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Charles Hugh Smith

Charles Hugh Smith

Charles Hugh Smith is an American writer and blogger. He is the chief writer for the site "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites. His commentary is featured on a number of sites including: Zerohedge.com., The American Conservative and Peak Prosperity. He graduated from the University of Hawaii, Manoa in Honolulu. Charles Hugh Smith currently resides in Berkeley, California and Hilo, Hawaii.

Articles by Charles Hugh Smith

Why Don’t Billionaires Pay the Same High Tax Rates the Rest of Us Pay?

15 hours ago

The truth is America has lost its way if commoners pay a rate of 40% but its billionaires pay next to nothing.
As with everything else in polarized America, billionaires proclaiming space tourism is the next big thing for humanity neatly divides opinion into two camps: those who laud the initiative, hard work and innovations of the billionaires as examples of the American Can-Do Dream, and those who wished the billionaire space tourists had taken a one-way flight to a distant orbit of blissful silence.
Setting aside that bitter divide, let’s explore another divide: how our two-tier tax system enables billionaires to become billionaires while the rest of us get poorer. Whenever I discuss the taxes of the non-billionaire self-employed, armies of apologists leap to the defense of the

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The Moment Wall Street Has Been Waiting For: Retail Is All In

3 days ago

The ideal bagholder is one who adds more on every downturn (buy the dip) and who refuses to sell (diamond hands), holding on for the inevitable Fed-fueled rally to new highs.
Old hands on Wall Street have been wary of being bearish for one reason, and no, it’s not the Federal Reserve: the old hands have been waiting for retail–the individual investor– to go all-in stocks. After 13 long years, this moment has finally arrived: retail is all in.
If you doubt this, just look at record highs in investor sentiment, margin debt and the Buffett Indicator (see chart below). Current valuations are so extreme that the previous extreme in the 2000 dot-com bubble now looks modest in comparison.
I have my own sure-fire indicators for when retail is all-in. One is my Mom’s financial advisor recommends

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America Has Lost the Trade War with China, But the Real Pain Has Yet To Begin

3 days ago

Corporate America sacrificed national interests in service of greed, and so did the U.S. government.
As we all know, the source of Corporate America’s unprecedented explosion in profits in the 21st century is the offshoring of manufacturing to China. If you doubt this, please study the chart below of corporate profits. Apologists claim many excuses in an attempt to evade the central role of offshoring production to China, but they all ring hollow: no, it wasn’t increasing productivity or automation or Federal Reserve magic, it was shipping production to China and other low-labor-cost nations.
Whether we like to admit it or not–mostly not–the American economy is entirely dependent on manufacturing in China. America’s short-sighted obsession with

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America Is a Moral Cesspool, and Student Loans Prove It

4 days ago

If America somehow managed to educate millions of college students without burdening them with $2 trillion in debt in 1993, why is it now “impossible” to do so, even as America’s wealth and gross national product (GDP) have both rocketed higher over the past 27 years?
Predators thrive on Americans’ short memories. Student loans in their present scale did not exist prior to 1994. According to the Federal Reserve FRED database, the student loan balance was zero in 1993.
From zero in 1993 to $1.728 trillion in 2021: this is the predatory financialization of higher education which has enriched lenders, Wall Street and the Higher Education Cartel. As I’ve noted before, such parasitic rapaciousness would have been criminal a few generations ago; now it’s cheered as a

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America Has Lost the Trade War with China, and the Real Pain Has Yet to Begin

8 days ago

Corporate America sacrificed national interests in service of greed, and so did the U.S. government.
As we all know, the source of Corporate America’s unprecedented explosion in profits in the 21st century is the offshoring of manufacturing to China. If you doubt this, please study the chart below of corporate profits. Apologists claim many excuses in an attempt to evade the central role of offshoring production to China, but they all ring hollow: no, it wasn’t increasing productivity or automation or Federal Reserve magic, it was shipping production to China and other low-labor-cost nations.
Whether we like to admit it or not–mostly not–the American economy is entirely dependent on manufacturing in China. America’s short-sighted obsession with increasing profits to fund buybacks and

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How Breakdown Cascades Into Collapse

