The Great Student Loan Nonpayment Boondoggle Is Over And Household Spending Is About To Collapse

The Great Student Loan Nonpayment Boondoggle Is Over And Household Spending Is About To Collapse

In the small print detailing the end of the debt ceiling melodrama which, as we explained, is a farce as it boosts inflation-adjusted there was some actual news: the great student loan boondoggle is about to come to a screeching halt, after a three year “emergency pause” which redirected tens of billions in dollars away from mandatory student loan repayment to other forms of discretionary spending.

According to Goldman, the agreement announced on Saturday between uniparty leaders Joe Biden and Kevin McCarthy titled hilariously the “Fiscal Responsibility Act”, prohibits the Biden Administration from extending the pause on student loan repayments in place since March 2020, even if it does not block the Administration’s student loan forgiveness plan, which would wipe out up to $20,000 in federal loans per borrower and is currently being weighed by the Supreme Court (the plan was announced last year but has not yet implemented).

Here are the details: late last year, Biden extended the repayment pause, which postpones roughly $5bn per month in student loan repayments, until 60 days after the Supreme Court ruled on the separate $400bn loan forgiveness plan the – the Supreme Court is likely to rule on loan forgiveness in June, so this likely would mean a restart of payments after August 2023.

And now, the debt limit agreement prohibits further extension of the payment pause, but remains silent on the student loan forgiveness plan which however will be nixed by SCOTUS much to the chagrin of screaming libs and lifelong members of the “free $hit” army. Prior to the announced debt limit deal Goldman had already assumed the repayment pause would end on schedule, though there was clearly a chance the White House might have extended it once again. The debt limit agreement eliminates that possibility (“except as expressly authorized by an act of Congress”) and should result in a restart of student loan payments in September 2023.

What happens then?

Well, according to Jefferies, the return of monthly loan payments presents risks similar to the effects of the 2013 fiscal cliff, when tax increases led to reduced consumer spending. And in a note released Monday (available to pro subscribers), JPMorgan’s chief US economist Michael Feroli said that the end of the payment moratorium will reduce annual disposable personal income by $38 billion, which will reduce consumer spending.

Separately, a March analysis by FreightWaves found that federal government programs boosted personal income by an estimated $2.3 trillion from March 2020 to December 2022. According to The Motley Fool, consumers received an average of $3,450 in stimulus during the COVID economy. This included direct payments into bank accounts, an expanded Child Tax Credit and an expanded Earned Income Tax Credit. But one of the biggest COVID-related stimulus programs was not factored into the s numbers: student loan forbearance.

As noted above, Education Secretary Miguel Cardona said the student loan deferment program will end no later than June 30, 2023, and payments are expected to resume by Sept. 1, 2023: “The amount of money we are talking about, in excess of a trillion dollars, is staggering. Student loans represent 7% of U.S. GDP” according to FrightWaves.

Putting these numbers in context, 64% of the $1.7 trillion in student loan debt have been in forbearance for the past three years, amounting to $1.1 trillion. Many of the 25 million Americans who have deferred payments for student debt are aged 18-44 years old, one of the most important demographic groups that drive consumer spending. 

Some more math: according to a New York Fed study, the average student loan payment is $393 per month.

For consumers taking advantage of the program, they have deferred 39 months worth of payments, resulting in more than $15,327 in additional discretionary income during the period, much larger than the amount most consumers received from other COVID stimulus programs. 

The forbearance program, when originally conceived, was intended to be a short-term program to protect consumers from the COVID black swan event. But many consumers made financial decisions based on this short-term cash flow boost, treating the cash as permanent. In fact, as the latest NY Fed household debt study showed, delinquency on student loans – until 2020 the highest among all types of credit – collapsed to near zero courtesy of the repayment moratorium. Expect the red line to soar higher in coming quarters.

A sudden increase of $393 per month in “new” – but really old – loan repayments will force prime-age consumers (those aged 18-44 years) old to cut back on discretionary spending. Since portions of this demographic have a tendency to prioritize experiences over goods consumption, we can expect this will have a much bigger impact on services demand and spending, which as discussed previously, has been the only pillar supporting the US economy now that  goods spending has fallen off a cliff.

Tyler Durden
Tue, 05/30/2023 – 18:00

via ZeroHedge News Tyler Durden

Three Years Later, No Justice For BLM Insurrection In D.C.

Three Years Later, No Justice For BLM Insurrection In D.C.

Authored by Julie Kelly via American Greatness,

D.C.’s lead prosecutor has turned a blind eye to a six-month campaign of terror in the nation’s capital in 2020 so he could keep his sights on the mostly nonviolent protesters of January 6, 2021…

“Our office prosecutes all acts of violence, regardless of political motivation, the same.”

So said U.S. Attorney for the District of Columbia Matthew Graves—under oath, mind you, and with a straight face – during a hearing of the House Oversight Committee earlier this month. 

