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Charles Hugh Smith

Charles Hugh-Smith

At readers' request, I've prepared a biography. I am not confident this is the right length or has the desired information; the whole project veers uncomfortably close to PR. On the other hand, who wants to read a boring bio? I am reminded of the "Peanuts" comic character Lucy, who once issued this terse biographical summary: "A man was born, he lived, he died." All undoubtedly true, but somewhat lacking in narrative.

Articles by Charles Hugh-Smith

Misplaced Pride: Most of the “Middle Class” Is Actually Working Class

3 days ago

If we look at these charts, it looks like only the top 10%, or perhaps the top 20% at best, might qualify as "middle class" by the metrics described below.

The conventional definition of working class is based on income and education:the working class household earns between $30,000 and $69,000 annually, and the highest education credential in the household is a two-year community college degree or trade certification.

The definition of the middle class is also based on on income and education, but adds financial security as a metric: the middle class household earns $80,000 or more, holds 4-year college diplomas or graduate degrees, owns a home, has a 401K retirement account and so on.

(My own definition is much more rigorous, as I reckon "middle class" today should have the same

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The Self-Destructive Trajectory of Overly Successful Empires

5 days ago

It’s difficult not to see signs of this same trajectory in the U.S. since the fall of the Soviet Empire in 1990.

A recent comment by my friend and colleague Davefairtex on the Roman Empire’s self-destructive civil wars that precipitated the Western Empire’s decline and fall made me rethink what I’ve learned about the Roman Empire in the past few years of reading.

Dave’s comment (my paraphrase) described the amazement of neighboring nations that Rome would squander its strength on needless, inconclusive, self-inflicted civil conflicts over which political faction would gain control of the Imperial central state.

It was a sea change in Roman history. Before the age of endless political in-fighting, it was incomprehensible that Roman armies would be mustered to fight other Roman armies

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A Stock Market Crash Scenario

6 days ago

Herds get spooked and run. That’s the crash scenario in a nutshell.

We have all been trained by a decade of central bank saves to expect any stock market swoon will soon be reversed by central bank sweet talk and/or rate cuts. As a result of such ever-present central bank willingness to intervene in the stock market, participants have been trained to believe a stock market crash is no longer possible: should the market drop 10%, or heaven forbid, 20% (i.e. into Bear Territory), the Federal Reserve and the other global central banks will save the day with direct purchases (The Plunge Protection Team), happy talk of future easing or, some unconventional quantitative easing measure or a rate cut–whatever it takes, in Mario Draghi’s famous words.

But irony of ironies, such complacent

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What Would It Take to Spark a Rural/Small-Town Revival?

9 days ago

Recent research supports the idea that this under-the-radar migration is already under way.

The decline of rural regions and small towns is a global phenomenon, and the causes are many but boil down to two primary dynamics:

1. Cities and megalopolises (aggregations of cities, suburbs and exurbs) attract capital, infrastructure, markets and talent, and these are the engines of job creation. People move to cities to find jobs.

The San Francisco Bay Area megalopolis of roughly 8 million people in 9 counties and 101 cities offers an example of this dynamic. The region added over 400,000 new jobs since the 2008-09 Global Financial Crisis and over 1 million additional residents since the early 2000s.

In effect, the region absorbed an entire new city with 400,000 jobs and 1 million

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Is the Tech Bubble Bursting?

11 days ago

There are two other trends that don’t attract quite the media attention that soaring profits do.

Is the decade-long tech bubble finally popping? Tech bulls are overlooking the fundamental reality that the drivers of Big tech’s phenomenal growth–financialization and expansion into mobile telephony– are both losing momentum.

A third dynamic–Big Tech monetizing privately owned assets such as vehicles and homes– has also reached saturation and is now facing regulatory barriers.

Let’s start with market saturation: of the 5.3 billion adults on earth over 15 years of age, 5 billion now have a mobile phone and 4 billion have a smartphone: The end of mobile (Benedict Evans). As for teens between 10 and 15, only the truly impoverished don’t have a mobile phone of some kind.

As I discuss

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A Quiet Revolution Is Brewing

13 days ago

Politics as practiced in a bygone era of stability no longer offers any solutions to these profound disruptions.

I recently read a fascinating history of the social, political and economic context of the American Revolution: The Radicalism of the American Revolution by Gordon Wood.

