The Great American Spend-a-thon

Posted on October 20, 2025 by Joe Benning

The volume of bad reporting in 2025 is truly astounding. Never have so many trees been felled for so little accurate information. For instance, the NY Times published a story that sniped at Bari Weiss, now the editor-in-chief at CBS news. In its story the Times decided to make several points, all of which hammered home the idea that the NY Times doesn’t think that Ms. Weiss was a good choice for the job. So that’s the news that fit to print. 

The article began with a simple question (easily answered by anyone who lives outside of Manhattan). The question, posed by Ms. Weiss to the senior staff of CBS’s 60 minutes  program was: Why does the country think you’re biased? The question, according to the Times, was “met with stunned awkwardness.” 

The correct answer  to the question of why the country thinks CBS is biased is (drum roll please): because CBS is in fact, biased. Now, that answer should not be surprising to almost anyone who lives outside of certain enclaves. For instance, it is standard practice for researchers to avoid bias by using randomly drawn data samples to examine social science questions. Other than the obvious example of polling data (where the methodology should be disclosed) journalists (and especially photo journalists) typically do not rely on random samples. They rely on camera angles. 

In fact, the article in question, as reported by the Times, was “…based on interviews with 10 people with knowledge of the inner workings of CBS News, who requested anonymity because they were not authorized to speak about internal conversations.”  Which in essence means that 10 non-randomly selected people with (presumed) axes to grind were given free rein to tell whatever story they wished to tell, with no way to check the veracity of the story. And plenty of it was grousing about the new boss. Who, by the way, resigned from the NY Times accusing it of bias. 

So we have payback from the Times, motivated, by among other things, jealousy. After all, not only did Weiss leave the Times to form her own spectacularly successful news / opinion organization, she reportedly sold it for $150 million. And let’s not forget that while CBS is a sometime competitor, both the Times and CBS are playing on the same ideological team. 

Let’s look beyond the Times carping at Bari Weiss. Let’s look at coverage of the Great Government Shutdown of 2025. The Democrats (who decried the legislative filibuster when they held the Congressional majority) have to decided to — filibuster the Republican funding bill and shut down the government. Their chief demand is that “emergency” Obamacare  health care subsidies due to sunset at the end of 2025, be extended. In reality these subsidies flow to health care insurance firms that provide insurance on ACA exchanges. 

For their part, the Republicans claim that they will discuss these subsidies once the government re-opens. The clear message is that the spend-a-thon will continue. And for good measure, the Democrats claim that health care costs will “spike” without the subsidies. 

So let’s ask a couple of simple questions. 1. How are subsidies going to avoid a “spike”in aggregate health care costs? 2. Where is the money going to come from to avoid said spike?

The answers to the question are, once again, fairly simple. First, subsidies are not going to reduce costs; in fact they will probably raise costs. They will do so by increasing demand for health care services over and above what they otherwise would have been. Further there will be no addition of supply. Voila, prices will rise. 

Second, the funds for this will come from innocent victims, namely  taxpayers, which makes the subsidies an income transfer, pure and simple. Rising costs will not be avoided; they will merely be shifted to taxpayers whether now or in the future. 

At this point it is worth mentioning something Congress apparently considers trivial, namely the fact that the US has by now accumulated about $37 trillion in debt. And according to the plan, it is due to rise further. The chief difference between the Republicans and Democrats at this point seems to be which party will spend the money on which constituency. 

That said, the Democrats seem to have a larger appetite for taxpayer dollars, which is not exactly a new development. According to the newspaper of record, the fight “…is a demand by Democrats for add-ons: more than $1 trillion for health care programs, and limits on President Trump’s spending power.”

It is also worth noting that there have been no plans made public that call for spending restraint. None. Zippo. That and the public’s  adamant refusal to accept the consequences of their collective desire for free stuff, is the reason that we are in the fix we are in today.  And it is a fix. 

We have seen this movie before. And their are no happy endings. Strap in. 

JFB

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Hold Off on the Champagne

Posted on October 15, 2025 by Joe Benning

The Wall Street Journal ran a story this morning about the recent end, for now, of the war in Gaza. The headline of the story, which read After Israeli Withdrawal, Hamas Launches Violent Crackdown on Rivals in Gaza would seem to be self explanatory. And in a sense it is. 

The Wall Street Journal went on to report that  

“As Israeli troops pulled back…Hamas surged security forces in behind them—a public assertion of authority intended to make clear the group remains the enclave’s governing power.”

That, by the way, is the Hamas that was supposed to disarm and relinquish any governing power over Gaza. 

The Journal went on to report that:

“Videos…show Hamas fighters dragging a number of men from [a rival] family into a public square in broad daylight, forcing them to kneel and executing them in front of a crowd of onlookers.”

Hamas Prepares Public Executions–the WSJ

Please, can someone remind me, is that the Hamas that protesters claimed was protecting Palestinian rights. Is it the same Hamas that was supposed to disarm as an integral part of the cease-fire arrangement? When queried about that, President Trump made the following assertion:  

“They’re going to disarm…and if they don’t disarm, we will disarm them.”

