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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

Which Lifeboat Will You Choose?

5 days ago

I’m sure it’s no surprise that the next five years will be risky and challenging; to the degree that we will be reliant on those closest to us, we are sharing a virtual lifeboat.
Consider a scenario in which we’re on a ship that’s sinking, and the lifeboats have been launched. Being some of the last still on board the doomed vessel, we can scan who’s in each lifeboat and choose which one we’ll clamber into.
It’s a consequential decision because the currents and weather are already separating the lifeboats, and so each lifeboat will be on its own. The seas are increasingly treacherous, and the nearby islands are surrounded by reefs which could shred the lifeboat’s hulls in seconds.
While we don’t know everyone on board, we’ve met many of the other passengers and crew and made the

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America Is Exceptionally…Kleptocratic: Wealth/Power Inequality and the Slide Into Disorder

6 days ago

The sheer weight of this outlandish asymmetry of wealth and power is pulling the nation into disorder.
The U.S. Constitution doesn’t address a small elite owning most of the nation’s private wealth and using a sliver of that wealth to influence the federal government so their wealth and political power increase in a self-reinforcing feedback: as a result of their campaign contributions and lobbying, the elites’ wealth continues expanding, enhancing their political power to further expand their wealth, and so on.
This financial and political dominance is thus perfectly legal. As Bastiat’s famous quote puts it: :When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that

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Warning Light Flashing Red

8 days ago

When the warning light is flashing red, it’s prudent to have a capital preservation strategy in place.
Not everyone has an IRA or 401K invested in the stock market, for those who do, the red warning light is flashing red: markets have reached historic extremes on numerous fronts.
Just like in 2000, proponents claim “this time it’s different.” Back then, the claim was that since the Internet would be growing for decades, dot-com stocks could go to the moon and beyond.
The claim the the Internet would continue growing was sound, but the prediction that this growth would drive stock valuations into a never-ending bubble was unsound.
Once again we hear reasonable-sounding claims being used to support predictions of a never-ending rise in stock valuations.
What hasn’t changed is humans

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What’s Yours Is Now Mine: America’s Era of Accelerating Expropriation

8 days ago

The takeaway here is obvious: earn as little money as possible and invest your surplus labor in assets that can’t be expropriated.
Expropriation: dispossessing the populace of property and property rights, via the legal and financial over-reach of monetary and political authorities.
All expropriations are pernicious, but the most destructive is the expropriation of labor’s value while the excessive gains of unproductive speculation accrue to the elite that owns most of the nation’s wealth.
In a nation in which the leadership has finely honed the art and artifice of legalized looting and financial legerdemain, it’s not surprising that the expropriation of labor’s value takes many forms. For the self-employed and small business

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The People Have Lost Faith in the State, and the State Has Lost Faith in its People

12 days ago

This is how states and empires decay and slide into the dustbin of history.
Democracy is fundamentally about advocacy: the people are free to advocate for their interests and form groups to represent their shared interests. In the broadest scope, the people are free to advocate for what they hold as the common good, policies and programs that benefit the entire populace rather than one special-interest group.
Since the state (all levels of government) concentrates wealth and power via taxation and a monopoly on force, groups advocate/lobby the state to recognize and respond to their interests. At the local level, this advocacy entails contacting city council members, speaking at council meetings, developing outreach tools (email lists, website, etc.), holding rallies at city hall, etc.

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The Only Way to Get Ahead Now Is Crazy-Risky Speculation

12 days ago

It’s all so pathetic, isn’t it? The only way left to get ahead in America is to leverage up the riskiest gambles.
It’s painfully obvious that the only way left to get ahead in America is crazy-risky speculation, but nobody seems to even notice this stark and stunning reality. Why are people piling into crazy-risky bets on speculative vehicles like Gamestop and Dogecoin? The obvious answer is because others have reaped a decade or two of wages in a few weeks, and skimming a couple hundred thousand dollars in a few weeks or months is the only way an average wage earner is going to be able to buy a house, fund a retirement account, afford to have a family, etc.
Look at the reality of wage stagnation: I made $12 an hour in 1986, and

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The Only Way to Get Ahead Now Is Crazy-Risky Speculation