Representative Paul Gosar (R-Ariz.) questioned Graves’ disparate treatment of Black Lives Matters rioters who terrorized Washington, D.C., in 2020 versus Trump supporters involved in the events of January 6, 2021.

Although the start of both incidents was a mere seven months apart, they are a world away in terms of accountability.

In what Graves calls the “Capitol Siege” investigation, more than 1,000 Trump supporters have been criminally charged.

Graves, a Biden appointee, has promised to double that caseload before he’s finished. His office announces new arrests every week.

That, however, is not the case for rioters who caused far more violence and inflicted far more damage in the nation’s capital in 2020. The rioting that began on May 29, 2020 at Lafayette Square prompted the lockdown of the White House; Donald Trump, his wife, and teenage son were ushered to an underground bunker for their safety as looters and arsonists repeatedly tried to scale the fence and break through police barricades erected outside the White House.

And what started that night in 2020 didn’t just last a few hours, as was the case with the Capitol protest. On June 1, rioters burned part of St. John’s Church, an historical landmark across from the White House, and set ablaze other areas of the public park.

Chaos continued throughout the summer with the president, his family, and White House staff under constant threat. Police arrested 11 people at Lafayette Square in July 2020 for various offenses including assault of a police officer. “The Tuesday night incidents that stretched over hours are the latest confrontations to transpire near the White House, where protesters have been gathering daily for more than a month to protest for racial justice after the killing of George Floyd in the custody of Minneapolis police,” the Washington Post reported on July 8, 2020.

After Trump accepted the GOP nomination for president on White House grounds in August 2020, rioters chased Republican lawmakers, including Senator Rand Paul (R-Ky.) and his wife, leaving the event. Some assaulted police in an attempt to get near members of Congress; Rep. Brian Mast (R-Fla.), who lost both legs and a finger in Afghanistan, was surrounded and shouted down by Black Lives Matter protesters as he tried to get home.

Elected officials weren’t the only targets of rage-filled activists occupying the heart of the nation’s capital that year. Trump supporters, including young families with children, were attacked by BLM and Antifa rioters during pro-Trump rallies in November and December 2020.

But the violent demonstrations at Lafayette Square represent the closest comparison to January 6: clashes between federal police and protesters on federal property. An Interior Department inspector general report detailed the turbulent situation at Lafayette Square that endangered police and the president for days 

[The] Treasury Annex building was vandalized; officers were assaulted with projectiles, such as bottles and bricks; and a brick struck a [U.S. Park Police] officer in the head, resulting in the officer’s hospitalization. USPP officers reported that some protesters threw projectiles, such as bricks, rocks, caustic liquids, frozen water bottles, glass bottles, lit flares, rental scooters, and fireworks, at law enforcement officials. Overall, 49 USPP officers were injured during the protests from May 29 to May 31, including one who underwent surgery for his injuries. The Secret Service—also reported injuries to their personnel during this time. On the evening of May 30, individuals at the protests threw projectiles at the officers and ultimately breached the first row of bike-rack fencing, thereby eliminating the buffer between the protesters and law enforcement officers.

Dozens of people were arrested, including a man who jumped over two barriers in an attempt to enter the White House. Yet only a handful of protesters faced federal charges—in sharp contrast to January 6 protesters who all face federal counts even for low-level offenses such as “parading” in the Capitol. Nearly all the charges initially filed by the D.C. U.S. Attorney’s office were dropped. (Graves did not take over the office until November 2021.)Despite his claim his office is “prosecuting a number of individuals in connection with the incidents of the summer of 2020,” that simply does not appear to be the case, particularly since Graves further confirmed to Gosar that the office “declined a number of arrests presented to it under the leadership of the prior administration.”

But a change in political leadership does not absolve Graves from failing to bring federal charges against violent criminals who tried to destroy the nation’s capital in 2020. If Graves can indict nonviolent individuals for “seditious conspiracy” who did little more than make travel plans to attend political rallies on January 6, he could easily find more damning evidence against deep-pocketed organizers who encouraged thousands of rioters to occupy D.C. for months, threaten the president, traumatize residents and businesses, assault federal police, and intimidate Republican lawmakers and voters in the seat of American government—a legitimate “insurrection.”

Not only has Graves not charged any suspects involved in the 2020 riots under his watch, but his office also helped negotiate a settlement between the Justice Department and Lafayette Square rioters, who sued the government for violating their civil rights during what Graves called “racial justice demonstrations in Lafayette Square.” The settlement with Black Lives Matter D.C. required Park Police and Secret Service to update their policies to protect those who “peacefully exercise their First Amendment rights.”

First Amendment rights these days are in the eye of the beholder—or in this case, the lead government prosecutor who decided to turn a blind eye to a six-month campaign of terror in the nation’s capital in 2020 so he could keep his sights on people who participated in a mostly nonviolent, comparatively brief protest on January 6.

