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

Category: Economics Page 2 of 94

The Personal Politics of Hopelessness

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As I write this I’m eating a sub I bought from across the street. While it was being prepared I chatted with the young woman making it, and she told me about moving from the Canadian Maritimes to Toronto, to, in essence, get a job that pays a little more than minimum wage. Because out in the Maritimes she had trouble getting even that.

I thought to myself that her experience is one that politicians need to have. Many politicians, of course, have never ever had a bad job. They went straight to a good university and from there to a good job or internship. They probably worked hard for it, and think they deserve what they have, never really seeing all the people whose feet were never on that road, who never had the same shot they did.

Then there are a fair number of pols, though less and less every year, who will tell you about the lousy jobs they had as teenagers, or maybe in their early twenties. But in most cases something is different between them and many working class and even middle class folks.

They knew they weren’t staying there.

When I was poor and working in lousy jobs I used to look in the mirror and see myself at 50, or 60. I expected to still be working at grindingly hard jobs, being treated badly by bosses (because there is no rule more iron than that the worse you are paid the worse your employer will treat you), and still being paid little more than minimum wage. That was the future I saw for myself.

And when I was on welfare, after having failed to find a job for 6 months, and even being turned down by McDonalds (in the middle of the early nineties recession) I wondered if I’d even ever have a shitty job again. I ate cheap starchy food, turned pasty and put on weight. My clothes ran down. When my glasses broke beyond the point where tape would keep them together I literally had to beg the optometrist to make me his cheapest pair and I’d pay him later. (I eventually did.) My life was a daily grind of humiliation.

And that’s what I expected my life to be.

When politicians participate in one of those “live on Welfare for a week/month” programs I’m happy, but I’m also dubious. The difference is that they know they’re getting out in a week or a month. They know it’s going to end. Much as I applaud someone like Barbara Ehrenreich, who lived for months working at lousy jobs, again, she knew it was going to end. She knew that, if push come to shove and she became seriously sick, she could opt out. She knew that if she really couldn’t eat for days, that was her choice.

Living without that safety net, knowing that if something goes wrong, that’s just too bad, changes you. Living without any real hope of the future, knowing that the shitty job you’ve got now is probably about as good a job you’re ever going to have, changes you.

And it changes your sense of what hard work is, of what it means to be deserving. I remember working on a downtown construction site as temp labor, and I’d watch all the soft office workers with their un-calloused hands come out for lunch, and I’d wonder why they got paid two or three times what I did for work that was so much easier (and which, of course, I could do, even if I didn’t have a BA.) At the end of the day they might be stressed, but I’d go home physically exhausted from hard labor and so would my co-workers.

Of course, I got out of that. I’d say “I went back to university”, but even though that’s true, it’s not what got me out, since I never finished my BA. Instead what got me out is that I finally got a couple chances to prove what I could do—I got a temp job in an office, and was one of their most productive workers (they measured it.) Later I got invited to blog, and hey, I can write, even if I don’t have a BA. I got lucky. Like most people who get lucky in work, that luck involved a lot of hard labor, but it also involved luck.

But a lot of folks never get lucky despite the fact that they work hard. Perhaps they aren’t really all that bright (half the population, after all, is below average intelligence.) Perhaps they’ve got some personality issues or weak social skills. Perhaps there’s something not quite right in their brain chemistry. Or perhaps they just never catch a break because they aren’t lucky and their parents weren’t well enough positioned to help them get those breaks.

But still, most of them work hard and earn their money, whether it’s barely more than minimum wage or they did get a bit of luck and got one of the few remaining good blue collar jobs.

But when they look in the mirror, they know that the guy or gal looking in the mirror ten or twenty years from now is probably going to be doing the same thing. And they know that they’re one bad break away from losing even the little they have—one illness, one plant closure, one argument with their boss.

They don’t have a lot of hope for the future, except that it won’t get worse. The life they live now is the best it’s probably gonna get.

Living like that changes you. It makes you see people differently. You understand that there are a lot of bad jobs out there, and that someone’s going to be stuck with them. You know that most of those jobs are either hard or humiliating, and often both. You know that for too many people, a shitty job where they’re abused by their boss is as good as it gets.

