Why are we buying from China?

It’s no secret the U.S. and China are increasingly at odds with each other.  China fully recognizes — even embraces — this development, pouring effort into projects like the Confucious Institutes and developing spies among the key staff of important members of Congress.  China holds a significant fraction of the U.S. public debt — a potential lever in any showdown, given our nation’s reliance on deficit-spending.  While we’ve heard nothing but “Russia, Russia, Russia” since the 2016 presidential election, it’s China that poses the most long-term threat to U.S. national security.

And yet, we continue to enable them:

There are two ways for spies to alter the guts of computer equipment. One, known as interdiction, consists of manipulating devices as they’re in transit from manufacturer to customer. This approach is favored by U.S. spy agencies, according to documents leaked by former National Security Agency contractor Edward Snowden. The other method involves seeding changes from the very beginning.

One country in particular has an advantage executing this kind of attack: China, which by some estimates makes 75 percent of the world’s mobile phones and 90 percent of its PCs

Supermicro had been an obvious choice to build Elemental’s servers. Headquartered north of San Jose’s airport, up a smoggy stretch of Interstate 880, the company was founded by Charles Liang, a Taiwanese engineer who attended graduate school in Texas and then moved west to start Supermicro with his wife in 1993. Silicon Valley was then embracing outsourcing, forging a pathway from Taiwanese, and later Chinese, factories to American consumers, and Liang added a comforting advantage: Supermicro’s motherboards would be engineered mostly in San Jose, close to the company’s biggest clients, even if the products were manufactured overseas.

Today, Supermicro sells more server motherboards than almost anyone else. It also dominates the $1 billion market for boards used in special-purpose computers, from MRI machines to weapons systems. Its motherboards can be found in made-to-order server setups at banks, hedge funds, cloud computing providers, and web-hosting services, among other places. Supermicro has assembly facilities in California, the Netherlands, and Taiwan, but its motherboards—its core product—are nearly all manufactured by contractors in China…

“Think of Supermicro as the Microsoft of the hardware world,” says a former U.S. intelligence official who’s studied Supermicro and its business model. “Attacking Supermicro motherboards is like attacking Windows. It’s like attacking the whole world.”

The entire, detailed article, is worth reading. As you do, consider that our government increasingly uses server-enabled cloud computing, even for the most sensitive of information. Does it make sense for our government and military to use hardware produced by our all-but-in-name adversary? What carefully implanted surprises now await us in an actual showdown with this emerging power? Shouldn’t our policy be to encourage cost-effective manufacturers here at home?

Over the past 30 years the world became obsessed with obtaining cheap products from China. We’re finding out now they may have cost more than we ever suspected.

Make America great again — make America self-reliant, manufacturing its own goods again.

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Uncle Sam’s debt is getting “interest”ing

That which cannot go on forever, ceases:

Interest payments will make up 13 percent of the federal budget a decade from now, surpassing spending on Medicaid and defense.  Finding the money to pay investors who hold government debt will crimp other parts of the budget. In a decade, interest on the debt will eat up 13 percent of government spending, up from 6.6 percent in 2017.

Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs. Already the fastest-growing major government expense, the cost of interest is on track to hit $390 billion next year, nearly 50 percent more than in 2017, according to the Congressional Budget Office.

Some members of Congress want to set the stage for even more red ink. Republicans in the House want to make last year’s tax cuts permanent, instead of letting some of them expire at the end of 2025. That would reduce federal revenue by an additional $631 billion over 10 years, according to the Tax Policy Center.

Despite the tax cuts pushed by the Trump administration, the Federal government collected a record amount of tax revenue from October 2017 to August 2018. Washington doesn’t have an income problem. It has a spending problem.  Roughly a third of the Federal Budget in any given year is financed by borrowing money.  A family that ran its household budget that way would soon be bankrupt.  The Federal government has creative ways of masking its increasing insolvency, but it’s there nonetheless.  The spending spree of the past two decades was possible mainly due to low interest rates across the economy.  As the economic outlook in the U.S. turns upward, so will those interest rates.  A single percentage point increase equates to about $160 billion, given the official government debt of just shy of $16 trillion.  (Counting the ongoing raid of Social Security Funds — listed innocuously as “intragovernmental holdings” — the actual debt is over $20 trillion.)

In short, next year the government will spend close to $400 billion just to service the debt.  Not a penny of that amount will improve the infrastructure of our nation, modernize our military or provide services for our citizens.  It will simply go straight into the pockets of those who hold pieces of our country’s debt.