Clearly, all “sieges” are not created equal.

Tyler Durden
Tue, 05/30/2023 – 17:40

via ZeroHedge News Tyler Durden

Groom And Doom: Target Shares Mark Longest Losing Streak In Almost 5 Years

Groom And Doom: Target Shares Mark Longest Losing Streak In Almost 5 Years

12.8 billion (and counting) reasons to re-think hiring and marketing practices?

Shares of retailer Target fell as much a 3.8% on Tuesday, extending losses to an eighth session which brought the company’s share price to its lowest intraday level since August 2020.

Shares had gotten a brief respite following earnings on May 17, only to decline each session since as controversy continued to mount over the company’s transgender-themed clothing for children.

The fall marks the company’s longest losing streak since November 2018.

And in fact, if Target is down again tomorrow, this will be the longest losing streak since the DotCom collapse…

Target’s Market Cap, meanwhile, has dropped by $12.5 billion in the last 8 days – the biggest plunge since COVID lockdowns in Q2, 2020.

In response to the backlash, Target reportedly removed controversial LGBT-themed products at some stores across the South and rural America ahead of June Pride month to avoid further backlash. Some products ranged from “tuck-friendly” swimsuits for transgender people to gender-fluid coffee mugs. The insider said the reasoning behind such an abrupt move is “to avoid the kind of backlash Bud Light has received in recent weeks.”

More recently, Fox News reported that Target’s VP of marketing, Carlos Saavedra, is a treasurer for an organization pushing a transgender agenda in schools.

Finally, given BUD’s dramatic underperformance of TAP since “the Mulvaney incident”, we wonder how long before corporates learn that profits (and their jobs) trump virtue-signaling to a tiny minority of America.

At some point the pendulum swings back.

Tyler Durden
Tue, 05/30/2023 – 17:20

via ZeroHedge News Tyler Durden

Teaching Kids To Swim Is a Great Way To Protect Them From Actual Danger

Little girl wearing sunglasses leans against side of the pool

Are you a parent who wants to keep your kids safe this summer? The best thing you can do is teach them to swim.

I say this as a nonalarmist mom dedicated to actual safety, instead of security theater and moral panic. For example, I frequently encourage parents not to fret too much about stranger danger—especially since the vast majority of crimes against children are committed by people they already know. Instead, parents should focus on mitigating drowning risks.

The Centers for Disease Control and Prevention (CDC) report that drowning is the most common cause of death for kids ages one to four. Even when those kids get a little older, it remains a significant risk, right after car accidents.

Most child drownings happen in swimming pools. Terrifyingly, they often happen when a child is not expected to be near water—for instance, when they somehow gain access to a pool without anyone realizing it.

David Aguilar, child injury prevention czar for the Texas Department of Family and Protective Services, recently appeared on CBS News to remind parents that until their kids know how to swim, they should always practice “active supervision” of children near water.

I would add that all parents should teach their kids to swim, whether they have a pool or not.

“Learning to swim is about staying alive when you end up in the water,” says Brad Bargmeyer, a certified safety professional in California. “I remember when my nephew at age six confidently strode out onto a dock with no railings to get a closer look at a seal swimming in Puget Sound. I had a moment of concern that he was so far ahead of me around all that water. Then I remembered that he had learned to swim as a toddler. Even if he fell in, he would be okay until I was close enough to fish him out.”

Bargmeyer says the experts endorse “safety through skill,” the principle that equipping kids to survive is a better plan than expecting them to never wander out of sight.

But Joseph Brier, a psychology graduate student at Long Island University, points out another reason for teaching kids to swim (as if not drowning was insufficient). He’s been giving swimming lessons for five years and now runs a small company of swimming teachers.

“Parents have told me that once their children learn to swim they have more confidence and self-esteem,” he says. “It seems to leak into other areas of their life.”

Children can learn to swim starting at age two and a half or three, says Brier. In fact, he loves when kids start early, because they’re not afraid of the water.

Are there some kids who can’t learn? There must be. But Brier says he has taught a child with cerebral palsy, and quite a few with autism, as well as “many large, many skinny, many athletic, and many non-athletic” kids.

Jewish law (my tradition) states there are three things every parent must do: teach their kids the holy books, teach them a trade, and teach them how to swim.

The sages debated this, of course. What’s with the swimming? It seems to be both practical advice—Jews are exhorted to do almost anything to save a life—but also metaphorical advice I wholeheartedly endorse: Endeavor to make your kids self-sufficient enough that you don’t have to rescue them every time they land in the deep end.

