keep up with real-world inflation, radically reduce the cost structure of big-ticket household expenses, qualify for subsidies (i.e. lower household income), and/or adopt a healthier view of what prosperity in retirement means.
Owning Income-Producing Enterprises and Assets
This chart says volumes about the difference between wealthy households and middle-class households: the middle-class households’ primary asset is the family home, while the wealthy households’ primary asset is business equity: ownership of an enterprise or shares in enterprises.
Developing a profitable enterprise is easier said than done (it helps to inherit a family business), and there is no guarantee a business that’s successful today will still be successful next year.
Nonetheless, it’s striking that the middle class is…
Success Strategies For Retirement
PREVIEWExecutive Summary
- The Importance of Adding New Income Streams
- Income-Producing Assets
- Taking Advantage of Subsidies
- Hedges, Cost-Controls & Other Strategies
- The 14 Steps to Prosperity
If you have not yet read Part 1: The Great Retirement Con, available free to all readers, please click here to read it first.
In Part 1, we revealed the woefully insufficient level of retirement savings — across IRAs, 401ks, and public pensions — America faces as it's largest demographic cohort, the Baby Boomers, now reaches retirement age. And eating quickly away at the scant savings that exist is the soaring cost of big-ticket essentials such as rent, higher education and healthcare that retirees can't avoid paying.
So what can we do about it?
There are only a few strategies that can make a real difference: own assets and income streams that keep up with real-world inflation, radically reduce the cost structure of big-ticket household expenses, qualify for subsidies (i.e. lower household income), and/or adopt a healthier view of what prosperity in retirement means.
Owning Income-Producing Enterprises and Assets
This chart says volumes about the difference between wealthy households and middle-class households: the middle-class households’ primary asset is the family home, while the wealthy households’ primary asset is business equity: ownership of an enterprise or shares in enterprises.
Developing a profitable enterprise is easier said than done (it helps to inherit a family business), and there is no guarantee a business that’s successful today will still be successful next year.
Nonetheless, it’s striking that the middle class is…
Executive Summary
- Why conventional analysis may not be our best guide anymore
- The critical importance of scarcity and value-production
- Making the most of your time and capital
- How to best prepare for the popping of the 'Everything' Bubble
If you have not yet read Part 1: What Could Pop the Everything Bubble? available free to all readers, please click here to read it first.
In Part 1, we surveyed the economic and socio-political dynamics that will pop the credit/asset bubbles that have created an illusion of normalcy, continuity and prosperity for the past eight years. So how do we non-elites prepare for the end of the everything bubble and the rise of economic, socio-political disorder?
The Conventional Approach
The conventional approach is to seek out assets that will survive either a deflationary implosion (i.e. an implosive collapse of collateral and debt) or high inflation fueled by massive helicopter money distributions to keep the “growth” machine chugging forward.
The Usual Suspects are real-world tangible assets such as precious metals, real estate, orchards, oil fields, solar panels, etc. These are touted as survivable assets because their utility value remains intact regardless of whether their price in currencies drops or soars.
Another Usual Suspect is intrinsically scarce collectibles such as fine art, early 1960s-era Fender guitars, etc.
A newcomer is bitcoin and the other leading cryptocurrencies, which are seen by many as holding scarcity value due to their limited issuance.
This approach is commonsensical and sound, as far as it goes. But it is ultimately a financial approach, not much different than any other form of sell high, buy low, sell high advice of switching out of overvalued asset classes into undervalued asset classes, and then riding the uptrend in the undervalued asset until it too is overvalued.
This approach assumes the larger socio-political-economic system will sort itself out in due time, i.e. it assumes continuity based on self-correcting mechanisms built into the financial status quo.
I’m not so sure that the financial system has any self-correcting mechanisms left, or that they will function as expected in a phase shift or supernova implosion.
Put another way…
What To Invest In When The Everything Bubble Bursts
PREVIEWExecutive Summary
- Why conventional analysis may not be our best guide anymore
- The critical importance of scarcity and value-production
- Making the most of your time and capital
- How to best prepare for the popping of the 'Everything' Bubble
If you have not yet read Part 1: What Could Pop the Everything Bubble? available free to all readers, please click here to read it first.
In Part 1, we surveyed the economic and socio-political dynamics that will pop the credit/asset bubbles that have created an illusion of normalcy, continuity and prosperity for the past eight years. So how do we non-elites prepare for the end of the everything bubble and the rise of economic, socio-political disorder?