That debt has increased eight times faster than the government’s annual budget.  In 1981 — 37 short years ago, the U.S. debt hit $1 trillion for the first time.  That was an accumulation of more than two centuries.  In less than 40 years, that debt increased 1,600%.  The Federal budget over the same period increased from $1.9 trillion in 2015 dollars* to $3.8 trillion in 2015 — a “mere” doubling in spending.

We’ve been running like the cartoon coyote in thin air after leaving the cliff.  Gravity — in the form of normal historical interest rates — is about to kick in.

It will not be pretty.

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* People are so used to hearing about inflation, and the need to “adjust for it” when comparing years, that few stop to ask what drives it.  The standard explanation is that basic market economics causes it.  Not true — government deficit spending does.  By flooding the market with dollars to enable his spending sprees, Uncle Sam diminishes the value of each individual dollar.  It is, in effect, a “stealth tax” on the spending power of Americans.  The value of a U.S. dollar remained remarkably stable from 1787 to 1913, with a directly convertible exchange rate of $20 to an ounce of gold.  Only after creation of the Federal Reserve, which enables this gorging on debt, did that change.  As of this writing, one ounce of gold is worth about $1200.  That represents an 85% loss of dollar value in just over a century.

The absolutely useless GOP

It’s clear at this point in history those of us who want a restoration of the characteristics that once made America great — prudence, self-discipline, foresight, statesmanship, to name a few — will have to look somewhere other than the GOP to find them:

Sen. Rand Paul (R-Ky.) was hoping his Republican colleagues would be embarrassed by their vote to jack up federal spending earlier this year and support his plan to phase in a balanced budget. Few were.

Paul got 20 other Republican senators on Thursday — less than half of the Senate GOP caucus — to vote for his “penny plan,” which would balance the federal budget over five years by cutting spending except for Social Security by 1 percent every year. No Democrats back the proposal…

“Republicans only care about budget deficits when they’re in the minority,” said Jason Pye, vice president of legislative affairs at FreedomWorks.

Mark Meckler, president of Citizens for Self Governance, agreed, saying, “There are very few sane people willing to have a rational discussion about fiscal responsibility … It’s obscene. These guys are pigs in slop.”

One percent a year should be easy to find in a $4 trillion budget.  But I’m sure the gluttonous swamp would cry the fiscal sky is falling (“Children will starve!  Seniors will be destitute!  Illegal aliens won’t have as much welfare support”).  Well, maybe not that last talking point (they aren’t completely foolish and willing to admit their agendas).  But here’s some perspective:

Paul’s plan would have reduced spending by $404.8 billion in the fiscal year that starts October 1. After the budget balanced in five years, spending would be held to 1 percent increases per year, resulting in a budget that was 14.6 percent bigger in 10 years that it is now.

In other words, even after balancing the budget, the overall size of it would continue to grow.  Don’t overlook the fact in the excerpt above that a mere one percent of Federal spending equals $404.8 billion!  A true conservative would say balancing the budget would be preparatory to starting to trim back the Federal Leviathan.  Yet these GOPers can’t even countenance the first step!

Putting America first, or “making America great again” is inseparable from solving our budgetary house of cards.  You failed once again, GOP.  When you ask yourselves how in the world a man like Donald Trump could get elected, just look in the mirror.

As for us, primary season is upon us.  One of my Senators just guaranteed he won’t have my vote.  How about yours?

By the purse strings

Since leaving the military, former Chairman of the Joint Chiefs Admiral Michael Mullen has spoken often about what he considers to be the biggest danger to U.S. security: the national debt.

China may be about to give us an object lesson in that assessment:

China added to bond investors’ jitters on Wednesday as traders braced for what they feared could be the end of a three-decade bull market.  Senior government officials in Beijing reviewing the nation’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter.

China holds the world’s largest foreign-exchange reserves, at $3.1 trillion, and regularly assesses its strategy for investing them. It isn’t clear whether the officials’ recommendations have been adopted. The market for U.S. government bonds is becoming less attractive relative to other assets, and trade tensions with the U.S. may provide a reason to slow or stop buying American debt…

Most Americans who pay attention to government spending habits are happy merely to see the deficit fall.  But even if the deficit were brought to zero (i.e. the government miraculously balanced its budget) the outstanding debt still has to be renegotiated periodically, as old bonds mature and new ones are issued.  When there is less demand for new bonds, the yield (interest) has to rise in order to become more attractive.  Thus, even with a balanced budget, our roll-over debt is a potential time bomb.

For the last decade, the U.S. has been able to take advantage of record low bond yields as the Federal Reserve held interest rates at historic lows in the wake of the mortgage debt crisis in 2008.  This, incidentally, is why your bank pays you next to nothing on your savings any more — the same policy that keeps the government’s borrowing costs low essentially robs individual savers.  Unlike taxes, people don’t immediately recognize this fiscal effect the debt has on them.

