The Nation's Financial Condition

[youthathletics]

CBRE Reports Negative Cash Flow As Capital Markets Freeze Drags Down Revenues


https://www.bisnow.com/national/news/ca ... dium=email

[Farfromgeneva]

To the above of course every transaction fee based business is getting crushed as there’s limited activity. The toll booth businesses need drivers.

Tiny bank but appears to be a 39% loss on assets to DIF (Deposit Insurance Fund)-not good at all.

https://www.fdic.gov/resources/resoluti ... state.html

Spoke with the head of corp dev at Banc of Cal within a week of the announced accounting laden mess of a merger w PacWest and basically if they didn’t announce a deal along with Q2 earnings they would’ve been bled out by their equity (public stock) investors pretty fast so had to do that wild deal where the buyer for practical purposes (who runs the combined bank and who sits on the board) is the seller for accounting purposes (bargain purchase accounting, one time opportunity to reset the marks on assets despite CECL which never has or will accomplish what it’s supposed to post Dodd Frank implementation). If they MTM the PacWest balance sheet honestly they’re toast. But this allowed Warburg and Centerbridge to buy 20% of the combined entity cheap.

[Farfromgeneva]

Undecided where this is most pertinent, i.e. immigration, labor, etc., so settled for this thread.

So, step right up and get yer child labor here. Can't be "woke" when yer operatin' that there heavy 'quipmunt, now, ya heer?

Party of child groomers and predators, perhaps?

Drag shows are out, occupational death and dismemberment good, eh? Where's a concerned Mother for Douchery when ya need one?

Wait a minute, this is just an opportunity for the youths to develop their skills, ala Putzfeld's remark re the Viktor Frankl book, right? That, it, cons?

"The US Department of Labor has decried a national surge in child labor as the agency has found thousands of violations and is currently investigating the death of a 16-year-old boy from Guatemala, Duvan Tomas Perez, who was killed on the job at a slaughterhouse this month in Mississippi, the New York Times reported.

Two other 16-year-olds have died on the job in the US this year. Michael Schuls was killed on 29 June while working for a sawmill in Wisconsin. He was attempting to unjam a wood stacking machine when he was caught and pinned by the conveyor belt. Will Hampton died in Missouri on 8 June while working at a landfill when he was pinned between a tractor trailer rig and its trailer.

The department has noted it is currently pursuing more than 700 open cases and already found 4,474 children working illegally since the beginning of the fiscal year, a 44% increase over the previous year.

On 25 July, the Department of Labor announced child labor violations found at 16 McDonald’s franchises in Louisiana and Texas, affecting 83 minors."


https://www.theguardian.com/us-news/202 ... department

Apparently you don’t watch Shameless..

https://youtu.be/fciVARZGfvY

[Farfromgeneva]

https://nypost.com/2023/07/27/millionai ... -suitcase/

Isn't money laundering (ahem)....excuse me "crypto" super awesome.

I explained to my nephew: why do you think you have to register your car, and get a license plate? Do you think it's because the government does it because it's bored? Or is it a service for you, to help you to protect your Sh(t and your family?

Untraceable money. Another great idea from TeamTinFoil.

The term is “digital asset” I believe…

[Farfromgeneva]

https://nypost.com/2023/07/27/millionai ... -suitcase/

Isn't money laundering (ahem)....excuse me "crypto" super awesome.

I explained to my nephew: why do you think you have to register your car, and get a license plate? Do you think it's because the government does it because it's bored? Or is it a service for you, to help you to protect your Sh(t and your family?

Untraceable money. Another great idea from TeamTinFoil.

It's been interesting chatting with crypto bros over the years. They're so gung-ho. I mined a number of cryptocurrencies about a decade ago, but sadly not enough to be a billionaire. A couple of years too late to the party. Being in the software development world, you see so many new hyped technologies pop up. It's hard to say what's gonna stick and what's not.

In any case, it's been interesting watching nearly every old school finance scheme/fraud happen with cryptocurrencies. So many of these self-described libertarians talking about how great the "free, unregulated currency market" is, then someone else absconds with millions in crypto in another scandal.

