Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 1 of 94

We Don’t Have To Live In Hell

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On December 18, 2025

29 Comments

A friend of mine once used the metaphor of “The Lords of Hell” to describe most of the world. There are a few people with lots of money and power, a few billion people who live in constant fear of not having enough, and a billion or so who don’t have enough. There is more than sufficient food in the world to feed everyone, but people go hungry. The entire western world has more empty homes than it does homeless people, yet there are increasing numbers of homeless. It costs less to give everyone health care than it does to “optimize returns” yet sick people go without medicine and help, and the disabled at left to rot with the least possible care in many countries. (Britain has literally stopped paying for wheelchairs for many disabled.)

Over the years my writing has had many themes, but they all boil down to one Ur-Theme.

We don’t have to live hell. It’s a choice.

We have other choices. There are ways to make the economy work for everyone, and ways that we, the human species, can live well without driving mass numbers of other species to extinction. Indeed, by destroying the environment and extincting other species, we damage the very ecosystem which, long term, makes our own prosperity and well-being possible.

The worst lie in the world is always some version of “there is no other option. This is as good as it can be.”

It has many variants. “Capitalism is the only thing that can work.” “Some people must be homeless and poor for the economy to work.” “We need that oil no matter how many species die.” “People will only work if they’re driven by fear.” “Rich people are job creators”. “Human nature means we’ll always be evil and mean.” “Everything has to be owned by someone because commons don’t work.” (They have worked for hundreds of years at a time.)

Many, many more.

They are all lies. As humans we have an angelic nature as well as a demonic one. One of the most useful books to read in this regard is “A Heaven Made In Hell.” The author studied how people act after great catastrophes. Strangely enough behaviour like looting occurs far less than people helping each other, coming together and fixing things. In fact, people who go through this often find it was heavenly: for once almost everyone is taking care of everyone. Trust and community flourish.

There is great joy in helping. Great joy in care. Great joy in not being scared all the time. The best economies are always full of optimism and hope and have a rising tide that lifts all boats. (Rising tides don’t lift all boats unless we make sure that no boats have holes in their hulls.)

China has, recently, proved this yet again, despite some significant flaws. (FDR proved it before, and he was not the first.) We can take care of each other. We can live without fear that one bad bounce means homelessness, misery and death.

It’s a choice. We have made other choices far too often, but we can choose to be happy, prosperous and realistically optimistic because we take care of each other.

And while my writing often seems negative, this is the hope that underpins my criticisms. There is no point in criticizing something if some law of nature means that it must be so. But there is, despite claims otherwise, no law of nature which says we have to be bastards to each other or to the species we share this world with.

And in that is a genuine hope.

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Too Big To Fail Fails In China

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On December 5, 2025

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Roughly speaking there are two types of corporations in China. State owned (SOE) and private. During the policy driven real-estate bust, the countries biggest builder, Evergrande, went under.

But there was an assumption that the government would bail out real-estate SOEs.

Well the largest one, Vanke, is going under, and the central government is going to let it. Moreover, Shenzen’s (China’s Silicon Valley, but on steroids) has repeatedly bailed it out and that means that not only is the central government not bailing out a SOE, they’re letting a municipal government (arguably the most important in the country) take a huge hit. That will send a message to all other municipal and provincial governments.

The biggest mistake of the US financial collapse was the bailout of participants. Every firm which had financialized should have been allowed to go under. The few that were truly necessary should have been put back on their feet AFTER the shareholders and bondholders took their hits, and after being broken up. Collateral damage (those companies not responsible, but simply getting hit by the backwash, such as GM, could receive bailouts in exchange for a government stake.)

Capitalism has issues even when run properly, but it is a simple proposition at heart: people who allocate resources well should be rewarded with more resources to manage, and those who allocate resources badly should lose their ability to allocate resources. Every participant in over-financialization had made bad allocations of resources. For the American economy to operate, they needed to no longer be participants.

Take over the banks and brokerages, and either shut them down, or break them up. That included the bond rating agencies like Moodys.