13 days ago

Maintaining the illusion of confidence, permanence and stability serves the interests of those benefiting from the bubbles and those who prefer the safety of the herd, even as the herd thunders toward the precipice.
The misconception that collapse is an all or nothing phenomenon is common:Either the system rights itself with a bit of money-printing and rah-rah or it collapses into post-industrial ruin and gangs are battling over the last stash of canned beans.
Neither scenario considers the fragility and resilience of the socio-economic system as a whole.It is both far more fragile than the believers in the permanence of the waste is growthmodel grasp and more resilient than the complete collapse prognosticators grasp.
The recent relatively mild logjams in global supply chains of

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Welcome to the 21st Century Sequel of the Catastrophic 1600s

15 days ago

As the chart below on ‘how systems collapse’ illustrates, the loss of stabilizing buffers goes unnoticed until the entire structure collapses under its own weight.
Disruptive extremes of weather: check
Rising geopolitical tensions with no diplomatic resolution: check
Multiplying scarcities in essential commodities: check
Domestic disorder accelerates as extreme positions harden into irreconcilable conflicts: check
Welcome to the 21st century sequel of the catastrophic 1600s, an extended period of mutually reinforcing crises that overturned regimes and empires from England to China and triggered unremitting misery across much of the human populace. (Global Crisis: War, Climate Change and Catastrophe in the 17th Centuryis a riveting overview of this complex era.)
What can we learn from

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Here’s Why America’s Labor-Shortage Will Drive Inflation Higher

17 days ago

Great swaths of the American workforce are already on strike or slipping away from the dead-end treadmill.
America’s labor shortage is complex and doesn’t lend itself to the simplistic expectations favored by media talking heads. The Wall Street cheerleaders extol the virtues of “getting America back to work” which is Wall-Street-speak for getting back to exploiting workers to maximize corporate profits.
Long-term demographics have combined with cultural changes and Covid-Lockdown epiphanies to completely re-order America’s labor force beneath the superficial surface of “re-opening.”No one post can do justice to such a complex topic, so I’ll touch on a few of the many inter-connected (and often mutually reinforcing) dynamics.
1. Boomers are leaving the workforce in droves. The statistics

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The $50 Trillion Plundered from Workers by America’s Aristocracy Is Trickling Back

17 days ago

As I often note here, when you push the pendulum to an extreme of wealth and income inequality, it will swing to the opposite extreme minus a tiny bit of friction.
The depth of America’s indoctrination can be measured by the unquestioned assumption that Capital should earn 15% every year, rain or shine, while workers are fated to lose ground every year, rain or shine. And if wages should ever start ticking upward even slightly, then the Billionaires’ Apologists are unleashed to shout that higher wages means higher inflation, which will kill the economic “recovery.”
Said another way: if wages stagnate so workers lose ground every year as inflation in essentials rises, that’s the way it should be. If wages rise so workers can keep up with inflation,

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The $50 Trillion Plundered from Workers by America’s Aristocracy Is Trickling Back

19 days ago

As I often note here, when you push the pendulum to an extreme of wealth and income inequality, it will swing to the opposite extreme minus a tiny bit of friction.
The depth of America’s indoctrination can be measured by the unquestioned assumption that Capital should earn 15% every year, rain or shine, while workers are fated to lose ground every year, rain or shine. And if wages should ever start ticking upward even slightly, then the Billionaires’ Apologists are unleashed to shout that higher wages means higher inflation, which will kill the economic “recovery.”
Said another way: if wages stagnate so workers lose ground every year as inflation in essentials rises, that’s the way it should be. If wages rise so workers can keep up with inflation, then that will trigger an inflationary

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Housing Bubble #2: Ready to Pop?

23 days ago

All debt-fueled speculative bubbles pop, even as cheerleaders claim otherwise.
The expansion of Housing Bubble #2 is clearly visible in these two charts of house valuations, courtesy of the St. Louis Federal Reserve database (FRED). The first is the Case-Shiller Index, which as you recall tracks the price of homes on an “apples to apples” basis, i.e. it tracks price movements for the same house over time.
Note that this is an index chart where the index is set at 100 as of January 2000. It is not a chart of median housing prices.
The second chart is also a housing price index chart courtesy of the U.S. Federal Housing Finance Agency. (Shoutout to the USFHFA, never came across your work before.)
The red line marks where house prices would be if they had tracked the Consumer Price Index

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A Few Things About Reinforced Concrete High-Rise Condos