Just like OSHA regulations, banking regulations exist because someone (or most of us) got boned.

The fun part about every crypto transaction being on the blockchain? A lot of the money a lot more traceable than people think. But criminals aren't usually the smartest.

Why it’s not used (blockchain) for supply chain finance and factoring by now but treated as an alt asset class is one of the most inane aspects to me.

[PizzaSnake]

https://nypost.com/2023/07/27/millionai ... -suitcase/

Isn't money laundering (ahem)....excuse me "crypto" super awesome.

I explained to my nephew: why do you think you have to register your car, and get a license plate? Do you think it's because the government does it because it's bored? Or is it a service for you, to help you to protect your Sh(t and your family?

Untraceable money. Another great idea from TeamTinFoil.

It's been interesting chatting with crypto bros over the years. They're so gung-ho. I mined a number of cryptocurrencies about a decade ago, but sadly not enough to be a billionaire. A couple of years too late to the party. Being in the software development world, you see so many new hyped technologies pop up. It's hard to say what's gonna stick and what's not.

In any case, it's been interesting watching nearly every old school finance scheme/fraud happen with cryptocurrencies. So many of these self-described libertarians talking about how great the "free, unregulated currency market" is, then someone else absconds with millions in crypto in another scandal.

Just like OSHA regulations, banking regulations exist because someone (or most of us) got boned.

The fun part about every crypto transaction being on the blockchain? A lot of the money a lot more traceable than people think. But criminals aren't usually the smartest.

Why it’s not used (blockchain) for supply chain finance and factoring by now but treated as an alt asset class is one of the most inane aspects to me.

Don't look now, but the madding crowd has moved on to AI...

[Farfromgeneva]

https://nypost.com/2023/07/27/millionai ... -suitcase/

Isn't money laundering (ahem)....excuse me "crypto" super awesome.

I explained to my nephew: why do you think you have to register your car, and get a license plate? Do you think it's because the government does it because it's bored? Or is it a service for you, to help you to protect your Sh(t and your family?

Untraceable money. Another great idea from TeamTinFoil.

It's been interesting chatting with crypto bros over the years. They're so gung-ho. I mined a number of cryptocurrencies about a decade ago, but sadly not enough to be a billionaire. A couple of years too late to the party. Being in the software development world, you see so many new hyped technologies pop up. It's hard to say what's gonna stick and what's not.

In any case, it's been interesting watching nearly every old school finance scheme/fraud happen with cryptocurrencies. So many of these self-described libertarians talking about how great the "free, unregulated currency market" is, then someone else absconds with millions in crypto in another scandal.

Just like OSHA regulations, banking regulations exist because someone (or most of us) got boned.

The fun part about every crypto transaction being on the blockchain? A lot of the money a lot more traceable than people think. But criminals aren't usually the smartest.

Why it’s not used (blockchain) for supply chain finance and factoring by now but treated as an alt asset class is one of the most inane aspects to me.

Don't look now, but the madding crowd has moved on to AI...

I think we should’ve all understood AI basically once we accepted Moore’s “law”. It’s the exploitation of data and the social contract that changed somehow. Proctor and Gamble, as an example, had people functioning as “data scientists” long before it was a job title or degree granting major. Functional use and value add but somehow the tech and engineering world playing businessperson have missed this altogether and have a moral code that makes Wall Street look like Tibetan monks.

The peak and trough for AI will be a shorter journey given the change in monetary policy, not just cost of money but sheer supply. Consider the monetary environment crypto came up in combined with coming out of a 100yr flood social/political storm (people forget the near Armageddon of the financial crisis these days it seems).

Only reason money supply isn’t shrinking faster is because the Fed has a ton of 30yr mortgage backed securities. The treasury bonds (interest only bullet repayment at maturity) are running off as planned but the avg life of those mortgage bonds after rates rose extended from 8-10yrs to 15yrs as repayments dropped like a stone meaning it’s going to take longer to drain that cash from the system.

