“People with substantial cryptocurrency holdings face grave personal danger, and the physical attacks on their person grow bolder, more violent, and more sadistic by the day.”
Apropos nothing in particular, I just wanted to mention that I own no cryptocurrency assets at all, and (except for a few bitcoin cents that I briefly owned and then lost in 2011 in the hack of mybitcoin.com) I never have.
And, just for the record, I’ll also mention that I don’t think any cryptocurrency asset will ever be a thing of durable value. (This doesn’t mean that blockchains aren’t a useful technology. Just that they make crappy assets.)
My brother and I think alike about many things, and differently about many other things. We also sometimes disagree about what it is that we disagree about, which is kind of funny all by itself.
Although we agree about many things, we sometimes actually come at things from quite different perspectives.
In my brother’s thinking, I “never really wanted to work and pursued a career with the goal of retiring early,” which is both true and false. I hated having a job of the sort where I needed to show up every day, and do stuff that I didn’t find interesting. But I never objected to working. I just wanted the word used correctly. I was delighted to “work” in the sense of producing great works of literature (or art, or philanthropy).
It was never working I objected to. I simply didn’t like “working for the man.”
In retirement I don’t have to do that, and am able to devote myself to work (such as my fiction writing), to the necessary tasks of daily living (such as walking my dog), and to doing things I enjoy for their own sake (such as exercise, and reading).
And although the specifics may be quite different, in this area I think my brother and I are very much in agreement.
I have no shortage of interesting projects I intend to work on in retirement.
All over Europe, farmers are parking their tractors on bridges, in front of fuel depots, and across from government offices, to protest government policies that are making the economics of being a farmer completely untenable.
It’s not happening so much in the U.S. At least not yet. I guess, as long as people are willing to pretend it’s not welfare, farmers are willing to take government money—even as their livelihoods are being destroyed.
But…
But emergency checks are not farm policy. And without a permanent Farm Bill, the next drought, the next bad harvest, the next crisis, won’t have a safety net waiting — just another extension, and another prayer.
For no reason I can understand, markets seem to think that (with the cease fire with Iran) things are going to return more or less to normal, more or less immediately. This is false. It is not just false, it is so far from the truth that I don’t understand why way more people aren’t panicking.
There are so many problems with oil supply delivery right now—so many more than just the Strait of Hormuz. A lot of oil and gas production infrastructure is gone. A lot of oil and gas distribution infrastructure is gone. Even where the production infrastructure is still there, since there’s no way to ship out what is produced, production is being shut in. Production that has been shut in will take weeks to get started again. And it won’t be started again until it can be delivered.
At the same time, shipments of oil and gas that came out through the Strait just before it was closed, are probably only now reaching their destinations—meaning that it is only now that refineries are finding themselves without their next input for refining. The refining facilities are going to have to shut down. And just like the production facilities, it will take weeks to get them started again. And they won’t be started again until the people who run them foresee reliable, steady deliveries of crude.
These effects are already obvious in the observed spread between spot prices (the cost of a barrel of crude to be delivered right now), which are high (although not as high as I think would make sense), and futures prices (the cost of a barrel of crude to be delivered in a month), which are also high (but not nearly as high as I think would make sense).
The same is true (with various differences in details) with helium, nitrogen for fertilizer, aluminum, and who knows how many other commodities that used to come though the Strait.
This all matters because the knock-on effects are going to be huge. Higher fuel prices—much higher, and for much longer than the markets are currently anticipating. Higher food prices, due to the shortage of fertilizer reducing food production, especially of corn—which is a major input to both meat production and to ethanol production, meaning another way it feeds-through the higher energy prices. Higher helium prices feed through to shortages of computer chips—which were already under strain due to AI-related data-center demand.
In the background of all these are Trump’s tariffs from a year ago, the impact of which was eased in many different ways (the pause, various rate cuts, firms stocking-up ahead of the imposition of the taxes, the supreme court decision ruling that the worst of them were illegal), all of which delayed the main impacts for months. For some reason, the markets seem to think that those impacts would quit showing up in comparison to the year-ago numbers (since the tariffs were announced one year ago), but in fact are probably only now fully showing up in reported numbers.
My take on all this is that every aspect of the economy is going start getting bad, and then going on getting worse. The getting-worse phase will go on at least for months and months, and very possibly for a year or two or three.
Inflation spiked up to 3.3% last month, but that is only the start. That’s just the energy-price spike. As soon as those effects feed through to other prices, they’ll all go up. And as soon as those high prices start forcing people to cut back on other spending, we’ll see at least a recession, and very possibly worse than that. And that’s all before actual shortages or fuel and food start impacting every aspect of people’s lives.
Oh, and as I’ve said before: Don’t imagine that having some idea about what things are going to be higher-priced or in short-supply gives you the sort of insight that will let you invest to make money off these circumstances. The real-world impact of these things are going to be chaotic enough that any particular investment could go very badly wrong, even if your understanding of the general direction of events is correct. And, of course, the government is going to trying to protect their supporters (oil companies and tech billionaires, mostly) so they may well be bailed out. Any investments that suppose that things will go badly for them in particular may well go spectacularly awry.
Recent news is that a contingent of ground forces have arrived in Iran. The markets still seem expect that Trump will chicken out (which seems likely) and that things will return to normal in the Gulf (which seems very, very unlikely).