Does anyone really believe that? If so, I’d like to know who that person is. Who, for instance, believes that the United States is going to send US troops to fight what effectively amounts to a guerrilla war in Gaza? Especially with the goal of establishing  control and asserting authority over the area? That strategy produced a colossal failure in Vietnam and more recently in Iraq. Which, not to put too fine a point on it, Trump claimed to oppose. 

The reality is that the US has no desire—none— to try to establish control over Gaza. Not now, not ever. So let’s make the heroic assumption that President Trump made the sudden discovery that  telling the truth is important. Then the relevant question is: what does he (Trump) mean by “we” as in “we” are going to disarm them? Who exactly does he have in mind? Egypt? Does he really believe that Egypt is capable and willing to disarm Hamas? And does he really believe that Egypt (or any other predominantly Muslim country) would attempt to disarm Hamas without the involvement of US troops?

H.R. McMaster, who briefly served as National Security Advisor in the first Trump Administration, analyzed the cease-fire and came to these conclusions. 

  1. He describes the cease fire as a “temporary truce”, with no clear path for resolving the underlying issues, which includes Gaza’s postwar governance.
  2. He voiced the opinion that the chance that Hamas would voluntarily disarm as “pretty near zero.”
  3. He predicted more military action saying that Israel “is going to have to destroy” Hamas. 

It is this writer’s opinion that McMaster’s observations will appear to be prescient, possibly in the near future. Because if Hamas is allowed to keep its arms and then reasserts control over Gaza, Israel’s war aims will not have been met. Neither will US aims have been met. US backing, including the destruction of Iran’s nuclear buildup, will have been for nought. Not only that, before too long, we will find ourselves right back in the same place we were in before. 

Except that Hamas will have had time to regroup. And Israel will have to militarily destroy what is now a battle hardened Hamas. All of which assumes (1) that Israeli political leaders stop the game of trying to “manage” the conflict by playing the Islamist groups off one another, (2) that US political leaders suddenly develop a spine and back Israel to the hilt, and (3) China has not moved on Taiwan.  

So I would wait before popping the champagne corks. A lot can still go very badly wrong. 

JFB

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Hamas Says Yes…With Fingers Crossed

Posted on October 4, 2025 by Joe Benning

Hamas appeared to signal tentative agreement with a peace plan president Donald Trump proposed.  Under the plan, as reported by the NY Times, 

“…Hamas would free the remaining hostages within 72 hours and hand over its weapons, and its rule in Gaza would end. Israeli forces would gradually withdraw from Gaza and allow an internationally supervised Palestinian administration to assume responsibility for public services there.”

Hamas then attached conditions to its ostensible acceptance of the plan. As an examination of the terms of Hamas’s acceptance makes clear, the real purpose of the conditions is to (1) buy time, and (2) undermine the whole purpose of the plan.  

For instance, Hamas demanded certain conditions on the ground be met which would require further negotiations. Further, Hamas was vague about whether it would fully disarm or to fully relinquish its dominant role in Gaza. 

Specifically, Hamas said that: 

“…In this context, the movement affirms its readiness to immediately enter, through the mediators, into negotiations to discuss the details.”

So much for releasing the hostages in 72 hours. And while Hamas agreed to some basic terms of the prisoner swap, there is no agreement on whom the Israelis will release back to Hamas. We can therefore expect Hamas to attempt to bargain, name by name, over who the 250 convicted prisoners will be and also the 1,700 prisoners captured during the war. 

Further, the reference to “necessary field conditions” really means that Hamas will claim that it either does not hold or cannot find some of the hostages it agreed to turn over. It further suggests that Hamas will attempt to bargain over the scope of the Israeli withdrawal from Gaza and that Hamas will try to prolong any negotiations for as long as possible. 

Now also consider that Hamas said that it would act “…based on Palestinian national consensus and supported by Arab and Islamic backing.” How exactly does that square with Hamas agreeing to end its role in Palestinian decision making? And not to put too fine a point  on it, when was the last time Hamas truly cared about a Palestinian national consensus. They had a one-and-done election in 2006 and that was it.  And they used the Palestinian population as human shields for their fighters. So much for their concern about the population. 

The upshot of all this is that the Trump Administration demanded what effectively amounts to an unconditional surrender. And Hamas will never agree to that unless they are finally beaten, full stop. Absent that, they simply have no reason to, or intention of, quitting the fight. 

Besides which there is (possibly) a split in the leadership of Hamas. For the sake of argument we will play along with the idea that there are distinct political and military wings of Hamas. The political wing resides in Qatar where, the story goes, the leadership was shaken by the Israeli bombing of the capital. They, it is argued, want to take the deal Trump offered. They are supposedly practical.

On the other hand, according to this version of the story, the military wing is still active in Gaza and wishes to continue the fight. They are full of religious conviction. They are fighting a holy war. If such is actually the case, it begs the question, who is in charge? If the political wing is incapable of enforcing its agreement, then as a practical matter, its pronouncements are irrelevant. 