[Farfromgeneva]

Yellow Roadways (YRC) is done officially. Union out of trucking. Massive demand in the electrical engineering unions. Wonder how many are willing to go be an apprentice again for a more stable industry.

[NattyBohChamps04]

In the "not all doom and gloom" category:

America’s Factory Building Boom

How Biden’s big investments spurred a factory boom

This will make cradle & others happy, as more EVs will be shipping via rail instead of ship.

Kentucky to build all-new battery electric Toyota SUV starting in 2025. Here's what to know

Rivian making $10 million upgrades to plant in Bullitt County [Kentucky] to build electric vehicles

Work forges ahead as scheduled on [Ford] Kentucky EV battery plants

Bidenomics’ critics are being proven wrong. Happy days are here again

[a fan]

In the "not all doom and gloom" category:

America’s Factory Building Boom

How Biden’s big investments spurred a factory boom/bidenomics-critics-ira-inflation-economy-politics-sonnenfeld-tian/]Bidenomics’ critics are being proven wrong. Happy days are here again[/url]

This is where Biden is dropping the ball....

“If somebody tells me they need a welder who can do X, Y and Z right now in the state of New Mexico, everybody that has those qualifications is already working.”


Where the F is the working class equivalent to the student loan abatement program, Joe?


And naturally, the R's aren't even DISCUSSING doing things like training welders for free. Too busy battling drag queens in libraries.


That said, invest in infrastructure!!! Thumbs up for that.

[Brooklyn]

In the "not all doom and gloom" category:

America’s Factory Building Boom

How Biden’s big investments spurred a factory boom

This will make cradle & others happy, as more EVs will be shipping via rail instead of ship.

Kentucky to build all-new battery electric Toyota SUV starting in 2025. Here's what to know

Rivian making $10 million upgrades to plant in Bullitt County [Kentucky] to build electric vehicles

Work forges ahead as scheduled on [Ford] Kentucky EV battery plants

Bidenomics’ critics are being proven wrong. Happy days are here again

Thank you Mr Biden.

[Kismet]

This cannot be good - but expected when the inmates are allowed to run the asylum on Capitoll Hill.

https://www.cnbc.com/2023/08/01/fitch-d ... m-aaa.html

'"Fitch Ratings cut the United States’ long-term foreign currency issuer default rating to AA+ from AAA.
The agency had placed the country’s rating on negative watch in May, citing the debt ceiling fight in Washington.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said."

[a fan]

This cannot be good - but expected when the inmates are allowed to run the asylum on Capitoll Hill.

https://www.cnbc.com/2023/08/01/fitch-d ... m-aaa.html

'"Fitch Ratings cut the United States’ long-term foreign currency issuer default rating to AA+ from AAA.
The agency had placed the country’s rating on negative watch in May, citing the debt ceiling fight in Washington.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said."

More sticking it to the working class because Republican voters don't get that what their leaders are doing is ringing up a $1000 dinner bill, eating it all, and then stiffing the family that owns the restaurant.

Don't want to pay the bill? Great news. Don't spend the money. A lesson every real conservative teaches their kids long before they leave home for the real world.

This will obviously hit the working class the hardest. So what, right Republicans? Let's see if we can shovel even more money to the coastal liberal Dems while F'ing working class Dems and Republicans. Great plan!

[Brooklyn]

‘Bidenomics’ is working – which means Biden and the Democrats may win too

Biden’s economic policies are the most successful in the US in decades. That puts the Democrats on a strong political footing



https://amp.theguardian.com/commentisfr ... ay-win-too






Until recently, I assumed that Joe Biden would get a second term despite worries about his age because most Americans find Trump so loathsome.

But I’ve underestimated Bidenomics. It’s turning out to be the most successful set of economic policies the United States has witnessed in a half-century.

It may not only give Joe another term but also give Democrats control over both houses of Congress. It may even put the nation on the path to widely shared prosperity for a generation.

New economic data last week showed that inflation cooled to 3% in June, down from over 9% last year, and close to the Fed’s goal of 2%.