If forces beyond the government’s control — say, the largest holder of U.S. debt decided not to roll over its holdings — caused bond yields and interest rates to rise faster than desired, the results would bankrupt the U.S. Treasury overnight:

Given its sheer size, if the interest rate on that debt were to rise by even 1%, the annual federal deficit rises by $200 billion. A 2% increase in interest rate levels would up the federal deficit by $400 billion, and if rates were 5% higher, the annual federal deficit rises by a full $1 trillion per year.

The only way to begin mitigating this risk is to not just balance the budget but to start paying down the debt.  Think that will happen?

Me neither.  The day may be fast approaching when the government, in order to service its creditors, has no choice but to cut many of the programs people have become entirely dependent upon.  It may also impose confiscatory taxation, seizing the property of those who’ve managed to save and invest during these irresponsible years.  In both cases, the social consequences will be enormous.

As the Instapundit likes to say, “things that can’t go on forever, don’t.”  The exponential rise of our national debt can’t go on forever.  It’s simply a question of when an event will occur that undeniably shows the emperor has no clothes.

Cashing out

The powers that be are doing all they can to constrain the options of the average citizen who refuses to play their game.  The latest angle is to renew the push for a cashless society:

On Monday the European Central Bank President emphatically disclosed that he is strongly considering phasing out the 500 euro note.

Yesterday, former US Treasury Secretary Larry Summers published an op-ed in the Washington Post about getting rid of the $100 bill.

Prominent economists and banks have joined the refrain and called for an end to cash in recent months.

The reasoning is almost always the same: cash is something that only criminals, terrorists, and tax cheats use.

In his op-ed, Summers refers to a new Harvard research paper entitled: “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes”.

That title pretty much sums up the conventional thinking. And the paper goes on to propose abolishing, among others, 500 euro and $100 bills.

The authors claim that “without being able to use high denomination notes, those engaged in illicit activities – the ‘bad guys’ of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their ‘business models’.”

The $100 is a “high denomination note?”  That might have been true 50 years ago, minus several decades of inflation eating away at purchasing power, but it’s hardly the case today.  One can easily spend that much now by taking a family of four to a restaurant.

And while any such proposals are always couched as trying to somehow make life difficult for “the bad guys,” there are some very real effects on law-abiding citizens here.  Governments around the world have exhausted their ability to “goose” the economy through artificially low interest rates (a policy, by the way, that penalizes the thrifty savers in society in favor of profligate borrowers).  Having taken that game all the way to zero — literally — now central banks have the bright idea of negative interest rates… which would potentially charge savers who hold their money in savings accounts rather than spending it.

So what is a thrifty family to do?  The best answer is to hold as much of your assets as possible outside of the increasingly corrupted financial system.  Cash is the most obvious way to do that.  But bankers know full well that if Americans returned to the days of stuffing mattresses with greenbacks, it would quickly become apparent there aren’t enough pieces of paper to go around — not by a long shot.  (For an example of this, watch the “bank run” scene in “It’s A Wonderful Life.”)

In addition to discouraging all the hoi polloi from asking for banknotes they don’t have, this move toward smaller denomination bills is meant to inconvenience cash transactions.  It’s not only criminals who like to use cash, although many in authority like to pretend that’s the main association.  There is still the rare family who literally saves their pennies for anything from a vacation to buying a used car.

Here’s the thing: if you paid $10,000 in cash for a vehicle you bought used from another owner, it would take carrying one hundred $100 bills.  Imagine that bill is eliminated.  The $50 is already a much rarer note in circulation, so the common alternative is the $20.  Now you’d need a stack of FIVE HUNDRED notes–more than a pound of paper –to pay cash.  And few people are willing to do that these days.  Yes, this is part of what the authorities want to do to “inconvenience” large criminal transactions.  But it will also push average consumers further into using what is already a largely digital world of commerce.

And that’s exactly what the powers that be want.  With digital transactions (credit and debit cards), privacy is greatly reduced and control greatly expanded.  I know there are still those full-blooded law and order types who’ll protest “if you’re not doing anything wrong, you have nothing to worry about.”

Baloney.  Plenty of innocent people have already had their bank account (vulnerable digital assets) wrongfully seized, after which they face a daunting process of proving their innocence in order to see any of it again.  But the real problem with the “you have nothing to worry about” premise is that the definition of “doing wrong” is often in the eye of those wielding any kind of power.  Think I’m kidding?  Ask the former head of Mozilla, who was forced to resign after those oh-so-tolerant liberals discovered his heinous crime of donating to a campaign against legalizing same-sex marriage.  Think about how the IRS went after political groups sympathetic to “Tea Party” small-government advocacy.  Now extrapolate that to a future where every book you buy, every movie/documentary you watch, every church contribution you make and even families you choose to support financially in some small way leaves a digital trail for those who disagree with you to follow and exploit.

