Tag: economy

Ethanol: Not The Energy Transition We’re Looking For

With current events stirring up global energy prices, corn ethanol is again being dressed up as if it is a domestic energy source and agent of energy security. The truth is that corn ethanol is an energy sump, and that it takes more fossil fuel energy to make a gallon of corn ethanol than a gallon of gasoline. It is time to face this unpleasant truth and the other perverse outcomes achieved by twenty years of misguided policy.

In 2005 and 2007, Congress passed the Energy Policy and Energy Independence and Security Acts that together created the Renewable Fuel Standard (RFS) program. RFS had three stated objectives: to improve U.S. energy security, to reduce greenhouse gas (GHG) emissions, and to support rural economies and agricultural development. Instead, RFS has increased motor fuel prices, increased food prices, put millions of carbon-sequestering acres of land into intensive cultivation, increased GHG emissions and air pollution, and increased water consumption and pollution. As to energy security, the gallons of U.S. gasoline displaced by federal ethanol blending mandates are being exported to Mexico and other nations. The great success of RFS has been the hand of government transferring wealth from motorists to big ag corporations. It’s past time to stop the economic and chemical absurdity of forcing food to be fuel.

The government wanted biofuels bad, and it got them bad. Under Corn Belt lobbying pressure, Congress cynically waived the need for RFS to achieve actual GHG reductions for all existing corn ethanol biorefineries, plus all that could be built by the end of 2010. The bulk of the corn ethanol produced over the past 20 years and still today comes from these waivered plants. The EPA’s specious 2010 prediction that corn ethanol would achieve a 21% GHG reduction by 2022 was immediately challenged by the National Research Council for not properly counting land-use change and not realistically treating food competition and water use. This panel of experts from the National Academy of Sciences even questioned the viability of the entire concept of reducing GHG with biofuels. The most rigorous and honest estimate by a third party in testimony before Congress used the EPA’s own methodology to show that adding corn ethanol to gasoline has increased GHG emissions by 28% over the pure gasoline baseline with no trajectory to ever recover.

As to energy security, the goal was noble, but the method was irrational. Corn ethanol is critically dependent upon fossil fuels at every stage of production—tractor and truck fuel, fertilizer and pesticides, biorefinery energy and chemicals. Biofuels in general are just a way to put a green fig leaf on petroleum by inefficiently re-routing it through a farm field. While corn ethanol production has plateaued at 15-16 billion gallons for the past 10 years—not coincidentally matching the federal subsidy limit—domestic crude oil production has skyrocketed due to technological innovations that have opened up vast new geological formations to economic production. Despite a raft of federal policies and actions as negative for petroleum as they have been favorable for biofuels, the USA is once again energy self-sufficient and the world’s largest producer of crude oil and natural gas. In 2024, the USA exported 100 billion gallons of refined petroleum. Other countries are burning U.S. gasoline in their cars and producing the same CO2 emissions as if Americans were allowed to use it. The energy security objective for RFS is moot, and it was never achievable with fossil-fuel dependent corn ethanol.

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Was Fed Chair Warsh Chosen For A Controlled Demolition?

Supposed monetary hawk Kevin Warsh, who was officially sworn in as the 17th Fed Chair earlier this week, will now face the dilemma of staying true to his hawkish roots or caving to his unabashed high-rate hating President. That is, of course, unless there’s a deeper plan at play…

Last night, Cornell professor Dave Collum hosted Michael Lebowitz and Stephanie Pomboy for a deep dived into ‘How F***ed Markets Are’ where Dave posited the theory that Warsh man be a demolition man for a managed crash.

Collum and co. also talked about the insane disconnect between the economy and financial markets… and why Pomboy has increasingly abandoned financial assets altogether in favor of gold and hard assets.

Dave’s Fed truther theory and other highlights from last night below:

Retail Retards

Collum warned that modern markets have become completely detached from traditional valuation discipline… but that reality will eventually set in.

“It’s my assertion that probably greater than 50% of the investors in the world don’t understand what valuation means… Everything’s a Bitcoin price now.”

Standard valuation metrics have compounded roughly 4% annually for 45 years and are now firmly in “the nosebleed section,” yet “nobody cares,” per Collum.

Classic warning indicators are now near historic extremes. Lebowitz noted that “CAPE is near its all-time high. It’s above the 1929 level and just short of the dot-com level.” He argued the bigger danger may actually be hiding in supposedly “safe” stocks like Walmart and Costco.

