What Republicans want to cut

Republican speaker Kevin McCarthy is due to meet with president Joe Biden on Wednesday. What about? It depends. According to the White House, the talks will be about raising the debt ceiling and avoiding a default. According to McCarthy, it is about what kind of budget cuts Biden will agree to in exchange for raising the debt ceiling.

House Speaker Kevin McCarthy said Sunday he is looking forward to discussing with President Joe Biden a “reasonable and responsible way that we can lift the debt ceiling ” when the two meet Wednesday for their first sit-down at the White House since McCarthy was elected to the post.

McCarthy, R-Calif., said he wants to address spending cuts along with raising the debt limit, even though the White House has ruled out linking those two issues together as the government tries to avoid a potentially devastating financial default.
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Asked whether he would make a guarantee, McCarthy said, “There will not be a default,” though he suggested that declaration depended on the willingness of Biden and Democrats to negotiate.

The White House on Sunday confirmed Wednesday’s meeting on “a range of issues.” It said Biden looked forward to “strengthening his working relationship” with McCarthy and to asking about the speaker’s plan on spending, noting that the first House bill passed by Republicans this year to slash IRS funding would ultimately increase the deficit.

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Greedy, selfish, rich jerks

Evan Osnos exposes the many ways in which the ultra-wealthy shield their income from taxes even when they die, using loopholes that are not available to ordinary people. They do this while claiming to be philanthropists by putting their names on things, which are also forms of tax avoidance. But one the main ways they avoid taxes is by means of creating elaborate trusts that ensure that their children and their children pay little or no taxes on their inheritances when they die. These trust fund babies continue their tax avoidance schemes. The consequences are apparent.

And yet, in recent times, the fortunes of many prominent American clans have soared…. In 1978, the top 0.1 per cent of Americans owned about seven per cent of the nation’s wealth; today, according to the World Inequality Database, it owns eighteen per cent.

A century ago, American law handled the rare pleasure of a giant inheritance with suspicion. Instead of allowing money to cascade through generations, like a champagne tower, we siphoned off some of the flow through taxes on estates, gifts, and capital gains. As the Supreme Court Justice Oliver Wendell Holmes wrote in 1927, “Taxes are what we pay for civilized society.” But, since the late seventies, American politics has taken a more accommodating approach to dynastic fortunes—slashing rates, widening exemptions, and permitting a vast range of esoteric loopholes for wealthy taxpayers. According to Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley, the average tax rate on the top 0.01 per cent has fallen by more than half, to about thirty per cent, while rates for the bottom ninety per cent have climbed slightly, to an average of twenty-five per cent.

That lucrative maneuvering is the realm of specialized attorneys, accountants, and money managers, many of whom work for family offices: in-house financial teams that typically include a dozen or so full-time attendants… They tend to have no public presence—Gordon Getty’s family office is known, inconspicuously, as Vallejo Investments—but by some estimates they control about six trillion dollars in assets, a larger sum than is managed by all the world’s hedge funds.

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How should inflation figures be reported?

Inflation has been high recently, not just in the US but in many parts of the world. How inflation is calculated is to take a basket of goods and calculate their cost and see how they change over time. In the US, there are two inflation indices: regular inflation and what is called ‘core inflation’, which omits food and fuel from the basket because those tend to fluctuate more over the short term and thus introduces volatility.

Whichever index you choose, whenever the inflation figures are reported each month in the US, Kevin Drum complains about the fact that it is the year-over-year number that is reported. He says that this gives a misleading picture of whether there is inflation right now and that a month-to-month comparison would be better.
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Ignore Musk the troll, focus on the businesses

Elon Musk clearly loves to be in the news and he does so by making outlandish statements about all manner of random topics in the news whenever he has the chance. Jack Shafer provides many examples of this and says that the media keeps falling for it. This has the added advantage (to Musk) of distracting people from the more serious news of the performances of his businesses, which are not good.

What we should be focusing on are the actual facts. One is that in 2021, the last full year when Twitter was public and thus we knew something about its finances, it had gross revenues of about $5 billion ($4.5 billion from advertising) and made a profit of $221 million. This means that its costs were about $4.8 billion. This was a high point for revenues and one of the few years when it made a profit.

After Twitter borrowed about $13 billion to allow Musk to take it private, that added another $1.5 billion in costs to service the debt, meaning its total operating costs are now $6.5 billion. Furthermore, advertisers dropped out, reducing revenues to about $3 billion. This means that Twitter was on a path to lose $3.5 billion a year, which is unsustainable. Musk has cut staff by almost half but that will save at most about $2 billion, leaving a gap of $1.5 billion to close, while risking core operational functions. This problem of a large negative cash flow is what Musk is faced with.
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Maybe we should be like Larry

The collapse of the cryptocurrency exchange FTX has been all over the news.

