money

The Dollar’s Tight-Rope

The dollar is the most often used thing of value in which non-USA countries store their foreign currency reserve. First off, what’s a foreign currency reserve? These are often large sums of currency held by the central banks of various countries to stabilize their currencies. If there’s a sudden shock on the Swiss Franc, the government of Switzerland can buy or sell dollars to mitigate the shock. In some cases, the governments also use reserves to facilitate trade or government purchases. This was traditionally done with gold and silver. However, since 1974, it has largely been done with dollars. Dollars provided by a country that (until recently) was committed to international rules and institutions that facilitated trade and rule of law for disputes.

The dollar is not only a reserve, held by many countries including China and Russia, but also a preferred currency for many international exchanges. When you buy a barrel of oil, that contract is denominated in dollars. (Even though the Saudis did poke Joe Biden in the eye by executing some contracts with China in Yuan – it was a political move, not based economics). If a large bank, or a government, lends money to another country, it will generally do so in dollars. A German bank does not want useless Bolivars, Dinars, Pesos, Drachmas, or Rials. They want dollars, Euros, and Swiss Francs (probably in that order). The country or government receiving the loan also wants dollars. (Although Euros can be fine, as they translate quickly and easily into dollars).

This puts the United States in a unique position, as the world’s supplier of dollars. When we run a deficit, we borrow that money in dollars. If a German bank buys a US treasury bond (a loan to the United States government), it will be repaid in dollars. The repayment risk to the German bank is minimal, as the US can just print all the dollars it wants. The risk to the German bank is the US will be poorly managed, and the value of the dollar will be inflated away. Let’s say the German bank buys the treasury bond for $1,000, expecting to receive $50 in interest every year for the next five years and then the $1,000 principle. At a 2% inflation rate, that $1,000 will be worth about $900 in today’s money. But if the US engages in some very stupid decisions, and the inflation rate climes to 5%, that will be worth $775 in today’s money. Until recently, the US has had largely very sober, responsible economic managers, so the risk was minimal.

How bad can inflation get? We’ve had 5% inflation for short periods at numerous times. It didn’t really bother people that much, because it quickly fell back down. We had around 9% under Biden for a brief period and people lost their minds. But many places have seen inflation rates in the 20% or more range for prolonged periods of time. They still survived as countries. Even hyper-inflated countries have held together. At a 20% inflation rate, the German bank would see $325 returned in today’s money. If that bank had any real fear the US was going to 20% inflation, they’d avoid the bond until it had over a 20% interest rate. But most US debt is actually held by US individuals.

On net, this is a good position. If we want to buy something we make the magic tokens most people want to exchange. If we need more dollars, we can make more. We don’t even have to print them. We just put some numbers in a database. People are also willing to buy our debt, which we will pay back in those same magic tokens we make. Unless we do something stupid, that results in protracted, high inflation, we will continue to hold this unique position. The contenders for this rare status are the Euro and the Yen. No one wants Yuan or other BRICs currencies, not even the BRICS countries. Many countries hold a basket of currencies that include Yen, Euros, Swiss Francs, gold, and silver, but the US dollar is the workhorse currency.

There have been a couple of recent incidents, however, that may interfere with the dollar status. The first is seizing reserves. Specifically, a federal court seizing Argentine dollar reserves held in the US to pay creditors. For any country relying on the auspices of the Federal Reserve to hold their reserves (which many countries do), the chance they are seized by a US court has to be taken into consideration. (The US also holds the gold reserves of other countries as well). Unless you want to have palettes of $100 bills in a warehouse, you may want to hold bearer bonds, gold, and silver in your own country. Along with this was partially pushing Russia out of the financial system for the invasion of Ukraine. Although this was something I felt was necessary at the time, with the recent administration, European countries especially might be concerned. Could UK assets be seized if the UK does something that insults the orange idiot? Before now it was assumed that it would require a lot of legal mumbo-jumbo – but with the administration operating outside the law, it becomes a matter of fiat by the generalismo.

What would the world do? I really don’t know. The idea of crypto currencies stepping into this role is ridiculous. The volatility of any crypto makes holding it as a reserve nearly suicidal. Likewise, gold seems unable to handle the requirements of a much larger trading system than pre-1974 trade. It would also be a boon to the Russians, something many Europeans would rather avoid. However, as we’ve seen, gold has been been climbing steadily over the last year. And it’s hard to detach the timing from the chaotic nature of US policy. The Euro and the Yen are not there yet in peoples’ minds. The Yen may be closer to that role than the Euro, which seems too susceptible to political meddling from Europe. (Which should be a warning to the dollar).