And let’s get around to admitting what should be an obvious truth. The Palestinian people (while we are pretending that there really is such a people) enthusiastically and overwhelmingly supported the October 7 attack on Israel. What makes anybody think that an agreement with Hamas is going to change that? Why wouldn’t another group, like e.g., Islamic Jihad, simply pick up the reins.

Even if Hamas were to agree to an unconditional surrender and lay down its arms, its followers are unlikely to do so. So we have a recipe for guerrilla war.  And as long as Arab and Persian governments in the Middle East continue their propaganda campaigns against Israel and refuse to differentiate between Church (or Mosque) and State it is unlikely that anything will fundamentally change.  

Hamas, and its allies, are winning the propaganda war both in the Middle East and the West. But they are losing the military war. It is in their interest (given their set of beliefs) to draw out the “peace” process as long as they can, while in the meantime trying to rebuild their strength. At the same time they continue to hammer a feckless West with propaganda. (And let’s not forget that the Arab states backed Hitler’s Germany in WWII.)

The way forward is for both the West and the governments of the Middle East to adopt (or in the case of the West to re-adopt) the classical liberalism of the Enlightenment. And the same holds true with respect to Russia’s war on Ukraine and the increasingly tense situation in Taiwan.  Quite simply, the West must be willing to defend Western civilization.

Will that happen? Who knows, it’s a tough call.

JFB

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About Those Priorities

Posted on September 30, 2025 by Joe Benning

The absurdity of the moment is almost beyond belief. Almost, because as it stands now, there is nothing that is beyond belief. Consider:

The US Government is scheduled to “shut down” at 12.01 AM on October 1. But of course, the Government will not shut down. Only the services that Donald J Trump deems non-essential will cease to operate as usual—which is to say—badly. In addition, the Trump administration has served notice that it will use the alleged shutdown as an excuse to fire thousands of federal employees, thereby closing some agencies permanently. 

Meanwhile the two political parties are busy acting like schoolboys pointing fingers at each other along the lines of “he started it” while trying to blame each other for the potential shutdown. Of course, there is no discussion whatsoever, none, nada, zip, about the wisdom of any of these programs to begin with. 

The Democrats claim to be trying to “save” additional subsidies of Obamacare insurance premiums created by legislation passed during the pandemic. The first round of subsidies (which were supposedly due to sunset in 2022) was signed by President Biden on March 11, 2021. The bill (the American Rescue Pan) expanded premium subsides and eliminated the income cap for eligibility.  The bill passed on a straight party line vote. 

To the surprise of absolutely no one, when the time came for the subsidies to sunset, the spectacularly misnamed Inflation Reduction Act came to rescue. The subsidies were extended once again on a strict party line vote, this time until 2025. And the cost of those subsidies, if renewed, run into the hundreds of billions of dollars. 

Apparently, in the Senate the emergency is still with us, even though Congress declared it over on April 10th 2023. In the Senate there were 68 votes to end the emergency and 23 votes (all Democratic) to keep the emergency. Schumer voted to maintain the emergency. And so here we are today. 

To be clear, both parties tend to operate on what their respective caucuses can jam through. The other party is simply ignored. There is little substantive discussion about anything more important than naming post offices. 

Beyond all the theatrics, there are real reasons (but not good ones) for the shutdown if it comes to pass.  First and foremost, a shutdown serves the political interests of party leaders. Chuck Schumer, the Ranking Senate Democrat, is terrified of a primary challenge by Alexandria Ocasio-Cortez. So he has to “look tough” to appeal to the base. Mike Johnson the Republican Speaker of the House is keenly aware that his predecessor, Kevin McCarthy, lost his post as Speaker because he deigned to get Democratic votes to forestall a shutdown. 

Second, and maybe the heart of the issue, is the Democratic answer to the question: how much money do you need? Their answer is invariably: more. There is simply no spending limit the party knows or at least acknowledges. 

But that answer is, unfortunately, becoming the Republican answer as well. The only difference seems to be the constituency being rewarded. And the one constituency whose interests are considered above all else is none other than those of Donald J Trump. 

After all it is those former Constitution quoting free traders in Congress who have acquiesed on virtually every tariff that HRH Trump has announced. This despite Article I, Section 8 of the US Constitution which reads (in part):

“Congress shall have Power…To regulate Commerce with foreign Nations…”. Which is the clause that the Supreme Court will probably rely on to slap down most of the Trump tariffs. 

And then there is the stake in Intel that the US is taking; the 15% of revenues that Nvidia and AMD agreed to fork over to the US as the price of their rent-seeking; the golden share that US Steel agreed to that gives the US President veto power over the firm, and the various stakes that the Trump Administration is reportedly seeking in other companies. And then they call the Democrats socialists. 

That is not to mention the attack on the first amendment that the Republicans have begun, continuing on from where the Biden Administration left off. For instance, U.S. Attorney General Pam Bondi, has all of a sudden discovered “hate” speech, which basically doesn’t exist as a legal construct in the US. But you would never know it if all you listened to were the free speech restrictionists in the respective political parties. 

