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Costs Are Spiraling Out of Control

Charles Hugh Smith
December 6th, 2019
Of Two Minds Blog
Comments (9)

This article was originally published by Charles Hugh Smith at Of Two Minds Blog. 

And how do we pay for these spiraling out of control costs? By borrowing more, of course.

If we had to choose one “big picture” reason why the vast majority of households are losing ground, it would be: the costs of essentials are spiraling out of control. I’ve often covered the dynamics of stagnating income for the bottom 90%, and real-world inflation, i.e. a decline in purchasing power.

But neither of these dynamics fully describes the relentless upward spiral of the cost basis of our economy, that is, the cost of big-ticket essentials: housing, education, and healthcare.

The costs of education are spiraling out of control, stripping households of income as an entire generation is transformed into debt-serfs by student loan debt. The soaring costs of healthcare are a core driver of higher costs in the education complex (and government in general), and to cover these higher costs, counties raise property taxes, which add additional cost burdens to households and enterprises as rents rise.

Rising rents push the cost structure of almost every enterprise and agency higher.

Then there’s the asset inflation created by central bank ZIRP (zero interest rate policy) which has inflated a second echo-bubble in housing that has pushed homeownership out of reach of many, adding demand for rental housing that has pushed rents into the stratosphere in Left and Right Coast cities.

The increasing dominance of monopolies and cartels has eliminated competition in sector after sector. Monopolies and cartels skim immense profits even as the value, quality, and quantity of their products and services decline: The U.S. Only Pretends to Have Free Markets. From plane tickets to cellphone bills, monopoly power costs American consumers billions of dollars a year.

Thanks to their political influence, monopolies and cartels have legalized looting, raising prices and evading anti-trust regulations because they can pay whatever it takes in our pay-to-play political system.
Let’s look at a few charts that illustrate the relentless rise in costs:

Do you reckon these two charts are connected–soaring costs and ballooning administrative payrolls?

Student loan debt is soaring above $1.5 trillion, guaranteeing profits to lenders and debt-serfdom to the students exiting with degrees that are in over-supply, i.e. possessing little scarcity value in an over-credentialed economy:

The echo housing bubbles in many locales exceed the nosebleed valuations of the previous bubble:

And how do we pay for these spiraling out of control costs? By borrowing more, of course:

Even at low rates of interest, the cost of servicing skyrocketing debt increases, leaving less net income to support additional borrowing.
What will it take to radically reduce the cost basis of our economy? A fundamental re-ordering that breaks up all the cartels and monopolies that push prices higher even as they deliver lower quality goods and services would be a good start.

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Author: Charles Hugh Smith
Date: December 6th, 2019

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  1. Bill says:

    Don’t know what’s happening to this site. Used to see a couple of hundred comments for an article sometimes, and you didn’t have to wait for days to have your comment posted. Now you may see articles with no comments at all or only a few. I believe moderation is taking place too. Plus the number of prep articles have declined. Would really like to see it turned around.

  2. adam says:

    I know my solution seems drastic and is not for everyone, but here it goes. Don’t play the game! I converted my garage to an apartment and rented it out. Ta da! 75% of my mortgage is paid every month. Don’t play the game! I pay cash for Japanese cars and fix them myself when necessary. Don’t play the game! I got an Associates degree in a skilled trade and have no debt. Don’t play the game! I had a credit card for a couple years when I was younger. Ripped it up. Never did it again. Don’t play the game! I’m a prepper. I grow most of my own meat and veggies. I buy clothes at the thrift store. I take care of my belongings so I don’t need to fix or replace them. Don’t play the game! I own rental properties and take as much money as I can from the suckers who are still trying to play the game.

  3. Virginia Sheriff: ‘I Will Deputize Thousands of Citizens To Protect Their Gun Rights’ says:

    Virginia Sheriff: ‘I Will Deputize Thousands of Citizens To Protect Their Gun Rights’


  4. Clown World says:

    This is only half true —
    1. Costs *are spiraling out of control. Yes, they are.
    2. Costs are subsidized.

    I think that state capitalists, working in nationalized businesses, sometimes have very-flawless, conservative manners.

    There is no effective difference between cronyism and communism, although some of you are very polite about it.

    If I paid for your corporate welfare, you were living on the dole, from my point of view.

  5. TharSheBlows says:

    Building material cost have skyrocketed. These Big Box stores, Home Depot and Lowes have the market locked up and charge what ever they want, because they are the only Material sources outlets for the building materials I need, in my area. They put the little guys out of business with low price cheap product dumping, then they close, then the Big Box charges what they want, since there is no other competiton. Monopolies are not a free market.

    Did you also notice gas per gallon went up about 30 cents a gallon over the Thanksgiving holiday, then they dropped back 30 cents after the Holiday. Coincidence? They got your habits down to capitalize.

  6. Over-credentialed economy with little scarcity value is key here as most sheeple do not understand what this means. Having a 4-year degree was the ticket back in the day to a good job. Now it means absolutely nothing and going into debt to get it will set you back for a lifetime. I never did understand paying administrators and CEOs off the chart salaries when their companies were going under due to bad management decisions. We need a workforce managed and operated by the workers themselves not some gangster from Wall Street rolling the dice and making bad bets well all pay the price for.

  7. cranerigger says:

    Thoughtful Mr. Smith. In the 1950’s, working Americans helped to hold PRICES down by shopping & selecting lower prices. Folks my age remember GAS WARS, SALES, and other incentives to garner market share. Many consumers today vote (with their money) for convenience. The philosophy of allowing universities to punish students by making them DEBT SERFS is relatively recent. Of course the exception-to-the-rule would be high-paying careers that often required many years of study. The admonition from WISE FOLKS on this site “to get out of DEBT” is an important goal.

  8. Wail til spring…last years crops will be high due to demand and flooding, Potato crop will be low so prices will sky rocket and so will pork products. Stock up now!