What would happen to the US if the dollar no longer occupied its current position? I think it matters how we get there. If we get there because of an orderly move to more balanced baskets of reserves, not much. But, if we get there because of dollar weaponization or severe inflation, that’s a different story. For one thing, we would be paying higher interest rates on US debt. If it’s an inflation story, both US and foreign bond holders would want higher interest payments. Somewhat less if it’s a weaponization story, but they still would want compensation for added risk. The dollar would fall in value as people demand less dollars. As a country that imports quite a bit of stuff, this would push inflation.

But I suspect the biggest change would be the world no longer has to “grin and bear it,” when the US does something they don’t like. On one side is a fall into policies that degrade the value of holding dollars On the other side is a fall into the world of inflation. Maybe it isn’t a tight rope. Maybe it’s more like a balance beam, with more room for error than I believe. But at the end of the day, the loss of the dollar’s special position would not make America great again.

AI Wins the Shutdown

It’s Monday, November 10, and I’m going through the news. The shutdown may be coming to an end. Welcome news to some, although I believe the Democrats caved. The Republicans indicated they were willing to scorch the earth over ACA subsidies. These are the payments that help people buy health insurance, when they can’t possibly afford 15,000 or 20,000 a year in premiums. It seemed as though Republicans were willing to let air travel fall apart in front of the holiday season rather promote access to healthcare. All while the government feels they have enough money to possibly send $2,000 rebate checks from the taxes collected through tariffs. And the Democrats blinked. The government, assuming the house approves and the administration doesn’t have a spaz and veto the bill, will likely re-open.

What stocks do you think would be doing well on that news in the pre-market? They airlines? Yes, they’re up. Defense contractors? They’re mixed. What about health care? Mixed to net negative. What’s ripping? AI hardware and semi-conductor companies. NVIDIA is up over 3%, while the strongest airline, UAL, is up just barely 2%. The DOW and the SP500 are up largely because of just the AI and related semiconductor stocks.

On the Russel 2000, there’s more broadly positive price movement. The second tier defense contractors are doing well. When the Russel 2000 does well, it is a proxy for investors being more willing to take risk. In the sense that ending the shutdown is positive for the economy, taking on more risk through AI and smaller companies follows. With the gross dysfunction abated, it is more likely companies will make money. But the undercurrents of self destruction over providing health care to people is still there. One party is willing to burn it all down, including intentionally withholding food assistance to their base. They are willing to ignore their roll in checking even illegal acts. I don’t know if my outlook on the future is as sanguine as the other investors stepping up to shoulder more risk.

I feel like we’ve lost our ability to discern what is good and bad. All we know to do is calculate which option gives us more money. What you build is not important. Who you defraud is not important. What you destroy is not important. The dystopia you are creating is not important. And with enough money you can buy a legacy. All that matters is making as much money as possible. The invisible hand free of moral and ethical constraints. Even democracy and the constitution fall by the wayside if there is money to be made. Greed is not just elevated to ‘good,’ along with other good values. Greed is the only thing that matters.

Social Media Is Not the Printing Press

If I read one more op/ed or article where social media is compared to the printing press, I’m going to barf. The latest one is in the NYT, and quotes a number of published important people about the inevitability of all of this. That it’s a fundamental technological change, like the printing press. And who would want the printing press stopped? Sure, it helped fuel hundreds of years of brutal religious wars, but look at where we are today. Mark Zuckerberg is on par with Johannes Gutenberg. We just have to accept the misinformation (also spread by the printing press), libelous material (also spread by the printing press), and the hundreds of years of brutal, bloody, and barbaric religious wars between illiberal regimes to get to something good.

First, let’s get some of the printing press mythology out of the way. Johannes Gutenberg did not invent the printing press. There were presses before Gutenberg, but they were based on techniques such as carving into wood to create images. To publish anything more than pictures with that technology was hard and expensive. Gutenberg’s innovation was to create type from cheap lead and make that type movable (settable) on the page. It was too expensive to make the lettering out of bronze or brass. Lead is plentiful, cheap, and easy to work. If the letters wear down, you melt the lead and stamp more letters using the bronze or brass stamps. It made publishing a book, using a press instead of monks and quills, a commercially viable project.