The Conventional Approach
The conventional approach is to seek out assets that will survive either a deflationary implosion (i.e. an implosive collapse of collateral and debt) or high inflation fueled by massive helicopter money distributions to keep the “growth” machine chugging forward.
The Usual Suspects are real-world tangible assets such as precious metals, real estate, orchards, oil fields, solar panels, etc. These are touted as survivable assets because their utility value remains intact regardless of whether their price in currencies drops or soars.
Another Usual Suspect is intrinsically scarce collectibles such as fine art, early 1960s-era Fender guitars, etc.
A newcomer is bitcoin and the other leading cryptocurrencies, which are seen by many as holding scarcity value due to their limited issuance.
This approach is commonsensical and sound, as far as it goes. But it is ultimately a financial approach, not much different than any other form of sell high, buy low, sell high advice of switching out of overvalued asset classes into undervalued asset classes, and then riding the uptrend in the undervalued asset until it too is overvalued.
This approach assumes the larger socio-political-economic system will sort itself out in due time, i.e. it assumes continuity based on self-correcting mechanisms built into the financial status quo.
I’m not so sure that the financial system has any self-correcting mechanisms left, or that they will function as expected in a phase shift or supernova implosion.
Put another way…
Executive Summary
- The source of leverage being used to manipulate us
- The powers that be have a much weaker hand than we realize
- The increase use of force to control the system will ultimately undermine it
- What options are available to those who want to free themselves from this supression?
If you have not yet read Part 1: Upon The Next Crisis, The Rules Will Suddenly Change available free to all readers, please click here to read it first.
In Part 1 we surveyed the dynamics driving ever-expanding state control, the state’s priorities in crisis management (secure the state’s authority and the wealth/power of elites) and the authorities’ current preference for indirect control of the market.
Leverage and the Market as a Signifier
Markets are no longer markets—they are simulacra of markets, displaying the superficial appearance but not the dynamics and uncertainties of real markets, which have an unnerving tendency to veer away from the state-approved scripts of permanent, stable expansion.
Why have central banks and states (which includes blocs of nations such as the Eurozone with a centralized governing elite) chosen to cloak their control of markets?
The answer is has two parts: 1) central banks/states must leverage their intervention due to the monumental scale of global markets; owning assets worth hundreds of trillions of dollars is at best awkward in the current arrangement and at worst politically impossible.
While financial leverage is a relatively straightforward tool, 2) the real leverage is exerting psychological control over the market by transforming market price action into a signifier (i.e. signaling mechanism) that persuades participants to…
How To Defend Against An Unfair Re-Set Of The System
PREVIEWExecutive Summary
- The source of leverage being used to manipulate us
- The powers that be have a much weaker hand than we realize
- The increase use of force to control the system will ultimately undermine it
- What options are available to those who want to free themselves from this supression?
If you have not yet read Part 1: Upon The Next Crisis, The Rules Will Suddenly Change available free to all readers, please click here to read it first.
In Part 1 we surveyed the dynamics driving ever-expanding state control, the state’s priorities in crisis management (secure the state’s authority and the wealth/power of elites) and the authorities’ current preference for indirect control of the market.
Leverage and the Market as a Signifier
Markets are no longer markets—they are simulacra of markets, displaying the superficial appearance but not the dynamics and uncertainties of real markets, which have an unnerving tendency to veer away from the state-approved scripts of permanent, stable expansion.
Why have central banks and states (which includes blocs of nations such as the Eurozone with a centralized governing elite) chosen to cloak their control of markets?
The answer is has two parts: 1) central banks/states must leverage their intervention due to the monumental scale of global markets; owning assets worth hundreds of trillions of dollars is at best awkward in the current arrangement and at worst politically impossible.
While financial leverage is a relatively straightforward tool, 2) the real leverage is exerting psychological control over the market by transforming market price action into a signifier (i.e. signaling mechanism) that persuades participants to…
Executive Summary
- Is it better to hold cash in savings/checking accounts, or securities accounts?
- Where will the dollar likely from here?
- What will likely happen with retirement accounts?
- Ways to diversify your cash risk
If you have not yet read Part 1: The Cardinal Sin Of Investing: Permanent Impairment Of Capital available free to all readers, please click here to read it first.
The Role Of Cash In The Informal Economy
In stagnating formal economies burdened by over-regulation, high taxes and financialization, one of the few bright spots for employment and entrepreneurism is the informal or cash economy. The more stultified and elite-dominated the economy, the larger and more vibrant the informal economy. In some highly regulated, high-tax European nations, up to 30% of the economic activity is underground/cash.