Cryptocurrency exchange FTX, which has filed for US bankruptcy court protection, said it owes its 50 biggest creditors nearly $3.1 billion.

The exchange owes about $1.45 billion to its top ten creditors, it said in a court filing on Saturday, without naming them.

FTX and its affiliates filed for bankruptcy in Delaware on Nov. 11 in one of the highest-profile crypto blowups, leaving an estimated 1 million customers and other investors facing total losses in the billions of dollars.

What seems to have happened is a lot like an old-fashioned bank run where too many depositors wanted their money back at the same time, exhausting the cash reserves of the company. But in the case of actual banks, they are regulated by the government and there are systems in place to assist individual banks weather such runs and protect depositors. In the unregulated crypto-world where they prided themselves on being independent of government entanglements, there are no such safeguards

The company has filed for bankruptcy and Sam Bankman-Fried, the founder of FTX, has ben pushed out of the company and is now in the Bahamas.

The collapse of FTX has given a new lease of life for the ad the company aired during the last Super Bowl featuring Larry David.

Great moments in NFT investing

I have expressed my puzzlement with the idea of buying so-called NFTs (Non-Fungible Tokens) and have made several posts about the whole concept. And yet people are spending huge amounts of money on them. NFTs seem like collectibles except that while most collectibles are tangible objects with limited numbers of them, NFTs are digital constructs that can be easily reproduced by pretty much anyone. The value of an NFT seemed (to me at least) far more speculative than other forms of collectibles and thus liable to wild price fluctuations.

So it did not surprise me to read about someone who bought an NFT for $2.9 million in March 2021 but when he tried to resell it for $48 million yesterday, the highest offer he got was $6,800.
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Why catalytic converters are being increasingly stolen

It is increasingly common for the catalytic converters on cars to be stolen. This is because the precious metal that forms a key element of the converters has become more expensive. That element is a rare one called rhodium which is, by weight, reportedly the most expensive element on the planet, beating out gold and silver and other precious metals. It is one of the rarest, just one part in a billion, compared with 5% for iron.

The converter on regular fuel vehicles is simple: a stainless steel shell surrounds a ceramic honeycomb monolith— that monolith is coated with three important precious metals: platinum, palladium, and rhodium. 

As the car’s exhaust passes through this honeycomb the metals heat up and act as catalysts: turning carbon monoxide into carbon dioxide, unburned hydrocarbons to H20 and C02, and nitrous oxides into nitrogen and Carbon-dioxide.  

Because these metals, and especially rhodium are so stable and durable they can perform this function over an extremely long lifetime of the car part—suffering very little loss in performance.

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What NFTs are and how they work

I have been casually following the story about non-fungible tokens (NFTs) but had little idea what they were other than that an NFT was some form of digital work that one could own. The radio program On the Media had an entire show where they talked about it and that rekindled my interest and gave me some idea about this new world of speculation.

Host Brooke Gladstone discussed NFTs with Anil Dash, one of the people who in 2014 developed the idea that led to NFTs. Dash says that he and an artist friend Kevin McCoy did this as a blockchain-backed means for artists to assert ownership over their digital work. Dash now says that that initial goal of creating ownership rights for artists seems to be in danger of falling by the wayside, to be replaced by the kinds of speculative behavior that we have seen before with bubbles.
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A transnational kleptocratic class

Thanks to whistleblowers who released a trove of documents, a team of journalists led by the International Consortium of Investigative Journalists (ICIJ) has released the first reports of what it calls the Pandora Papers. (Readers may recall an earlier expose called the Panama Papers.)

It reveals how vast sums of money are spirited away by politicians and wealthy people all over the world into tax-havens. Over 330 politicians from 90 countries are named. The US has become one of the biggest locations for tax dodging because of its laws involving the use of trusts. (This may be why the Panama Papers revealed few US names as using off-shore tax havens. It is not that they are more scrupulous but that they don’t have to. All the tax dodges they need are within the US.) News reports are careful to point out that these transactions may not be illegal but that is not the point. The global oligarchy makes the laws and we should not be surprised that they then use those laws to benefit themselves. But key questions that can and should be raised is how they amassed such wealth in the first place and why governments are allowed to connive in these schemes.
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This debt ceiling charade has to stop

The US Congress routinely goes through an exercise that to me perfectly captures its lack of maturity. It is the periodic votes on raising the debt ceiling. Doing so enables the Treasury to borrow or print more money so that the government can meet the obligations it has already incurred by past appropriations. Failing to do so will mean that the government will shut down and go into default and not be able to pay, among other things, the interest on the Treasury bills that were issued in the past, and thus would trigger a slide in the country’s credit rating. A default would be so bad that it is expected that the ceiling will be raised, as it always has in the past.
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