This all comes to mind because of how Congress and other politicians have acted throughout the auto bridge loan debate. Folks who passed a bill giving their sort of people: wealthy people who went to good colleges, who work with their minds and not their hands in the financial industry, 700 billion dollars without any real oversight wanted to force a cram down of wages and benefits on auto workers. Journalists on TV who were sympathetic to the bailout, dripped with palpable contempt for the idea of “subsidizing unprofitable companies”, something that didn’t bother them when it was soft-handed professionals like themselves on the dole.

The narrative of the GI generation was “first person in my family to go to college”. They came up from poverty, they probably expected to live in poverty all their life, but when the world changed so changed their chances.

It was a generation of opportunity, but what has happened since them is the “closing of the American elite”. Every generation the odds of someone born poor making it into the elite decrease. At this point about 80% of the working class don’t get degrees. The US now has the least inter-generational social mobility in the Western world (it used to have the most). The elites have become self-perpetuating, and they never had to stare in a mirror and know that they may never have more than minimum wage job; that probably this is as good as it gets.

As a result they have no real empathy or understanding of the vast majority of the middle and working class. The elites know they worked hard to be where they are, what they don’t see is that their feet were put on the path from birth, and that every opportunity was given to them. Opportunities that were not so open to those below them, who have to virtually bankrupt themselves to go to university and whose schools were completely broken, even as the value of BA declines to multi-generational lows. Put yourself in debt for 20 years, and it may still not buy you the good life.

That existence, hand to mouth, with no hope, is something America’s elites have never experienced and don’t understand. For them there’s always another opportunity, always another chance: always hope. And what matters to them is when the “deserving”, which is to say, their own class, is in trouble. So they’ll bail out the financial sector, even though it hasn’t made any more profit than the Big 3 in the past 8 years, and unlike the financial sector, didn’t bring down the world economy, but they won’t help out the undeserving whom they don’t understand.

America has become the most class ridden society in the Western world, far worse than Britain. Congressional seats are passed on to family members and friends like corrupt boroughs in 18th century England. The rich are bailed out and ordinary people left to sink. Responsibility is enforced on the least in society while the privileged are allowed to skate. Sell a gram of pot, go to jail; but kill hundreds of thousands in an illegal war and it’s no big deal.

The elites don’t live in the same world as ordinary people. They have become completely disconnected from that world. This is entirely logical on their part, because for 30 years they’ve gotten rich, rich, rich at the same time as ordinary people haven’t had a single raise. When you’re sitting on the top it’s very clear that all boats don’t need to be lifted and that Americans aren’t all in it together. The elites have done just fine, for over 30 years, while the rest of society went to hell.

So there’s no empathy born of shared experience, of the knowledge that sometimes life sucks and no matter what you do, it’s going to suck, and that that’s the way many people live. And there’s no acknowledgment of a need to make America work for everyone, because for the elites, that’s simply not true: America doesn’t need to work for everyone for things to be good for them.

This then, is how they’ve acted. Plenty of help for themselves, for the people they see as part of their group. And very little help for everyone else. Because the elites aren’t like ordinary people, they don’t believe they have many shared interests with you, and they no longer have any real shared experience.

Expect to eat a lot of cake over the next few years if this attitude doesn’t change. The elites, of course, are wrong. At the end of the day a nation without a solid working and middle class always falls into steep decline.

But, as Adam Smith once said, “there’s a lot of ruin in a nation.”

Nonetheless, as many nations have discovered, that amount isn’t infinite.

This is a republished article from 2009.  I think it’s worth putting some of these up occasionally, because most readers won’t have seen the original.

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Has China Put America Into the pre-WWII “Japan Trap?”

Most modern weapon systems require rare earths to manufacture, including expendables like missiles and drones. Rare earths are less mined than they are refined, and China controls over 90% of the refining capability. Rare earths are generally found in small amounts in other ores. For example, Gallium in Aluminum. To get Gallium, you have to refine mountains of aluminum. Gallium comes from Bauxite as part of the refining process.

Fifty grams of Gallium per metric ton of refined aluminum.

China produces 98% of it.

Now Canada used to produce a lot of Gallium, as a side benefit of processing a lot of aluminum. But Canadian aluminum wasn’t as cheap as Chinese Aluminum. And this is the problem, if you want to scale you need long term contracts not just for Gallium but the Aluminum. (Do you trust any contract underwritten by the US government? If so, many bridges are available for sale to you.)