And as inflation has subsided, real wages – that is, what paychecks will buy – have finally risen.

Meanwhile, economic growth has accelerated. Consumer spending is solid. Consumers expect the economy to continue to do well.

Inflation is coming down without a crash landing, in large part because the Fed’s rate increases – designed to slow the economy, stop wage growth and cause higher unemployment – are being offset by Bidenomics’ massive public investments in infrastructure, semiconductors, wind and solar energy, and manufacturing.

This isn’t all. The Biden administration has added three other critical ingredients: the threat (and, in some cases, reality) of tough antitrust enforcement, a pro-labor National Labor Relations Board, and strict limits on Chinese imports.

Taken together, these policies are beginning to alter the structure of the American economy in favor of the bottom 90%.

In recent decades, the Fed has been in charge of evening out the business cycle, but no one has taken charge of altering the structure of the economy so that the poor and working middle class get a larger share of the gains.

This restructuring has been difficult to achieve for the simple reason that the monied interests don’t want it.

In Republican circles, the monied interests have preached the snake oil of supply-side economics, which legitimized giant tax cuts going mostly to the rich and large corporations.

Those tax cuts – under Reagan, George W Bush and Trump – exploded the federal debt, fueled giant profits in the biggest firms and financial institutions, and stoked a surge in billionaire wealth but did literally nothing for average working people. Nothing trickled down.

In Democratic circles, the monied interests have used neoliberalism – which has called for deregulation, privatization, free trade and the domination of finance over the economy.

This orthodoxy pervaded the Clinton and Obama administrations. (I won’t bore you with my war stories, but trust me.)

The result was similar to that of supply-side economics: wealth surged to the top, but average working people remained stuck in the mud.

In contrast to both supply-side economics and neoliberalism, the Biden administration is focused on altering the structure of the economy.

Over the past year, manufacturing construction in hi-tech electronics, which the administration has subsidized through Chips and the Inflation Reduction Act, has quadrupled.

Tens of billions in infrastructure spending has been funneled to the states for road, water system and internet upgrades.

More clean-energy manufacturing facilities have been announced in the last year than in the previous seven combined.

Biden understands that these investments must translate into high-paying jobs, which often require unions.

“When I think climate, I think jobs … union workers are the best workers in the world,” he said in a recent speech on what he has called Bidenomics.

Voters may not yet understand Bidenomics, but it’s probably not necessary that they do in order for Biden and the Democrats to benefit
The monied interests don’t want unions, of course. The narrow congressional majority that got these bills passed rolled back some of the labor conditions that originally accompanied the tax credits and grants.

Moreover, much of the funding is pouring into so-called “right-to-work” states that make it exceedingly difficult to unionize.

But a buoyant economy strengthens the hand of workers, making it easier to unionize – which helps explain the ubiquitous labor action this summer.

Voters may not yet understand Bidenomics, but it’s probably not necessary that they do in order for Biden and the Democrats to benefit.

If Bidenomics continues to alter the structure of the economy in ways that help the vast majority, voters will give Biden another term and reward Democrats with both houses of Congress.

And if Bidenomics is successful, it will make the American economy both stronger and fairer in years to come.

I’m betting on it.

[Farfromgeneva]

Could go in environmental issues section or here

https://www.spglobal.com/marketintellig ... pisode-114

P&C insurers issued surplus notes at highest pace in years despite rising cost

Author Tim Zawacki
Theme Financial Services
Unique organizational structures and circumstances contributed in 2022 to the highest volume of surplus notes issuance by US property and casualty insurers since 2008, an S&P Global Market Intelligence analysis finds.

SNL Image
➤ Defying higher cost of funds for the deeply subordinated debt obligations, we calculate that issuance by P&C insurers increased to $2.97 billion in 2022 from $786.9 million in 2021 and average annual volume of $1.04 billion during the preceding 10-year period. Florida property insurers hit by the combination of Hurricane Ian and the state's ever-challenging operating environment, a smattering of insurtechs and fledgling reciprocal exchanges were especially active from an issuance standpoint, but it was a leading medical professionals liability insurer that generated the year's largest single transaction.

