Category Archives: political economy

A Compromise for the SEC?

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A letter-writer to The Wall Street Journal‘s Wednesday Letters section offered a compromise for the SEC’s proposed change to company reporting from all of them reporting quarterly to all of them reporting semi-annually.

Large companies should continue to report quarterly so that stakeholders have timely signals for pricing and risk management. Micro-caps, by contrast, could move to semiannual reporting without leaving investors in the dark if a few safeguards stay in place. Material developments should still be disclosed promptly between reports; companies should provide a short, standardized mid-period update with such core metrics as sales trend, liquidity and interim financials. Whatever the frequency, they should retain a light auditor review to discourage aggressive accounting.

Aside from ignoring the myriad of companies whose sizes are intermediate between micro-caps and large, most of his suggestions are not materially different from the current quarterly reporting requirements. Quarterly reporting, after all, is quintessentially intermediate to semi-annual periods, and his standardized mid-period updates are those quarterly reports.

The only concrete suggestion, material developments reporting, already is required by law: that’s what Form 8-K is for.

And this from the letter-writer:

This approach targets the real pain point—fixed compliance costs that bite hardest at the smallest issuers….

Moving to semi-annual reporting would be a boon for all companies, large, micro, and intermediate. That large companies “can afford quarterly reporting” while smaller companies cannot is a tired and useless trope used to harry the rich and successful in too many milieus already. The trope doesn’t need to be expanded here.

A Constitutional Amendment Proposal

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As  Nicholas Ballasy, of Just the News, wrote Saturday, the Federal government is once again nearing the end of a fiscal year with no serious plan for funding the next year. His lede:

Congress is on its way to missing a “basic” budget deadline for the 29th year in a row, according to the Committee for a Responsible Federal Budget.

And just to emphasize the point:

Meanwhile, the deficit so far into the current fiscal year is larger than the same period last year.

Hence my Constitutional Amendment in its outline if not in its final wording:

If, at the end of any fiscal year, the following year is not fully funded—that is all 12 of the necessary appropriations bills are not enacted into law—then the only Continuing Resolution that is allowed is this one, which is automatically implemented beginning on the first day of that following fiscal year:
All spending by the Federal government is reduced by 10% of the prior year’s level, with the exception of spending on our national debt and our national defense. These two will have their spending held unchanged from the just concluded fiscal year. The spending reduction includes all Federal government spending, including so-called entitlement spending and all “off the books” spending.

This Continuing Resolution will continue in effect until the Federal government is fully funded for a fiscal year by enacting each of the dozen appropriations bills for that year. The Continuing Resolution, including the year-on-year spending reductions, will continue in effect for all subsequent consecutive fiscal years across which the funding failure continues. This means that if Year0 concludes at a spending level with Year1 not fully funded, then Year1’s spending level will be reduced to 90% of Year0. If the funding failure continues into Year2, then Year2’s spending level will have an additional 10% reduction, for a total reduction to 81% of Year0’s, and so on into Year3, Year4, etc.

Amending our Constitution is, by design, a difficult process, and that’s correct: our Constitution is our blueprint for governing ourselves rather than for us being governed; it cannot function as a limit on government if it’s reduced to a reflection of what we think ought be done in the moment and from moment to moment. Nor is a Convention necessary; We the People can convene ourselves to create and then push through an Amendment. It is time, though, to get started; it does take time to propose, write, and then ratify the thing.

Dealing with the PRC

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The People’s Republic of China has decided that the American company Nvidia has violated PRC anti-trust laws and is holding the company hostage in trade negotiations with the US.

China’s antitrust regulator said Monday that a preliminary investigation found Nvidia violated the country’s antimonopoly law in connection with an acquisition of an Israeli company that was completed in 2020. The regulator said the investigation was continuing, and it didn’t elaborate on the alleged violations or say whether it would punish Nvidia.

The PRC is centering its case on Nvidia’s commitment to not cut the PRC off from its chips as a condition of PRC approval of the acquisition. That might make a basis for a legitimate anti-trust beef; however:

Since 2022, the US. government has blocked Nvidia and other American chip vendors from selling many of their top-flight artificial-intelligence chips to China.

Here is the PRC threatening an American company for its compliance with American law.