For that matter, consider the retribution campaign Trump launched against his political enemies, James Comey the most prominent among them, with more to come. The retribution campaign is of a piece with the lawfare that was directed against him by NY State AG Letitia James, Manhattan District Attorney Alvin Bragg, or Atlanta prosecutor Fani Willis to name a few. But these actions don’t make the behavior of either the blue team or the red team justifiable. It just makes both of them contemptible. 

And while all this is going on, we have amassed a huge budget deficit ($37 trillion headed soon for $39 trillion) and we are involved in two shooting wars (Israel and Ukraine), not to mention Cold War II with China. Glad to see the political parties have their priorities straight. 

JFB

 

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The Very Radical Idea of Capitalism

Posted on September 9, 2025 by Joe Benning

The results of a poll released by the Gallup Organization on Monday were very instructive. In the poll they asked each respondent if they had a positive image of capitalism “just off the top of your head”.  They also asked the same question about socialism. 

The results are illustrated in the Table below. 

DemocratsRepublicansIndependents
Positive View of Capitalism42%74%%51%%
Positive View of Socialism66%14%38%

Let’s grant that the terms are undefined; let’s also stipulate that the proverbial man on the street basically knows very little, if at all, about economic theory. That said, the results of the poll are more than a little illuminating. 

Only 42% of self-identified Democrats reported a positive image of capitalism. This stands in contrast to 74% of Republicans and 51% of independents. Where Socialism is concerned, a majority of Democrats (66%), said they had a positive image. This is in contrast to only 14% of Republicans and 38% of independents. 

These results go a long way towards explaining our current political malaise, but not in a way that is apparent at first blush. Consider the following hypothesis. Assume the Democratic Party has fully embraced socialism. Such a stance would explain Democratic enthusiasm for the command-and-control policies they clearly prefer. Now consider that only a bare majority of independents (51%) say they favor capitalism. 

That explains why HRH Donald J Trump championed a 10% government stake in Intel; a 15% export tax on Nvidia and AMD; and a golden share of US Steel, not to mention the whole tariff regime with its continually shifting rationale. Or, for that matter his full throated embrace of industrial policy, which is to say picking winners and losers. 

It also explains why the debates about social policy are so intense. A good deal of what we laughingly call social policy has to do with interest groups competing over budget allocations that can be divvied up among “providers”. You can look high and low to find the benefits that allegedly accrue to those in need and you will come up empty handed. 

For instance, take the school system. It routinely produces failure, especially in the big cities. Today’s New York Times reports that “The reading skills of American high school seniors are the worst they have been in three decades…The results, from the National Assessment of Educational Progress, long regarded as the nation’s most reliable, gold-standard exam, showed that about a third of the 12th-graders who were tested last year did not have basic reading skills.”  

Math skills were abysmal as well. The Times reports that “In math, nearly half of the test takers scored below the basic level, meaning they may not have mastered skills like using percentages to solve real-world problems.” Percentages. About half the kids are not even equipped to deal with percentages, much less calculus. 

The real question is why is anyone surprised by this since the results are absolutely predictable. They are simply a continuation of a trend that has been in motion for a very long time. Obviously this is a management problem. And a leadership problem. At least part of the reason is that public schools, especially in the inner cities, are run for the benefit of teachers unions, not the kids. 

The Times goes on to report that Republicans generally have devoted their efforts toward supporting vouchers.  That might conceivably deal with the management issue indirectly, although that possibility is not discussed in the paper of record. But financing is only the first step. It can be a contributor to a solution, but it is not, by itself, the solution. 

A solution to the problem requires management, backed by strong political leadership. Fortunately we know what management steps work; it is leadership that is lacking. The management steps needed are:  (1) more instruction time, (2) high expectations, (3) frequent teacher feedback, (4) data-driven instruction and (5) high-dosage tutoring. Ronald Fryer, an economics professor from Harvard,  explains all this in fuller detail in an op-ed piece in today’s Wall Street Journal. 

Of course while Republicans seem to have grasped the importance of school reform, they have proven to be quite adept at spouting off nonsensical pieties that satisfy their base. See for instance the arguments about tariffs. Or the war on foreign aid; a war that in budgetary terms doesn’t even rise to the level of a rounding error. 

On the other hand, the Democrats, according to the Times, are more focused on social supports for students (like nutrition and mental health counseling) than they are on academic rigor. But this is all just a distraction; a sop to the teachers unions. The real point is to avoid true reform. 

If the nature of the problem really had to do with a lack of  “social supports” then test scores would have risen with the advent of social supports. But they haven’t. As the Times noted, “For about 10 years, declines have been most pronounced among low-performing students, indicating that the floor of academic achievement has fallen.”    

The school system really represents a microcosm of modern progressivism. Progressivism is a materialistic  weltunschauung that sees everything through the lens of class. And it absolutely refuses to admit failure or especially, accountability.  So it blithely goes on while blaming all its myriad failures as stemming from racism, sexism, ableism, hatred, misinformation, climate denialism, phobias about transgender claims, Islam, (or any phobia you’d care to dream up). Anything but accountability and effort.   