14 days ago

It’s all so pathetic, isn’t it? The only way left to get ahead in America is to leverage up the riskiest gambles.
It’s painfully obvious that the only way left to get ahead in America is crazy-risky speculation, but nobody seems to even notice this stark and stunning reality. Why are people piling into crazy-risky bets on speculative vehicles like Gamestop and Dogecoin? The obvious answer is because others have reaped a decade or two of wages in a few weeks, and skimming a couple hundred thousand dollars in a few weeks or months is the only way an average wage earner is going to be able to buy a house, fund a retirement account, afford to have a family, etc.
Look at the reality of wage stagnation: I made $12 an hour in 1986, and I wasn’t some highly paid techno-guru or Wall Street

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America’s Fatal Synergies

17 days ago

America’s financial system and state are themselves the problems, yet neither system is capable of recognizing this or unwinding their fatal synergies.
why do some systems/states emerge from crises stronger while similar systems/states collapse?Put another way: take two very similar political-social-economic systems/nation-states and two very similar crises, and why does one system not just survive but emerge better adapted while the other system/state fails?
The answer lies in what author Geoffrey Parker termed Fatal Synergies and Benign Synergies in his book Global Crisis: War, Climate Change, & Catastrophe in the Seventeenth Century. Synergy results from “interactions that produce a combined effect greater than the sum of their separate effects.” In other words, 2 + 2 + 2 + 2 = 8 is

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If You Don’t See Any Risk, Ask Who Will “Buy the Dip” in a Freefall?

18 days ago

Nobody thinks a euphoric rally could ever go bidless, but as Greenspan belatedly admitted, liquidity is not guaranteed.
The current market melt-up is taken as nearly risk-free because the Fed has our back, i.e. the Federal Reserve will intervene long before any market decline does any damage.
It’s assumed the Fed or its proxies, i.e. the Plunge Protection Team, will be the buyer in any freefall sell-off: no matter how many punters are selling, the PPT will keep buying with its presumably unlimited billions.
If this looks risk-free, ask who else will be “buying the dip” in a freefall? Former Fed Chair Alan Greenspan answered this question in his post-2008 crash essay Never Saw It Coming: Why the Financial Crisis Took Economists By Surprise (Dec. 2013 Foreign Affairs):
“They (financial

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What’s Taboo? Everything Except Greed

19 days ago

OK, now I get it. Take a couple tabs of Euphorestra and Hopium, and stick to talking about making money in the market. Greed won’t offend anyone.
So I started to tell my buddy about my new screenplay idea:“There’s a global pandemic, and when they rush a bunch of vaccines to market, then….”
“Stop right there–even talking about vaccines will get you renditioned to a hellhole in one of the ‘stans.”
“But it’s just fiction.”
“You can argue with your guard in the hellhole, just before they haul you off to be waterboarded.”
“Jeez, has everything really gotten that crazy? OK, never mind. Anyway, I’m working on a little nostalgic story about the good old days when we plinked cans with our .22 rifles…”
“Don’t mention guns. Doesn’t matter who you talk to, somebody will get upset.”
“But this was

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The Middle Class Has Finally Been Suckered into the Casino

21 days ago

The Fed’s casino isn’t just rigged; it’s criminally unstable.
The decay of America’s middle class has been well documented and many commentators have explored the causal factors. The bottom line is that this decay isn’t random; the income of the middle class isn’t going to suddenly increase at 15 times the growth rate of the income of the top 0.1%. (see chart below)
The income of the top 0.1% grew 15 times faster than the incomes of the bottom 90% because that’s the only possible output of America’s distorted financial system. The same can be said of the rising asymmetry of wealth: the top 10% own 2.5 more wealth than the middle class (51% to 90%) and 34 times the wealth of the bottom 50% as a result of the asymmetric structure of our financial system.
In a truly market economy, risk

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The “Helicopter Parent” Fed and the Fatal Crash of Risk

23 days ago

All the risks generated by gambling with trillions of borrowed and leveraged dollars didn’t actually vanish; they were transferred by the Fed to the entire system.
The Federal Reserve is the nation’s Helicopter Parent, saving everyone from the consequences of their actions. We all know what happens when over-protective Helicopter Parents save their precious offspring from any opportunity to learn from mistakes and failures: they cripple their child’s ability to assess risk and learn from failure, guaranteeing fragility and catastrophically blind-to-risk decisions later in life.
Helicopter Parents generate a perfection of moral hazard, defined as there is no incentive to hedge risk because one is protected from its consequences.Moral hazard perversely increases the incentives to take on

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Is a Cultural Revolution Brewing in America?

