Tag: economics

The Capital That Was Lost

A commenter on Gab observes how the societal changes throughout the United States have significantly reduced its human capital:

I like to relate to my experience growing up in a small town, once a modest but prosperous mining community. By the 80s and through the 90s, the mine was long closed and economic opportunities were scant. By the 2000s, generational welfare recipients were common, except now the last vestiges of culture disappear as crime and drugs increase.

The town now serves mostly as a retirement/ bedroom community with a base of unfortunates.

I always thought that if a big employer showed up nearby, there would be a huge line for the much needed jobs. What I didn’t understand until recent years is what had really been lost: Human capital.

Now employers are hungry for people and you can’t get anyone to show up. New generations seem incapable of managing getting to work on time or at all. That’s what was lost, the culture that reinforced family, work ethic, social values. That’s human capital. Once it’s gone, it’s very hard to get back.

This is where Generation X can, despite its tendency toward nihilism and apathy, make a real difference and give its successors an advantage. Because we don’t care about the mainstream narrative, we can reinforce the traditional family, work ethic, and social values that enhance human capital. We have the ability to teach them how to be in the society, but not of it.

Just yesterday, I explained the way business communications hierarchy worked to several members of the younger generation, and assigned them to watch this scene from The Godfather in order to help them understand how it works. Notice in particular the way the two senior subordinates, the hit man and the lawyer, as well as the rival family capo, understand immediately the major faux pas that has been committed by the undisciplined son.

“I have a sentimental weakness for my children, and I spoil them, as you can see. They talk when they should listen.” This is the key phrase from this scene, and not the more famous “Never tell anybody outside the Family what you’re thinking again.” But they are both significant concepts that are part of what was the human capital of the time.

Our children and grandchildren will not pick up these things via osmosis from the mainstream culture the way we did, which is why it falls for us to preserve it by teaching them wisely and well.

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Mailvox: Borrowed Time

A reader with knowledge of the US shipbuilding industry concurs with my assessment of the USN having lost its naval superiority:

Your analysis about US shipbuilding capacity was spot on. I have an uncle who is an engineer at Newport News shipbuilding (Ingalls). I remember, many years ago, we were having a discussion similar to this topic and it centered on submarines construction.

I didn’t know this but New London, Conn (Electric Boat) can only build sections of the subs. The bow section is built at Newport News. The reason being, Electic Boat lacks the machine necessary to bend the steel in the bulbus shape of the bow section. They sold it off years ago. Newport News is the only shipyard that has that machine. I was surprised because this is an obvious single point of failure.

But then he went to tell me that Newport News is the only shipyard that can install a nuclear reactor. I shook my head in disgust. Right then and there, I knew that we, as a country, were pretenders living on borrowed time.

No amount of glorious history and past success can prevent an outdated power from being surpassed by its successor. Sooner or later, the illusion of invincibility inevitably fades.

UPDATE: Apparently the reader’s take is the optimistic scenario, as someone with direct experience of naval repairs weighs in.

As someone who worked in ship repair on aircraft carriers and submarines at a naval shipyard for [more than 20] years, and on non-nuclear vessels for [additional] years as well, the description given to you of the industry is a vast understatement. The ability for the handful of nuclear capable yards to fix ships has been crippled by a combo of inability to train new workers well, and inability to maintain the skilled workers they do have. “Diversity” pushes women and racial minorities to the top in engineering positions. Some of those may have actually been able to do the jobs they were pushed into if they’d been given the time to build their skills in the way any man would have 10-20 years ago.

In the trades, even a modicum of skill is enough to find yourself fast tracked to a supervisor position before you even finish the apprenticeship program. Admirals appear to think that the lack of capacity to perform can be solved by creating more shipyards. This requires ignoring that the private shipyards can’t hire and maintain skilled labor either, both in nuclear and non-nuclear work. It’s not uncommon to leave a shipyard with many systems in worse shape after “maintenance” than they were in before arriving there. The ridiculous lead times for materials suggests other related industries are in just as bad of shape. As I write this, i’m staring at photos that just came out to my group of [important ship’s equipment destroyed by carelessness].