The internet itself may be the more correct printing press analog. But social media is not. Social media, unlike the invention of movable type, is a creation of law. Prior to the passage of section 230 in 1996, a site like X would have been effectively impossible. Why? Because X would have been held liable for the content of the posts, regardless of the author. Thanks to section 230, X can promote social media posts that libel, slander, threaten, defame, intimidate, or harass individuals with little or no legal exposure. If you want to go after the perpetrator, you have to go after an army of dimwits, hidden behind a degree of anonymity that makes prosecution difficult, if not practically impossible.

Yet many intelligent people confuse this legal loop-hole as a change in fundamental technology. What if the New York Times suddenly started printing non-factual, slanderous content? They would be sued. What if the Washington Post just printed screen shots from the Wall Street Journal as news? They would be sued. What if People magazine suddenly started telling teens that no one likes them and that suicide was a good thing? They would rightfully get sued and maybe criminally investigated. We dealt with this problem long ago with print publishers. It’s not insane to think a place publishing a piece of content or information is liable for that content or information.

But isn’t social media just the stuff regular people post? No, you ignorant fool, it is not. If you believe that lie, you are willfully ignorant of the reality around you. It is a mere fraction of what the rubes and the simpletons post. A large portion is the product of professionals who use features of the platforms to promote ideas. These range from intelligence agencies creating chaos to people trying to sell cosmetics. What you see as the product of ‘just regular folks,’ is a highly curated feed. Imagine a print publication that took submissions from anyone. Then those people vote on the submissions and the print publication goes forward with the issue. Their goal is to aggregate content that gets folks to pick up a copy and look at the ads. They don’t really care what’s in their published material. And the headline is something like ‘Donald Trump has Butt Baby with Satan.’ They would be sued. Because it’s print. If you print it on paper, you are a publisher.

But if you do it on social media, it’s not a problem. X or Facebook can run the exact same headlines. They can promote those same stories for the exact same reason, to push ads (and collect data to better target you in the future). Yet they have a pass. Intelligent people are confused by this, as if there is something inherent in some technology that makes X or Facebook incapable of being stopped. That whatever we do today, we would just wind up with new companies tomorrow. The internet would allow for the passage of information, but it’s the legal structures that have allowed for the creation of these massive, multi-trillion dollar companies that are poisoning democracy with the goal of shoving one more ad in front of your face.

If you took the stance that Facebook is acting as a publisher, with its algorithm to select and promote content, the same way the New York Times acts as a publisher, Facebook would cease. If they could get sued because your grandma re-posted a libelous story, they would not let your Nana do that. And if your rejoinder is that it’s not employees of Facebook that generate the content, well, not all the content in the NYT is a product of its employees. They may pay for Op/Ed pieces, where the person is not a staff writer. Okay, if you don’t pay for it, then it’s user contributed? Social media companies do compensate their “creatives” or “content providers.” X and YouTube, for example, have allowed people to build influence businesses by (in part) direct payments. So the social media companies are paying people for content, selecting which content to show, and collecting money through ad impressions. I really fail to see the legal difference between the NYT and Facebook from a liability perspective, except for the invented shield of section 230.

But revoking section 230 would throw a lot of baby out with the bathwater. What about a small, mom-and-pop site in the American Heartland just hosting Bible verses and some miscreant missuses it for nefarious purposes. You would shut them down? That’s the false choice we are presented. Either continue forward as is, or create legal quagmires on every main street between San Diego and Portland, Maine. We could amend section 230 to put the legal responsibility back on to what are essentially publishers. Or maybe we should amend other laws so genuine mistakes or oversights are not criminalized. We already don’t arrest UPS drivers and executives because they deliver illegal material or contraband. Nor do we throw the bank branch manager in jail because the money in their bank was used for criminal purposes (although they sometimes know – and in that case we do and should).

We act like we can’t possibly learn from the past with a new situation in the present. That we just have to repeat the same problems, over and over again, every time there’s a new change. This is a kind of powerlessness brought on by ignorance. It’s on a computer and it’s done by young, clever people who use words most people don’t understand. And it’s kind of magical, if the typewriter is the last writing instrument whose innards you still understood. Because it’s magic, and the magicians who benefit from it say it has to be this way, then it just has to be this way. Francis Fukuyama may be a genius in his area of expertise, but he bows to technology much the same way your grandma does.

