I also wanted to call attention to this, from the St. Louis Federal Reserve. It depicts the real per capita income in the United States over time. I wish it included 2023 so we could see if the trend continues.

One more point: I wish that it broke the real per capita income down into income quintiles or deciles. The graph above is bad enough but I suspect it’s worse when you separate the population and income into segments.

So, what’s happening? I doubt it is just inflation.

I thought that this editorial from the Wall Street Journal made an interesting follow-up to my musings of yesterday. I don’t entirely agree with their editorial position but I wanted to quote some key passages:

“Vulnerabilities of nonbank mortgage companies can amplify shocks in the mortgage market and undermine financial stability,” Treasury Secretary Janet Yellen declared. A new report by the Financial Stability Oversight Council (FSOC) finds “their specialized business model means they are especially susceptible to macroeconomic fluctuations in the housing market.”

The Dodd-Frank Act established FSOC to monitor and manage risks to the financial system, and progressives want to grab more control over non-banks. Regulators are using the risks they created to justify putting non-bank mortgage servicers under their thumb—and available for taxpayer bailouts.

According to FSOC, non-banks originate two-thirds of mortgages and service 54% of balances, up from 39% and 4% respectively in 2008. After the financial panic, the report says “banks pulled back from mortgage origination and servicing in part due to heightened regulation and sensitivity to the cost and uncertainty associated with delinquent mortgages.”

What happened to cause this change? The bank capital rules put in place following the 2008 panic made the business model attractive while lack of oversight and low interest rates made them possible and profitable.

Mortgage companies are regulated by the states and don’t have to comply with the Federal Reserve’s regulation. Most draw on bank credit lines or issue debt to finance loans, which are securitized and sold to investors.

FSOC says many mortgage companies are highly levered and could experience stress if banks reprice their credit or cut them off. Why might this happen? Rising interest rates and stricter bank capital standards such as those recently proposed by the Fed.

I do not work in the financial sector and haven’t had a mortgage for some time but that raises a question for me: what is a bank? I think that if they’re accepting deposits and making loans, they’re banks and should be regulated like banks.

I also do not approve of the federal government guaranteeing private profits but I also do not approve of the federal government taking the entire mortgage business over.

What’s the right policy?

Tying the two posts together if these mortgage companies are borrowing and making loans, they, too, are creating money. I wonder if the Federal Reserve is taking that into account?

I frequently wonder whether the regulatory changes made by the Federal Reserve over the last 40 years have changed the monetary and banking systems to the degree that Paul Volker’s strategy for lowering inflation is not as effective as it used to be. Some of those changes include substantially increasing the amount of reserves that banks must keep with the Federal Reserve and the interest that the Fed pays on those reserves.

I found this story at Business Insider, reported by Michael Peck, interesting:

If Donald Trump wins a second term in the White House in November, NATO may fall apart, a recent wargame found.

As a presidential candidate, Trump has threatened to quit NATO unless European allies contribute more, and should he carry it out Europe may decide to go it alone on defense, the game suggests. “A US policy of frustrating NATO has the potential to cause the alliance to collapse, with the EU as a candidate for eventually replacing NATO’s ultimate function — defending Europe from Russia,” wrote Finley Grimble, the British defense expert who designed and ran the game.

The US doesn’t have to withdraw from NATO to imperil the 75-year-old alliance. Technically, the US is barred from leaving NATO after Congress voted in 2023 to prohibit withdrawal without congressional approval.

But the game showed how Trump — the presumptive Republican presidential nominee who said on the campaign trail that he’d encourage Russia to “do whatever the hell they want” with NATO allies who spend too little on their militaries — could undermine NATO simply by doing as little as possible to support the alliance. “What Donald Trump can do is just really hollow out what NATO does,” Grimble told Business Insider. “He doesn’t need to leave NATO to ruin it. He can ruin it from within.”

The details of the wargame are described here by its designer, Finley Grimble:

The wargame commenced on a successful Trump Inauguration Day: January 1, 2025, and running for two years into the presidency. All 32 NATO members, Ukraine, and Russia were represented by participants. These countries with ‘dedicated representation’ were given time to:

1. Develop a strategy.
2. Negotiate with allies to cohere strategy.
3. Negotiate with adversarial countries.
4. Take a series of military, diplomatic, economic, and intelligence actions for a turn that represented two months.
5. Any military actions were then carried out using an operational wargame map with bounded adjudication rules. This ran as a minor facet of the wider geo-political wargame to establish correlation of forces and battlefield situations.

Once these phases had occurred, the non-military actions were freely adjudicated by a ‘wargame control team’, then the next turn would begin with a new set of starting conditions based on the outcomes of the previous intertwining actions.

I suggest skipping the BI story and jumping directly to the post about the wargame. Most interesting and unreported by BI was that one of the conclusions of the wargame was that Russia would not invade the Baltics within the period of the wargame:

• The Ukraine conflict was still using much of Russia’s resources, so it could not open a second conflict on its border.
• That the US would not commit itself to defend Europe in full was still uncertain despite 6 months of dormancy.
• Russia assessed that the Baltic States could potentially resist an effective occupation, even without support from NATO.
• Russia assessed that the European NATO Allies could defeat Russia in the Baltic Sea & come to aid the Baltic States.
• Russia assessed that Finland and Poland alone, not to mention with support from other NATO Allies, possess the ability to counterattack into Russia, cut off Murmansk (Where Russia’s main nuclear deterrent and Northern Fleet are based), encircle Saint Petersburg, and have a path to Moscow.
• Russia risked becoming increasingly isolated globally by performing another ground invasion in Europe.

which I believe to the case.

I wish that there were a comparable wargame showing the outcome of a Biden re-election.