The failure to do this meant that decision makers know (or believe) they can make risky bets that cause systemic economic issues, bets that damage the economy as a whole and expect to be bailed out rather than be required to take their lumps. (And, ideally, be investigated for fraud, which most of them were guilty of.)

An economy where economic decision makers are incentivized to take big risks which hold the entire economy hostage (because they might not be bailed out if the risk isn’t systemic) cannot work and doesn’t. The US economy requires a backstop that amounts to the full expectation that the Fed will print trillions on demand to bail out bad actors. (The current main bad actors are the AI cartel.)

China is, oddly, the only major economy in the world that runs markets more or less right. (Though they let their own real estate casino run for too long.)

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Trade Is Not The Primary Driver of Currency Rates

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On November 27, 2025

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The misunderstandings packed into this little bit of writing are stupendous:

Over the past few years, China has been in deflation, while the US has been in inflation. Yet despite this stark divergence, the CNH has still depreciated more than 10% against the US dollar. This combination — falling relative prices in China and a weaker currency — has made Chinese goods and services extraordinarily cheap in global terms. A vivid example: a night at the Four Seasons Beijing costs roughly $250, compared with more than $1,160 in New York

First, a 10% drop does not make a hotel room cost one quarter as much in Beijing as in New York. That’s ridiculous on the face. Almost everything costs less in China than in America. America has an economy optimized to drive prices high to extract maximum profit. China has economy with actual competitive markets: if you raise prices someone else will come in underneath you. Almost all of America is operating in or as if it is in an oligopoly. There is little actual price competition because even when there are competitors they figure that competing on price is stupid: it hurts both of them. Why not both raise prices to usurious heights? Win/Win.

This doesn’t happen in China because it has competitive markets and it has competitive markets in large part because China will throw executives in prison or execute them if they engage in this sort of price collusion, whereas in the US, though ostensibly illegal based on the laws on the book, such collusion has been made legal by decades of court decisions and prosecutorial decisions. (Prosecutors mostly don’t, and when they do courts almost always refuse to convict.)

China also has lots and lots of firms and genuine low barriers to entry. If you try to collude, someone from outside your industry will enter and undercut you, and often this will be someone with deep enough pockets that you can’t win a price war with them.

Second, currency values outside of hyperinflation are driven primarily by demand for currency. That isn’t primarily about trade, it’s about investors and financial carry trade. China unquestionably has a more dynamic and larger economy than any Western nation, but it isn’t financialized: Chinese companies don’t produce the sort of returns that American companies have over the last 50 years. This is deliberate policy: if they did, then China’s economy would suck for ordinary people, like Western economies suck for ordinary people because prices would be much higher. (See that Hilton room, though it cascades thru the entire economy, with rent and food at the low end much cheaper in China too.)

It is also pretty hard to invest in China as a foreigner, while the US is set up for foreign investors. Even if you want “China exposure” it’s hard to get.

So the Yuan isn’t in massive demand, because there aren’t bullshit over-sized returns like the AI bubble. The central bank doesn’t run its policies based on “the stock market must always go up.” America has spent 50 years burning down its real economy to produce outsize “profits” due to asset pumping. China keeps asset prices under control, and when a bubble does occur, as it did in real-estate, they deliberately deflate it, bearing the cost.

None of this is particularly unique, by the way. It’s basically the way the US economy was mostly run from the 30s thru the mid 70s or so. The policy details, the ways things are done are different, but American policies were meant to encourage real economic growth and if you look at a stock market graph you’ll see it traded sideways. No 50 year bull market. Asset bubbles were discouraged. You can’t have a good economy with high real-estate prices, just can’t be done and the stock market is a secondary market, not a primary one. Emphasizing it is sheerest insanity.

There is very little that China has done which is genuinely unique, despite jingoistic assertions otherwise. The playbook they have run is the same one almost every successful industrializing nation after Britain used, and very similar to the Japanese model. What is different are two things. First, the scale, when 1.4 billion people industrialize and modernize, it shakes the world. Second, a genuine desire to help the poor, which is extremely rare during industrialization, though not unheard of. (The Gilded Age did not care about the poor. Britain’s industrialization period was driven by hurting the poor as much, or more, than they could bear. They were far better off as peasants than in factories.)

