Only a Partial Solution

Posted on by
Reply

The editors of The Wall Street Journal correctly recognize the dangerous (and fatal to our nation if it’s not corrected) weaponization of commercial hardware and software. The solution they propose, though, is badly incomplete.

…we should first recognize that the Chinese Communist Party isn’t interested in cooperating on AI risks and safety.

Absolutely, and in so many other areas, as well. But….

Second, we need to wield the free-world technology stack more effectively. … America has the tools to build a software-defined manufacturing ecosystem, where we can find and fix bottlenecks. A digital twin of the entire defense supply chain would allow us to analyze, allocate, and accelerate production from the factory floor to the front line.

And

Third, a revitalized American technological industrial base should catalyze an interoperable free-world technological industrial base. To outcompete China, we must make it easy for allies and geopolitical swing states to adopt, contribute to, and innovate on top of our software.

I’ll leave aside, here, the risks to our own national security of exposing our technology and software even to friends and allies, much less to those uncertain swing states, only to have secrets and advantages further exposed to our enemies by leaks. Instead, I’ll emphasize that the finest software in the world is useless without the hardware to run it, and the farthest advanced technology does no good for us at all if it sits exclusively in one or two prototype models or in the horribly expensive few production models.

First after recognizing the inimical nature of the PRC, and Russia, and Iran, and northern Korea must be revitalizing our industrial base—that factory floor—so we can build the hardware—the weapons and weapons systems—which will house that wondrous technology and on which will run the bleeding edge (and proven, mind you) software in the vast numbers we’ll need, and our friends and allies will need, when our enemies attack.

After all, that next war will be fought with the forces in place. The speed of war has reached the point that there will be scant time, if any, for reinforcements to reach the theater (if they can survive the trip at all), and no time at all to produce, even from a thoroughly revived industrial base, combat loss replacements.

Rebuilding our industrial base will itself be terribly expensive, but what would be the cost of having our foreign, even domestic, policies controlled by our enemies after we lose the next war they start?

Just a Few Clarifications

Posted on by
Reply

Janet Yellen, the Biden-Harris administration Treasury Secretary had an op-ed in Sunday’s Wall Street Journal that is full of gaslight claims, and so I offer here some clarification on some of them.

When President Biden and Vice President Harris took office, thousands of Americans were dying from Covid-19, and the unemployment rate was 50% higher than it is today.

Fifty percent more than a small number still is a small number. Aside from that, unemployment already had been starting down, sharply, and had reached roughly 6.5%—down from a peak of 10%-11% at the height of the shutdown—and was continuing to fall rapidly as our nation reopened in the latter half of the last year of the Trump administration.

We vaccinated millions to save lives and allow businesses to reopen safely.

Aside from the fact that businesses already were reopening—hence the already rapidly falling unemployment—those vaccinations occurred with vaccines developed under a Trump administration crash program. Production and distribution of those vaccines had already begun, and one of the first actions of the Biden-Harris administration in early 2021 was to delay delivery of those vaccines to the distribution centers.

[W]e made critical investments in infrastructure and manufacturing—from clean energy to semiconductors….

The Biden-Harris administration allocated those dollars; a large fraction of them, three-plus years later, remain unspent.

The US labor market recovered faster from the 2020 recession than from previous recessions. Economic growth surpassed private-sector predictions of a modest recovery.

Our economy already was in a steep, rapid recovery, beginning in late summer 2020—the last year of the Trump administration. Oh, and the labor market already was rapidly reemploying the work force.

[T]he US has outperformed many other advanced economies, with greater real gross domestic product growth and a faster decline in inflation while maintaining a strong labor market.

This is an especially large bit of gaslighting. Our economy doing better than “many other advanced economies” is a non sequitur. We aren’t those other nations; our citizens live here in the United States, and we operate here in our American economy. Too, that so much bragged about inflation decline is from a high peak caused by Biden-Harris policies, not least of which was the Inflation Reduction Act enacted in the Biden-Harris first year that threw trillions of dollars into our economy without an associated increase in production. Yellen also carefully ignored the fact that prices remain higher today, by double digit accumulated inflation, than they were in the final stages of the Trump administration. Those higher prices are an especially serious problem given that real wages have shrunk over Biden-Harris administration, with only recent periods of wage increases exceeding the same period inflation.

And that GDP growth? That’s compared to the exceptionally low GDP growth experienced during the depths of the Wuhan Virus situation.

This is Backwards

Posted on by
Reply

And it’s disappointingly so, although not that surprising in the increasingly Leftist bias of The Wall Street Journal‘s news page writers.

Israel launched its war against Hamas in Gaza after the Hamas-led October 7 attacks in southern Israel, in which approximately 1,200 people were killed and around 250 taken hostage.

No. Hamas launched the war with that attack and butchery; Israel has been responding and defending itself against that terrorist instigated and continuing war, a war that Hamas leadership has repeatedly said is intended to destroy Israel utterly.

The WSJ management team needs to clarify this with the writers in the news outlet’s news room. The error is blatant enough to be closely approaching being anti-Israel and, more broadly, antisemitic.