23 days ago

The lesson of China’s Cultural Revolution in my view is that once the lid blows off, everything that was linear (predictable) goes non-linear (unpredictable).
There is a whiff of unease in the air as beneath the cheery veneer of free money for almost everyone, inequality and polarization are rapidly consuming what’s left of common ground in America.
Though there are many systemic differences between China and the U.S., humans in every nation are all still running Wetware 1.0 and so it is instructive to consider what can be learned from China’s Cultural Revolution 1966-1976.
China’s Cultural Revolution was remarkably different from the Party’s military-political victory of 1949. Where the political revolution was managed by the

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Is a Cultural Revolution Brewing in America?

26 days ago

The lesson of China’s Cultural Revolution in my view is that once the lid blows off, everything that was linear (predictable) goes non-linear (unpredictable).
There is a whiff of unease in the air as beneath the cheery veneer of free money for almost everyone, inequality and polarization are rapidly consuming what’s left of common ground in America.
Though there are many systemic differences between China and the U.S., humans in every nation are all still running Wetware 1.0 and so it is instructive to consider what can be learned from China’s Cultural Revolution 1966-1976.
China’s Cultural Revolution was remarkably different from the Party’s military-political victory of 1949. Where the political revolution was managed by the centralized hierarchy of the Communist Party (CCP), the

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What Could Go Awry?

28 days ago

All of which sounds very pretty indeed, but it does raise a question: can risk really be destroyed, or can it only be transferred? And if it can only be transferred, then what’s it been transferred to?
What a remarkable moment in time: every asset is lofting higher, with no limits in sight.The path ahead is already well-scouted: the U.S. economy will add a million jobs a month until the cows come home, Covid will continue fading until it basically disappears as an issue, the dollar and volatility will continue their death-march toward zero (good for risk assets), oil and commodities are entering a new super-cycle of growth, as are stocks, bonds (now that pesky yields are falling), cryptocurrencies and housing– all are entering super-cycles of high growth and essentially limitless

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What’s Changed and What Hasn’t in a Tumultuous Year

April 5, 2021

Inequality is America’s Monster Id, and we’re continuing to fuel its future rampage daily.
What’s changed and what hasn’t in the past year? What hasn’t changed is easy:
1. Wealth / income inequality is still increasing. (see chart #1 below)
2. Wages / labor’s share of the economy is still plummeting as financial speculation’s share has soared. (see chart #2 below)
What’s changed is also obvious:
1. Money velocity has cratered. (see chart #3 below)
2. Federal borrowing / spending has skyrocketed, pushing federal debt to unprecedented levels. (see chart #4 below)
3. Speculation has reached the society-wide mania level. This is evidenced by record margin debt levels, record levels of financial assets compared to GDP and many other indicators. (see chart #5 below)
Interestingly, every

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The UFO/Fed Connection

April 1, 2021

Perhaps the aliens’ keen interest in Earth’s central bank magic and its potential for destruction results from a wager.
You’ve probably noticed the recent uptick in UFO sightings and video recordings from aircraft of the extraordinary flight paths of these unidentified objects.
Perhaps it’s not coincidence that UFO sightings are soaring at the same time as central banks pursue unprecedented monetary policies. Imagine having the power to destroy an entire planet’s economy with a weapon that leaves the inhabitants and physical structures intact but vaporizes all the money. This weapon would be a monetary neutron bomb that crippled the planet with intangible force, leaving everything tangible untouched.
As author Arthur C. Clarke famously observed, “Any sufficiently advanced technology is

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The Hazardous Detour in the Road to “Recovery” Few Foresee

March 29, 2021

As the level of Fed smack and crack needed to maintain the high increases, system fragility increases geometrically.
You know the plot point in the horror film where the highway is blocked and a detour sign directs the car full of naive teens off onto a rutted track into the wilderness? We’re right therein the narrative of “the road to recovery”: the highway that everyone expected would be smooth and wide open is about to be detoured into a rutted track that peters out in a wilderness without any lights or signage.
Oops–no cell coverage out here either. Is that the road over there? Guess not–we just careened into a canyon alive with the roar of a raging river. Our vehicle keeps sliding downhill, even with the brakes locked… this trip to “recovery” was supposed to be so quick and easy,

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Health, Wealth and What Kills Most of Us