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The End of a Naval Era

After 80 years, the United States Navy is no longer the dominant naval power on Earth.

Moscow and Beijing conducted large-scale naval drills in the Sea of Japan this week, Russia’s Pacific Fleet announced in a statement to journalists on Sunday. The three-day exercise involved a wide range of activities, including joint firing drills, a simulated naval battle, and air defense training.

The ‘North/Cooperation-2023’ exercise was held over July 20-23, the fleet’s press service said. It involved two Russian anti-submarine war frigates and two Chinese destroyers, as well as a pair of both Russian corvettes and Chinese guard ships alongside a number of support vessels, the statement said.

A total of 30 aircraft from both nations also took part in the drills, the fleet said, adding that this included anti-submarine planes and helicopters, interceptors and other maritime aircraft, the fleet said. The two nations’ naval groups took part in some 20 combat exercises during the drills, it added.

The drills were aimed at “strengthening the naval cooperation between the Russian Federation and the People’s Republic of China as well as maintaining peace and stability in the Asia-Pacific Region,” the statement said.

This is significant because it is a signal that the Russians and Chinese are now confident that their combined naval power rivals that of the USA. I expect it will not be too long now before China announces that the South China Sea and the Taiwan Straits are off-limits, dares the USN to challenge the ban, and the USN subsequently backs down after mumbling some meaningless phrases about “the freedom of the seas”.

How can we be so certain that China is now a greater sea power than the USA? After all, while the USN has fewer ships than the PLN, it has the advantage of more experience, better quality ships, and more of the aircraft carriers that have been the heart of all naval power since 1941. The reason is twofold. First, as we’ve seen in Ukraine, air power is now vulnerable to air defense systems to a much greater extent than before. Any air strike from a carrier against a first-tier military target is likely to lose more than half the planes it launches.

Second, and more important, China can rapidly replace its naval losses in the event of a war. The USA cannot. In fact, China’s shipbuilding advantage over the USA now exceeds the historical advantage that the USA enjoyed over Japan in WWII by a considerable margin.

A U.S. Navy briefing slide is calling new attention to the worrisome disparity between Chinese and U.S. capacity to build new naval vessels and total naval force sizes. The data compiled by the Office of Naval Intelligence says that a growing gap in fleet sizes is being helped by China’s shipbuilders being more than 200 times more capable of producing surface warships and submarines. This underscores longstanding concerns about the U.S. Navy’s ability to challenge Chinese fleets, as well as sustain its forces afloat, in any future high-end conflict.

The most eye-catching component of the slide is a depiction of the relative Chinese and U.S. shipbuilding capacity expressed in terms of gross tonnage. The graphic shows that China’s shipyards have a capacity of around 23,250,000 million tons versus less than 100,000 tons in the United States. That is at least an astonishing 232 times greater than the United States.

Consider the implications of this massive capacity delta in light of the historic difference between US and Japanese manufacturing between 1942 and 1945.

Shipping Tonnage Produced, 1942 to 1945

—————-1942———-1943————1944———-1945

USA—–6,252,300—15,153,000—14,580,000—8,804,900

Japan——511,100—-1,023,000——1,929,200—–626,300

delta——-1223%——–1481%————757%——-1406%

Speaking of aircraft carriers, Japan was only able to build 9 carriers over the course of the war, some of which were never launched, while the US launched 120, many of which were surplus to requirements.

Aircraft produced, 1942 to 1945

———–1942——-1943——-1944——-1945

USA—-47,800—–85,900—–96,300—–46,000

Japan—8,900—–16,700—–28,200—–11,100

delta—–537%——-514%——-342%——-414%

And while it is theoretically possible for the US to signficantly expand its industrial capacity in order to reduce its disadvantage, the political, ideological, and demographic realities render that improbable to the point of total impossibility. The US corpocracy’s commitment to diversity, inclusion, and equality is actively reducing its current capabilities, which means there is no way it can reasonably be expected to expand them successfully.