Every rare earth has similar issues.

Now cast your mind back to pre-war Asia. Japan is kicking ass, especially against the Chinese. They’ve conquered Taiwan, Korea and South Manchuria. All of this requires lots of oil, and they buy that oil from America, primarily, which was the Saudi Arabia of the day. FDR (who hated the Japanese and was a Sinophile) cut off oil exports to Japan.

Japan had only so much in the way of oil reserves. It decided to use them to go to war, grabbing as much territory as possible, while they still existed. Some of their conquests: Burma, the Dutch East Indies, and Borneo, had oil.

The situation today isn’t identical. There’s no non-China rare earth production to seize. Everyone else is pretty much happy to sell to America, they just don’t have enough to matter.

 


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But what does matter is that if China’s rare earth ban continues, America loses the ability to make large volumes of advanced weapons. Every time I look into estimates of how long it will take to get rare earths production up and running the West, the optimistic numbers are at about ten years, with a median around twenty. China itself took about twenty years, in the 80s and 90s.

China is getting stronger over time. Everyone with sense admits that. Even before the rare-earth ban it was clear that the West is growing weaker. In ten years, let alone twenty, no one will be able to pretend America can win a war against China.

So the rare earths ban means that if the US wants war against China, it has to be soon. Within a year, I’d say.

Note that this isn’t just about China. The West supplies Ukraine and Israel, for example, with weapons which have tons (literally) of rare earths in them. The ability to keep doing this is being taken away.

Heck, forget arming proxies, the West won’t be able to produce enough missiles and drones and radar and so on for its own military needs, meaning its ability to project power and keep other nations cowed and in line will go way down.

(At this point many of you are thinking “and this is bad, how?”)

So this is fairly existential for America. Its ability to bully everyone is about to be reduced significantly for ten to twenty years, by which time all its enemies will be well supplied by the Chinese and Russians with weapons more advanced than American ones.

Use it or lose it. I suspect this may be part of the reasoning (by the few parts of American government capable of reasoning) around attacking Venezuela, for example.

But the reason that America officials are freaking out about the rare earth ban is it really does matter. That America and the West let themselves get into the position is insane, people (including me) were pointing out this vulnerability twenty years ago. But if there’s one thing the West can’t do any more it’s definitely think beyond three months or “but China’s rare earths are cheaper, so we can’t do anything!!!!!”

Assuming a war can be avoided, the best outcome here (but bad for most citizens of the West because there are a lot of civilian rare earth applications) is for China to just leave the restrictions on permanently.

Oh, and as a ray of sunshine. If the US can’t supply Israel with weapons and if Russia and China won’t, well… More on that later.

China’s finally flexing its muscles. It spent the last eight years, ever since Trump’s absolutely crazed and stupid Huawei sanctions, making sure it has all the trump cards and no significant vulnerabilities.

And it had done so. Goodbye (not) Pax Americana.

 

China Seizes The Master’s Weapon As It Makes Itself The New Hegemon

John Maynard Keynes

John Maynard Keynes believed that ideas, hospitality, travel, knowledge and science should move freely between nations.  if a country could reasonably produce something physical it needed, it should. Trade should exist, but be kept to a minimum.

I’d like to highlight something Matt Stoller (the anti-trust guy) recently wrote:

In May of 2020, the Chinese Communist Party (CCP) declared its economic strategy, using the phrase “dual circulation.” Dual circulation meant fostering a domestic productive apparatus that is independent of foreign technology and finance, while making sure the rest of the world is dependent on Chinese control of key supply chains, whether it’s shipping, railroad construction, electric batteries, or solar panels. Chinese ‘grand economic strategy,’ in other words, is to operate as a giant monopoly on which the rest of the world must rely.

Matt says this isn’t about Trump, but notice it’s from 2020. It is about Trump: Trump in the first term, with his anti-Huawei sanctions. The Chinese realized they were vulnerable and the national effort became making sure they controlled all their own critical supply chains. Having seen how the US used financial sanctions and supplier boycotts, they regrettably decided to reverse the situation.