23 days ago

There is a downside to steel reinforcing bars: they rust.
The second most remarkable thing about the sudden collapse of the Florida condo building was the rush to assure everyone that this was a one-off catastrophe: all the factors fingered as causes were unique to this building, the implication being all other high-rise reinforced concrete condos without the exact same mix of causal factors were not in danger.
Before we accept this conveniently feel-good conclusion, there are a few things we should consider about reinforced concrete high-rise condos.
1. This may seem too obvious to be important, but concrete is a heavy material. Fill a 5-gallon bucket with wet concrete, let it cure (harden) and then pick the bucket up–if you can.
2. Conventional

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A Few Things About Reinforced Concrete High-Rise Condos

25 days ago

There is a downside to steel reinforcing bars: they rust.
The second most remarkable thing about the sudden collapse of the Florida condo building was the rush to assure everyone that this was a one-off catastrophe: all the factors fingered as causes were unique to this building, the implication being all other high-rise reinforced concrete condos without the exact same mix of causal factors were not in danger.
Before we accept this conveniently feel-good conclusion, there are a few things we should consider about reinforced concrete high-rise condos.
1. This may seem too obvious to be important, but concrete is a heavy material. Fill a 5-gallon bucket with wet concrete, let it cure (harden) and then pick the bucket up–if you can.
2. Conventional concrete is not water-proof; it absorbs

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July 4th: Sorry, America, You Lost Me

27 days ago

Star Wars 24 plus the novelized version, amusement park ride, podcast, action figure and OnlyFans pages, anyone?
I happened to be in a Big Box Emporium, buying two bags of whole wheat flour, when a strange revelation struck me: almost nothing in this giant emporium was made in the USA.Apologists will quickly point out that the two bags of whole wheat flour were “made in the USA,” and note the US-made items in the food, liquor and beverage aisles; but wander out of these aisles and tell me how many of the hundreds of items are made in the USA (not assembled of foreign components, but made entirely in the USA). The answer is very few.
I suppose this fact is unremarkable to the majority of Americans, but my reaction was, sorry, America, you lost me: how is this not insane to depend on

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Virus Z: A Thought Experiment

July 1, 2021

What’s striking about our thought experiment is how little reliable data we have about the transmissibility of our hypothetical Virus Z and the long-term consequences of its mutations.
Let’s run a thought experiment on a hypothetical virus we’ll call Virus Z, a run-of-the-mill respiratory variety not much different from other viruses which are 1) very small; 2) mutate rapidly and 3) infect human cells and modify the cellular machinery to produce more viral particles.
Like other viruses, Virus Z continually improves the odds of future replication via the natural selection of any mutations which improve its replication capabilities. Since viruses need host cells to replicate, the key advantages selected through mutation are evading hosts’ immune responses to invading viruses.
As in all

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The Systemic Risk No One Sees

June 30, 2021

The unraveling of social cohesion has consequences. Once social cohesion unravels, the nation unravels.
My recent posts have focused on the systemic financial risks created by Federal Reserve policies that have elevated moral hazard (risks can be taken without consequence) and speculation to levels so extreme that they threaten the stability of the entire financial system.
These risks are well known, though largely ignored in the current speculative frenzy.
But there is another systemic risk which few if any see: the collapse of social cohesion.
President Carter was prescient in his understanding that a nation’s greatest strength is its social cohesion, a cohesion that America’s unprecedented wealth / income / power inequalities has undermined. Consider this excerpt from his 1981

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America’s Social Order Is Unraveling

June 29, 2021

The unraveling of America’s social order is accelerating, and denial will not save us from the consequences of the plundering of the social contract.
What kind of nation boasts a record-high stock market and an unraveling social order? Answer: a failed nation, a nation that has substituted artifice for realism for far too long, a nation that now depends on illusory phantoms of capital, prosperity and democracy to prop up a crumbling facade of “wealth” that the populace now understands is largely in the hands of a few families and corporations, most of which pay little to support the citizenry they dominate politically and financially.
The social order sounds abstract, but it is all too real. The social order has two primary components: social

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When Expedient “Saves” Become Permanent, Ruin Is Assured

June 28, 2021

The Fed’s “choice” is as illusory as the “wealth” the Fed has created with its perfection of moral hazard.
The belief that the Federal Reserve possesses god-like powers and wisdom would be comical if it wasn’t so deeply tragic, for the Fed doesn’t even have a plan, much less wisdom. All the Fed has is an incoherent jumble of expedient, panic-driven “saves” it cobbled together in the 2008-2009 Global Financial Meltdown that it had made inevitable.
The irony is the only thing that will still be rich when the whole rotten, corrupt, fragile financial system of illusory stability collapses in a heap of runaway instability. The irony is that the Fed’s leaky grab-bag of expedient “saves” was not designed to ensure systemic stability, though that was the PR cover story.
The Fed’s leaky grab-bag