I’d always thought that the end of US naval dominance would be the consequence of a Sicilian Expedition that resulted in the unexpected sinking of one or more aircraft carriers. But thanks to Ukraine and the offshoring of US industrial capacity, we appear to have passed that historical point in relative peace and without any fireworks.

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It’s Not About the Economics

In which we see, once more, that those who believe material elements, such as greed or individual ambition, are the primary driver of all human action, have no capacity for understanding or anticipating future events.

Economic logic provides that the U.S. (and European) economy would be better off by avoiding a conflict with Russia and China. But, as Micheal Hudson explains, this now gets overwritten by national security preferences which have remarkable conseqences:

Instead of isolating Russia and China and making them dependent on U.S. economic control, U.S. unipolar diplomacy has isolated itself and its NATO satellites from the rest of the world – the Global Majority that is growing while NATO economies are rushing ahead along their Road to Deindustrialization. The remarkable thing is that while NATO warns of the “risk” of trade with Russia and China, it does not see its loss of industrial viability and economic sovereignty to the United States as a risk.

This is not what the “economic interpretation of history” would have forecast. Governments are expected to support their economy’s leading business interests. So we are brought back to the question of whether economic factors will determine the shape of world trade, investment and diplomacy. Is it really possible to create a set of post-economic NATO economies whose members will come to look much like the rapidly depopulating and de-industrializing Baltic states and post-Soviet Ukraine?

This would be a strange kind of “national security” indeed. In economic terms it seems that the U.S. and European strategy of self-isolation from the rest of the world is so massive and far-reaching an error that its effects are the equivalent of a world war.

The question is really why the U.S. is doing this harm to itself instead of following Brzezinski’s and Kissinger’s advice. As Yves Smith says in her preface to Hudson’s piece, it is a quite bizarre spectacle:

One of the subthemes of the latest offering from Michael Hudson on the bizarre spectacle of the US escalating against China is puzzlement that the West is not operating in its best interest. Lambert has been chewing over this conundrum too. Perhaps it’s that they really do believe their propaganda, and still don’t recognize that the military and economic clout of the US/EU bloc on a relative basis isn’t anywhere near substantial enough for them to push the rest of the world around. But you think their self-delusion would have started to crack with the failure in their efforts to pressure many countries, such as India and South Africa, to side with the US and condemn Russia’s actions in Ukraine, and now with the supposedly superior US/NATO war machine not performing too well.

Another possibility is the so-called Iron Law of Institutions, that individuals and interests are operating to maximize their own position, with little/no concern to the impact on the system.

I have come to the conclusion that the main actors in this game, the Bindens, Blinkens, Sullivans and their bipartisan supporters, are driven by a blind ideology that has dismissed or replaced global realities with wishful thinking.

The failure of their sanctions against Russia should have demonstrated to them that the real word is by far not the one in which they believe to be living. They however are now repeating their errors by waging a similar war against China.

The U.S. Wars Against Russia And China Have No Economic Logic Attached To Them, 22 July 2023

It’s fascinating how the material mind reaches out in every direction but the correct one. But Sherlock Holmes had it backwards. Once you have eliminated all of the probabilities, the appropriate action is to conclude that what you hitherto believed to be impossible may be the truth.

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Why Your Grocery Bill is Rising

Russia abrogated the Black Sea grain deal and reimposed its naval blockade of Ukraine after the West – shockingly and totally unexpectedly – again failed to live up to its responsibilities under the treaty.

The Russian military issued a new navigational warning for the Black Sea on Wednesday, declaring certain areas in its international waters to be “temporarily unsafe” for vessels. Apart from that, the military advised seafarers against attempting to reach Ukraine’s ports, stating that all vessels heading there will be treated as potential carriers of war goods starting from Thursday.