What is particularly striking is the critical role played by rapid social changes in the mid-1700s. Conventional histories focus on the political context, but more important were the changes in family and social relations, and the social impact of the economy moving from quasi-feudal forms of patronage that were ultimately personal relationships to impersonal market forces.

It was these social changes that nurtured the revolutionary zeal of the average (non-elite) male citizen.

Boiled down to its essence,

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Why Being a Politician Is No Longer Fun

17 days ago

As a society, we are ill-prepared for the end of "politics is the solution."

It’s fun to be a politician when there’s plenty of tax revenues and borrowed money to distribute, and when the goodies get bipartisan support. An economy that’s expanding all household incomes more or less equally is fun, fun, fun for politicians because more household income generates more income tax revenues and more spending that generates other taxes.

Despite the usual ideological squabbles, the general mood is upbeat: the horse-trading is about the relative share of the spoils each constituency will receive. Nobody gets everything they want, but everybody gets a good chunk and after an appropriate period of whining, resentment and indignation eventually counts their blessings.

But once the pie starts

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Lesson of the S-Curve: Doing More of What’s Failed Will Fail Spectacularly

19 days ago

That nothing is truly "free" will be another lesson of the S-Curve.

I often refer to the S-Curve because Nature so often tracks this curve of ignition, rapid expansion, stagnation and decline.

One lesson of the S-Curve is that the human bias to keep doing more of what worked so well in the past leads to doing more of what failed even as results turn negative.

The dynamic in play is diminishing returns: the yield on the policy that worked so splendidly at first diminishes with time.

Credit offers a cogent real-world example. When credit becomes available in a credit-starved economy, it generates a rapid, sustained expansion as credit-worthy borrowers borrow and spend on new productive capacity, consumer goods, housing, etc., all of which further drives expansion.

But once credit has

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Forget “Money”: What Will Matter Are Water, Energy, Soil and Food–and a Shared National Purpose

21 days ago

If you want to identify tomorrow’s superpowers, overlay maps of fresh water, energy, grain/cereal surpluses and arable land.

The status quo measures wealth with "money," but "money" is not what’s valuable. "Money" (in quotes because the global economy operates on intrinsically valueless fiat currencies being "money") is wealth only if it can purchase what’s actually valuable.

As the world slides into an era of scarcities, what will matter more than "money" are the essentials of survival: fresh water, energy, soil and the output of those three, food. The ability to secure these resources will separate nations that fail and those that survive.

In a world of abundance, it’s assumed every essential resource can be bought on the open market. Surpluses are placed on the market and anyone

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Superbugs and the Ultimate Economic Weapon: Food

24 days ago

The food-exporting superpowers are easy to identify.

As my esteemed colleague Michael Snyder chronicled in a recent Zero Hedge post, world agricultural production is under assault from extreme weather and diseases such as African swine fever. Floods & Drought Devastate Crops All Over The Planet; Is A Global Food Crisis Be Coming?

Everyone understands extreme weather is a danger to food production. The overuse of antibiotics is less well understood. As this article explains, most antibiotics are given to livestock, which then become breeding grounds for antibiotic-resistant microbes, which are known as superbugs once they develop immunity to all conventional antibiotics.

Are antibiotics turning livestock into superbug factories?

Almost 80% of all antibiotics in the United States

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China’s Insurmountable Global Weakness: Its Currency

25 days ago

If China wants superpower status, it will have to issue its currency in size and let the global FX market discover its price.

Quick history quiz: in all of recorded history, how many superpowers pegged their currency to the currency of a rival superpower? Put another way: how many superpowers have made their own currency dependent on another superpower’s currency?

Only one: China. China pegs its currency, the yuan (RMB) to the U.S. dollar. It adjusts the peg a bit here and there, but the yuan’s value is set by the Chinese state, not by the market of buyers and sellers.

(Yes, various nations have used gold coins minted by rival powers (Spanish pieces of eight were money everywhere, for example) but we’re talking about fiat currencies, backed by nothing but supply and demand, not

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Technology Is Not Just Disruptive, It’s Disastrously Deflationary

26 days ago

Deflation eats credit-dependent, mass-consumption economies alive from the inside.

While AI (artificial intelligence) garners the headlines, the next wave of disruptive technologies extend far beyond AI: as the chart of technologies rapidly being adopted shows, this wave includes new materials and processes as well as the "usual suspects" of machine learning, natural language processing, data mining and so on.