➤ Life insurers, meanwhile, engaged in little activity relative to both the P&C sector and their recent track record. The largest single deal of 2021, a $1.19 billion transaction involving what has since been renamed Empower Annuity Insurance Company of America, exceeded the entire life sector's full-year 2022 tally. Total aggregate par value of surplus notes issued by the life industry plunged to a meager $1.13 billion in 2022 from $6.37 billion in 2021 and the preceding 10-year average of $3.70 billion. Rising interest rates undoubtedly contributed to the sluggish activity as we calculated a weighted average coupon of 6.19% on the surplus notes that life insurers did issue, an increase of 228 basis points from 2021 to the highest level since 2010.

➤ With interest rates showing signs of flattening out amid fallout from the March banking crisis, it is possible that opportunistic issuance could make something of a comeback in 2023. The confluence of a heightened supply of notes issued by some of the industry's most highly rated carriers and a strong investor bid in the depths of a low-for-long rate environment is unlikely to reemerge in the near term even if one recent transaction offers a glimpse of the utility that surplus noes can provide to both sides of a trade.

Medical professional liability insurer Doctors Co. An Interinsurance Exchange's $500 million January 2022 offering matched later transactions by Massachusetts Mutual Life Insurance Co. as the insurance industry's largest such deal for the year. Coming before the Federal Open Market Committee began raising the federal funds rate, The Doctors issued 10-year notes at a fixed rate of 4.50%. That was 200 basis points tighter than the company's penultimate issuance in 2013 and 117 basis points lower than what MassMutual achieved on its December 2022 issuance.

But rather than an opportunistic means of raising funds in times of relatively attractive interest rates, surplus notes issuances more frequently fill more fundamental roles for smaller and non-stock P&C carriers. As we observed again in 2022, this includes as a source of initial capitalization, a means of raising total adjusted capital above regulatory thresholds and, on occasion, for acquisition funding.

Two Tampa, Fla.-based homeowners insurers Slide Insurance Co. and Loggerhead Reciprocal Interinsurance Exchange, along with Charleston, W.Va.-based coal mining reclamation surety bond writer Mining Mutual Insurance Co. issued surplus notes as part of their initial capitalization and/or in connection with their launches. Kin Interinsurance Nexus Exchange issued a surplus note in combination with a sponsored conversion of what was formerly a stock insurance company known as ADM Insurance Co. to a reciprocal.

Accident Fund Insurance Co. of America, meanwhile, conducted an underwritten private placement of 10-year, 8.50% surplus notes in November 2022 in connection with its $608.9 million acquisition of AmeriTrust Group Inc.

Certain US subsidiaries of international reinsurers also emerged as surplus note issuers in the fourth quarter of 2022, with Munich Reinsurance America Inc., Endurance Assurance Corp. and Renaissance Reinsurance U.S. Inc. issuing a total of $955 million at aggregate par value. For the latter company, the $300 million 7.50% December 2022 issuance helped push its authorized control level risk-based capital ratio to 259.7%. In the absence of the surplus notes, all else being equal, RenRe U.S.'s total adjusted capital would have been less than 187.5% of its authorized control level RBC. Under the National Association of Insurance Commissioners' RBC system, an authorized control level RBC of between 150% and 200% would be at the company action level.

Following the flurry of activity in the fourth quarter of 2022, P&C insurers issued at least $52.9 million in surplus notes in the first two months of 2023. Activity included issuances totaling $17 million for Branch Insurance Exchange and $15 million each for Rockingham Insurance Co. and Slide. The latter two entities received regulatory approval to include the issuances as surplus in their 2022 financial statements under Statement of Statutory Accounting Principles No. 72.

The P&C industry total could have been even higher. S&P Global Ratings in October 2022 assigned a BBB+ rating to Farmers Insurance Exchange's proposed issuance of surplus notes due 2052, but the insurer's annual statement indicates that it last issued surplus notes in December 2017.

New life for surplus notes?