March 28, 2021

If health is wealth, and it most certainly is the highest form of wealth, then we would be well-served to take charge of our health-wealth in terms of what behaviors we can sustainably modify.
Longtime correspondent J.F. (MD) recently shared a fascinating graphic ranking the leading causes of death in the U.S. (2016 data, pre-pandemic) compared to searches on Google and what the media reports. (see chart below) Note that this data isn’t a survey asking people to rank the leading causes of death, but it does reflect what health topics they were interested in finding more about via web searches.
The media coverage of each cause of death is also not a representation of what the media presents as the leading causes of death; it’s a reflection of the quantity of media coverage of each cause

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Do We Really Think a Band-Aid Will Heal a Tumor?

March 25, 2021

Borrowing a quarter of the nation’s entire economic output every year to prop up an ineffective, corrupt status quo is putting a Band-Aid over a tumor.
If we misdiagnose the disease, our treatment won’t work.We’re all familiar with medical misdiagnoses, which lead to procedures and prescriptions that can’t possibly fix the patient’s illness because the source has been missed or misinterpreted.
Medical diagnoses are often tricky, as many general symptoms can arise from a variety of sources.
Social and economic ills can also be tricky to diagnose, and the diagnosis is hindered by political polarization and sacrosanct orthodoxies which make it difficult to have a rational discussion in public about many difficult issues.
If we can’t even discuss a problem, then that creates another

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Welcome to the Winter of Our Discontent

March 24, 2021

If you think this scale of stimulus is sustainable and consequence-free, you must be mainlining Delusionol.
Wall Street’s euphoria knows no bounds, so how can this be the Winter of Our Discontent?We all know the source of Wall Street’s euphoria: $1.9 trillion in stimulus, followed by another $3 trillion for corporate welfare, oops, I mean infrastructure, and a Federal Reserve whose solution to destabilizing wealth and income inequality is to make the rich even richer because, well, that’s what we do here at the Federal Reserve.
An old adage holds that what everybody else already knows has little value. So everybody knows about the Fed’s endless spew of monetary giveaways to Wall Street and the federal government’s endless trillions in borrow-and-blow stimulus, but does everyone already

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We Don’t Need the Great Reset, We Need the Great Rebalancing

March 23, 2021

Perhaps we have collectively “lost our mind.” Perhaps what we need is not a new technology but a new way of living that uses existing technologies to echo “old ways” that worked rather well on much lower energy consumption.
The Great Reset is much in the news–the proposed top-down plan for combating climate change designed by the global elites, who then as now will be jetting around in private aircraft while dictating exactly how the rest of us will reduce our carbon footprints.
My CLIME proposal takes a much different approach: change the way money is created and people are paid to create a new incentive structure that lets people and communities decide how best to reduce energy consumption and waste and address scarcities.

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We Don’t Need The Great Reset, We Need The Great Rebalancing

March 21, 2021

Perhaps we have collectively “lost our mind.” Perhaps what we need is not a new technology but a new way of living that uses existing technologies to echo “old ways” that worked rather well on much lower energy consumption.
The Great Reset is much in the news–the proposed top-down plan for combating climate change designed by the global elites, who then as now will be jetting around in private aircraft while dictating exactly how the rest of us will reduce our carbon footprints.
My CLIME proposal takes a much different approach: change the way money is created and people are paid to create a new incentive structure that lets people and communities decide how best to reduce energy consumption and waste and address scarcities. (CLIME is described in my books A Radically Beneficial World:

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How We Stumbled to the Edge of the Cliff

March 19, 2021

Oops. Looks like the Fed’s magic (and our luck) have finally run out.
Now that we’re teetering on the edge of the cliff, it might be a good idea to retrace how we stumbled down to this crumbling, precarious ledge. As I’ve discussed for the past 15 years, there are a handful of systemic forces that have taken us to the point of no return.
1. Demographics have reversed from tailwinds to headwinds. All sorts of extravagant promises could be made back when there were 10 workers paying taxes to support each retiree/state dependent. Now that we’re down to less than 2 full-time workers for each retiree/state dependent, the promises are impossible to keep, with the one exception of printing the trillions of dollars that were anticipated to be paid in taxes–that is, creating near-infinite sums