While many voices seek to assure us these technologies won’t displace human workers, the reality is cutting labor inputs is the core driver. What few pundits seem to understand (perhaps because they’ve never experienced a truly competitive market?) is that the rush to incorporate these technologies into existing enterprises is deflationary not just to prices but to profits.

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Two Intertwined Dynamics Are Transforming the Economy: Technology and Financialization

26 days ago

If you want to understand how the economy is being transformed, look at the intersection of Big Tech, financialization and the central state.

The two dynamics transforming the economy–technology and financialization–are intertwined yet widely viewed as unrelated. Critics and proponents of each largely ignore the other dynamic: critics of institutionalized fraud and other manifestations of financialization implicitly assume the economy will return to some golden age if we get rid of financialization’s skims and scams.

They are largely blind to the reality that the speed with which technology is transforming the economy is increasing: there is no golden era to return to. The economy they long for (strong unions, full employment, rising wages, declining inequality, political

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The Normalization and Institutionalization of Fraud

May 17, 2019

Normalizing and institutionalizing fraud undermines the foundations of the economy and the financial system.

I am indebted to Manoj Samanta (twitter: @flation_debate) for the insightful concept the commoditization of fraud. The first step in the commoditization of fraud is to normalize fraud as Business as Usual (BAU) to the point that it’s no longer viewed as "wrong," destructive or an aberration of evil-doers but as an accepted way to maximize gain and offload risk onto others.

The last step in the process is to institutionalize fraud within central banking and government policies.

How is selling shares in a money-losing corporation at outlandish valuations not the commoditization of fraud? The fraud has been normalized into a game of hoping that greater fools will be so enamored of

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Downward Mobility Matters More Than Liberal-Conservative Labels

May 16, 2019

The real heresy here is the American economy is now rigged for downward mobility.

In the conventional narrative, one’s economic class is overshadowed by one’s political belief structure: liberal, conservative, libertarian, etc. In terms of economic class, the conventional narrative divides people into their ideological beliefs about economic ideologies: free market capitalism, socialism, etc.

Economic class is one of the few remaining heresies in America: in the conventional narrative, it doesn’t exist or is meaningless due to the tremendous social mobility of the American populace: the working class stiff is one wise decision way from middle class status, and the middle class worker is one wise investment away from becoming wealthy.

What the conventional narrative purposefully

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The Economy Has Fundamentally Changed in the 21st Century–and Not for the Better

May 15, 2019

The net result is we have an economy that’s supposedly expanding smartly while our well-being and financial security are collapsing.

Gross Domestic Product (GDP) and other metrics of economic activity don’t measure either broad-based prosperity or well-being. Elites skimming financialization profits by expanding corporate debt and issuing more loans to commoners while spending more on their lifestyles boosts GDP quite nicely while the security and well-being of the bottom 90% plummets.

Under the hood of "recovery" and a higher GDP, life has gotten harder and more insecure for the bottom 90%. The key is not to look just at wages (trending up, we’re assured) or inflation (near-zero, we’re assured) but at aspects of daily life (lived experience) that cannot be captured by conventional

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Burnout Nation

May 14, 2019

The economic and financial stresses will exceed the workforce’s carrying capacity in the next recession.

A number of recent surveys reflect a widespread sense of financial stress and symptoms of poor health in America’s workers, particularly the younger generations. There’s no real mystery as to the cause of this economic anxiety:

— competition for secure, well-paid jobs that were once considered the birthright of the middle class is increasingly fierce;

— the pay and predictability of the jobs that are available are low;

— high-paying jobs are extraordinarily demanding, forcing workers to sacrifice everything else to keep the big-bucks position;

— the much-lauded gig economy is tracking the Pareto Distribution, as 80% of the income accrues to the top 20%, and those trying to

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Is China’s Belt & Road a Decade Too Late?

May 12, 2019

The world appears to be tiring of globalization and hegemons, and that trend may doom the Belt & Road to irrelevancy.

The conventional narrative holds that China’s Belt & Road Initiative is cementing China’s global superpower status. There’s an alternative narrative, however: it’s a decade too late. From this perspective, global trade has reached the top of the S-Curve and is in the stagnation phase, which will be followed by decline or collapse.

Global trade growth loses momentum as trade tensions persist (WTO)

Why could global trade decline as a secular trend? The answer of the moment–trade wars– is more a symptom than the disease itself, which is the benefits of globalization have declined and the negative consequences are becoming unavoidable.