There Is a Solution

Posted on by
Reply

Department of Education Miguel Cardona continues to interfere with—to obstruct—House investigations. This time, he’s interfering with subpoenas the House’s Committee on Education & the Workforce has sent to five separate student loan servicers (Missouri Higher Education Loan Authority; Nelnet Servicing, LLC; Maximus dba Aidvantage; Edfinancial Services; and Central Research, Inc) to compel their testimony regarding…student loans. Cardona is trying to block their appearance under the risible fiction that his Department has legal authority to review and approve materials before they are sent to the committee, including documents sent by the servicers and held by DoEd personnel.

There is a solution to this, and I’ve written about it before.

The House can use the Jurney v MacCracken case to arrest Miguel Cardona; his Department legal counsel, Lisa Brown; and her unnamed Department contract officer and haul them before the relevant House committees to testify under oath regarding their obstruction. Applying Jurney to sitting government officials may be a stretch, though.

On the other hand, Jurney is directly applicable to those five student loan servicers, and that would emphasize the criminal nature of Cardona’s obstruction as well as force the servicer personages to testify regardless of Cardona’s obstruction.

There are statutes barring obstruction of Congressional investigations by individuals, including government officials. There also are contempt of Congress statutes, applicable even to government officials. Unfortunately, they depend on enforcement by the Biden-Garland DoJ, and that’s entirely too questionable.

Jurney, however, would allow to House to skip over Garland’s lack of performance, to ignore his DoJ altogether: under that Supreme Court ruling (in a Senae case, but it would apply to both houses of Congress), the Speaker can send the Sergeant at Arms and sufficient Capital Police to go get the managers of the five loan servicers, under arrest if necessary, and detain them in House facilities until they’ve testified, and produced originals of the documents currently held up by Cardona’s DoEd.

10-Year Notes, Coupons, and Yields

Posted on by
Reply

The Fed cut its benchmark rate last week, and the stock market spiked up in response. Whether that’s a long-term response or just a sucker’s sandbag is yet to be seen. The effect on interest rates in the private economy in which most of us operate is…inconsistent. And it will continue to be for a long time, regardless of any subsequent Fed moves.

Yields on longer-term US Treasurys have ticked higher since the Fed approved a 0.5 percentage point rate-cut last week. The yield on the benchmark 10-year US Treasury note, which helps set interest rates on everything from mortgages to corporate bonds, settled Friday at around 3.73%, up from 3.64% the day before the Fed’s move.
…
[R]ates on a lot more debt are driven primarily by swings in Treasury yields. Those are set by where investors think the Fed’s short-term rates will go in the future, rather than where they are now.

“Investors” are speculating with that, and banks IMNSHO contribute to the speculation by setting their rates on short-term costs and incomes rather than taking the longer view (banks aren’t the only ones, and financials aren’t the only industry, where this short-term, or perhaps shortsighted, prevails) of setting their longer-term rates based on the longer-term incomes of the actual coupons those longer-term instruments pay.

The speculation is made possible by the difference between yield and coupon. A 10-year Treasury Note (for instance, the following definitions apply to all debt instruments that are bought and sold) has a market price, a (market) yield, and a coupon. The Note, once sold, has a coupon, which is the amount of interest the Note issuer (here, the Fed) commits to pay the Note holder (who won’t necessarily be the original buyer) each period for the entirety of those 10 years (in our example). That interest rate, that coupon rate will be paid at the appointed time regardless of the market price of that Note at the time the payment comes due.

The Note, once sold, also has a yield that is separate from the coupon, and that yield is created by the Note’s market price, and that price is driven by short-term trader investors’ aggregated speculation of where interest rates will be tomorrow and by long-term investors’ aggregated speculation of where interest rates will be by the end of those 10 years. In either case, if the aggregated speculation is that interest rates will be higher, then the next-issued Note will have a commensurately higher coupon—guaranteed interest payout rate. To make current Notes, issued with those smaller coupons, marketable, those Notes’ market prices must fall, raising their coupon rates relative to their market prices to match that next-issued coupon. The opposite happens if the next-issued Note is expected—from those aggregated speculations—to have a smaller coupon.

That price variation, and the associated yield variation, is good for debt instrument traders and speculators, but it does little for interest rate stability, which is important for those who depend on fixed income instruments, like Notes (and Fed bonds, which have even longer lifetimes), for their income. Those folks include more than just the retired or the stereotypical widows and orphans, and they comprise no small fraction of us Americans.

Scrambling for pennies by trading on yield—by trading on the instrument prices, which move in the opposite direction of yield (and which movement is the core of the speculation and the creator of the associated yields)—granted those pennies accumulate, lend to volatility in a milieu that would benefit greatly from more stability.

Such coupon-based stability might facilitate more than yield-based relative volatility the ability for banks to avoid mis-matching short-term risk with long-term risk mistakes of the sort a bank in California and another in New York made not so long ago that cost them their existence and severely damaged their depositors.