Now what one needs to understand is that after WWII American controlled most of the key supply chains outside of the Russian bloc. They had over 50% of the world’s industry. If you wanted something, you have to get it from them. Over time, this franchise expanded, first back to the Euros, as they re-built their industry, then to the Japanese, Taiwanese and South Koreans. All of these nations were firmly American vassals. Not allies, vassals with military bases in their countries.

The West, led by America and the USSR had all the advanced tech. In the 70s the USSR fell behind, they couldn’t manage the digital revolution happening, and then the USSR collapsed and the West, really America, ruled unchecked.

If you wanted any advanced tech: planes, cars, computers, weapons, etc… it had to come from America or one its vassals. The US effectively had “dual circulation”, especially since it also had full control of the international finance system and could lock anyone out at will.

This wasn’t theoretical, US sanctions on Iraq in the 90s under Billy Clinton killed at least hundreds of thousands of people. I once talked to an Iraqi oncological pediatrician from the 90s and her incandescent rage over all the children who died of cancer she couldn’t save because of American sanctions was so hot it blotted out the sun.

Once such sanctions had been rare (though there are cases back in the 50s.) The most notable is the multi-generation trade blockade of Cuba.

But from Clinton on use of these sanctions became routine, “Treasury’s Wars.” Millions died, many more were impoverished.

So, China has learned from the evil master. And it has decided that if there is such a weapon, it will have it and  use it and no one else can have it.

Everyone who rages against this is correct. No country should have this power. Not America. Not China. No one.


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If you read this blog, you’re usually ahead of everyone else. You know, years in advance, much of what’s going to happen. The intelligence from this blog is better than what people pay $10,000/year for. Without donations and subscriptions, this blog isn’t viable. If you want to keep it, and you can afford to, please give. If you’re considering a large donation, consider making it matching. (ianatfdl-at-gmail-dot-com).

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What should be the case is a trade regime where everyone makes most of what they need. Need medicine? Make it in your country. (Shut up about prices, if the supply chain is domestic then almost all that crap that MMTers go on about becomes true. Prices are irrelevant, it’s all in money you print.) To the largest degree possible, everyone makes what they need. Smaller countries will have a harder time, and trade-states like Singapore obviously can’t, but this is what a good world looks like.

This maximizes political autonomy, too. You can’t be blackmailed by other countries. Spread nukes around, and much military force goes off the table too. (And they are going to spread. The US has taught everyone that if you have nukes you’re safe, and if you don’t, you’re dinner.)

So. China is teaching the Western world the same lesson America taught China and Africa and Iraq, and Iran and Cuba. We: Europe, the Anglo countries, South Korean, Taiwan and Japan, were inside the bubble during the period when the US allowed its vassals decent lives. (Oh, they destroyed Japan’s tech and industrial lead, they gutted Britain after WWII, they forced Canada to destroy its world leading aviation industry), but overall, if you were on the inside of the “Golden billion” or, early, “the golden 500 million”, life was pretty damn good.

America used the whip, its vassals jumped to obey and everyone else was poor.

Then Americans got stupid and thought that China was like Japan, they could ship their industry there, makes lots of money and if necessary bring China to heel if it got out of hand.

Wrong. Morons. I and others warned about this for decades, how stupid it was, but no one in power listened. Probably a good thing, since it led to a billion people getting out of poverty, but it’s not going to be fun for those us living in the West.

So: the weapon is being wrested from the old hegemon’s palsied hands, and being wielded by the apprentice, the new master, the new hegemon.

Bow, insects, the new lord is here. And no, America isn’t going to get its hegemon status back, nor should anyone who isn’t American want it to.

The actual solution is Keynes solution. No one should have the weapon—the power—because every country should make, grow and dig as much of they need as possible, using trade only for what they genuinely can’t make or for luxuries they can do without in a pinch.

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The West Cannot Win A Trade War Against China

So, the Dutch seized a Chinese owned semiconductor company:

Mistake. Big mistake. And the Dutch will pay for it.

This is a clear escalation in the US/China trade war (the EU are on a leash, they have no independent trade policy.)

Here’s what I want everyone to understand. The Chinese make everything that matters. Not the end products, but the parts. They make the parts required for almost every industry to operate. For decades I inveigled against international trade logistics and the idea that “it doesn’t matter where something is made.”