Trade is never "free;" there are

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Unrealistically Great Expectations

May 9, 2019

Our expectations have continued ever higher even as the pie is shrinking..

Let’s see if we can tie together four social dynamics: the elite college admissions scandal, the decline in social mobility, the rising sense of entitlement and the unrealistically ‘great expectations’ of many Americans.

As many have noted, the nation’s financial and status rewards are increasingly flowing to the top 5%, what many call a winner-take-all or winner-take-most economy.

This is the primary source of widening wealth and income inequality: wealth and income are disproportionately accruing to the top slice of earners and owners of productive capital.

This concentration manifests in a broad-based decline in social mobility: it’s getting harder and harder to break into the narrow band (top 5%) who

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The Great Unraveling Begins: Distraction, Lies, Infighting, Betrayal

May 8, 2019

The good news is renewal becomes possible when the entire rotten status quo collapses in a putrid heap.

There are two basic pathways to systemic collapse: external shocks or internal decay. The two are not mutually exclusive, of course; it can be argued that the most common path is internal decay weakens the empire/state and an external shock pushes the rotted structure off the cliff.

As Dave of the X22 Report and I discuss in The World Is About To Change & It’s Going To Be Glorious, we are in the early stages of terminal internal decay.There are a number of dynamics shared by decaying empires/states:

1. The ruling elites lose the moral imperative to sacrifice for the good of the empire/state. Instead they use the power of the state to further their own private interests and agendas.

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What Would It Take to Spark a Rural/Small-Town Revival?

May 7, 2019

There are many historical models in which the spending/investing of wealthy families drives the expansion of local economies.

The increase in farm debt while farm income declines is putting unbearable financial pressure on American farmers, who must be differentiated from giant agri-business corporations. This is placing immense pressure on farmers, pressure which manifests in rising suicide rates.

If this isn’t the nadir of rural America, it’s certainly close.

This decline of financial viability and sharp rise in stress isn’t limited to rural America. The decline of rural regions and small towns is a global phenomenon, and the causes are many but boil down to two primary dynamics:

1. Cities and megalopolises (aggregations of cities, suburbs and exurbs) attract capital,

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Good Riddance to a “Nothing-Burger” Trade Deal

May 6, 2019

China has expanded its domestic debt to fund its growth, much of which qualifies as malinvestment, creating financial vulnerabilities its government is anxious to mask.

As I noted in Trade Deal Follies: The U.S. Has Embraced the World’s Worst Negotiating Tactics (April 8, 2019), the trade deal was a Nothing-Burger for the U.S. Without any consequences for violating trade deals, China violates all trade deals, starting with the WTO. (As an example, China has never reported its state subsidies to Huawei to the WTO as required by that treaty.)

The only trade deal that wouldn’t be a Nothing-Burger for the U.S. is one that explicitly gives the U.S. the sole power to decide if the deal has been violated and impose the consequences. Agreements without monitoring, enforcement and severe

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Income Inequality and the Decline of the Middle Class in Two Charts

May 3, 2019

Now look at the middle quintiles–the middle class: their income has gone nowhere in the past decade.

These two charts of average incomes of U.S. households by quintile (bottom 20%, middle 60% (20%+20%+20%) and top 20%) have both good news and bad news. (Charts are from the non-partisan Congressional Budget Office — CBO).

These charts depict 1) household income before transfers (means-tested government benefits) and taxes, in other words, pre-tax earned income, income from capital gains and interest, unemployment insurance, etc., and 2) income after federal transfers and taxes.

This is a much more accurate view of household income, as this is what gets deposited in households’ accounts.

The typical chart of average incomes doesn’t include government transfers, so it under-reports

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The Accelerating Decay of the Middle Class

May 2, 2019

Ironically, their ample compensation allows them to avoid the poor-quality services they’ve designed for everyone below them.

If we define middle class by the security of household income and what that income can buy rather than by an income level, what do we conclude? We have little choice but to conclude the middle class is decaying, both in the percentage of the workforce that qualifies as "middle class" according to traditional standards and in the quality of life of those who do qualify.

There’s a longstanding way to understand the middle class quality of life: it’s supposed to be superior to the indignities of being poor. If you’ve been poor (and I’ve been down to my last $100), even for short periods, you know the indignities and frictions of being poor (and by poor I don’t mean

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‘Workarounds’ Galore: How Real Americans Deal with ‘Real’ Inflation

May 1, 2019

It’s the list of workarounds – always growing, never shrinking – that’s telling us the true story of inflation in America.