Pomboy has opted out of the mania altogether. How? Real assets.

“Markets can go on longer than you can remain solvent betting against it…. I finally just sort of resigned myself to buying gold… At the end of the day I have been outperforming those markets by only gold.”

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Musical Chairs

Yesterday, Trump spoke with Xi in Beijing. While markets kept a watchful eye on any headlines about the war in Iran, palates were left dry as only tepid announcements dripped out, such as that China “offered help” on Iran and “pledged not to send weapons.” What they did not manage to evade was a conversation about Taiwan. During the two and a half hour conversation with Trump, Xi underscored that US intervention in Taiwan could trigger a “highly dangerous situation.” While Rubio underscored that the topic of American arms sales to Taiwan wasn’t a major focus of discussion, it likely will be when Congress’ approved USD 14bn arms sale to Taiwan lands on Trump’s desk, and again when Xi visits the White House in September.

While the US and China are stalled in the geopolitical arena, the financial scene seems to be bearing fruit. Treasury secretary Scott Bessent announced that conversations around the creation of a “Board of Investment” were underway, and that tariffs would be reduced or removed for products that the US doesn’t plan on reshoring, like fireworks. China also agreed to buy 200 “big” Boeing planes, according to Trump, which would mark the first significant Chinese purchase of Boeing jets since the last time Trump went to Beijing in 2017. China also hinted that they may intend to buy more US energy to compensate for flows disrupted by the war.

Though Iran didn’t appear to produce much in the way of headlines, the Strait is still closed, and Brent crude oil is still trading above $100/bbl at $106/bbl at the time of writing. According to Reuters, the IRGC announced that some 30 vessels have crossed the Strait since Wednesday (with Tehran’s permission), and transit is being permitted for “some” Chinese vessels.

US Treasury yields closed higher after hotter-than-expected trade price data for April printed, with import prices up 1.9% m/m and export prices up 3.3% m/m. These were the fastest monthly price index increases since early 2022 for both. However, the import price index, excluding petroleum, registered more modest gains of only 0.7% which, while hotter than the expected print of 0.5%, is cooler than levels seen as recently as January and February of this year. USD was the best performing G10 currency yesterday on a one day view. Yesterday afternoon saw a surge in yields across the board, absent a clear driver in sparse news flow, as the 2 year closed 3bp higher, above 4.00%.

Warsh was recently voted in as Fed Chair by the US Senate, but this creates a game of grown up musical chairs for the Board of Governors. There can only be seven Governors on the FOMC, and with Powell not giving his seat up just yet, if no one steps down, we have eight. However, Stephen Miran has announced that he would be stepping down as Governor and has submitted his resignation, effective upon Warsh being sworn in. Miran also assured that while he believes it’s important that the Fed only have one chair, Powell could help Warsh through the transition.

Bloomberg’s Anna Wong hit Powell with an uncomfortable reality check: “if Powell’s Fed had been more active in getting its own house in order following a massive miss on inflation, outsiders would have had less motive and opportunity to attack.” Powell’s Fed was criticized for its slow response to the inflationary pressures which led to “the Great Inflation.” Wong summarizes that “[Powell’s] limited push for accountability, such as a thorough review of Fed’s forecasting framework, opened the door to the nomination of a more aggressive outside like Warsh, who has vowed to ‘break some heads’ at the Fed. The moral of story: Get your own house in order or someone will do it for you.”

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Trump to American workers: Let them pay for the war

On the eve of the French Revolution, the ill-fated Queen Marie Antoinette is said to have responded to reports that the peasantry could not afford bread with the remark: “Let them eat cake.” The story is almost certainly apocryphal, but it captured the moment—the arrogance and cluelessness of an aristocracy that had lost all connection to the conditions of life of the masses, even as it presided over mounting social misery and the approach of revolution.

Donald Trump’s statement this week belongs in the same historical register. Asked whether he considered the impact of the US war against Iran on “Americans’ financial situations,” the bloated gangster-president replied, “Not even a little bit.”

There are moments where the reality of social relations is made clear, and Trump’s statement is one of them. He made his comments as he was leaving the White House to travel to Beijing for a summit with Chinese President Xi Jinping.