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Federal Judge Requires All Lawyers to File Certificates Related to Use of Generative AI

From Judge Brantley Starr (N.D. Tex.), posted today, a standing order on Mandatory Certification Regarding Generative Artificial Intelligence (paragraph breaks added, as is commonly done in quotes on this blog):

All attorneys appearing before the Court must file on the docket a certificate attesting either that no portion of the filing was drafted by generative artificial intelligence (such as ChatGPT, Harvey.AI, or Google Bard) or that any language drafted by generative artificial intelligence was checked for accuracy, using print reporters or traditional legal databases, by a human being.

These platforms are incredibly powerful and have many uses in the law: form divorces, discovery requests, suggested errors in documents, anticipated questions at oral argument. But legal briefing is not one of them. Here’s why. These platforms in their current states are prone to hallucinations and bias. On hallucinations, they make stuff up—even quotes and citations.

Another issue is reliability or bias. While attorneys swear an oath to set aside their personal prejudices, biases, and beliefs to faithfully uphold the law and represent their clients, generative artificial intelligence is the product of programming devised by humans who did not have to swear such an oath. As such, these systems hold no allegiance to any client, the rule of law, or the laws and Constitution of the United States (or, as addressed above, the truth). Unbound by any sense of duty, honor, or justice, such programs act according to computer code rather than conviction, based on programming rather than principle. Any party believing a platform has the requisite accuracy and reliability for legal briefing may move for leave and explain why.

Accordingly, the Court will strike any filing from an attorney who fails to file a certificate on the docket attesting that the attorney has read the Court’s judge-specific requirements and understands that he or she will be held responsible under Rule 11 for the contents of any filing that he or she signs and submits to the Court, regardless of whether generative artificial intelligence drafted any portion of that filing. A template Certificate Regarding Judge-Specific Requirements is provided here.

Note that federal judges routinely have their own standing orders for lawyers practicing in their courtrooms. These are in addition to the local district rules, and to the normal Federal Rules of Civil and Criminal Procedure.

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How To Restrain the A.I. Regulators

a graphic symbolizing artificial intelligence

While some A.I. alarmists are arguing that the further development of generative artificial intelligence like OpenAI’s GPT-4 large language model should be “paused,” licensing proposals suggested by some boosters like OpenAI CEO Sam Altman and Microsoft President Brad Smith ($10 billion invested in OpenAI) may inadvertently accomplish much the same goal.

Altman, in his prepared testimony before a senate hearing on A.I. two weeks ago, suggested “the U.S. government should consider a combination of licensing or registration requirements for development and release of AI models above a crucial threshold of capabilities, alongside incentives for full compliance with these requirements.”

While visiting lawmakers last week in Washington, D.C., Smith concurred with the idea of government A.I. licensing. “We will support government efforts to ensure the effective enforcement of a licensing regime for highly capable AI models by also imposing licensing requirements on the operators of AI datacenters that are used for the testing or deployment of these models,” states his company’s recent report Governing AI: A Blueprint for the Future.

So what kind of licensing regime do Altman and Smith have in mind? At the Senate hearing, Altman said that the “NRC is a great analogy” for the type of A.I. regulation he favors, referring to the Nuclear Regulatory Commission. Others at the hearing suggested the way the Food and Drug Administration licenses new drugs might be used to approve the premarket release of new A.I. services. The way that NRC licenses nuclear power plants may be an apt comparison, given that Smith wants the federal government to license gigantic datacenters like the one Microsoft built in Iowa to support the training of OpenAI’s generative A.I. models.

What Altman, Smith, and other A.I. licensing proponents fail to recognize is that both the NRC and FDA have evolved into highly precautionary bureaucracies. Consequently, they employ procedures that greatly increase costs and slow consumer and business access to the benefits of the technologies they oversee. A new federal Artificial Intelligence Regulatory Agency would do the same to A.I.

Why highly precautionary? Consider the incentive structure faced by FDA bureaucrats: If they approve a drug that later ends up harming people they get condemned by the press, activists, and Congress, and maybe even fired. On the other hand, if they delay a drug that would have cured patients had it been approved sooner, no one blames them for the unknown lives lost.

Similarly, if an accident occurs at a nuclear power plant authorized by NRC bureaucrats, they are denounced. However, power plants that never get approved can never cause accidents for which bureaucrats could be rebuked. The regulators credo is better safe than sorry, ignoring that it is often the case that he who hesitates is lost. The consequences of such overcautious regulation is technological stagnation, worse health, and less prosperity.

Like nearly all technologies, A.I. is a dual use technology offering tremendous benefits when properly applied and substantial dangers when misused. Doubtlessly, generative A.I. such as ChatGPT and GPT-4 has the potential to cause harm. Fraudsters could use it to generate more persuasive phishing emails, massive trolling of individuals and companies, and lots of fake news. In addition, bad actors using generative A.I. could mass produce mis- dis- and mal-information campaigns. And of course, governments must be prohibited from using A.I. to implement pervasive real-time surveillance and/or deploy oppressive social scoring control schemes.