Anyway, countries can be real rich (lots of genuine productive capacity with low prices and dynamic markets) or they can be fake-rich, with financialized markets that squeeze the last penny out of consumers and immiserate workers, leading to non-competitive markets and oligarchy. China is rich. America is fake-rich.

 

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The Promise Of Automation and Abundance

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On November 19, 2025

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For a long time after the Industrial Revolution, many thinkers believed that automation would lead to us living lives of leisure. Twenty hour work weeks, or even less, and many people wouldn’t need to work at all, but would still live good lives.

It never happened.

Economists will tell you this is because there’s always more work to be done, but economists are the priesthood of capitalism, not scientists, not even social scientists.

Most of us are well aware that many jobs are, in David Graeber’s memorable phrase, bullshit jobs. They either don’t really need to be done or are actively harmful. Everyone working in private equity. All the engineers optimizing ads. Almost everyone who works on Wall Street or in shadow banking. Most bankers, for that matter. The jobs which are actually necessary, “essential workers”, are badly paid and treated, but if they don’t show up, as we find out in a garbage, nurse, transit or teamster strike, disaster ensues.

If the janitors don’t show up, everyone’s in shit. If the CEO doesn’t show up, life continues and most people don’t care. Indeed, without CEOs most companies would run better than they do, and you’d be in a lot less danger of losing your job.

We could easily work 20 hour weeks already, if that was a priority.

But the structure of capitalism makes this impossible. We create goods which are designed to wear out quickly and be replaced. “Planned Obsolesence.” We need people to have jobs to get money to buy these shoddy goods. We buy fast food crap because we’re too busy, rather than cooking good food, and most people spend their lives doing work they’d never do if they didn’t need money to survive.

So we find more bullshit jobs, and more harmful jobs for people, and the machine churns on, destroying the environment, making people sick and unhappy and forcing us into wage slavery. Most people spend most of their waking hours doing what they’re told. Or else. Then when you’re old, you might be allowed to retire, and enjoy your declining health. Might.

We have more houses than we need, far more than the number of homeless. America throws out one-third of its food, yet people go hungry. There’s more than enough, literally more than enough food for everyone in the world to have a full and healthy diet.

KT Chong recently wrote an article about humanoid robots, in which he hopes that the Chinese will use them to allow lives of leisure, to institute a good guaranteed income. 

Perhaps they will, I hope so. To do so, however, they will have to move away from capitalism towards true communism, where everyone shares in the benefits of automation, and not just a few.

There is no reason why this isn’t possible. It could have been done any time in the last century or so, had we wished to.

Remember this: you work like a dog, obey some manager’s orders and don’t do what you really want to do because our system, and our leaders require it when it isn’t actually necessary.

Capitalism might (or might not) have been necessary for industrialization. But it is a set of leg irons weighing all of us down now, and threatening to destroy the very conditions required for life to continue on Earth.

But it doesn’t have to be that way, and the task of the next generation of leadership is to figure out how to run modern societies without it, without wasteful over-consumption and without destroying the environment, while making sure everyone has what they need and can live fulfilling lives: lives they choose, where most of their time is their own to do with as they would, not as some boss desires.

May it be so. The other options are far, far worse, likely catastrophically so.

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Short Take on What I’d Be Doing To Prepare for the Pending Economic S**t-show

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On November 17, 2025

25 Comments

I’ll keep this mercifully short. One commenter in my Friday night econ news post asked, in a kind of oblique way, what would I do in this environment.

Okay, I’ll play — but not without stating firmly and loudly that I am not dispensing investment advice, nor am I licensed any longer to do so. We clear on that?

A liquidity crisis is already here. But this may not be like your father’s ’08 crisis. In ’08, the USD rose — counterintuitively — against every other major currency. Why? The need for USD to cover credit losses was global, and NYC became a literal blackhole for USD. I made an absolute killing on the USD during the ’08 crisis, and afterwards even more on the banks and zero coupon bonds. I made several people fortunes they still retain.

But the crisis now unraveling doesn’t look like one of confidence, it looks like an animal out of a medieval grotesque, certainly not something the Fed can backstop.