Trump tried to frame his remarks in the context of the danger of an Iranian nuclear weapon. “The only thing that matters when I’m talking about Iran—they can’t have a nuclear weapon. I don’t think about Americans’ financial situation. I don’t think about anybody,” he said.

The imminent danger of an Iranian atomic bomb has been the “big lie” peddled by the White House since the beginning of the war. The threat is universally dismissed by commentators with any knowledge of Iran, as well as by the US military-intelligence apparatus. There is no reason to believe that Trump believes this fairy tale either—especially given that he claimed that last summer’s airstrikes on Iranian nuclear facilities had “totally obliterated” them.

That leaves Trump’s declaration that he does not care about the impact of the Iran war on the cost of living for American working people to stand on its own. He said it, and he meant it. The American ruling class demands that the working class pay the cost of this war.

Trump’s claim that he doesn’t think about the financial position of any American is of course a lie. He thinks constantly about the financial position of the billionaire oligarchs, his sole constituency, the social layer which spawned him. This was on display as Air Force One landed in Beijing, carrying Trump and many top aides, as well as a Who’s Who of American capitalists—Elon Musk, Apple’s Tim Cook, Jensen Huang of Nvidia, Larry Fink of BlackRock, Stephen Schwarzman of Blackstone, Boeing CEO Robert Ortberg, Citigroup CEO Jane Fraser, and CEOs of Cargill, GE Aerospace, Goldman Sachs, Micron Technology, Qualcomm, Visa and others.

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India Panics, Further Tightens Gold Flows As Rupee Collapses

With the Rupee accelerating its declines to ever lower record lows against the dollar, Indian authorities have stepped up capital controls, focusing on curbing demand in the gold ‘exit’ route.

4 days ago, there were no signs of import duty hikes as Prime Minister Narendra Modi  issued a rare weekend appeal urging citizens to forgo gold purchases as well as unnecessary foreign travel in order to help hold up the currency..

2 days ago, tariffs were more than doubled on gold and silver imports to 15% and 6% respectively.

And today, they are doing even more with India now tightening the advance authorisation route, effectively capping how much gold individual exporters can bring in through that channel. 

A government notification stated that imports of bullion exceeding 100 kilograms would be subject to prior authorization, adding that any subsequent imports would only be granted after exports equivalent to 50% had been carried out.

The notification also introduced stricter checks for first-time applicants seeking permission to import gold under the scheme.

The government has also linked future import approvals to export performance.

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California farmers to destroy 420,000 peach trees after Del Monte collapses

Central California peach farmers are preparing to destroy around 420,000 clingstone peach trees afterDel Monte Foods shut down its canneries earlier this year.

Del Monte, the 139-year-old canned fruit and vegetable company, permanently closed its canneries in Modesto and Hughson in April following a Chapter 11 bankruptcy filing last July.

The closures left hundreds of workers without jobs and devastated growers, many of whom lost 20-year contracts with Del Monte and had few alternative buyers for their crops. Farmers could face an estimated $550 million in lost revenue, according to the Sacramento Bee.

In response, Senator Adam Schiff and Reps. Mike Thompson and David Valadao announced last week that affected growers could receive up to $9 million in federal aid to remove up to 420,000 clingstone peach trees before the upcoming harvest season, which typically runs from late May through September.

The approved emergency assistance will help growers remove about 3,000 acres of clingstone peach orchards. Removing about 50,000 tons of peaches from production could reduce oversupply and save farmers an estimated $30 million in additional losses, the officials said. The growers can then pivot to another crop.

“For generations, Central Valley family farms have relied on Del Monte’s Modesto facility to process their peaches,” Valadao said in a statement.

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Living Wage for All: A Prescription for Economic Ruin

Four Democratic House members, Jesús “Chuy” García (IL-04), Delia Ramirez (IL-03), Lateefah Simon (CA-12), and Analilia Mejia (NJ-11), introduced the Living Wage for All Act on April 28, proposing to raise the federal minimum wage to $25 an hour.

The bill is backed by Alexandria Ocasio-Cortez and a coalition of more than 100 organizations. Large employers would have until 2031 to comply, while smaller employers would have until 2038. After that, the minimum wage would adjust periodically to two-thirds of the national median wage, currently around $31 an hour.

The legislation is unlikely to pass with Republicans controlling both chambers of Congress. However, the economic damage caused by a forced multiplication of the minimum wage would be staggering.