Both my mother and my wife’s mother died years ago. My wife and I, to our regret, have no children. Consequently, Mother’s Day has a somewhat melancholy air in our house.

I congratulate my nieces and nieces-in-law on their children and their roles as mothers. Treasure your children.

The other day as I was going about my ordinary errands I took a few moments off to stop at a house sale in nearby Park Ridge. I spent $10 to buy a few mugs made by a company my wife collects (a savings of several hundred dollars). The house, probably built in the 1930s, was interesting. One of the second floor closets held a meticulously-constructed ladder/set of stairs up to the attic. I had never seen anything quite like it before.

When I stuck my head out the back door, I was startled to see that the entire backyard was occupied by a formal English garden, something one might see in the mansions on the North Shore but that I never expected to see in Park Ridge. I should have taken a picture.

It saddened me a bit. I couldn’t imagine that the next owner won’t rip that garden out. Things change.

The editors of the Washington Post muse on whether the end justifies the means in politics, focusing specifically on two cases of pandering to constituencies by the Biden Administration:

• The delay on banning menthol cigarettes, the primary consumers of which are black
• Stated opposition to the acquisition of U. S. Steel by Nippon Steel, a “straight-out sop to the United Steelworkers union”

Possibly predictably they come down on the side of the end justifying the means:

The FDA could revisit the ban after the election, and the ultimate decision on the U.S. Steel sale awaits input from regulators. On the other hand, a Trump victory could eliminate any chance of a good policy outcome in either case. So trim your principles, Democrats, and pander away. Just remember: The only thing worse than playing Machiavelli for a good cause is playing Machiavelli for a good cause and losing.

I do not believe that the end ever justifies the means when the means are immoral. That is a primary reason that I oppose Donald Trump. I think that those who support him thinking that the end justifies the means are going against the ancient wisdom. You cannot achieve good ends through bad means.

In the two cases the editors bring up they’re not accepting bad means just stupid ones. I would add that I think they err in ascribing any principles to elected officials whose only actual principles are the urge to wealth and power. IMO vanishingly few of our politicians have any principles, as I say, other than an urge to wealth and power and what produces that is the belief that the end justifies the means, cf. Mike Madigan.

Recently, I was asked to provide a concrete example of how Iran has not been forthcoming about its nuclear development program. This passage is from the site Nuclear Threat Initiative, which I recommend:

On 21 September 2009, ahead of the public revelation by the leaders of the United States, France, and the United Kingdom, Iran disclosed to the IAEA that it was building a second pilot enrichment facility. According to IAEA Spokesperson Marc Vidricaire, Iran’s letter “stated that the enrichment level would be up to 5%,” and the Agency was assured that additional information would be provided in due time. The facility was located in an underground tunnel complex on the grounds of an Islamic Revolutionary Guards Corps (IRGC) base near the city of Qom. Managed by Iran’s Atomic Energy Organization, the Fordow Fuel Enrichment Plant (FFEP) was slated to hold 2,784 centrifuges, and began operations using 696 centrifuges in late 2011. Moreover, Iran contradicted its declaration to the IAEA concerning planned enrichment levels by moving 19.75% enrichment activities from Natanz to Fordow. A May 2012 report from the IAEA raised concerns over the activity at Fordow, citing uranium enriched past the stated target of 19.75%, and the “difference between the original stated purpose of the facility, and the purpose for which it is now used.” The plant’s size, secrecy, and location on an IRGC military base led some analysts in the U.S. government to argue that Iran constructed it in order to produce HEU for nuclear weapons.

The original is copiously annotated. I have taken the liberty of removing the footnote references for legibility.

That example is not isolated. It is typical of our experience with Iran. The process goes something like this:

1. We learn via intelligence of an Iranian nuclear development facility. The intelligence might be electronic but is more likely human intelligence.
2. We convey what we have discovered to the Iranians, informing them that we are preparing to disclose our findings.
3. The Iranians declare our findings.

I would add that the IAEA has not been given access to all of the nuclear development facilities in Iran of which we are aware and that there is evidence that the Iranians have “sanitized” areas to which they have been given access prior to being allowed to enter. BTW I suspect British intelligence has been more successful than we. Americans are notoriously loose-lipped.

Consequently, the question those in favor of negotiating with Iran need to answer is how do they know what they don’t know? In the light of Iran’s bad faith my view is that we shouldn’t negotiate at all with the present generation of Iranian officials. The pattern with revolutions has been that after a while the revolutionaries get old and die and are succeeded by bureaucrats who are a lot more tractable (think Gorbachev).

But I also think we shouldn’t fret. What will happen will happen.

It’s not in the headlines any more but the Francis Scott Key Bridge, brought down by having been struck by a container ship last month, is still impeding travel in the Baltimore area. John D. Schulz reports in Logistics Management:

It will take just over four years and up to $1.9 billion to rebuild the Francis Scott Key Bridge after it was hit by a cargo ship and fell into the Patapsco River, according to an estimate by the Maryland Department of Transportation.

The state plans to build a new span by the fall of 2028, spokesman David Broughton said. He also said it will likely cost anywhere from $1.7 billion-to-$1.9 billion to rebuild the span after the container ship Dali lost power and slammed into one of the bridge’s support columns.

Experts initially estimated it would take between two and 15 years to replace the bridge, which closed the loop of the Baltimore Beltway when it opened in 1977.

The March 26 collision with the massive ship sent a span of the bridge plummeting into the Patapsco River. The result closed maritime traffic in and out of the Port of Baltimore because access to the harbor was blocked. The Baltimore port is the nation’s 11th-largest and tops in the number of imported cars and light trucks.

The main channel has yet to reopen. Smaller vessels are now able to pass while larger container ships continue to be blocked. Bodies continues to be discovered.