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Our Dead Money Economy

March 17, 2021

The U.S. stock and bond markets and its entire financial system now teeter on the edge of collapse if there is even a slight hint that 1) the Fed won’t give more free candy to Wall Street or 2) the Fed has lost control of the Dead Money Economy it has created.
Take a quick glance at these depictions of Dead Money: while the broad measure of the money supply in the U.S., M2, has gone up 12-fold since the start of 1981, the velocity of money–how many times it changes hands over a period of time–has collapsed.
What does this tell us about the U.S. economy and what lies ahead? The Federal Reserve’s FRED database provides a definition of M2 that’s a good starting place.
Note that the Fed refers to money stock, where the word stock refers to the sum total of money in the system, as in “the

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Stimulus Addiction Disorder: The Debt-Disposable Earnings Pyramid

March 15, 2021

One glance at this chart explains why the status quo is locked on “run to fail” and will implode in a spectacular collapse of the unsustainable debt super-nova..
For those who suspect the status quo is unsustainable but aren’t quite sure why, I’ve prepared a simple chart that explains the financial precariousness many sense. The chart depicts the two core elements of a debt-based, consumerist economy: disposable earnings, defined as the earnings left after paying for essentials which can then be used to service debt and debt.
In other words, if all the household earnings are spent on non-discretionary expenses (rent or mortgage, taxes, food, utilities, healthcare, etc.) then there is no money left to pay the interest and principal on a loan. Lenders consider this household uncreditworthy

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The Cannibalization Is Complete: Only Inedible Zombies Remain

March 11, 2021

Poor powerless Fed, poor starving cannibals, poor zombies turning to dust. That’s the American economy once the curtains are ripped away.
Setting aside the fictional flood of zombie movies for a moment, we find the real-world horror is the cannibalization of our economy, a cannibalization that is now complete. Every organic source of prosperity and productivity has been captured and consumed, hidden behind the convenient curtains of central bank intervention, “market forces” (hahaha), financialization and fiscal stimulus.
All that’s left now are zombies feeding off the offal of stimulus. Sadly for the cannibals who’ve feasted so well for decades, zombies are inedible. So now the cannibals are starving. Poor cannibals! Once the stimulus runs out, no more zombies. Poor zombies!
The

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Too Busy Frontrunning Inflation, Nobody Sees the Deflationary Tsunami

March 7, 2021

Those looking up from their “free fish!” frolicking will see the tsunami too late to save themselves.
It’s an amazing sight to see the water recede from the bay, and watch the crowd frolic in the shallows, scooping up the flopping fish. In this case, the crowd doing the “so easy to catch, why not grab as much as we can?” scooping is frontrunning inflation, the universally expected result of the Great Reflation Trade.
You know the Great Reflation Trade: the world has saved up trillions, governments are spending trillions, it’s going to be the greatest boom since the stone masons partied at the Great Pyramid in Giza. It’s so obvious that everyone has jumped in the water to scoop up all the free fish (i.e. stock market gains). Only an idiot would hesitate to frontrun the Great Reflation’s

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When Does This Travesty of a Mockery of a Sham Finally Implode?

March 5, 2021

The mutually reinforcing crises aren’t in the future, they’re here now, and Jay Powell’s shuck-and-jive has lost its magical powers to cloak the rot with speculative bubbles.
How many more times do we have to watch Jay Powell claim his speculative bubble isn’t a bubble, and that his massive expansion of billionaires’ fortunes will magically create jobs for all those living in the real world he’s created of stagnation, social depression and inequality?
In other words, when will this travesty of a mockery of a sham finally implode? When will the Universe tire of the lies, fraud, embezzlement and corruption and bring the whole rotten charade down? When will we tire of the stale tale of reflation, told by an idiot, full of sound and

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About That +6.8% GDP Forecast: Remember That GDP = Waste

March 2, 2021

Any economy stupid enough to rely on the insane distortions of GDP “growth” as its primary measure will richly deserve a Darwin Award when it inevitably collapses in a putrid heap of squandered resources and capital.
We’re told the gross domestic product (GDP) measures growth, but what it really measures is waste: capital, labor and resources that are squandered and then mislabeled “growth” for PR purposes. If we only manage what we measure, then we’re mismanaging our economy by promoting waste as the only metric we measure and incentivize.
Forecasts now predict a rousing 6.8% “growth” in 2021 GDP. In other words, the amount of resources and capital being squandered is going parabolic and we love it!
50 million autos and trucks stuck in traffic, burning millions of gallons of fuel

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