The federal minimum wage has stood at $7.25 since 2009. According to the Bureau of Labor Statistics, roughly 82,000 workers currently earn at that floor, approximately 0.05% of the 170 million-person U.S. labor force, or about one worker in every two thousand. To raise wages for that population, every employer and consumer in the country would absorb the cost.

Proponents claim the bill would benefit millions more, pointing to BLS data showing 760,000 workers earn below the standard minimum wage. That figure is misleading. Those workers are tipped employees, legally paid $2.13 an hour under a separate federal provision on the assumption that tips make up the difference. This is a legal carve-out, not exploitation.

The Bureau of Labor Statistics Occupational Outlook Handbook reports the median hourly wage for waiters and waitresses, including tips, was $16.23 in May 2024, more than double the standard minimum wage. Tipped workers who found the arrangement unprofitable could leave for minimum-wage jobs, which are plentiful. The market already corrects for this. The actual universe of workers this bill targets is 82,000.

The cost impact on prices can be modeled mathematically under explicit assumptions: all affected workers currently earn $7.25 an hour, wages rise to $25 an hour, employers pass 100% of the increase to consumers, and no automation or headcount reductions occur. This produces a ceiling estimate, not a prediction.

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Mamdani Brags He Eliminated NYC’s $12 Billion Budget Deficit, But Then a New York Outlet Dug Into the Numbers

On Tuesday morning, New York City’s ultra-progressive mayor, Zohran Mamdani, took to X to take quite a boastful victory lap.

“When we came into office, we uncovered a $12 billion budget deficit,” Mamdani posted to X. “Today, I’m proud to say we brought it down to zero.”

“We didn’t close the gap on the backs of working people,” he continued. “We closed it while funding parks, libraries, safer streets and making historic investments in public housing. Call it Pothole Politics. Call it Democratic Socialism. It’s government that delivers for the people who make this city run.”

“That’s what New Yorkers deserve. And that’s what we will keep fighting for every single day.”

In a vacuum, this certainly sounded like it should’ve been a good Tuesday for NYC residents. But shortly after Mamdani’s post went up, the New York Post came out with a blistering rebuttal of Mamdani’s claims — and a much closer look at the numbers that Mamdani largely avoided delving into.

Blasted for including “a menu of hidden fee hikes” in his budget plan, the outlet pointed out that this deficit “fix” from Mamdani was anything but.

And notably, some of the harshest criticisms lobbied against Mamdani came from a fellow Democrat.

“Banking on yet to be determined revenue-raising gimmicks and identifying fake savings are not wins,” an unnamed Democratic operative told the New York outlet.

The operative savagely added, “This budget plan is as real as Kim Kardashian’s lips.”

So why is this budget plan so inauthentic?

Critics argue that the holes in Mamdani’s budget vision become glaringly obvious once you look beyond the lofty rhetoric and into the actual revenue proposals being floated by City Hall.

According to city budget documents cited by the New York Post, officials are eyeing a laundry list of new fees, fines, and enforcement crackdowns to help plug fiscal gaps.

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Democratic Socialism Works! Leftists Go Nutty for Mamdani After He ‘Balances’ the NYC Budget

Well, friends, if you support President Donald Trump and oppose the left, the game is up. He’s done it. Zohran Mamdani, New York City’s bright young communist mayor, has balanced the city’s budget without raising taxes or cutting a dime from social services. Leftists already loved him for being a Muslim, a migrant, and an America-hating Marxist, and now they love him all the more, for don’t you see, he has proven, in the teeth of racist, xenophobic, far-right opposition, that socialism works!

If you believe that, I have a very fine bridge that would make a lovely addition to your backyard, and it’s extremely reasonably priced. But over at Threads, Mark Zuckerberg’s leftist facsimile of Elon Musk’s X, they’re in full celebratory mode, and from the looks of things, the champagne is flowing freely. One leftist laid out the sober (alleged) facts: “They called him a communist. Said he’d destroy New York. 131 days in he balanced a $12 billion deficit without cutting a single service. This is what we’ve been asking for.” Another responded: “This is exactly what they were afraid of. He’s proving that it can be done and all their fear mongering is just bulls**t.”