China spent the last 9 years, since Trump kicked off the trade war era in 2016 with his absolutely moronic Huawei and chip bans, making sure that their supply chains are domestic or in completely trusted allies. (Vietnam is not going to start a trade war with China.) They make everything they need for most of their industries, with only a few exceptions, like commercial jet engines. (They’re working on that, but two or three years out.)

It used to be, for example, that they bought almost all their helium from America. They fixed that, and now make it domestically. This has been systematic. The Chinese looked at their weaknesses in a trade war and fixed almost all of them.

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America did little of significance, though Biden did start a small amount of rare earth and magnet industry. US industries almost all need parts or materials they can only get from China.

If China decides to seriously go to trade war, Western economies will collapse. They will have to shutter most factories, you won’t be able to get parts for household appliances, cars, planes, air conditioners, drying machines. Practically anything. And the West has given away so much basic industry that we’d be rebuilding almost from zero, in many cases. Even the expertise is gone in many industries, or those who have it are in their sixties or older.

If we fight a trade war with China we will be horrifically hurt.

China doesn’t want a trade war, because it will hurt them too. They still sell a lot to the West. But they will survive it far better than we will.

Stop being morons, and make trade-peace.

The GENIUS Act is Anything But

~by Sean Paul Kelley

This post is meant to piggy-back on Ian’s recent post, “The Next Big Crash Is On Its Way.” There has been little coverage in the legacy media of the GENIUS Act. This recent legislation, passed by both Houses of Congress and signed by President Trump is about “regulating” the crypto-economy. The GENIUS Act is an acronym for “Guiding and Establishing National Innovation for U.S. Stablecoins.” Why Congress is so addicted to these stupid acronyms is beyond me. I prefer the old Roman way, naming a law after the legislator who initiated it, such as the Nunn-Lugar Act of 1991, or the McCain-Feingold Act of 2002. The acronym of this act is also antithetical to what it is. It’s a fools act of financial deregulation, which in my opinion will accelerate and exacerbate the coming financial crisis.

But first, the legislative highlights:

  • Stablecoins to be pegged 1:1 to the dollar. Tokens must be backed with cash or short-term treasuries. Issuers cannot offer interest. There is a loophole, however, and I will discuss it later.
  • Establishing rules for stablecoin issuers to segregate of reserves, undergo monthly audits and establish minimum liquid capital requirements.
  • Developing anti-money laundering and anti-terrorist processes.
  • Designating which parties are permitted to issue stablecoins.
  • Giving the Department of Treasury, Federal Reserve, Office of the Comptroller of the Currency and FDIC greater regulatory power.
  • Classifying stablecoin owners when a custodian or issuer files for bankruptcy.

The main idea behind the act is to make stablecoins a reliable crypto-currency to invest in. So what are some of the potential negative consequences of the act? The Kansas Fed notes, “Funds flowing into stablecoins have to flow out of another source. If stablecoins are purchased out of checking accounts, for example, then these purchases represent a shift of funds from banks (as deposits) to issuers (as stablecoins) . . . . This potential flow of funds from bank deposits into stablecoins could increase Treasury demand but also could reduce the supply of loans in the economy.”

In fact, the Treasury warns that $6.6 trillion of assets could be lost by the banks into stablecoins. Stablecoins have the potential to decrease the money supply, create a chilling effect on banks issuing loans, which would drive up interest rates. Moreover, issuers of stablecoins will be able to examine every single purchase you make. As far as I can tell there is no privacy provision in the act, nothing preventing issuers from selling stablecoins owners data.

Who is going to regulate Stablecoins? The SEC has no investigative or enforcement budget. The IRS has been effectively neutered. The FDIC will have no role in stablecoins so long as they are not FDIC insured. With no real oversight issuers can simply put any kind of triple-A rated assets to back them—even when the ratings of the triple-A rated assets are fraudulently obtained–like the CDOs that caused the 2008 financial crisis. That’s what Bear Stearns tried to get away with in late July 2007, when two hedge funds filed for bankruptcy. It was always my understanding that these were money market funds. Perhaps the real story has gone down the memory hole. Nonetheless, who is to say stablecoins, without real oversight and constant audits—seriously, as I just said, the regulatory agencies have no enforcement budgets—won’t be backed by treasuries? This is also a serious workaround of the Fed. It will without any doubt reduce its ability to manage interest rates and fight inflation, which is its legal remit, at present.