Which, when you think about it, is what capitalism is really all about. Risk taking and individual effort for the possibility, not the probability, of outsized returns. A radical restructuring of the idea of rights as inherent to the individual, not to a class. A very new idea that began during the Age of the Enlightenment.

Socialism, on the other hand, represents turning back the clock to a very old idea, one that dominated human thought for most of existence. It harkens back to the time when your fate was determined by your birth, i.e.—race, class, gender. Effort and accountability didn’t count, except in exceedingly rare circumstances. And so what it produced was mediocrity, tyranny and wars of conquest. 

Which is pretty much what it produces today. 

JFB

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The Embarrassing Senator Kaine

Posted on September 5, 2025 by Joe Benning

Tim Kaine, Virginia’s junior Senator decided to assert himself. At a Senate hearing for the nominee to be assistant secretary of State for democracy, human rights, and labor,  he pushed back against the nominee, Mr. Riley Barnes. Mr Barnes apparently committed the grave offense of uttering a politically incorrect opinion. He said “We are a nation founded on a powerful principle, and that powerful principle is that all men are created equal, because our rights come from God our Creator — not from our laws, not from our governments.”

The Senator, incredibly, decided to take issue with that opinion. He said in response “The notion that rights don’t come from laws and don’t come from the government, but come from the Creator, that’s what the Iranian government believes,” Kaine said. “It’s a theocratic regime that bases its rule on Shia law and targets Sunnis, Bahá’ís, Jews, Christians and other religious minorities.” 

He went on to dig himself a deeper hole by saying “So, the statement that our rights do not come from our laws or our governments is extremely troubling.” He then went on to say that he (Kaine) was a [“strong believer in natural rights”]  but noted that if natural rights were to be debated by people within the committee room with different views and religious traditions, [“there would be some significant differences in the definitions of those natural rights.”]

Where to begin. 

Let’s start with this: Mr Barnes is precisely correct. You don’t have to take my word for it—you might try out what another Virginian by the name of Thomas Jefferson had to say on the subject. Mr Jefferson, the author of the Declaration of Independence, said in that document that “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness…”. 

That would seem to settle that. 

Beyond the narrow historical point that seems to have eluded Mr Kaine is a far more troubling issue. The good Senator seems to believe that we have, for instance, free speech and equality before the law solely because he as a sitting Senator joined the majority in saying so. After all, how else are we to interpret Kaine’s insistence that our rights actually come from government, not externally.  And how does  Mr Kaine square government’s denial of equality before the law in the Jim Crow South with his insistence that rights emanate from that very same government? 

Leaving all that aside, Mr Kaine claims that he is a  “strong believer in natural rights”. Except that it takes only a moment’s reflection to dismiss his claim (strong believer or not). It is perfectly obvious to everyone (excepting of course Mr Kaine), that any claims to  natural rights depend on inherency. Their existence does not, and can not, depend on government. Moreover it should be clear that there is an inherent tension between government and rights. 

Which brings up another point. In the Declaration Jefferson made the point that Governments are instituted among men to secure—not to grant–these rights. Moreover he said, Governments derive their just powers from the consent of the governed. But when government becomes destructive of the goal of securing these rights, it is the right of the people to alter or abolish the government. 

And then there is Mr Kaine’s unfortunate inability to distinguish between the how the US and Iran differentiate between church and state. By way of (tortured) explanation he says of the notion that rights come from the Creator not government  “…that’s what the Iranian government believes…”.  So by implication, someone who believes in natural rights (as Mr Kaine claims, see above), is just another bloodthirsty killer. 

Let’s not belabor the point. Senator Kaine made an unforced error. Rather than figure out a way to back out gracefully he decided to dig himself in deeper. 

That leaves the residual question of what Mr Kaine actually believes. The citizens he claims to represent really are entitled to know. If he actually believes our fundamental rights really do emanate from government we should be aware of that fact. If so we should understand that this whole business was more than an embarrassment, but a governing philosophy.  And then we have something to worry about. 

JFB

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Article One, Section 8 of the US Constitution. 

Posted on August 27, 2025 by Joe Benning

“The Congress shall have Power …To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures…”.

It seems pretty clear to me that Article 1 Section 8 of the US Constitution (quoted above) gives Congress the power to coin money and regulate its value. Nowhere in the document, does the constitution give the President the right or power (either explicitly or implicitly) to define how the value of money is to be maintained. So why does President Trump think that this power has been granted to him?

The easy smart-aleck answer is that he doesn’t think at all. A possibly more accurate answer is that he wants the Fed to bring down interest rates. But that presents a problem. The Fed is actually powerless to bring down the general level of interest rates, absent a sustained reduction in inflation. 

For some reason or other the popular press insists on reporting that the Fed began lowering interest rates in September of 2024. And sure, it’s fair to say that the Fed began to lower overnight rates in September of 2024. The Federal Open Market Committee (FOMC) cut the overnight rate ½ of a percent  on September 18 and followed up with further rate cuts in November and December. By the end of time December they had lowered the overnight rate by a full percentage point. 