The elimination of central bank currency will not eliminate the informal economy. Rather, the participants in this sector will adopt non-central bank issued forms of cash—precious metals, coins, other nations’ paper money, perhaps even digital currencies such as bitcoin or its gold-linked cousins (Bitgold, etc.)
Those with little income often do not have bank accounts, as the fees are costly. Eliminating cash will hit the poor who earn money in the informal economy especially hard. Though the poor are essentially powerless in our influence-is-auctioned-to-the-highest-bidder system, this could change once the working poor who benefit from the cash economy are pushed even deeper into poverty by the banning of cash.
That might spark…
Smart Strategies For Building & Managing Your Cash Savings
PREVIEWExecutive Summary
- Is it better to hold cash in savings/checking accounts, or securities accounts?
- Where will the dollar likely from here?
- What will likely happen with retirement accounts?
- Ways to diversify your cash risk
If you have not yet read Part 1: The Cardinal Sin Of Investing: Permanent Impairment Of Capital available free to all readers, please click here to read it first.
The Role Of Cash In The Informal Economy
In stagnating formal economies burdened by over-regulation, high taxes and financialization, one of the few bright spots for employment and entrepreneurism is the informal or cash economy. The more stultified and elite-dominated the economy, the larger and more vibrant the informal economy. In some highly regulated, high-tax European nations, up to 30% of the economic activity is underground/cash.
The elimination of central bank currency will not eliminate the informal economy. Rather, the participants in this sector will adopt non-central bank issued forms of cash—precious metals, coins, other nations’ paper money, perhaps even digital currencies such as bitcoin or its gold-linked cousins (Bitgold, etc.)
Those with little income often do not have bank accounts, as the fees are costly. Eliminating cash will hit the poor who earn money in the informal economy especially hard. Though the poor are essentially powerless in our influence-is-auctioned-to-the-highest-bidder system, this could change once the working poor who benefit from the cash economy are pushed even deeper into poverty by the banning of cash.
That might spark…
Executive Summary
- The Destructive Practices To Stop Doing
- The Regenerative Behaviors To Do More Of
- Getting The Foundational Pieces In Place
- The Payoff, For Both You & Society
If you have not yet read Part 1: We Need a Social Revolution available free to all readers, please click here to read it first.
In Part 1, we compared non-hierarchical, bottoms-up secular social revolutions with hierarchical, top-down political and technological revolutions managed by the state and corporate sector. Next, we surveyed the erosion of social connectedness and social capital, and asked who benefited from this fraying of the social order. While certain players derive some benefit from political divisiveness and from the sale of technologies that undermine authentic connectedness, it seems that much of the social-order decay is collateral damage—destruction that wasn’t intentional.
How can we strengthen or repair our own connections and social fabric in such a disintegrative era?
There are two basic approaches: stop participating in destructive dynamics, and assemble the foundational pieces of a connected social life.
How do we as individuals and households foster and nurture the social bonds that are fast-eroding in civil society?
The basic strategies are not difficult to understand, though they are extremely difficult to put in place in modern-day America:
- Strip out busyness to free up enough time and energy for social life and connectedness.
- Live in a place with short commutes to friends, family and public social spaces.
- Recognize (and then…..
Rescuing Our Future
PREVIEWExecutive Summary
- The Destructive Practices To Stop Doing
- The Regenerative Behaviors To Do More Of
- Getting The Foundational Pieces In Place
- The Payoff, For Both You & Society
If you have not yet read Part 1: We Need a Social Revolution available free to all readers, please click here to read it first.
In Part 1, we compared non-hierarchical, bottoms-up secular social revolutions with hierarchical, top-down political and technological revolutions managed by the state and corporate sector. Next, we surveyed the erosion of social connectedness and social capital, and asked who benefited from this fraying of the social order. While certain players derive some benefit from political divisiveness and from the sale of technologies that undermine authentic connectedness, it seems that much of the social-order decay is collateral damage—destruction that wasn’t intentional.
How can we strengthen or repair our own connections and social fabric in such a disintegrative era?
There are two basic approaches: stop participating in destructive dynamics, and assemble the foundational pieces of a connected social life.
How do we as individuals and households foster and nurture the social bonds that are fast-eroding in civil society?
The basic strategies are not difficult to understand, though they are extremely difficult to put in place in modern-day America:
- Strip out busyness to free up enough time and energy for social life and connectedness.
- Live in a place with short commutes to friends, family and public social spaces.
- Recognize (and then…..
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by blaggers