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The largest issuer of stablecoins is Tether, having issued $155 billion so far. Tether is registered in El Salvador, has 150 employees and claims to hold the “majority” of its reserves in cash and short-term treasuries. The company has done its best to avoid audits and remains opaque. Morgan Stanley writes that in “2021, the Commodity Futures Trading Commission (CFTC) fined Tether for misleading disclosures on its reserves.” My question to Ether management (and regulators) is what constitutes a majority? 50.1%? 75%? 95%? And what assets are in the minority? Are there derivatives that leverage Tether’s holdings? What kind of leverage? 10:1? More? This question goes right to my next concern.

Just who can issue stablecoins? Anyone. Amazon is exploring issuing them. So is Walmart. So are the big banks. Maybe even Palantir? My great fear is that it will allow a complete takeover of our financial system by Big Tech companies. Even the states can issue stablecoins. What’s worse, no amendments were passed to make sure that crypto companies absorb losses, instead of a Federal bailout. When this metastasizes it will make 2008 and 1929 look like picnics.

More questions than answers, it seems: “Do we want our payments system managed by Walmart?” asks Barry Eichengreen. I’d also ask if we want Silicon Valley to gain power over our financial system? Do you want Palantir, X, Meta or Google to issue legal tender? As Barry Eichengreen warns, “do we want X to know every detail about our every transaction, which they would if we used their stablecoin, or would we prefer the Fed to be the entity that issues the digital money that we use?” Me? I’m flat out opposed to digital money. I want to continue to use cash for one simple reason: anonymity, which is the same thing as saying, privacy.

And about that loophole: while stablecoin issuers cannot offer interest on the tokens, they can issue rewards. Some companies are already giving away annual awards that equal 5.5%. What this means is that the companies issuing rewards are juicing their own returns somehow, and there is no way that the coins are 1:1 100% backed by cash and short-term treasuries. One month treasuries are paying 4.26%. How do you make money paying 5.5% when you’re only getting 4.26%. You see the problem? They absolutely must have other higher interest paying investments in their portfolio. Otherwise they’d go broke. It’s just not possible to sustain. That leads to fraud and fraud is a direct line to corruption. Like this corruption on an epic scale: The Trump family’s investment in World Liberty Financial has increased their wealth by $5 billion. 

Hillary Allen summarizes the risks:

By opening the floodgates for “stablecoins,” Congress has made the US financial system more vulnerable to crises, increased the chances of government bailouts for tech platforms, and further entrenched Silicon Valley’s political power. In fact, such outcomes seem to be exactly what some techno-boosters want.

I hope to write more on this as I more fully comprehend the risks. But what I can say knowing what I now know, this is far from genius: more like mass stupidity and it will not end well.

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The Next Big Crash Is On Its Way

Ever since Greenspan took over the Fed and the 87 crash when they figured out their playbook, the US has only had unavoidable stock market crashes. The Fed is always there to juice markets higher and to jump in at the least sign of a normal (pre-Greenspan) market correction.

But sometimes the irrational stupidity overwhelms even the Fed, because they are both stupid and ideologically unwilling to ever force a correction. This happened twice: the dot-com boom and crash and the Mortgage backed security boom and crash (if we bundle shitty mortgages based on lies together, they become not shitty, because we’re pretending they aren’t all basically the same thing!)

Now we’re going to get the AI Boom crash. I’m well over 90% on this. The AI booms is in the “wildly stupid over-claiming” stage. It’s not that token based AI isn’t a real tech, or that it doesn’t have some uses, but the claims of it completely changing everything (replacing a third of the workforce, acting without human help to run things, being able to cure cancer and make huge theoretical breakthroughs) are obvious over-reaches. So far every academic study that comes in shows that AI isn’t even good at the one thing everyone anecdotally agreed it was good at: writing code. Right now it seems to mainly be a good way to cheat at university, to have a fake relationship, or to bypass Google’s shitty search (which is what I use it for.) It hallucinates, the hallucinations cannot be removed because they are integral to the tech, and the code it produces, even when it works, is a huge mess that will cause massive maintenance issues.