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America’s Social Order is Unraveling

June 25, 2021

The unraveling of America’s social order is accelerating, and denial will not save us from the consequences of the plundering of the social contract.
What kind of nation boasts a record-high stock market and an unraveling social order? Answer: a failed nation, a nation that has substituted artifice for realism for far too long, a nation that now depends on illusory phantoms of capital, prosperity and democracy to prop up a crumbling facade of “wealth” that the populace now understands is largely in the hands of a few families and corporations, most of which pay little to support the citizenry they dominate politically and financially.
The social order sounds abstract, but it is all too real. The social orderhas two primary components: social cohesion, the glue of common purpose and

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It Always Ends the Same Way: Crisis, Crash, Collapse

June 25, 2021

Risk has not been extinguished, it is expanding geometrically beneath the false stability of a monstrously manipulated market.
One of the most under-appreciated investment insights is courtesy of Mike Tyson: “Everybody has a plan until they get punched in the mouth.” At this moment in history, the plan of most market participants is to place their full faith and trust in the status quo’s ability to keep asset prices lofting ever higher, essentially forever.
In other words, the vast majority of punters are convinced they will never suffer the indignity of getting punched in the mouth by a market crash. What makes this confidence so interesting is massively distorted markets always end the same way: crisis, crash and collapse.
The core dynamic here is

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It Always Ends The Same Way: Crisis, Crash, Collapse

June 24, 2021

Risk has not been extinguished, it is expanding geometrically beneath the false stability of a monstrously manipulated market.
One of the most under-appreciated investment insights is courtesy of Mike Tyson: “Everybody has a plan until they get punched in the mouth.” At this moment in history, the plan of most market participants is to place their full faith and trust in the status quo’s ability to keep asset prices lofting ever higher, essentially forever.
In other words, the vast majority of punters are convinced they will never suffer the indignity of getting punched in the mouth by a market crash. What makes this confidence so interesting is massively distorted markets always end the same way: crisis, crash and collapse.
The core dynamic here is distorted markets provide false

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Front-Running the Crash

June 21, 2021

What if everyone in the market realizes it’s now the moment to front-run the crash?
We have a fine-sounding word for running with the herd: momentum. When the herd is running, those who buy what the herd is buying and sell what the herd is selling are trading momentum, which sounds so much more professional and high-brow than the noisy, dusty image of large mammals (and their trading machines) mindlessly running with the herd.
We also have a fine-sounding phrase for anticipating where the herd is running: front-running. So when the herd is running into stocks, those who buy stocks just ahead of the herd are front-running the market.
When the Federal Reserve announces that’s it’s going to make billionaires even wealthier with some new financial spew, those betting that stocks will never

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USA 2021: Capitalism for the Powerless, Crony-Socialism for the Powerful

June 18, 2021

The only dynamic that’s even faintly “capitalist” about America’s Crony-Socialism is the price of political corruption is still a “market.”
The supposed “choice” between “capitalism” and “socialism” is a useful fabrication masking the worst of all possible worlds we inhabit: Capitalism for the powerless and Crony-Socialism for the powerful. Capitalism’s primary dynamics are reserved solely for the powerless: market price of money, capital’s exploitive potential, free-for-all competition and creative destruction.
The powerful, on the other hand, bask in the warm glow of socialism: The Federal Reserve protects them from the market cost of money–financiers and the super-wealthy get their money for virtually nothing from the Fed, in virtually unlimited quantities–and the Treasury, Congress

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Is Inflation “Transitory”? Here’s Your Simple Test

June 16, 2021

Is inflation “transitory” in your household budget? Really? Where?
The Federal Reserve has been bleating that inflation is “transitory”–but what about the real world that we live in, as opposed to the abstract funhouse of rigged statistics?Here’s a simple test to help you decide if inflation is “transitory” in the real world.
Let’s start with some simple stipulations: price is price, there are no tricks like hedonicsor substitution. Nobody cares if the truck stereo is better than it was 40 years ago, the price of the truck is the price we pay today, and that’s all that matters.
(Funny, the funhouse statistical adjustments never consider that appliances that used to last 30 years now break down and are junked after 3 years–if we adjusted for that, the $500 washer would be tagged at