Fire in the hole!

Sure, the Fed might do QE. But Congress can’t do a bailout with almost $1trillion in interest payments on US debt imminent and Trump offering $2k bribes to every citizen in America. It’s impossible. What would one call inflation with QE?

What would you call that?

Hyperinflationary?

It’ll be damned ugly whatever happens; whatever you want to call it.

Were I still advising investors I’d be putting them in Yuan interest bearing accounts, I’d be buying silver on the dips, JPY, SKW, and buying way out of the money puts on S&P 500 and NASDAQ. In short, if you can find an affordable way to buy puts on things that are impossible to happen, buy them, because one or two will hit big, and you’ll rake in the money. 

Silver’s in what’s called a secular bull market, not a cyclical one — cyclical means three to five year cycles, whereas secular means, “We don’t fucking have any idea how long ‘dis bitch is going up or down.” This particular secular bull is being driven by a massive externality: China’s draconian export controls of the metal. The problem, right now, from a technical trading perspective, is a failed double-top breakout. This is bearish in the near term, so an under $40 buying opportunity might be realistic. As a side note: China has a VERY long history with the white metal, but not so much the yellow one. I can recommend a good book if you are interested. 

You can invest in the Yuan in several US banks/investment firms. Some accounts are interest bearing, others are just a pure play on the currency. If you want specifics, send me a DM. But the current T-bill replacement is silver, but buy it under $45 if you can. Under $40 is best.

But, for fuck’s sake, avoid paying premiums for silver. What does that mean? If you buy silver coins, buy 99 percent silver grade coins — not the overpriced ones from the US Mint. Buy the off-market ones. Otherwise, the US silver cartel will clean out your gains before you even begin.

Your Late Friday–ermmm, Early Saturday–Dose of Crap Economic News

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On November 14, 2025

14 Comments

~by Sean Paul Kelley

Good heavens, the economic bad news is piling up like a bad car wreck. So, let’s do some serious rubbernecking, folks, because there is a lot of fucked up shit to watch. Just don’t step in it, okay?

We begin with widepsread reports of large institutional investors (hedge funds, investment banks, boutique investment firms) selling off services stocks like leisure, luxury, hotels, and some retail outlets, like Home Depot. That’s a lot of cash leaving equities. But for what safe harbor? It certainly isn’t private credit, like Blackrock which lost 100 percent on one investment. UBS also lost 100 percent on another private credit deal. Now, Blackrock lost $150 million on the deal, which, for Blackrock, is naught but a silly little rounding error, but as they say, $150 million here, a $150 million there and pretty soon you’re talking real money. That cash won’t go into US treasuries, that’s for damn sure. Seriously, who’d invest in US dollars? I wouldn’t fuck a US treasury with Magic Johnson’s dick.

Yeah, I said it. It needed to be said.

Want news even more ominous: JP Morgan Chase, Goldman Sachs and my alma mater (for full disclosure) Morgan Stanley were the lead underwriters of a $1 billion increase in AI firm Coreweave’s $2.5 billion revolving credit facility. The term sheet expands the maturity date from 2028 to 2029. Just a year? Did they attempt any due dililgence on Coreweave’s burn rate? It’s gotta be a fuckton fast — see, Americans can do metrics. FTW!

But really, you know that kind of high-tech equipment becomes obsolete and depreciates faster than that loan reaches maturity. There is zero, zilch, nada, niente, nyet, nein, no way Coreweave’s earning increases that rapidly. To quote Yoda, “Coreweave, Apple certainly not you are.”

Apple’s so profitable it prints money.

I mean, seriosuly, Christ on a popsicle stick: Where’s the due diligence? Do investment firms even have compliance departments any more? Where are the regulators?

Yeah, yeah, I know, I know.

But it gets worse: On Nov. 4, Meta agreed to an off-balance sheet $27 billion loan (also known as a Special Purpose Entity, henceforth SPE) from Blue Owl Capital (OBCD). This is financial shenanigans and identical to the accounting legerdemain that led to Enron’s ruin. Pay attention, people. This is getting ugly. Enron butt-hurt ugly is how bad this is starting to look. Let me break this down for you, in case you forgot. An SPE is off-balance sheet. That means the company is under no obligation to report it on its SEC required filings. Get it now? Investors have absolutely no way of knowing how much off-balance sheet debt a particular company has. SPEs = bad juju.