In addition:

  • Since it doesn’t actually mostly reason, it requires data sets bigger than all the data in the world if it is to keep improving;
  • If it uses the data it itself produces, it experiences model collapse.
  • None of the American AI companies make money per query. Every query costs more than they can charge.
  • It requires a vast build-out of energy and data centers, of the “over a trillion dollars” variety. There literally isn’t enough money to pay for OpenAI and Anthropic’s dreams, and there isn’t a product at the end of it that could pay back all that money.
  • About 40% of the US stock market is now based around NVidia and the AI companies.
  • NVidia has now invested in Open AI, so that they can turn around and buy more NVidia cards.
  • The Chinese offer an open source AI which is almost as good and with costs somewhere between one fifteenth and one-thirtieth as much, so that it might actually be profitable AND since it’s open source, Trump can’t have a mini-stroke and decide to cut you off at his whim.

It’s my annual fundraiser. This allows us to cover the changeover of hegemony from America to China, environmental collapse, internal US fascism, what a better society would look like, Gaza, AI, the coming stock market crash and various other issues. As of this writing we’ve raised about $2,700 out of a $12,500 goal, from over 25 people. It’d be great if you can help out (please don’t donate if your financial situation is dire.) You can Subscribe or Donate here or contact me at admin-at-ianwelsh-dot-net if you need another way to donate (mail, usually. A lot of cash apps don’t work in Canada.)


Throwing all this money at AI if it really was the epochal “tech to end all techs, the singularity, dude” that the tech-bros claim it is might make sense. But I don’t see the evidence that this is the case, and even if it is, why not use the Open Source Chinese variety?

In fact, my guess is that this version of AI, based on this model and this generation of chips, is not even as big a deal as the internet was. Everyone was right that the internet was going to be HUGE, they just over-invested before it was and before people knew who the winners (Google, Facebook, Amazon) were going to be.

But so far AI doesn’t even look as important as the internet, but the spend is way larger than the internet build-out of the turn of the millennium.

But even if AI turns out to be a HUGE deal, it’s going to crash out of this bubble and we’ll find out later who can make money doing what.

The Fed will paper the AI market crash over, making hundreds of billions or even a trillion out of thin air to save the rich from their own stupidity and greed. Again. But this will be the LAST crash the Fed will be able to save the capitalists from. The one after will either wipe the capitalists out, wipe out America, or both.

Is Trump Taking Ownership Stakes In Companies Bad?

So, Trump took a 10% stake in Intel, in exchange for releasing almost 9 billion dollars of subsidies without requiring Intel to meet various milestones.

Is this bad?

Let me tell you a story. Once upon a time the US government gave loans to both Solyndra and Tesla. Without those loans, neither company would have had a chance. Solyndra (solar panels) went bankrupt and people screamed that the US government shouldn’t have subsidized it. Tesla made bank and paid back the loan.

Loans or subsidies without an equity stake, mean that the government is exposed to the downside (loss of all the money loaned) without being exposed to the upside. Imagine if the US had taken a ten percent stake in Tesla? Even if it sold it off over time, it would have made huge bank. Just like being a VC, the government could take equity stakes in a lot of companies that are startups or trying for turnarounds. Even if most fail, if a few succeed big-time, then they will more than make their money back.

Now in the old days this wasn’t necessary. Why? Because there were high taxes on companies and rich people. If a company got rich because the government helped, the government was going to get its money back. But with effective corporate tax rates so low and so much legal tax avoidance, in many cases corporate tax rates are effectively zero. So if the government is going to help a firm directly, it needs another way to benefit from the upside and not just take on the downside risk.

So, for once, Trump has done the right thing and in a way that isn’t a complete fuck-up. This policy should be expanded. (Next we’ll discuss why the $100,000 B1 Visa scheme won’t work, and how it could be done right.)

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Four Randon Econonic, Political, Geopolitical and Scientific Musings

First economic: The US dollar is down 5% over the last six months against a basket of currencies. And over the past year, it’s lost 9.6%. The biggest winner against a dollar has been the euro which has gone up 13% however, which truly is a win for Europe because it makes their natural gas imports from the US less expensive. But their natural gas imports are still a poison chalice. Expect the dollar to continue its slide, perhaps precipitously at some point in the New Year.