Large non-stock companies have traditionally ranked among the largest surplus notes issuers in the life sector. That trend continued in 2022 with the MassMutual transaction.

The 5.672% interest rate on the company's 30-year December 2022 issuance was the highest for an outstanding MassMutual surplus note since its June 2009 issuance of 30-year, 8.875% notes.

Other notable life sector issuances included Midland National Life Insurance Co.'s May 2022 placement of 30-year, 6.10% notes with its parent and SILAC Insurance Co.'s December 2022 issuance of a $120 million note to its parent in exchange for a then-outstanding note and cash. The latter note will bear interest at a floor rate of 325 basis points over the prime rate.

A transaction of a magnitude equivalent to the MassMutual deal has already closed in 2023. Reinsurance Group of America Inc.'s Chesterfield Reinsurance Co. issued $500 million in 7.125% surplus notes due 2043 through a subscription agreement with Apollo Global Management Inc.-affiliated insurance companies, third-party insurance managed accounts, and other institutional clients.

S&P Global Ratings, in assigning its A debt rating to the notes, reported that they are part of an embedded-value securitization where Chesterfield Re will enter a 50% quota-share retrocession agreement with RGA Reinsurance Co. An RGA filing did not provide additional information about the type of insurance liabilities involved.

RGA Re in 2022 recaptured business ceded to Chesterfield under an embedded value transaction that involved a closed block of ordinary life insurance.

SNL Image
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

[youthathletics]

Word on the street is that engineering and architectural firms are running slow with work, construction bids also slowing way down...if it continues, the streets typically do not feel this for 12-24 months. Something will need to give as we burn through the remainder of all the covid/stimulus funding.

It may be why we are seeing more aggressive stances and pushes on electrification....to get incentive cash for capitol product improvements in the commercial and residential multi-use building market.

Anyone seeing this same sort of thing in their circle?

[Farfromgeneva]

Takes 18mo from an inverted twirls curve which happened last summer. About same for when rates started increasing. That’s second half of Tony is year when it starts to set in. Makes sense to see the deceleration sometime in the next handful of months. Before any impact on consumers from resumption of student debt payments.

[ardilla secreta]

Berkshire Hathaway shares reaches all-time high
How can a 92 yo and his 99 yo partner do such a thing.
Don’t they know they’re too old?

[PizzaSnake]

Makes sense geographically? I wonder what he means?

“"[The team members] will all be offered the opportunity to go to another place," he said. "Even some of our live production, suppliers, our family farmers, ... many of them will have the opportunity to get out of the business or go to work with another integrator, or they will have the option of, in some cases, producing for one of our other operations where geographically [it] makes sense."”

https://finance.yahoo.com/news/tyson-ce ... 13594.html

[Typical Lax Dad]

Still worried about this a little bit….

American chipmakers account for a third of global semiconductor revenues. They design the world’s most sophisticated microprocessors, which power most smartphones, data centres and, increasingly, artificial-intelligence (ai) models. But neither the American firms nor their Asian contract manufacturers produce any such leading-edge chips in America. Given chips’ centrality to modern economies—and, in the age of ai, to warfighting—that worries policymakers in Washington. Their answer was the chips Act, a $50bn package of subsidies, tax credits and other sweeteners to bring advanced chip manufacturing back to America, which President Joe Biden signed into law on August 9th 2022.

On the surface, the law appears to be having an impact. Since 2020, when it was first floated, chipmakers have announced more than $200bn-worth of investments in America. If all goes to plan, by 2025 American chip factories (fabs, in the lingo) will be churning out 18% of the world’s leading-edge chips (see chart 1). tsmc, a Taiwanese manufacturing behemoth, is splurging $40bn on two fabs in Arizona. Samsung of South Korea is investing $17bn in Texas. Intel, America’s chipmaking champion, will spend $40bn on four fabs in Arizona and Ohio. As the chips Act celebrates its first birthday, and as the administration prepares to start doling out the money, both Democrats and Republicans, who agree on little else these days, regard it as a bipartisan triumph.