But the general level of interest rates did not go down; in fact, except for short-term rates, bond yields rose. Right before the Fed slashed the overnight federal funds rate by 50 basis points, the 2-Year Treasury note was trading around 3.59%; the 10year Treasury was trading around 3.65%. 

But now, almost a year after the Fed lowered the overnight rate by a full percentage point, Treasury 2-year and 10-year rates went up.  For example, Treasury just auctioned off 2-year notes at a yield of 3.64. And 10-year notes are trading to yield 4.28%. Which is to say that rates went up, not down. And just to be clear, consumer rates are priced off Treasury rates. If Treasury rates go up, consumer rates will tend to follow. 

The rise in long term rates is not a random event. Their is a reason for it, which is:  Investor expectations are changing. Treasury securities, and the dollars they are denominated in, used to be thought of as the world’s safest investment instruments. Perhaps global investors are starting to have second thoughts.

There are at least two explanations for this. The first is the huge (and growing) quantity of debt that must be serviced by the US Treasury. Treasury debt now amounts to about $37 trillion. The costs associated with servicing that debt  is now putting pressure on the US Treasury.  And that doesn’t count all the implicit promises Treasury has made. Nor does it count the remittances the Treasury no longer gets from the Fed—because the Fed is bleeding cash on its $6.5 trillion portfolio that is now underwater. 

  As it stands now, we are on track to spend at least $1 trillion dollars in Gross Interest Costs for FY 2025. That projection is about the same as the military budget for FY 2025, which clocks in at $1.045 trillion. 

There is a reason for the huge and growing debt service cost: the population votes for it, at least indirectly. People in the  middle class have convinced themselves that (1) they have “paid into” the programs that drive federal spending, namely Social Security and Medicare and (2) tax rates can be raised on “the rich” to fund any shortfalls. 

But the middle class has not paid in; not by a long shot. And raising taxes on “the rich” wouldn’t come close to filling the gap. In fact, without large middle class tax increases or benefit cuts Social Security and Medicare are due to run out of money in the early 2030s. They are effectively middle class welfare programs. 

A second reason why longer term rates have risen is that lenders are becoming more and more skeptical of both the competence of the Fed (think transitory) and with President Trumps attacks on it. Consequently, investors demand a higher rate as compensation for the risk they take by buying long dated Treasuries. 

When President Trump attacks the Fed and its governors, the players understand exactly what he is doing, which is to threaten the independence of the Fed. (See the opening paragraph above). We have seen this movie before and it never ends well. It is a sure fire recipe for an increase in inflation. Such an increase would serve to devalue US dollar holdings. 

Let’s face the reality of where we are. Donald Trump’s hero is Andrew Jackson, who put the Second Bank of the United States out of business. With his attacks on the Fed, Donald Trump is simply going down a well trod path that sacrifices institutional stability for (hoped for) short term political gain.  

In so doing, President Trump consistently displays an attitude toward the Fed that is reminiscent of Wright Patman, the Texas populist who served in Congress from 1929 until 1976. Like Patman, President Trump has no understanding of monetary theory or policy. He just wants rates to be lower and he thinks (wrongly) that the Fed has the power to bend the market to its will. 

But the Fed is powerless to bend the market to anybody’s will. Which, if he gets his way, President Trump may be about to find out, the hard way. Unfortunately, a lot of people are liable to get hurt in the process.

JFB

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Socialism with an (R)

Posted on August 25, 2025 by Joe Benning

Republicans have a very slim majority in Congress. They are trying to maintain said majority by, among other things, gerrymandering. That effort may be successful in the short run by allowing them to pick up a few more Republican leaning districts. Hence the Democratic squawking. 

But the time honored practice of gerrymandering isn’t really all that important. What is important though, is that nationally, the Republican party has effectively adopted socialism as its raison d’être.  How else to explain comrade Trump’s decision to take a 10% equity stake in the Intel corporation?

Or, for that matter, how to explain his taking a 15% cut of Nvidia’s sales to China of certain computer chips. Not to mention the same deal with Advanced Micro Devices. Or Kevin Hassett (former Chairman of the Council of Economic Advisors and one of the front runners to be Fed chief) proclaiming that the White House is likely to continue seeking similar deals with other companies. How else do we understand why Trump, referencing the Intel deal, today said on his social media feed that  “I will make deals like that for our Country all day long.” 

All actions taken (of course) without Congressional authorization.  And not to put too fine a point on it, the Trump administration allowed Nippon Steel to buy US Steel only after Nippon acceded to certain political demands. 

While Republicans are tripping over themselves preparing to run a national campaign against the self-declared Democratic Socialist running for mayor of New York, they ought to glance at a mirror.

The Republicans claim to be different. For example they point to Candidate Zohran Kwame Mamdani’s promised rent freezes, fare-free buses (why not subways too?), public grocery stores, universal child care, and a $30 minimum wage, financed (at least in part) by taxing the “wealthy”.  The term wealthy is, of course, routinely left undefined. 

Before the Republicans get too carried away with themselves while busily scorching Mamdani they ought to ask themselves this question: How are they any different? They like to either deny or push off costs too. 