On the other hand, the upsides of generative A.I. are vast. The technology is set to revolutionize education, medical care, pharmaceuticals, music, genetics, material science, art, entertainment, dating, coding, translation, farming, retailing, fashion, and cybersecurity. Applied intelligence will enhance any productive and creative activity.

But let’s assume federal regulation of new generative artificial intelligence tools like GPT-4 is unfortunately inevitable. What sort of regulatory scheme would be more likely to minimize delays in the further development and deployment of beneficial A.I. technologies?

R Street Institute senior fellow Adam Thierer in his new report recommends a “soft law” approach to overseeing A.I. developments instead of imposing a one-size-fits-all, top-down regulatory scheme modeled on the NRC and FDA. Soft law governance embraces a continuum of mechanisms including multi-stakeholder conclaves where governance guidelines can be hammered out; government agency guidance documents, voluntary codes of professional conduct, insurance markets, and third-party accreditation and standards-setting bodies.

Both Microsoft and Thierer point to the National Institute of Standards and Technology’s (NIST) recently released Artificial Intelligence Risk Management Framework as an example of how voluntary good A.I. governance can be developed. In fact, Microsoft’s new A.I. Blueprint report acknowledges that NIST’s “new AI Risk Management Framework provides a strong foundation that companies and governments alike can immediately put into action to ensure the safer use of artificial intelligence.”

In addition, the Department of Commerce’s National Telecommunications and Information Administration (NTIA) issued in April a formal request for comments from the public on artificial intelligence system accountability measures and policies. “This request focuses on self-regulatory, regulatory, and other measures and policies that are designed to provide reliable evidence to external stakeholders—that is, to provide assurance—that AI systems are legal, effective, ethical, safe, and otherwise trustworthy,” notes the agency. The NTIA plans to issue a report on A.I. accountability policy based on the comments it receives.

“Instead of trying to create an expensive and cumbersome new regulatory bureaucracy for AI, the easier approach is to have the NTIA and NIST form a standing committee that brings parties together as needed,” argues Thierer. “These efforts will be informed by the extensive work already done by professional associations, academics, activists and other stakeholders.”

A model for such a standing committee to guide and oversee the flexible implementation of safe A.I. would be the National Science Advisory Board for Biosecurity (NSABB). The NSABB is federal advisory committee composed of 25 voting subject-matter experts drawn from a wide variety fields related to the biosciences. The NSABB provides advice, guidance, and recommendations regarding biosecurity oversight of dual use biological research. A National Science Advisory Board for A.I. Security could similarly consist of a commission of experts drawn from relevant computer science and cybersecurity fields to analyze, offer guidance, and make recommendations with respect to enhancing A.I. safety and trustworthiness. This more flexible model of oversight avoids the pitfalls of top-down hypercautious regulation while enabling swifter access to the substantial benefits of safe A.I.

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Conservatives Rage Against Debt Ceiling Bill: ‘Not One Republican Should Vote for This’

Members of Congress speak outside of the U.S. Capitol

Making a deal with President Joe Biden might have been the easy part.

Now, with the clock ticking towards a possible default on the national debt, Speaker of the House Kevin McCarthy (R–Calif.) is facing a new challenge that looks pretty familiar: opposition from the right-wing faction within the House Republican caucus, the same group that stalled McCarthy’s election to lead the chamber in January.

“I want to be very clear. Not one Republican should vote for this bill,” said Rep. Chip Roy (R–Texas) during a press conference Tuesday afternoon called by the House Freedom Caucus, the formerly libertarian group that’s maintained its reflexive sense of fiscal responsibility even as it has turned more conservative in recent years.

But as they did during the January showdown over McCarthy’s speakership, most Republicans will likely vote for the package and avoid a possible default. Unlike in January, McCarthy is likely to get some support from Democrats—a federal default provides little political upside for the party currently occupying the White House—limiting the leverage the House Freedom Caucus can apply.

But the group’s objections are not superfluous. Since March, conservatives in the House have made clear they want to see significant spending cuts attached to any debt ceiling increase. The House passed a bill last month to do that: The Limit, Save, Grow Act would have reset the federal budget baseline to where it was last year, effectively cutting the new spending included in the $1.7 trillion omnibus bill that passed in December. It would also have placed stricter limits on future spending growth for the next decade, rather than a two-year cap on nondefense discretionary spending, which is a part of the budget that isn’t really growing anyway.

The House Freedom Caucus is also grumpy about McCarthy’s failure to secure a larger cut to IRS funding. The deal will only claw back about a quarter of the $80 billion in new funding given to America’s tax cops last year.

“This deal fails—fails completely,” House Freedom Caucus Chairman Scott Perry (R–Pa.) said during the Tuesday press conference. Perry blasted McCarthy for squandering what he said was “the strongest position a Republican has had certainly in our elected lifetimes here, and…probably since we’ve been paying attention” to force budget cuts that could curb the nation’s growing pile of debt.