There’s a term for this: it’s called a targeting system.  And if we’ve learned anything through the recent weaponization of government agencies, it’s that such targeting capabilities WILL be used to harass and silence anyone who dissents from public orthodoxy.  Completely ‘virtual’ banking and finance (a “cashless society”) will result in ‘virtual control’ over our ability to live freely and privately with our own consciences.

I’ve said this before, but am becoming more strident about it: it’s time to “abjure the realm.”  If you disagree with the direction the ‘soft fascists’ in our land are taking us, you need to separate yourself from their system as much as possible, because the net is continuing to tighten.  That means holding stores of wealth beyond their digital control, in forms like cash, precious metals or other tradable commodities that provide a good store of value.  Equally important, it means building networks of like-minded people who are willing to form communities that can exchange privately among themselves without every transaction being officially recorded and perused for potential political heresy.

In short, it means declaring your personal independence and intention NOT to be simply a compliant serf to the ruling order.  Does it take work not to do things the way everyone else does?  Certainly.  But it is the kind of work that makes one free.

The lion’s share of human suffering

For the last week, there’s been steady public anger over the killing of a lion in Africa.  But most of those joining in to this outrage bandwagon probably don’t realize (or in many cases, don’t care) that:

– Behind the scenes of the well-publicized beheadings, ISIS has enslaved and sold thousands of Christian women and girls into sexual slavery.  (Hello, “feminist” movement… are you listening?)

– Ongoing releases about the gruesome practices of Planned Parenthood strongly suggest their “donations” to medical research may well include babies who are born alive… but whose lives are quickly snuffed out in ways meant to achieve rough compliance with technicalities of law.  Put another way: children are entering this world ever so briefly, only to have their organs harvested for ‘research’ in a way that would delight Joseph Mengele.

– The state of our economy and education system are so bad that teachers in Detroit regularly have to guess how much of their paycheck will show up each time… and fight hard to get any semblance of the wages due to them.  This is but one example of the gross mismanagement of municipal resources resulting from years of ‘educrat’ and union domination, and isn’t going away any time soon.  (Have you helped your children escape public schools — the dying relic that’s a legacy of Prussian statism?  If not, why?)

– The ever-increasing wave of illegal immigrants in our nation (and elsewhere) continues to result in chaos, crime and death… and yet there is still no serious, concerted response to cut off these invasions, enforce the laws on the book, and to secure our sovereignty and borders.  If anything, it almost seems the leaders of the Western world are out to ensure that world is swamped by the human tsunami… which begs the question: why?

– Despite the spectacular human catastrophe that resulted from experimentation with communism/fascism/statism in the 20th Century (and its continued infliction of misery today), its appeal (even if marketed under other names) seems to have grown in the U.S. and elsewhere.  Those who don’t learn from history must pay dearly for the lessons over and over again, and it seems sometimes that many are simply incapable of learning.

In short: literally hellish ideologies are resurgent, the legacy of human slavery is used as a political cudgel in America even as the contemporary version goes unlamented and unchecked elsewhere, unwanted children are being chopped up and sold for parts, and the most free and materially successful civilization in human history is being left defenseless before an onslaught of invaders whose incompatible cultures and worldviews will destroy it.  So cry for a lion if you must… but at least reserve some tears for the exponentially greater suffering of humans at the hands of other humans.  No matter how cute Simba Cecil might have been, he did not bear the imago dei.

And a world that refuses to recognize Yahweh will most certainly not care about what happens to His image bearers…

The red tide keeps rising

I remember when people expressed outrage in the Reagan era that the national debt had crossed the $1 trillion dollar mark.  They were right to do so, though for most of them it was more a matter of political posturing than true concern over the fiscal health of the nation.

Which is why, three decades later, the high tide just keeps getting exponentially higher:

National Debt as of Nov 28 2014

 

 

 

Want to know why you can’t get any interest on your savings?  It’s because the government has to keep interest rates artificially low.  Not so much to boost housing sales (though this is a useful cover story).  No, it’s because if interest rates returned to historic norms, the interest on the national debt would, by itself, consume all the revenue generated by income taxes!

And yet people thought Admiral (ret) Mullen was off base when he said the debt was one of our biggest national security challenges

This can’t continue on the trajectory it’s on.  And as the saying goes, “that which can’t go on forever, doesn’t.”