Many leftists were sure that Mamdani had performed this particular trick by doing what patriots refuse to do: soaking the rich the way they deserved to be soaked. One wanted even more: “i’m sorry am i getting this right? NYC Mayor Mamdani taxed wealthy people on properties they own if they don’t live in them, it balanced the city’s multi-billion dollar budget immediately, and all the wealthy people are still wealthy? am i getting this right? they’re still wealthy, right? and no middle or lower financial earners saw any additional tax? am i getting this correct?” In a word, no, but don’t let me spoil the party.

The reality, as the New York Post explained Wednesday, is that New York City’s budget is “only ‘balanced’ with gimmicks that guarantee oceans more red ink in the years ahead. With a late assist from Gov. Kathy Hochul’s own flim-flammery, the new, $124.7 billion Mamdani spending plan relies on one-time cash infusions, postponed payments and dubious calculations of future tax windfalls and theoretical savings.”

Hochul helped out by giving the city $4 billion, so Mamdani’s balanced budget is indeed a triumph of socialism: the city is solvent not because it spends responsibility and within its means, but because it got a handout. As long as the handouts keep coming in and Mamdani can keep on spending other people’s money, everything will be fine.

A crash is coming, however. City Comptroller Mark Levine explained that Mamdani’s “balanced” budget “‘relies on $2.8 billion in one-time measures’ and short-term savings, without addressing ‘the fact that City government continues to spend more than we take in, even in a year of record revenues.’” One day the money is going to run out. Mamdani can hope that he will be out of office by then and can blame someone else. One Threads user tried to sound a note of caution amid all the celebrations: “I am a Mamdani supporter and proud leftist. Please understand that he did this by delaying funding pensions, which has historically been a disastrous way to kick the can down the road.”

But the can is kicked, and so for the time being, Mamdani can bask in the glory of an accomplishment that he didn’t really accomplish. Another Threads leftist rejoiced in this triumph of socialism: “Mamdani socialist a** is on these other politicians NECKS honey. Balanced the budget. Banned ICE. Created a snow shoveling workforce, handled two storms, filled thousands of potholes, extended free childcare, opened an office for deed theft, held numerous town halls for tenant rights. Got the city to engage civically in multiple initiatives. He’s even killing it on social. lol.”

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U.S. Treasury pays $3 billion a day in interest on national debt nearing $39 trillion mark

The U.S. Treasury has paid $628 billion in net interest this year to service its borrowing, according to the the Congressional Budget Office (CBO).

The latest monthly budget update on the national debt and its interest burden, shared on May 8, breaks down the government’s income and outgoings for the fiscal year so far, which began in October.

The CBO breakdown shows the deficit so far this year is actually smaller than it was for the same period a year prior. However, every day the Treasury is still forking out billions of dollars to manage existing service payments to lenders.

The report demonstrates the government’s largest outlays: $953 billion so far this year for Social Security benefits, $588 billion for Medicare, and $409 billion for Medicaid. Net interest on public debt is a larger figure than both Medicare and Medicaid, totaling $628 billion for the seven months between October and April.

On those numbers, for the 212 days since October, the Treasury’s interest payments have averaged at just shy of $3 billion a day—$2.96 billion to be precise.

The interest payment figure is rising with every budget update that passes, the CBO said: “Outlays for net interest on the public debt rose by $41 billion (or 7%) because the debt was larger than it was in the first seven months of fiscal year 2025 and because of higher long-term interest rates. Declines in short-term interest rates partially mitigated the overall rise in interest payments.”

The overall debt picture has marginally improved: The April update shows government income totaled $3.3 trillion for the fiscal year so far, up from $3.1 trillion for October to April of 2025. Outlays have also increased, from $4.2 trillion to $4.3 trillion, meaning the deficit for FY26 stands at $955 billion, which is $94 billion less than for the same period in FY25.

A significant driver in this change was the revenue generated by Trump’s tariff agenda, intended to rebalance trade deals with every nation on the planet.

While geopolitical fallout and a level of market volatility followed, the income generated by the policy was significant: A 220% uplift in duties revenue compared to the previous year. In FY25 (between October and April), customs duties totaled $59 billion, but for the same period this year, the government has raked in $190 billion.

It’s the reason Wharton Professor Joao Gomes previously argued that the initially unpopular tariffs are here to stay—even if the Democrats win the next election. “The truth is governments need revenues and once you see the amount of revenue the tariffs bring, I think Democrats will be addicted to them as Republicans—or are as likely to be,” he told Wharton Business Daily last year.

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