There are other arguments, such as we wouldn’t have such a broad dissemination of information about the sciences, or social, or political events. But we do And with organizations that are subject to standard laws and norms for publishers. The internet drives down the cost of publishing and so opens the ability for smaller publishers to come forward. But they are still publishers. If Scientific American online publishes an article on their site threatening the city manager of Watkins, Illinois, they can be sued. It doesn’t matter if they paid for the article, or it was written by their staff, or it was freely handed to them. They are a publisher and chose to publish it. The same threat on X might go unnoticed as it may not even be in the top 10% of threats against people that day, promoted by the algorithm on X. If I set up a news outlet on the internet, and “publish,” I will be sued for the butt-baby thing. But if I’m “just a platform,” taking submissions from users, then I’m actively shielded. Even if it’s the same butt-babies, poorly veiled death threats, anti-vaccine fabrications and all else.

This collective delusion can’t continue in the context of a vibrant democracy. The more we delude ourselves into believing we are incapable of correcting our own creation, that the things the mind of man hath wrought are as unshakable as the strong nuclear force, and that it is as inevitable as the sun rising, the more we will seem like complete morons to future generations.

I often feel like the one guy point at the naked emperor, parading down the street, and wondering why no one else sees this for what it is. I think other people do. I think they’re afraid that if they do anything about the current situation, then their side gets hurt more. If we take away section 230’s protections, it will be the other side that runs amok. Or it will just be big publishers that squeeze out the little publishers. (As if we don’t already have a handful of social and traditional media companies, all owned by politically minded billionaires). But what if there’s a problem and we need to get our base out to protests? What if the other side comes to rule the information landscape?

So that’s where we are. Ignorance about the thing we created and fear its absence will leave our side worse off. And we have many, many instances in our history where fear and ignorance have ruled us, and maybe that’s the example from which we fail to learn.

Would You Do It for $20?

That’s a game you play with your friends. You know something makes your friend’s skin crawl. You ask them how much money would it take for them to participate in that skin crawling activity. The answers vary from “just no”, to “maybe I’ll do it for $1,000,” to “I’d do it for $5”. Then there’s the friend that cements their reputation as a nut, or shows off their nutty side, by just doing it. We got a glimpse of that recently with the Saudi comedy festival.

I don’t put comedians on a pedestal. I don’t think Bill Burr has any special insight into economics, politics, or society. But sometimes the best comedy is pointing out the world as it actually is. And you get a reminder that something we all tiptoe around as oversized, dangerous, and deep is actually small, harmless, and stupid. Even if media, culture, celebrities, and politicians are telling you it’s a great idea, or it’s a sacred cow, or it’s “dangerous,” for a minute you see it’s stupid and we were silly for thinking otherwise. I don’t mean in the “do your own research,” vaccine denying, tin-foil hat way. I mean in the way that we have sacred cows we tacitly or explicitly refuse to question, but should.

Three comedians walk into a racist, brutal, autocratic, fundamentalist regime that doesn’t respect human rights: Bill Burr, Whitney Cummings, and Pete Davidson. Pete Davidson is the easiest one to analyze. I don’t really think there’s a huge moral compass there. He seems like the kind of guy who just picks up on the vibe around him. He’s the friend that says “$20 – okay,” because he wants the $20 bucks. He has plenty of cash, but $20 more would be better. Do I care he went to Riyadh? Not really. It just cements my opinion of him as the gross kid.

Whitney Cummings is the queen of bad decisions. She can say, after the fact, that everyone around her made it seem like such a good idea, and the money was amazing, and that she made another bad decision. It’s one of a long line of bad decisions. It would make me wonder if she’d gained any insight about making bad decisions, or avoiding bad decisions, but it would track. She’d have a good five minutes in her next show about what a bad decision she made, and how bad she felt, as she enjoyed the really nice car she bought from said paycheck.

Bill Burr is the tough one. Because Bill Burr really doesn’t need the money. If it were revealed that Pete Davidson was declaring bankruptcy – that would track. Bill Burr is a smart guy. If not smart, insightful at the very least. He’s called out greed, evil, and hypocrisy on many occasions. Every once and a while an excerpt from his pod-cast pops up and he calls folks out for being the worst people. I think he’s also aware that condemning rape victims to be punished, or beating women for not wearing head-dresses, or treating foreign workers like slaves is bad. Pete and Whitney might not think about the fancy hotel they’re in as the product of slave labor. I’m not saying Bill wouldn’t stay there. I’m just saying I imagine his conscience would at least twitch.