But that’s a telling remark. It seemingly ignores the first two years of the Trump administration, when Republicans controlled both chambers of Congress and the White House—and responded by hiking spending and inflating the deficit.

Members of the House Freedom Caucus may be sincere in their opposition to this deal and their commitment to cutting spending. Unfortunately, the track record of the Trump years suggests Democrats are at least partially correct in their belief that Republicans only use fiscal responsibility as a cynical justification for blocking Democratic policy priorities.

But with just days left until the federal government defaults, the operative question is whether the House Freedom Caucus can translate its opposition to the deal into a legislative roadblock. We’ll get that answer late Tuesday, when the House Rules Committee takes up the debt ceiling bill. As Politico reports, that meeting is likely the conservatives’ best chance at stopping the bill. That’s because the House Freedom Caucus negotiated to get more seats on the powerful Rules Committee during the standoff over McCarthy’s speakership election. Roy is a member of the committee, along with two other members of the Freedom Caucus: Reps. Thomas Massie (R–Ky.) and Ralph Norman (R–S.C.). Norman has sharply criticized the deal, while Massie has pointed out on Twitter (correctly) the debt limit bill doesn’t actually spend any money but only allows for borrowing to fund spending Congress already approved.

“We’ll be taking out a second mortgage this week to pay off the credit cards but it’s not until September,” when the annual budget is set to be debated and voted, “that we’re actually buying the bass boat, the tanning bed, and a big screen TV,” Massie wrote.

Massie’s vote will be critical, but his point is arguably more important. The debt ceiling bill, regardless of what it contains or lacks, is not going to single-handedly solve or doom America’s fiscal status. Only more responsible budgeting from Congress and the president can do that.

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Don’t Buy the Social Housing Hype

Aerial view of Vienna

The high cost and limited availability of housing in many American cities have some writers and wonks dreaming of a seemingly novel solution: social housing.

The idea is to have the government build or subsidize housing developments in which units would be provided at generally below-market rates for people of all incomes.

Last week, The New York Times published a long profile of Vienna, Austria’s extensive, century-old social housing program that’s turned the city into a “renter’s utopia.”

In Vienna, author Francesca Mari writes, 80 percent of city residents qualify for public housing, and social housing tenants spend only about a fifth of their post-tax income on housing. Mari also interviews a number of higher-income social housing residents who spend less than 10 percent of their earnings on housing.

That’s contrasted with America as a whole where the average renter pays 30 percent of their income on rent (and much more in some higher-cost cities).

We could have those lower housing costs too, Mari says, if only Americans would abandon their obsession with mass home ownership and the subsidized mortgages that make it possible.

Meanwhile, over at Slate, tenant organizer Daniel Denvir and researcher Yonah Freemark argue that no amount of new, private, for-profit housing development will make housing truly affordable. For that to happen, the government should “just build the homes.”

“State and local governments can take on this task by building millions of homes themselves, particularly for poor and working class people, that private developers won’t construct,” they write. “These public and social housing projects can ensure permanent affordability, support mixed-income neighborhoods, and bring new assets onto public balance sheets.”

Liberal blogger Matt Yglesias offers some pointed pushback to all this in his Slow Boring newsletter today. Vienna isn’t cheap because it builds social housing, he argues, but because it builds a lot of housing, period.

The city boasts per capita construction rates that make it look more like a Sunbelt boomtown than “closed access” underbuilding cities like New York City or Los Angeles. In recent years, two-thirds of Vienna’s new housing is also private, market-rate housing.

Yglesias also notes that the city’s social housing units are also pretty small by American standards, reducing costs further. Given these facts, Yglesias reasonably asks what problem social housing is solving that reduced regulations on private, market-rate housing wouldn’t.

Indeed, it’s hard to say.

As the Times article notes, residents of private housing in Vienna spend only a little bit more of their income on housing than social housing tenants. I’ve reported in the past too that in Austria as a whole, social housing residents on average have slightly higher incomes than private housing residents.

In other words, private providers are willing to build and rent out housing units at affordable rates to the same class of people that are served by social housing. In this light, Vienna’s social housing is at best duplicating what the private market is doing. It isn’t serving an unfilled niche.

For more evidence that it’s the rate of new supply that counts, not government subsidization of new supply, we need only look at New York City.

In 2022, New York City completed nearly 26,000 new housing units, according to a new report by the city’s Rent Guidelines Board. Data provided by the city’s Department of Housing Preservation and Development shows that 12,000 new subsidized, affordable housing units were completed at the same time.

So nearly half of the city’s housing production last year was government-subsidized, affordable housing. In relative terms, the government appears to be playing a larger role in new housing construction in allegedly ultra-capitalist New York City than in “Red Vienna.”