Any triumphalism may, however, be premature. Leading-edge fabs being built in America are slower to erect, costlier to run and smaller than those in Asia. Complicating matters further, the chipmakers’ American investment binge comes at a time when demand for their wares appears to be cooling, at least in the short term. That could have consequences for the industry’s long-term profitability.

The Centre for Security and Emerging Technology, a think-tank, estimates that in China and Taiwan, companies put up a new plant in about 650 days. In America, manufacturers must navigate a thicket of federal, state and local-government regulations, stretching average construction time to 900 days. Construction, which makes up around half the capital spending on a new fab, can cost 40% more in America than it does in Asia. Some of that extra cost can be defrayed by the chips Act’s handouts. But that still leaves annual operating expenses, which are 30% higher in America than in Asia, in part owing to higher wages for American workers. If those workers can be found at all: in July tsmc delayed the launch of its first fab in Arizona by one year to 2025 because it could not find enough workers with semiconductor industry experience.

The planned American projects’ smallish size further undermines the economics. The more chips a fab makes, the lower the unit cost. In Arizona, tsmc plans to make 50,000 wafers a month—equivalent to two “mega-fabs”, as the company calls them. Back home in Taiwan, tsmc operates four “giga-fabs”, each producing at least 100,000 wafers a month (in addition to numerous mega-fabs). Morris Chang, tsmc’s founder, has warned that chips made in America will be more expensive.

C.C. Wei, the current chief executive of tsmc, has hinted that the company will absorb these higher costs. He can afford to do this because tsmc will continue to make the lion’s share of its chips more cheaply in Taiwan, not in America. The same is true of Samsung, which will spend nearly 90% of its capital budget at home. Even Intel is investing more in foreign fabs than in American ones (see chart 2). As a result, if all the planned investments materialise, America will produce enough cutting-edge chips to meet barely a third of domestic demand for these. Apple will keep sourcing high-end processors for its iPhones from Taiwan. So, in all likelihood, will America’s nascent ai-industrial complex.

The law may have unintended consequences, too. Chip firms which accept state aid are barred from expanding manufacturing capacity in China. Besides crimping the desire of firms like tsmc and Samsung, which have plenty of Chinese customers, to invest more in American fabs, such rules are prompting Chinese chipmakers to invest in producing less fancy semiconductors. The hope is that lots of older-generation chips can do at least some of what fewer fancier ones are capable of.

According to semi, an industry research group, in 2019 China made about a fifth of “trailing-edge” chips, which go into everything from washing machines to cars and aircraft. By 2025 it will produce more than a third. In July nxp Semiconductor, a Dutch maker of trailing-edge chips, warned that excessive supply from Chinese firms is putting downward pressure on prices. In the long run, this could hurt higher-cost Western producers—or even drive some of them out of business. In July Gina Raimondo, America’s commerce secretary, acknowledged that China’s focus on the trailing edge “is a problem that we need to be thinking about”.

Hardest to predict is the chips Act’s effect on the semiconductor industry’s notorious boom-and-bust cycle. Usually chipmakers would be boosting capacity at a time of rising demand. Right now the opposite is true. Pandemic-era chip shortages have been replaced by a glut, now that consumers’ insatiable appetite for all things digital appears, after all, to be sated. tsmc’s sales declined by 10% in the second quarter, year on year, and the company now expects a similar drop for the whole of 2023. Intel’s revenue was down by 15% in the three months to June, compared with a year earlier. Samsung blamed a chips glut for its falling revenues and profits. Intel’s share price is half what it was at its recent peak in early 2021.

Chip executives point out that prospects for their industry remain rosy. They are probably right that demand is bound to revive at some point. Yet “inventory adjustments” (reducing oversupply, in plain English) are taking longer than expected. And when inventories finally adjust, the business that emerges may be less lucrative. Since early 2021 Intel, Samsung and tsmc have lost a third of their combined market value, or nearly half a trillion dollars. A few more anniversaries may be needed before the chips Act’s impact on American economic security can be properly evaluated. Investors are already making up their minds. ■