To wit: Oracle has a debt-to-equity ratio approaching 500 percent, and that’s just what’s on the their balance sheet. Has Oracle borrowed any money where the debt is accounted for in an SPE?

Guess what, folks? There is literally no way to know if Oracle has any SPE loans outstanding.

My bet: They do.

Speaking of shit credit, or is it credit shit?

Whatever. Moving on.

JP Morgan notes AI-linked debt now accounts for 14 percent of its investment grade corporate index (CGI IG), surpassing US commercial banks as the dominant sector. Who the fuck knew US commercial banks have turned into stingy mozafukas? Can haz dolerz, puleeze?

“What does it mean?” you query, doing your best to ignore my increasingly insulting expletives.

“I know I’m right about the housing market,” he says, repeating it like a mantra.

Well, it means that not only are AI firms taking on loads of traditionally-financed debt, they are also bulking up with the anabolic steroid equivalent of debt: unknowable and NON-REPORTABLE SPE debt. They pump this iron to finance AI hyper-scaling. No wonder the main character of the (mostly) true movie, The Big Short, Michael Burry, is closing his fund. Dude shorted Palantir and Nvidia and got caught with his pants down. Sadly, Burry forgot John Maynard Keynes keen paroemia (from the ancient Greek, meaning maxim or proverb) from when he lost all his money in the 1929 crash: “Markets can remain irrational longer than you can remain solvent.”

Also: Beware neologisms created on Wall Street. Today’s new phrase is “data center credit.” Sounds positive, aye? It ain’t. It’s a bullshit phrase referring to debt financed for the AI sector by private credit shops. Tons and tons of bullshit, yes?

“Ha-ha,” he said. “Stupid, stupid!”

There is also news that insurers are placing more than 50 percent of the assets needed to guarantee/backstop annuities and life insurance policies into private credit shops. This is a terrible idea. Annuities are insurance policies designed to pay out in the event you live too long. Life insurance is, well, insurance against not living long enough. This is stupid. Epic stupid and civilization-ending risky. It’s like giving the nuclear football to Beevis and Butthead stupid.

Oil prices are soft/down to flat. Texas rig counts are down again this month (rig counts are considered a leading economic indicator).

Now to news out of the Big Apple tonight, that absolutely shrivels me testes. Say it with me like a pirate! As my little sister used to say to me, “You are so not fun.”

Anywho: The head of the NY Fed convened an emergency meeting of bank heads to discuss one of the Fed’s key lending facilities. I’m almost certain this is in response to the rising private credit losses, and how they resemble Bear Stearns blowing up two subprime hedge-funds in 2007, the precise moment the 2008 financial crisis began.

Most distressing is today’s down volume high. It’s one like we’ve never seen before. The downward volume and amount of stocks closing on the downside blew out a 35 year high. This screams louder than Rob Halford singing “Victim of Changes” live at the US Festival in 1983. It’s also an indicator of deeper stresses affecting equity markets.

This is what we now call, in the algorithm-trade dominated age, a mechanical sell-off. All of Wall Street’s proprietary algorithms saw red and initiated the mother of all sell offs. This already spectacularly, terrifyingly narrow advance is getting narrower, and it is growing more brittle by the day. Why worry? Are markets worried about private credit shops lending to off-balance sheet AI SPEs? Is liquidity getting tighter? Risk limits getting ripped to shreds? Doesn’t really matter. It’s a big signal that should overpower the noise. But it won’t. 

Wall Street’s useful idiots will do their duty and cheer until the real crisis begins to unravel. Sooner now, than later. You can bank on that. Just don’t do it in US dollars. That would be dumb. Epic-like dumb. 

Piling the shit higher and higher: Sallie Mae off-loaded $6bn worth of student loans to KKR recently. How better to clean up a balance sheet than selling debt with a 10 percent non-performing rate? Makes sense to me, but I’m just some guy in pajamas.