Today I’m publishing a guest post by writer Bill Rice, Jr., on "real inflation,"which as everyone knows far exceeds the "official" inflation rate of 2%. Bill and I corresponded earlier this year when he was researching and writing his recent article What Does Your Toilet Paper Have to Do With Inflation? Manufacturers have been engaging in "shrinkflation," leaving consumers paying more for less, but stealthily. (The American Conservative magazine)

Bill’s extensive list of links (50 Dots…) follows his essay. Thank you, Bill, for sharing your insightful research with Of Two Minds readers.‘Workarounds’ galore: How real Americans deal with ‘real’ inflation By Bill

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The Erosion of Everyday Life

April 30, 2019

Working hard and doing what you’re told is no longer yielding the promised American Dream of security, agency and liberty.

Volume One of Fernand Braudel’s oft-recommended (by me) trilogy Civilization & Capitalism, 15th to 18th Century is titled The Structures of Everyday Life. The book describes how life slowly became better and freer as the roots of modern capitalism and liberty spread in western Europe, slowly destabilizing and obsoleting the sclerotic tyrannies of feudalism.

Today I want to discuss the erosion of everyday life as a manifestation of the endgame of the current version of state capitalism, more precisely neofeudal state-cartel financialization, which combines financial predation of the home (core) economy and global exploitation of the Periphery

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There Are Two Little Problems with “Taxing the Rich” to Pay for “Free Everything”

April 29, 2019

No super-wealthy individual or household is going to pay billions in additional taxes when $10 to $20 million will purchase political adjustments.

The 2020 election cycle has begun, and a popular campaign promise is "free everything" paid for by new taxes on the super-wealthy. Who doesn’t like free stuff? Who will vote for whomever offers them free stuff? No wonder it’s a popular campaign promise.

As even the most self-absorbed American voter has a latent street-savvy awareness that nothing is truly free, the other popular campaign promise is to "tax the rich" to pay for the proposed "free" programs. Proposals to "Tax the rich" feed off the growing awareness that the financial wealth created since 2000 has largely flowed to the very top of the wealth-power pyramid, and so it’s payback

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This Is the End of the Cycle

April 27, 2019

Both new households and new businesses are in secular decline. Goosing the stock market and GDP doesn’t change this reality.

Everyone wants every cycle of expansion to last forever, but alas every cycle ends. The growth cycle that began in 2009 is finally coming to an end. The signs are everywhere, notwithstanding the torrid 3.2% GDP growth for the first quarter of 2019 (which as others have noted, is less than meets the eye.)

Gross Domestic Product (GDP) is the standard measure of expansion, but it is an imperfect metric. GDP can still notch gains while the majority of the economy is stagnating and assets are losing value.

Better guides to expansion than GDP are sales volumes, prices, profits, wage increases and sustained rises in new enterprises and households. All of these measures

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Push Them Hard Enough and the Productive Class Will Opt Out of Servitude

April 26, 2019

People love their big paychecks, but they also value their sanity.

One of the most astonishing manifestations of disconnected-from-reality hubris is public authorities’ sublime confidence that employers and entrepreneurs will continue starting and operating enterprises no matter how difficult and costly it becomes to keep the doors open, much less net a profit.

The average employee / state dependent reckons that the small business owner / entrepreneur is killing it financially, banking a small fortune in pure profit every month, and that they’re doing what they love so they’ll continue doing it no matter what. In other words, they’re all wealthy Tax Donkeys who can easily afford higher taxes and fees and will tolerate paying more to keep doing what they love.

Wrong on both

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The Feedback Loop of Doom: When Mobile Creatives and Capital Abandon Unaffordable, Dysfunctional Cities

April 25, 2019

When the 4% who generate the jobs and tax revenues have had enough and leave, the effects quickly impact the 64%.

At the end of any trend, everyone’s a true believer: this trend is so enduring, so broad-based, so based on unchanging fundamentals that it will never ever reverse.

One such trend is the white-hot growth of housing, employment, tax revenues, etc. in major urban magnets for global capital and talent: you know the usual suspects: Dallas, Atlanta, Seattle, Portland OR, Denver, Los Angeles, the San Francisco Bay Area, New York City and so on.

What these urban regions offer are strong job markets, a very desirable dynamic.

For example, over 400,000 jobs have been added to the San Francisco Bay Area in the past few years, basically an entire new city of workers. Very few states

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