New York nevertheless remains one of the least affordable cities in the country. That’s because its overall rate of building is far lower than Vienna’s. It’s also likely far less than what developers—liberated from restrictive zoning rules and affordable housing mandates—would be likely be willing to build.

Zoning reforms that get government supply restrictions out of the way would seem to provide most of the benefits social housing proponents want.

They would also avoid the risks that American social housing projects would end up being botched, authoritarian boondoggles on par with existing public housing developments.

From New York City to Washington, D.C., to rural Arizona, public housing facilities are infamous for being poorly run and maintained. Here in D.C., nearly a quarter of public housing units are vacant, thanks to a mix of uninhabitable conditions in some apartments and the local public housing agency’s inability to manage its waitlist.

A recent Washington Post investigation detailed the insane surveillance public housing tenants have to put up with. Many public housing developments have more cameras per person than heavily surveilled airports and jails.

Proponents of social housing like to argue that their vision of mixed-use, mixed-income developments will avoid these problems. Maybe. Maybe not.

Yglesias notes that the small size of Vienna’s social housing units wouldn’t be particularly attractive to middle-class Americans. These developments could end up with the same concentrated poverty that’s marked the public housing of old.

The surveillance likely isn’t going away either.

Hawaii state Sen. Stanley Chang’s (D–Honolulu) social housing proposals call for restricting the housing to Hawaiian resident owner-occupiers. To enforce that condition, he proposed back in 2021 to have residents’ fingerprint or retina scans checked against a government database every time they enter their homes.

It is true that without social housing fewer high-income earners would get massively subsidized rents and amenities.

Mari, the author of the Times story, interviews left-wing Austrian politician Peter Pilz who inherited a dirt-cheap social housing unit from his grandmother. Able to effectively live for free back home, Pilz spends the savings on Italian biking holidays.

In a free market where he had to pay the full costs of his housing and the opportunity costs of the capital used to build and maintain it, Pilz would have less money for such extravagances. That’s a loss for sure.

But fewer subsidized vacation days for dilettante politicians seems like an OK thing to sacrifice in favor of a free market system that respects people’s property rights and privacy while providing them with abundant, affordable housing.

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The Bankruptcy Caravan Is Now Arriving: Time To Pay For The Easy Money

The Bankruptcy Caravan Is Now Arriving: Time To Pay For The Easy Money

Authored by Doug French via The Mises Institute,

The character Mike Campbell in Ernest Hemingway’s 1926 novel The Sun Also Rises was asked about his money troubles and responded with a vivid description embracing self-contradiction: “‘How did you go bankrupt?’ Bill asked. ‘Two ways,’ Mike said. ‘Gradually and then suddenly.’”

Ground-hugging interest rates for more than a decade kept the inefficient and the incompetent in business.

Now, the jig is up, with a Mother’s Day weekend corporate massacre that saw the bankruptcies of seven corporations, each with liabilities of nine figures or more—in four cases, with more than a billion dollars in liabilities each.

This cluster of large bankruptcies happening in less than forty-eight hours is the most since 2008. Libby Cherry writes for Bloomberg (reprinted on Time):

“Firms across every sector are struggling with higher interest costs—making it more challenging to refinance loans and bonds—while corporate executives are drawing more scrutiny from investors and creditors.”

The corporate restructurings cover a wide range of businesses: Vice Media Group, KKR-backed Envision Healthcare, security company Monitronics International, chemical producer Venator Materials Plc, oil producer Cox Operating, fire protection firm Kidde-Fenwal, and biotechnology company Athenex.

The only thing these firms had in common was lots of debt that was unserviceable with today’s higher interest rates. Murray Rothbard wrote in America’s Great Depression:

The problem of the business cycle is one of general boom and depression; it is not a problem of exploring specific industries and wondering what factors make each one of them relatively prosperous or depressed. . . . What we are trying to explain are general booms and busts in business.

In considering general movements in business, then, it is immediately evident that such movements must be transmitted through the general medium of exchange—money.

If you haven’t been losing any sleep over these corporate failures or have been blissfully unaware, the weekly St. Louis Fed Financial Stress Index is with you, measuring no stress. Above zero on the index means there is stress in the market—when Silicon Valley Bank failed, the index jumped to 1.54. Zero means normal market conditions, and a negative reading signals below-average stress. The index is currently reading negative.

Corporate bankruptcies, the debt ceiling showdown, bank failures—nothing to see here. Providing context, Wolf Richter writes that “During the Financial Crisis, just after the Lehman bankruptcy, the index spiked to +9.25, so that’s about six times the value during the SVB collapse (+1.54).”

With everything so calm, it’s no wonder Fed heads claim to blindly have their noses to the inflation grindstone. Nonvoter Federal Reserve Bank of Richmond president Thomas Barkin told Bloomberg’s Michael McKee that he wants to reduce inflation. “And if more [interest rate] increases are what’s necessary to do that I’m comfortable doing that.”