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Seven Things Nobody Talks About that Will Eventually Matter–A Lot

June 14, 2021

Nobody seems to notice the ‘diminishing returns’ on Fed manipulation, oops, I mean ‘intervention’.
Perhaps it shouldn’t surprise us that everything that will eventually matter is ignored until it does matter–but by then it’s too late. Here’s a short list to start the discussion:
1. The Federal Reserve has transformed the American populace into a nation of dismayingly over-confident gamblers. I’ve been writing about moral hazard–the separation of risk from consequence–since 2011. Punters who are insulated from risk will have an insatiable appetite for risky bets, which is precisely what we see on a mass scale, as the confidence that the Fed will never let markets drop is 99.99% because the Fed has indeed reversed every decline, no matter how modest, month after month, year after year.

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The Fed Is Wrong: Inflation Is Sticky

June 11, 2021

The Fed’s god-like powers will be revealed for what they really are: artifice and illusion.
The Fed will be proven catastrophically wrong about inflation for the simple reason that inflation isn’t transitory, it’s sticky: when prices rise due to real-world scarcities and higher costs, they stay high and then move higher as expectations catch up with reality.
Consider the dynamic of Fed-inflated bubbles raising rents. The house that once sold for $200,000 is sold to a pool of investors for $800,000, and the property taxes, insurance and debt service rise accordingly: even though the house didn’t change, thanks to the Fed’s bubble, the entire cost structure is higher.
So what happens next? The investors jack the rent up to cover the higher costs. As for refinancing to lower the monthly

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Post-Pandemic Metamorphosis: Never Going Back

June 7, 2021

People caught on that the returns on the frenzied hamster wheel of “normal” have been diminishing for decades, but everyone was too busy to notice.
The superficial “return to normal” narrative focuses solely on first order effects:now that people can dispense with masks and social distancing, they are resuming their pre-pandemic spending orgy with a vengeance, which augurs great profits for Corporate America and higher tax revenues. Yea for “return to normal.”
This superficial narrative ignores second-order effects of the pandemic. Recall that first order effects: every action has a consequence. Second order effects: every consequence has its own consequence. We can also think of these as direct (first order) and indirect (second order) effects.
The pandemic’s first order effect was to

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A Couple Things About Inflation

June 4, 2021

The higher they push phantom “assets” based on exponential increases in leverage, the greater the air gap between essential tangibles and fantasy.
Inflation is in the news, but there are a couple of things about inflation that don’t get much coverage. Let’s start with the trope that inflation is always a monetary phenomenon. Actually, no.
When nutrient-rich soil and fresh water reserves are depleted, crop yields decline and as human population and appetites for animal protein soar, food becomes scarce. When food becomes scarce, prices rise accordingly. It doesn’t matter what you do with money supply, prices will rise in relation to everything used as “money:” gold, shells, paper with colorful pictures printed on it, giant stone disks, quatloos, cryptocurrencies, etc.
You could

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(Not) Living Large on Social Security

June 2, 2021

For about 1 in 4, Social Security provides at least 90 percent of their income.
How many retired workers are getting less than $1,000 per month in Social Security benefits?The question came up and I was curious enough to find the answer, and download the data into an Excel spreadsheet which I saved as a PDF that you can review here. Note that this data is for the 46.5 million retired workers only, and does not include benefits paid to survivors, spouses, disabled, etc.
This led to a deep dive into the basic numbers of Social Security beneficiaries and expenses, which are summarized in the chart below. Here are the basics:
Population of the US: 331 million Social Security beneficiaries: 69.8 million (21% of the population) Retired workers: 46.5 million (14% of the population) Survivors

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Increasingly Chaotic Volatility Ahead—The New Normal Few Think Possible

May 31, 2021

That the era of stability has ended and a new era of increasingly chaotic volatility has begun is not on anyone’s radar as a possibility.
The standard debate about the future of the economy is: which will we get, high inflation or a deflationary collapse of defaults and asset bubbles popping?
The debate goes round and round in widening circles of complexity as analysts delve into every nuance of the debate.
A recent conversation with my friend A.T. raised a third possibility few seem to consider: increasingly chaotic volatility will be the new normal, as wild swings between inflation and deflation will increase in amplitude and ferocity as the system destabilizes.
Increasingly chaotic volatility is a classic sign of a system that

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