Remember that border wall that Mexico was going to pay for. How did that work out? Or take Trump’s trial balloon about controlling drug prices. How is that different from rent freezes? Or the trial balloon about variable rates for patent fees. Leaving aside the fact that Section 8 of the US Constitution clearly requires Congressional authorization for this, notwithstanding Trumpian bombast, it would effectively be a flat out tax on innovation and next to impossible to administer. 

Then there are the ever changing tariffs that fluctuate with Presidential whims. Interestingly enough, Trump argues simultaneously that (1) tariffs won’t slow global trade, even though it is perfectly obvious to any freshman Econ student that the opposite is true; (2) the revenue derived from the tariffs will substantially reduce the budget deficit  (it won’t) and (3) the tariffs will generate foreign investment and therefore reduce the trade deficit. 

That last argument is particularly amusing in that trade deficits and foreign source  investments are two sides of the same coin. Consequently, any increase in foreign investment necessarily increases the trade deficit. Trump, who insists on referring to country specific trade deficits despite modern supply chains, clearly doesn’t understand this. 

Speaking of the devil, Trump has also decided to impose tariff duties on countries where America has a trade surplus. The US, for instance, has a trade surplus with Brazil, but at last count His Majesty threatened to impose a whopping 50% tariff on all Brazilian goods. His rationale was that  ex Brazilian President Bolsonaro was being treated unjustly, which even if true, has absolutely nothing at all to do with Brazil’s trading position. 

Anyway with respect to his threat to impose a 50% tariff on all Brazilian goods, here is what Trump wrote on his badly misnamed Truth Social: “[Bolsonaro’s arrest] is nothing more, or less, than an attack on a Political Opponent — Something I know much about! It happened to me, times 10…”. 

So, as it turns out, Trump now claims to be offended by the way the Brazilian establishment has behaved with respect to a political opponent.  Let’s see. That’s the same Donald J Trump who cancelled secret service protection for John Bolton (former Trump National Security Advisor), Mike Pompeo (former CIA Director and Secretary of State), Brian Hook (former top aid) Dr. Anthony Fauci (former NIAD Director), Retired General Mark Milley (former Chair of the Joint Chiefs), and former DHS Secretary Alejandro Mayorkas. 

He also revoked the security clearances of lawyers critical of him, including New York Attorney General Letitia James, Manhattan prosecutor Alvin Bragg and private lawyer Andrew Weissmann. Arguably Letitia James and Alvin Bragg used their official positions to unjustifiably attack Trump. But that doesn’t justify Trump doing the same thing.

And we know he didn’t sleep with Stormy Daniels. After all, he said he didn’t. And we all know he wouldn’t lie. Nor would he weaponize the justice system the way it was weaponized against him. Otherwise he would pardon all the January 6 rioters without examining their cases. Oops—he did just that. 

So the question of the day is: how exactly, are we to distinguish today’s Republicans from today’s progressives? At least Mamdani is right upfront about the stupid things he apparently believes. (And they are without question, undeniably stupid.) 

The Republicans, however, are unwilling to say what they believe. Probably because they don’t believe in anything other than getting re-elected.  

In a pinch, the Republicans act just like the progressives. They have demonstrated they will do whatever it takes to stay in power. Their only substantive difference with progressives is that they have different constituencies to promise all the “free” goodies to.  But there is no real philosophical difference between the two. 

America can pull itself out of this mess. It is a choice. America’s political leadership has to start acting like it. It could start by experimenting with telling the truth. Which is that (1) America’s love affair with deficit spending has to stop and (2) America is critical for preserving a Liberal world order; the alternative is pretty grim, and our allies are critical for the effort. 

The choice is ours to make. 

JFB

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A Day in the Life

Posted on August 12, 2025 by Joe Benning

Where to begin. Perhaps a partial review of what His Majesty Donald J Trump stirred up recently would be a good start.

On Tuesday August 12, 2025, His Majesty President Donald Trump said Goldman Sachs CEO David Solomon should either replace his economist or “just focus on being a DJ.” (David Solomon sometimes volunteers his time to serve as a DJ for charitable events.)

Apparently Jan Hatzius, Goldman’s chief economist, warned in a research note on Sunday that American consumers will end up absorbing an increasing share of the cost of the tariffs that Trump decided to impose. Of course they will. Anyone who took (and passed) freshman economics could tell you that.

Getting rid of Hatzius would be shooting the messenger, which is what Trump habitually does when he encounters news he doesn’t want to hear. Which is precisely what he did when he fired Chief Economist Erika McEntarfer of the Bureau of Labor Statistics, when the BLS reported unemployment numbers he didn’t like. And oh yes. The numbers were “rigged” against him.

Then again on August 8 he claimed that Intel CEO Lip-Bu Tan was “highly conflicted” and demanded that Lip-Bu Tan be fired. Three days later, after a meeting at the White House, Trump apparently had an change of heart adding that  Lip-Bu Tan’s  “success and rise is an amazing story.”

On Friday, Trump promised (you know what a Trump promise is worth) a “major lawsuit” against the Fed over its building renovations. He took the opportunity to once again bash Fed Chairman Jerome Powell and demand that the Fed cut interest rates. 