Therefore, the flag state of a ship attempting to reach the Ukrainian Black Sea ports will be deemed as “taking part in the Ukrainian conflict on the side of the Kiev regime,” the Russian Defense ministry said in a statement.

The military said it also declared certain areas in the international waters of the Black Sea to be “temporarily unsafe” for navigation. The areas are located in the north-west and south-east of the waterway, the military noted, adding that all the necessary navigational warnings have already been published as required under existing procedures.

“With the termination of the Black Sea Initiative and the abolition of the maritime humanitarian corridor, from 00:00 Moscow time on July 20, 2023, all ships en route to Ukrainian ports in the Black Sea will be considered potential carriers of military cargo,” the military insisted.

The new restrictions de-facto re-impose the Russian naval blockade on Ukraine, lifted under the so-called Black Sea grain deal in July 2022. The agreement, signed with mediation by the UN and Türkiye, enabled the safe shipment of Ukrainian grain through Black Sea corridors amid the conflict between Moscow and Kiev. Moscow withdrew from the deal on Monday, citing the West’s failure to keep any of the promises made to Russia under the agreement, including re-enabling exports of grain and fertilizers from the country.

The Russians followed the announcement with a series of missile strikes on Odessa and other Black Sea port facilities, as well as a warning that ships would no longer be allowed to freely transit the Black Sea.

Footage circulating online shows massive explosions in the vicinity of Odessa, including at its Black Sea ports. Ukrainian officials have claimed the strikes also inflicted damage on civilian infrastructure, with the city’s mayor, Gennadiy Trukhanov, saying the attack was the largest since the beginning of hostilities. He described last night in the city as “terrible.”

The cancellation of the grain deal is expected to contribute to rising food prices, especially in North Africa, the Middle East, and South Asia, according to the IMF, but will likely have a knock-on impact in Europe and North America as well.

As I mentioned on a recent Darkstream, we appear to be entering a new and more dangerous phase of the NATO-Russian war.

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Success in Clown World

Never forget that this is what passes for success in Clown World.

Funding History: The Athletic raised $139.5 million via five funding rounds beginning in 2017.

  • Seed Funding: $2.3 million led by Courtside Ventures
  • Series A: $5.4 million led by Courtside Ventures
  • Series B: $20 million led by Evolution Media
  • Series C: $40 million co-led by Founders Fund & Bedrock Capital
  • C1 round investment: $22 million led by Founders Fund
  • Series D: $50 million led by Bedrock Capital

Operating Losses: The Athletic lost $121 million in just four years.

  • 2019: $54 million
  • 2020: $41 million
  • 2021: $55 million
  • 2022: $36 million

In January 2022, The New York Times paid $550 million for The Athletic.

All “success” in Clown World is manufactured, fake, and usually gay. Don’t chase it. You’d have to be retarded to chase it. Chase the Good, the Beautiful, and the True instead.

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Business When the Bubble Bursts

Karl Denninger explains why businesses – indeed, entire industries – that work as long as credit is expanding fail rapidly once the debt-money supply begins to contract:

In a bubble economy, where the government is pressing new credit into the hands of the public, directly and indirectly, every business plan looks good.

When the impact of that action turns back into inflation, and it always does, wherever that inflation shows up ultimately detonates every one of those firms.

The truth is that every firm is only stable on an continuing concern basis if it can sell its goods and services at a profit without said excess credit creation.

If it can’t then the business model is bankrupt and said temporary success only occurred because of a scam, whether the firm was doing the scamming or they were riding a government scam.

One of the latest examples is “Toast”, which is a company that provides POS systems to restaurants and bars. You’ve probably seen it; I have, several times. They were a “darling” in the space and quite-rapidly took over, providing various services including online ordering. During the pandemic this looked really attractive to places that were not part of a national chain in that it “gave” them said online ordering presence that they otherwise wouldn’t have and couldn’t afford to individually develop.