And despite the assurances from people like Bill, that the Saudis are just funny people (as if we have no understanding of Saudis), and he could say what he thought, it doesn’t track. This isn’t like going to the Soviet Union and playing a show for a repressive regime, because it’s a closed society with little cultural exchange. Plenty of Saudis travel and live outside Saudi Arabia and plenty of Americans have lived in Saudi Arabia. It’s impossible to say he was ‘freer to speak his mind there,’ because the contract stipulations leaked and included specific topics there were off-limits. Other comics had their invitations rescinded for jokes. We know they were censored. I’m hoping Bill Burr pulled back because he was being censored. Otherwise, that would mean…

But this is where we are. Top, head-line comics, with plenty of money, will gladly play for a few dollars more to legitimize a country that is the embodiment of the backward stupidity they would otherwise ridicule. Or maybe it was always just a bit, like Michael Jackson using a falsetto when out in public, to make us think there was something there. Maybe they didn’t care what they said, or who they said it to, as long as the checks keep coming. If it means making fun of racists, bigots, and (Christian) fundamentalists, that’s fine. If tomorrow making fun of people of color, punching down on gays, Muslims, Jews, or free-thinking people makes more money, well, they can do those bits, too.

And to a larger degree we see companies, especially media companies, caving to pressure because already absurdly wealthy people could make more money “settling” with Donal Trump. We see colleges willing to give up intellectual freedom to preserve their jobs and money. These are institutions that should have a very real, necessary, and strong allergy to authoritarians. Media companies need that allergy because they need creative independence. Universities because they need freedom to think and explore ideas. Have they had to compromise in the past? Yes, and almost always those two industries have regretted it. It’s always a shameful part of their history they never hope to repeat again.

But that’s the beauty of Trump’s America and, in a smaller way, the Riyadh comedy festival. It lays bare the fact that the moral compass of people with money bends towards more money. Movie studios, TV networks, and publishers were always businesses first. But they couldn’t stop the editorial message coming from the creative people they needed to have a product to sell. Universities always needed to bend to their alumni, donors, and grantors, but couldn’t serve their purpose without giving academics broad liberty of opinion. And comedians have always had to put food on the table, pay the rent, and make a buck.

But the institutions, people, and companies with the greatest ability to do the right thing, to fight the right fight, and to stay on the right side of history, have shown they would rather just have the money. Even at the expense of what makes them valuable, hoping that it will all blow over as something else happens. And the next time Bill Burr is making fun of Donald Trump being an autocratic bigot you’ll forget he helped legitimize the kind of autocracy Donald wishes he had.

Maybe Whitney or Bill will do Trump’s next birthday gig, if the money’s right, and they’ll be free to speak their truth in any way that’s not prohibited in the contract.

Kreskin Not Needed

We don’t need a great fortune teller to explain what’s going to happen. We have been letting high income people and large companies avoid paying their share of taxes. Do they pay taxes? Yes. But it’s not unusual for a high income earner to pay at a 15 to 20% rate. Their employees might be paying at the 25-35% rate.

We recently had an anti-trust ruling on Google that, while they were a monopolist who caused a lot of market damage, stifled competition, and hurt their customers, nothing will happen to them. The same “nothing’ happened to Microsoft decades earlier. Nothing happened to Wall Street executives after the mortgage markets imploded due to their fraud. Nothing is likely to happen to Apple in its anti-trust case. Meta’s AI chat bots have lewd conversation with children, while admitting to basically stealing their training data from authors. Nothing will happen to them. Unusual options trades on thinly traded companies just before major announcements feel like they’re happening on an almost daily basis. No one is being picked up for insider trading.

What happens at the end of this, when we let major companies and the rich skirt on their tax burden, when we’ve destroyed the competitive business landscape to help make them a little more money, when we’ve gone into debt over and over again, in administration after administration, to cut their taxes or drive away burdensome regulations? What’s going to happen is that the people in the bottom 95% will be left to bear the burden of cleaning up after a party that they didn’t attend. They will own nothing, because anything worth owning will be held by the rich, who have super-charged the rate they accumulate wealth. They will use those piles of cash to buy anything worth having, from housing, to farm land, to water rights, to pristine wilderness.

The wealth gap between the top 1% and the bottom of the top 10% is becoming stupidly large. Never mind the middle 50% of Americans. And this is happening all over the world. A little faster in some countries, and a little slower in others. But at the end of the day, the super-rich will walk away just fine, but it will be rank and file citizens that will have to pay back the debt. At some point the acceleration of debt will be so unsustainable that either brutal austerity or massive inflation will follow.

And who owns that debt? Who do we need to pay back? It is the super-rich, the large investors, and the large corporations.