More great economic news: Large corporate bankruptcy filings, as of mid-November, rise to a 15 year high. That’s higher than the COVID-19 crisis. To date, 655 public companies have filed for bankruptcy. Good times, aye?

Finally, a positive thought, in a manner of speaking. The only thing the equity markets have going in their favor right now is this: the almost impossible to prevent or deny Christmas rally. It’s damn near as reliable as the Monsoons.

So, if the econ shit does hit the fan, it’ll happen after January 1.

Trump Has Achieved Biden Levels of Delusion and Denial

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On November 11, 2025

14 Comments

I mean…

Not to mention firing BLS workers because he didn’t like the stats, which even Biden didn’t do. Given how dubious most BLS stats relating to inflation are already, that’s some impressive cope.

The fact is that prices keep going up, and if you aren’t in the golden AI Ponzi Scheme, the economy sucks.

Rosenberg Research did some analysis:

If they aren’t in expansion, they’re in contraction. This is also known as a recession, even if they didn’t shade it.

Some further supporting data:

 

Sure doesn’t look like those tariffs are causing manufacturing to flood back into the US, does it? Data centers and power station building are both AI-related, and as for hospitals, they are part of a protected oligopoly, or, they were until the ACA subsidies were cut. That’s not likely to be good for the health “industry,” which would be wonderful — except that people will die and suffer as a result. “Get rid of part of the shitty way we provide health care now without replacing it with something else.”

Anyway, unless you’re in a monopoly/oligopoly, and have some control, or you’re connected to the AI spigot, the economy is ass. And remember, major tech companies are engaging in mass layoffs, so just working for tech companies won’t protect you; the reverse is true. Unless you’re actively working on AI, you’re first to the gallows, as their workers are where they’re starting with the replacements.

For decades, I warned coders (“engineers”) that their days of being King Shit of Turd Island, pretending their skills were super-special, would eventually come to an end. The moment senior management could figure out how to replace them, they would. Unless you’re truly at the very top of your field, you’re always replaceable — mediocre isn’t as good as average, but it’s usually a LOT cheaper.

Anyway, the end days are nigh. There isn’t much left of the middle class in America, with little left for the rich to steal. The US either changes its politics radically (and Trump has always been a billionaire whose policies are good for billionaires) or the US continues its descent to becoming an unutterable shithole for about 80 percent of its population.

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It’s Difficult to Overstate How Concentrated Wealth Is in the US

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On November 10, 2025

31 Comments

These two charts tell a story. First, the top .1%.

Next, the top 1%. This chart is only to 2023.

Now what you’ll notice is that the top .1% holds about half the wealth of the top 1%.

It’s like this all thru the economy. Everything is flowing to the top, because that’s how the economy is set up. This is sheer insanity, among other things, especially when combined with AI sucking up jobs, its likely to lead to a demand depression. Most rich people don’t get, but a few are waking up.

Meanwhile Trump just went to the Supreme Court to not pay for SNAP food aid. “Starve, peons!” History tells us that food riots are the greatest danger to rulers and it doesn’t take long for them to happen.

As I said before, there is only ONE issue now. Cost of living. People keep telling me Zohran style policies can’t win outside of NYC. Well…

And the Republicans have a shutdown going to make health care even more unaffordable.

Crazed.

Things are going to start changing politically now, and over the next few years. This is the change, which I said decades ago would start in the mid 2020s. Again, it’s here now, though there’s a lot of slogging to go. It’s not a sure win, of course. Neoliberals or fascists may win (more likely fascists), but really the two main options are left wing populism or right (fake) wing populism. The generational pivot is here, and the “we can’t take it any more, you’ve destroyed the middle and working class” is here.

Oh, and one more pretty chart: the effect of our AI overlords on electricity bills:

What can’t go on, doesn’t. There’s not enough middle class wealth left to steal. The US either un-develops or there is a radical change in politics. Either way, politics is going to get a lot more turbulent. There’s a reason why most Trump’s cabinet lives (hides) on military bases now. They know how much they’re hated.

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