The problem is that the company, which is publicly traded, is losing money. They partnered with Google and that apparently brought in less than it cost (gee, go figure, you all tried to ride the money-printing wave that came with the pandemic) and now they’ve added a “processing fee” behind the back of restaurants on online orders.

This is likely illegal, incidentally, and definitely is if not disclosed appropriately before the customer places the order. Further it may well breach the implied warranty of fair dealing with the restaurant which neither gets any of the fee nor were they apparently part of a negotiation to add it when they signed their service contract — this appears, from the above-linked story, to be something the firm unilaterally added.

But that’s the sort of thing that happens when you have a bankrupt business model that only “works” due to inflationary credit emission by the government, you appear to be “doing well” and then the inflation rebounds into your face and suddenly you have a big fat net loss.

The same sort of crap went on with the so-called “short-term rental” arbitrage market — AirBNB and VRBO, to name two of several. The embedded costs in this, including the platform fees, cleaning charges that someone has to eat between guests and similar, along with the pure arbitrage nature of these transactions in that the places being rented are neither built or maintained to commercial occupancy standards is obvious. This looks like a good deal but it only is due to inflationary credit creation; the business model is inherently bankrupt as the overhead exceeds that, by quite a bit, of a hotel or other lodging arrangement if the arbitrage and overhead costs are not available to be hidden via said credit creation. The belief in “free” feeds back into property prices which results in a further inflationary price spiral — this time in the acquisition price of said properties.

The reason these businesses tend to collapse so fast is because they live right on the edge. They’re always expanding as rapidly as they can, and funding that growth with debt, so the minute that either a) the growth slows or b) the cost of debt service rises, they can’t afford to continue servicing the debt and the business goes straight into bankruptcy despite being generally sound and profitable at the operational level.

This is why I don’t advocate using debt to grow your business, whether it is by acquisition or expanding production. Slow and steady doesn’t excite anyone, it won’t get you on the cover of any magazines, but it does lend itself to antifragility and long-term survival.

The smart boys in finance always think they’ll ride the wave and exit at the peak, and that’s at least theoretically possible if you’re just trading or in the VC game. But it’s not a viable approach to running an actual business that operates in the real economy.

UPDATE: Let’s not forget that everything in Clown World’s corpocracy is fake and gay.

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Better Late Than Never

A psychiatrist admits that psychiatry is a fake science:

I’ve been practicing psychiatry for 38 years. I love my job, my peers, and my patients. But I’ve come to the conclusion that I’m participating in the biggest intellectual scam of this era. We claim to be a science, but have no understanding how thought or behavior is generated.

Many billions of dollars are spent each year in an industry built on a corrupt body of pseudoscience, cultivated and exploited by monied interests for decades. This scientific fraud has been more successful than any other of our day. Our diagnoses are contrived by our guild,

the APA, with the collaboration of monied interests—and are so unrelated to actual science that they are copyrighted and published to profit that organization.

In the process of selling a corporatist, medication-oriented model of treatment, psychiatry has been stunningly successful in redefining what it means to be a human being. Meanwhile, 20 years of peak psychiatry has resulted in a 30% increase of suicide in the United States—and American psychiatry has absolutely nothing constructive to say about it.

I’d place more confidence in astrology, phrenology, and haruspicy than in psychiatry or psychology. It’s a fake science concocted by a pervert who was projecting his own perversions on humanity. This was always obvious, but what is less obvious is that Keynesian economics is Freudian psychology applied to the economy.

Which makes all modern economics equally fraudulent, since it is Paul Samuelson’s quantification of John Maynard Keynes’s Freudian construct.

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BRICS Opts for Gold

This move by the anti-Clown alliance is almost the exact opposite of surprising:

In a surprising move, the BRICS+ countries – a group including Brazil, Russia, India, China, and South Africa, plus additional emerging economies – plan to introduce a new currency, likely linked to a weight of gold. This plan, set to be unveiled at their annual leaders’ summit conference, marks a significant challenge to the dollar’s reign in international finance.