There were large moves out of US equities in the spring confirming the adage “sell in May and go away.” What September will look like is anyone’s guess, especially as Israel is more than likely to start the second phase of its war against Iran? Or October—that worst of months for Wall Street? What happens if Iran closes the Straits of Hormuz and oil goes above 100 dollars a barrel? That would be great for oil producers, but it would be terrible for markets across the globe, even China, possibly leading to a worldwide recession, especially with Chinese growth being somewhere between 4% and 5% at present.

Regardless of what happens in September or October—both always being bad month’s economically for the US economy, America’s bond market and the value of the dollar will continue its downward trajectory because America’s lenders are now demanding gold for loans instead of treasuries. This smells to me like the beginning of the end of dollar hegemony.

It makes me wonder what kind of “store of value” the BRICS will adopt to support their currency? Will it be a basket of their currencies? Will it be backed by gold and petroleum? That would be truly hard-core, because it would mean we were in for a long era of tight money. Our entire lives, actually, the entire history has been based on easy money. And as you know money creation is only possible when using a fiat currency.

There are many ways to imagine what they’ll do. Maybe blockchain? Who really knows? But there are other commodities that do have a store value, silver among them, maybe even rare earths and others they could use. It certainly is an interesting time to live.

Second domestic political: Niall Ferguson in his interview by Charlie Rose posted a week ago on the Internet was asked about Trump‘s challenges of outright ignoring the constitution with the following question: are we the Roman Republic, is this or are we witnessing the collapse of the constitutional order like the Roman republic. Rose asks if Trump is Augustus. He clearly is not. I would say that Trump is more like Marius and the Kennedys were more like the brothers Gracchi. In fact, I made this argument on a graduate school paper that I got a very good grade on, but in which my professor seriously disagreed with my analogies. Regardless I would say that we are at the beginning of the end of our constitutional order, and that we are looking down the barrel of Caesarism. It’s on the way. Maybe two years, maybe four years but it’s coming. Will it be a general? Will it be a politician? Those are questions we simply can’t answer. But as Ian Welsh has consistently predicted America is heading for a collapse, be it constitutional or economic or both it’s gonna happen and there isn’t anything anyone of us can do about it. Besides, Ferguson, while whip-smart, is kind of a tool.

Third is about some weaknessess the SCO currently must contend with if they are to become the anti-NATO military block. Here they are in no particular order of importance: One, the nations that make up the SCO are too diverse and often times their interests do not align with everyone in the SCO. For example, China and India have serious border issues. Pakistan and India have serious issues in Kashmir. Those are just two examples of several potential conflicts between members of a block, supposedly to oppose NATO. The issues between Pakistan and India make the intra-NATO issues between Greece and Turkey look like a family arguement on Thanksgiving.

Second, as the former director general of Russian international affairs Council said in a recent interview, “ the mandate of the SCO is too general.” The SCO can focus on security, development, or terrorism. Not all three.

Third, China is by far the most powerful member of the SCO and that creates a dangerous asymmetry in the organization. Much like the United States dominated NATO for so long and skewed it’s purpose after the Cold War for its own unfathomable means.

Fourth: This essay on the relative merits of “Superradiance,”.  Is well worth the three minutes it will take to read, plus it is comprehensible to the layman. The essay describes Superradiance as “a collective quantum optical effect in which a group of emitters, such as atoms or molecules, emit light in a highly coherent and amplified manner.  In the context of mammalian neural systems, superradiance occurs when a group of neurons collectively emit photons, resulting in a stronger and more coherent signal compared to individual neuron emissions. This coordinated emission of photons across vast networks of microtubules within neurons could potentially achieve the long-range coherence necessary for the emergence of consciousness.”

The essay stands as a correction of sorts to Sir Roger Penrose’s “Orchestrated objective reduction (Orch OR)” theory of human consciousness, which Wikipedia describes thusly: Orch Or “is a controversial theory postulating that consciousness originates at the quantum level inside neurons (rather than being a product of neural connections).” In short, says Penrose, “Consciousness does not collapse the wave function; instead it is the collapse of the wave function that produces consciousness.”

One thing we do know is that consciouness is decidely not computational and most likely occurs in the quantum realm.

As you can tell, I dig this kind of stuff.

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