There are now two strong reasons for American companies to walk away from the PRC and discontinue all business with PRC-domiciled companies or within the PRC under any guise. One is the overt interference with the domestic affairs of our nation. If the PRC doesn’t like our government’s block of Nvidia, et al., selling their best chips into the PRC, its beef is with our government, not with the American businesses it tries to take hostage in its “negotiations” with our government.

The other reason is the PRC’s presumption that it should have veto authority over whether an American company acquires, or otherwise takes a stake in, any non-PRC-domiciled company. If American companies stop doing business in/with the PRC, then the PRC has no approval/disapproval authority over acquisitions—it becomes irrelevant. And that’s as it should be with an enemy nation.

Obamacare Subsidies and Appropriations Bills

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The Progressive-Democratic Party’s Congressmen and Senators are attempting to extort Republicans into surrendering on extending/restoring Progressive-Democrat-passed (in 2021) Obamacare expanded subsidies.

Unfortunately, they’ll likely succeed, as too many Republicans in each house are too timid to stand their ground.

Never mind that if those Republicans would crawl out from under their desks, they easily could make the case that any government shutdown would be (and after the realization, was) the sole doing of those Progressive-Democrats. It’s those Party members, after all, who threatened to close our government if they weren’t meekly obeyed and who in the realization did close our government.

These Republicans think they face regarding the Progressive-Democrats’ announcement is a chimera, too. The Federal government never really shuts down. With current tax law, funds come flowing in to Federal coffers are plenty for the Federal government to keep paying, on schedule, almost all of existing Federal outlays. The losses from any supposed shutdown would be primarily via Federal contracts with businesses that provide services to the Feds, but most of these businesses would be made whole under the terms of those same contracts.

The larger, underlying problem this extortion exposes, though, is the Republicans’ failure, in their aggregate, to pass all of the dozen separate appropriations bills they’re nominally required to pass every year. These appropriations bills are the actual spending bills that commit actual dollars that the Federal government has committed through its various allocation bills, which is where the government says what it wants to fund. Appropriations are those funds.

Had the Republicans in Congress actually passed those dozen bills on schedule, or at least by the end of the current fiscal year (which has another week left, so theoretically they still could), as they promised at the start of the year and of which they’ve only passed three or four, there would be no risk of a shutdown, and the Progressive-Democrats would have no extortion bricks to throw threw government windows.

Will the Republicans learn this lesson for the second year of this Congressional session? They never have in the past. I’m not holding my breath for the future.

The Short and Sweet of It

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Government debt is ballooning globally, but this short post centers on US government debt.

Over the past two decades, governments went on a debt binge, fueled by low interest rates. Now that rates have risen, investors worry that Western governments aren’t willing to make politically difficult decisions to curb public spending….

Of particular interest to me is that this has gone on in extreme parallel (to coin a phrase) in the US. In the years (too many of them) following the Panic of 2008, the US Fed kept interest rates, via its benchmark rate setting artificially suppressed, holding them down almost all the way to zero. That fueled the borrowing, since payments on the debt were so cheap. (The heavily negative impact on fixed-income Americans holding, as their primary income source, corporate and government debt instruments was of no mind to the Fed or to the administrations then in power.)

Federal spending needs to come down, certainly, but that’s made harder to do (the primary impediment is political timidity) at the higher interest rates currently extant.

Therein lies the rub. The Fed’s benchmark rates currently are at, or a skosh below, the rates historically consistent with the Fed’s 2% target inflation rate. The current push to lower them even further, globally as well as here at home, is mistaken. That won’t reduce borrowing; it’ll only increase it, partly to roll existent debt and partly to “take advantage of” the lower rates to increase net borrowing.

No. It’s time for the Fed to be quiet and sit down, leaving its benchmark rates at their current level. The only thing for the Fed to say publicly about rates is to announce in clear, no uncertain terms—no Fed speak—that it’s going to sit down and be quiet, and leave its benchmark rates at their current levels. It’ll be costly and slow for existing debt to be paid down, but our economy will recover to even greater prosperity on the other side. The cost of not sitting tight at current levels will be even greater in the long run of burgeoning debt that ends up so great it cannot be repaid, except with inflation destroyed dollars.

John Maynard Keynes once said that in the long run, we’ll all be dead (so who cares, went his subtext). But our children and grandchildren will be living in today’s long run. We should care today.