The initiative, principally driven by Russia and China – the world’s largest gold producers – aims to link the new currency to a specific weight of gold. This strategy leverages their gold-rich status and presents a formidable challenge to the dollar’s pre-eminence. Experts are closely watching the development and analyzing the potential repercussions for global markets.

Understanding the implications of this currency shift requires an exploration of the dollar’s standing in international finance. Traditionally, the dollar has enjoyed an unchallenged position, serving as the world’s primary reserve currency. It’s used widely in international trade, providing stability and convenience to global transactions. However, the introduction of a new gold-linked currency could disrupt this balance, challenging the dollar’s omnipresence and potentially displacing it as the dominant payment currency.

The impact on the dollar will be best understood by gauging its strength in gold rather than comparing it with other currencies. If the gold price rises significantly, it would indicate a devaluation of the dollar and a collapse of confidence in major currencies. While this is speculative at the moment, it’s a possibility that global markets cannot afford to overlook.

It’s exactly the right thing to do to undermine the dollar-based financial system that is one of the two pillars of Clown World: the dollar and the US military. I’ve been wondering what has taken BRICS so long to reach this point, since it was an obvious need, but I suppose there has been considerable negotiation behind the scenes in determining precisely who will get to call the shots.

It’s one thing to be mutually opposed to something, it’s another thing to cooperatively work together. But this is probably the biggest global financial development since Russia unexpectedly survived the multiple waves of sanctions.

And the fact that there will be an objective foundation for the alternative currency will make it extremely attractive to unaligned parties.

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Banking in Yuan

Russian banks are openly discussing settlements in the Chinese currency:

The hegemony of the US dollar is seriously challenged by the rise of the Chinese yuan and by Washington’s failed attempt to wreck the Russian economy by weaponizing the greenback, Andrey Kostin, head of Russia’s banking major VTB, told Reuters on Friday.

The major banking figure said that under the current geopolitical circumstances more and more nations are shifting away from trade settlements in dollar and euro, while China is moving towards removal of strict currency policies.

“The long historical era of the dominance of the American dollar is coming to an end,” Kostin said, in an interview with the news agency. “I think that the time has come when China will gradually remove currency restrictions.”

According to Kostin, VTB has been discussing using the Chinese national currency in settlements with third countries.

US Dollar hegemony was always based on US military supremacy which began with the security of the US industrial homeland and was secured by the physical destruction of all of its potential economic rivals from 1939-1941. But now that Clown World is collapsing under the weight of its incoherencies, that global military supremacy has devolved to the mere regional superiority of a traditional Great Power, as evidenced by the recent failures of its proxies in Syria, Afghanistan, and Ukraine.

And that is a very, very different game than global monopower.

My expectation is that the political structure of the USA will fail before most Americans recognize the extent to which the global balance of power has changed.

UPDATE: The Chinese are directly targeting the US film industry as well.

China Film Association released professional ethics convention for film practitioners, vowing firm opposition to tax evasion, pornography, gambling and drugs.

The association published the convention on its WeChat account on Thursday, saying that the move is aimed to further strengthen the construction of professional ethics of film workers and the construction of film industry style in order to create a clean environment for the Chinese film industry and contribute to building China into a country with a strong socialist culture.

The convention called on Chinese film practitioners to stick to loving the country and the people and to firmly oppose any remark or behavior attempting to split the country, destroy national unity, damage social harmony and stability or infringe people’s interests.

It requires film practitioners to comply with the laws and regulations on environmental protection, cultural relics protection and production safety at filming sites; resolutely resist tax evasion, pornography, gambling and drugs.

It also expresses opposition against violating behaviors like exorbitant pay, ghostwriting by gunmen, malicious hype, fake box office and illegal reprinting, and calls on the industry to abandon abnormal aesthetics.

Translation from the original Mandarin: No more Disney films in China.

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