Another nonvoter, but frequent talker, Federal Reserve Bank of Cleveland president Loretta Mester said the Fed can “do its part” by curbing inflation.

Of course, as Rothbard explained, the Fed actually creates inflation, instead of curbing it. However, higher interest rates will mean a bumper crop of bankruptcies.

TheStreet reports:

The most recent S&P data show 2023 corporate bankruptcies rising at an alarming clip. Data show 236 bankruptcies were recorded through the end of April 2023 (109 had been recorded over the same time period last year). UBS also found in a recent study that bankruptcies worth $10 million or more had a rolling average of about 8 per week.

There’s been much talk about the “everything bubble.” Perhaps that will now include bankruptcies, gradually, then suddenly.

Tyler Durden
Tue, 05/30/2023 – 17:00

via ZeroHedge News Tyler Durden

Nvidia Joins The Trillion Dollar Club – Will It Last?

Nvidia Joins The Trillion Dollar Club – Will It Last?

Chipmaker Nvidia is now worth nearly as much as Amazon.

America’s largest semiconductor company has vaulted past the $1 trillion market capitalization mark, a milestone reached by just a handful of companies including Apple, Amazon, and Microsoft. While many of these are household names, Nvidia has only recently gained widespread attention amid the AI boom.

In the graphic below, Visual Capitalist’s Dorothy Neufeld and Bhabna Banerjee compare Nvidia to the seven companies that have reached the trillion dollar club.

Riding the AI Wave

Nvidia’s market cap has more than doubled in 2023 to over $1 trillion.

The company designs semiconductor chips that are made of silicon slices that contain specific patterns. Just like you flip an electrical switch by turning on a light at home, these chips have billions of switches that process complex information simultaneously.

Today, they are integral to many AI functions—from OpenAI’s ChatGPT to image generation. Here’s how Nvidia stands up against companies that have achieved the trillion dollar milestone:

Note: Market caps as of May 30th, 2023

After posting record sales, the company added $184 billion to its market value in one day. Only two other companies have exceeded this number: Amazon ($191 billion), and Apple ($191 billion).

As Nvidia’s market cap reaches new heights, many are wondering if its explosive growth will continue—or if the AI craze is merely temporary. There are cases to be made on both sides.

Bull Case Scenario

Big tech companies are racing to develop capabilities like OpenAI. These types of generative AI require vastly higher amounts of computing power, especially as they become more sophisticated.

Many tech giants, including Google and Microsoft use Nvidia chips to power their AI operations. Consider how Google plans to use generative AI in six products in the future. Each of these have over 2 billion users.

Nvidia has also launched new products days since its stratospheric rise, spanning from robotics to gaming. Leading the way is the A100, a powerful graphics processing unit (GPU) well-suited for machine learning. Additionally, it announced a new supercomputer platform that Google, Microsoft, and Meta are first in line for. Overall, 65,000 companies globally use the company’s chips for a wide range of functions.

Bear Case Scenario

While extreme investor optimism has launched Nvidia to record highs, how do some of its fundamental valuations stack up to other giants?

As the table below shows, its price to earnings (P/E) ratio is second-only to Amazon, at 214.4. This shows how much a shareholder pays compared to the earnings of a company. Here, the company’s share price is over 200 times its earnings on a per share basis.

Consider how this looks for revenue of Nvidia compared to other big tech names:

For some, Nvidia’s valuation seems unrealistic even in spite of the prospects of AI. While Nvidia has $11 billion in projected revenue for the next quarter, it would still mean significantly higher multiples than its big tech peers. This suggests the company is overvalued at current prices.

Nvidia’s Growth: Will it Last?

This is not the first time Nvidia’s market cap has rocketed up.

During the crypto rally of 2021, its share price skyrocketed over 100% as demand for its GPUs increased. These specialist chips help mine cryptocurrency, and a jump in demand led to a shortage of chips at the time (which was also exaggerated by the supply chain disruptions cause by COVID lockdowns).

As cryptocurrencies lost their lustre, Nvidia’s share price sank over 46% the following year.

By comparison, AI advancements could have more transformative power. Big tech is rushing to partner with Nvidia, potentially reshaping everything from search to advertising.

Finally, TS Lombard had some bigger picture thoughts that many on Wall Street appear to have missed: 

In the strictly philosophical sense of the word, the current generation of AI has a strong tendency to bull****, which means it is neither reliable nor trustworthy.

And despite the claims of AI enthusiasts – which at times border on mysticism – there is no guarantee that future versions of the technology will overcome these problems, or that the industry will continue along the “exponential curve” that is supposed to lead to Artificial General Intelligence (AGI) – machines that can fully replace every aspect of human competence.

Trade accordingly.

Tyler Durden
Tue, 05/30/2023 – 16:40

via ZeroHedge News Tyler Durden