Obviously His Majesty is not quite aware that the Fed does not actually determine interest rates; it can only change the overnight rate. Since the Fed started “lowering rates” in September of 2024, pretty much all Treasury rates longer than two years have gone straight up. 

Ten year treasury rates that are used to price mortgages are about ½ point higher in yield. And the dollar has depreciated about 10% against the Euro since Trump took the oath of office, thus making US Treasury securities less attractive to foreign investors. Which also reduces foreigners willingness to fund the US budget deficit.

The great negotiator also has leaned on Nvidia and Advanced Micro Devices so that the US Government gets a 15% cut on their sales, presumably to China. The people in the Mafia who run the protection rackets couldn’t have done it any better. 

And while we are on the related subject of law enforcement, Mr. Trump decided he was going to take over the Metropolitan Police Department, at least temporarily, in order to rid Washington DC of crime. So now Police Commissioner Trump, who as we know is acutely sensitive to due process, will be responsible for bringing down crime in the District.  Now that Federalism has been tossed overboard—in another “emergency”—the question becomes what Mr Trump will do if the criminals decide not to cooperate. 

As far as I know, no one in the White House has actually enunciated a new strategy for dealing with the problem. Maybe he will give DC criminals a good talking to on Truth Social and threaten to fire them. 

To cap off a week of applied ignorance, according to the Wall Street Journal the White House announced on Friday that it would vet 19 Smithsonian Museums in Washington to “Fit Trump’s Historical Vision”. Interesting that Trump now claims to have a vision of history at all. He ought to share it with us if his staff can dream one up in time. 

All of this since just last Friday, August 8. I  shudder to think of what next week will bring.   

JFB

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The Pyrrhic US Tariff Victory

Posted on August 1, 2025 by Joe Benning

President Donald J Trump and his minions are celebrating the great win they achieved in the trade war they set off.  The win is that, by statute, they raised the average tariff rate the US charges for the importation of goods from Europe from something like 3% to 15%. Which is to say that US consumers will pay higher prices for those imports. In other words he is raising taxes. 

In return for raising taxes on US consumers, representatives of the European Union (EU) promised to invest some thing like an additional $750 billion in America. Two things are of note here. First, EU countries were bound to invest more in America anyway, although the exact amount is in doubt. Secondly, additional investment by foreigners will raise the trade deficit, not lower it. 

The trade deficit and foreign investment simply offset each other; they are two sides of the same coin. Say Foreign Country X sells Y products to the US for $1 million dollars. What then does country X do with the money? Essentially, it has 2 choices. It can either take the money and spend it in the US, or it can invest it in the US. Or it can combine the two. But it can’t avoid transacting in dollars. Nor can it avoid the issue by repatriating the funds. It got paid in dollars, it has to use those dollars one way or another.

If it decides to spend the money in the US, there is no trade deficit. But it will have to spend less than it otherwise would have because the higher prices that result  from the tariffs will surely dampen demand. This will be only partially offset by the cut the US government takes (the tax). Economists refer to the difference between what consumers pay in aggregate and the combination of the tax take and country X’s revenues as a dead-weight loss. 

On the other hand, country X could decide to invest the proceeds in the US either by (for instance) building factories (direct fixed-investment);  by investing in US securities (passive investment) or some combination of each. But in either case the trade deficit rises, and the dead weight effect still applies.

In addition, there are other non-trivial considerations.  The US may suffer a reduction in its competitiveness because of a perception that it has reduced its reliability as a supplier. Similarly, the US dollar may be damaged in FX markets, although its status as the world’s reserve currency probably won’t be challenged. At least not yet. But it is worth noting that the dollar has already depreciated about 10% since Trump took office.

We also frequently hear the refrain “Where’s the recession?”  from Trump’s acolytes. But that is not necessarily the right measure to use. The imposition of tariffs on the global trading system will surely reduce growth rates, and may increase the inflation rate by more than just a one-shot. Those effects may not be instantly noticeable, depending on their severity. But the compounding effects over the years of either (or both) reductions in growth and increases in inflation can be very large. 

Finally, the reduction of trade barriers and of tariffs ushered in a world of greatly increased prosperity. In 1990 about 36% of the population of the world (1.9 billion people) lived in extreme poverty with income of about $2.15 per day measured in 2022 dollars. By 2019, that number was reduced to about 650 million people from 1.2 billion or about 8.4% of the world’s population. 

So the Trump trade agenda, even if successfully implemented, will necessarily fail according to its own criteria. If, for instance, foreign investment in the US increases, so will the trade deficit. If trade barriers (like tariffs) are erected and successfully implemented, global trade will slow more than it ordinarily would have and the world, including the United States, will be poorer. While the affluent countries of the West, including Japan, may feel a pinch, the brunt of the effects of slower growth are likely to be felt by countries in the global south. In turn that may produce political instability. 

The geopolitical victors from a growth slowdown could very well be the elites, but not the people, of China, Russia, North Korea, Iran and Venezuela. 

Congratulations Mr. Trump.

JFB

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