My most hopeful guess at this point:
Trump chickens out, declares victory, says we have a deal with Iran, and pulls out.
Europe and Asia make a deal with Iran that conditionally opens the Strait, with Iran deciding who can transit, and collecting large tolls.
Europe and Asia start getting deliveries of oil and gas and fertilizer and helium. Because of the gap already embedded in deliveries, prices spike up in the meantime.
Because the U.S. is an oil and gas exporter, our prices spike up less (but still spike up, because there’s a global market), and reduced supply of fertilizer and other things from the Gulf means other prices spike up as well, producing an inflationary recession that rivals the worst of 2008 and 2020.
All my other guesses are similar, except that my scenario is preceded by a step 0 in which a bunch of U.S. soldiers and marines are killed while failing to reopen the Strait.
I’ve known since before the inauguration that the economy was facing stagflation. The tax cuts would boost the deficit, raising interest rates. The tariffs would boost prices, producing inflation. Both those things, plus forcing out immigrants, would tank the economy, producing stagnation (at best), yielding stagflation.
I wrote about this more than a year ago, in Our new upcoming stagflation. We are now seeing it, even before the war started.
I’m actually a little surprised we didn’t see it sooner. I credit the delay to a few things. First, Biden had left the economy in really good shape. It took a lot to tank it. Second, even though it seemed to us that Trump was “moving fast and braking things,” it’s just hard to move that fast on things like tax cuts, imposing tariffs, and deporting migrants—even if you’re willing to break laws to do it faster, these things take time. Third, Trump always chickens out, so we didn’t get the threatened tariffs on schedule; we got watered down tariffs after a delay.
However, the stagflation is here. Check out this graph of Real GDP. As you can see, in Q4 it had fallen almost to zero. The economy wasn’t shrinking, but it was stagnating.
At the same time, inflation had quit coming down. Here’s a graph of Core PCE, the Fed’s preferred inflation index. After getting down almost to 2% (the Fed’s target) about 8 months ago, it reversed course and has been bumping along close to 3% since then.
I think all of these things were about to get worse. Even with the Supreme Court’s ruling that a major part of Trump’s tariffs were illegal, there were plenty of others that aren’t going away. The tax cuts are still in place. Immigration has virtually come to a halt, many immigrants have been detained or deported, and any sensible foreigners with skills that they can apply elsewhere are fleeing the country.
So: Stagflation was already here. But things are about to get much, much worse, because now there’s a war on.
That has already spiked up oil prices. Those won’t feed immediately into Core PCE (which excludes food and energy prices), but will feed in over time, because higher energy prices make everything we produce more expensive. And, of course, wars are fantastically expensive, meaning that the deficit will blow out way worse than it was already going to, which will lead to higher interest rates (soon) and higher taxes (later).
Oh, and don’t expect AI to save us. If you listen to the business news, you know that the only reason the economy isn’t in much worse shape is that businesses have been paying huge amounts on AI infrastructure. As I wrote in my AI bubble post, I think a large fraction of the data centers and model training that that money got paid for will turn out to be worth much less than was paid for it.
So, where are we? Well, about where I thought we’d be, as far as the economy goes—in a modest stagflation that could be fixed pretty quickly, at the cost of a substantial recession, if the Fed had the guts for that. Except that now we’re in a war too.
I can tell you how to arrange your finances to survive a stagflationary period, but I can’t tell you how to survive a war. Wars are very bad, much worse than recessions.
If you know how to survive a war, let me know. If not, good luck.
A pretty good recent episode of Gil Duran’s Nerd Reich podcast had an odd hole in it.
In the one I’m talking about, the one with Quinn Slobodian, Quinn explains that there’s a reason the many efforts to create a seastead, charter city, network state, and such never go anywhere: They’re unnecessary.
[Y]ou don’t actually need to create a new polity to have your own sense of entitlement and privilege reinforced in every imaginable way, and to have your own economic comfort facilitated by the institutional arrangements of the state in almost every way. With some creative accounting and some use of offshore havens and trusts and so on, you can really game the whole thing very well already, right?
Having said that, they do talk a bit about why, given that there are already tools to protect your property and money (freeports, trust, special economic zones, and the like), anybody would work so hard and spend so much money to create an actual place that’s outside the control of any government. They don’t quite come around to answering that question, which I think is unfortunate, because I think they both know the answer.
The people pushing these efforts want serfs.
They don’t want workers who can join unions. They don’t want software engineers who hesitate to create autonomous munitions or tools for surveillance capitalism. They don’t want maids or pool boys who feel free to resist their advances.
They want the right to be mean to people, in a situation where the people have to just take it.
That’s what places like Próspera offer that you can’t get from a family company incorporated in a special economic zone.
Okay, this is really, really good. About writers and writing (via @doctorow).
Makes me want to write some proletarian literature.
Characters in proletarian literature are often misled into believing that their individual flaws account for their miserable conditions, but then encounter a union organizer or a wise old Wobbly who tells them the truth, setting fictional men and women on the revolutionary path.
This is exactly right, and we’re all going to suffer for it (along with all the other things we’re going to suffer for because of Trump).
The best summary of Trump’s trade “philosophy” comes from Trashfuture’s November Kelly, who said that Trump is flipping over the table in a poker game that’s rigged in his favor because he resents having to pretend to play the game at all.
