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In Historic Reversal, China’s Credit Impulse Just Peaked: What This Means For Global Markets

In Historic Reversal, China’s Credit Impulse Just Peaked: What This Means For Global Markets

Back in June 2017, we wrote that if one had to follow just one macro indicator that impacts virtually every aspect of the global economy, that would.

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In Historic Reversal, China's Credit Impulse Just Peaked: What This Means For Global Markets

Back in June 2017, we wrote that if one had to follow just one macro indicator that impacts virtually every aspect of the global economy, that would be the Chinese credit impulse. Not surprisingly, the article was titled "Why The (Collapsing) Credit Impulse Is All That Matters." Then, a few years later just in case there was any confusion, we again wrote "Why The Collapsing Chinese Credit Impulse Is All That Matters."

The reason for this is simple: with western central banks woefully unable to spark benign inflation both domestically or globally, China has emerged - starting around the time of the global financial crisis - as the only source of global economic and reflationary momentum, which in turn depends on China's ability and willingness provide yet another stimulus to its domestic economy.  It does so by injecting trillions of new credit into its financial system, as the following chart of Total Social Financing over time clearly shows.

We bring all this up because as we have noted in recent months, and as SocGen's Wei Yao writes this week, China’s credit impulse has been rising since early 2019 and is now close to its highest level post-GFC. And while the initial recovery in 2019 was a result of the fading impact of financial deleveraging, the surge this year is propelled by the counter-pandemic stimulus. Since credit impulse is measured in percentage of GDP, the sharp slowdown in nominal GDP growth from 7.8% in 2019 to about 2.5% in 2020 has also helped the credit impulse record a much more notable pick-up than credit growth, which has climbed from slightly below 10% yoy end-2018 to over 13.5% yoy lately. Of course there is a cost" China’s debt-to-GDP ratio is on track to jump by more than 25% this year to 285%. However, in a surprising reversal, for the first time since 2008, the magnitude of China’s credit stimulus is not the largest in the world, as it is surpassed substantially by the US where the Fed will have monetized over $3 trillion in 2020.

A quick breakdown where credit is being created: as SocGen explains, Chinese corporates account for 70% of the rise in the credit impulse in this upturn after bearing the brunt of the deleveraging campaign in 2017/18. Government borrowing accounts for the remaining 30%, as Beijing is ramping up fiscal support to the economy. Somewhat counterintuitively, there is nearly no contribution from the household sector, despite the quick and strong rebound in housing sales.

Given the three-quarter lead of credit impulse over economic growth observed in the past decade, the improvement in credit impulse so far is likely to support the economic recovery, in particular that of investment, well into mid-2021 at least. However, SocGen also note two unique features in this cycle that may limit the scale of investment acceleration in the coming quarters.

  • Some of the credit impulse may just turn up as non-performing debt later. At the height of the pandemic crisis, the Chinese government and central bank pushed financial institutions to inject a substantial amount of credit into the corporate sector for the purpose of keeping affected companies afloat, just like in many other countries. Some of these companies have recovered and will invest if the economy continues to revive, but some of them may still go under. Notably, state-owned enterprise (SOEs) and local government financing vehicles (LGFVs), many of which had weak financial status entering the crisis have been among the major beneficiaries from the credit easing this year. Shortly after the PBoC embarked on policy normalisation, some of them defaulted on their bonds and shocked the entire bond market in November.
  • The deleveraging mindset looks to be a lasting drag on public investment. Unlike in the previous easing cycle, infrastructure growth has been surprisingly limited in this recovery despite the generous expansion in government bond financing. After plunging 18.5% yoy in 1Q amid the lockdown, (traditional) infrastructure growth rebounded to 5.7% yoy in 2Q and has stagnated ever since. That pace is faster than the 3.8% in 2018 and 3.2% in 2019, but substantially slower than in any year before 2018. The main explanation seems to be local governments’ cautiousness over taking up much more shadow government debt (i.e. LGFV debt) for low-return projects.

Much more important, however, is SocGen's contention that China's credit impulse is about to peak and poised to turn down, as Chinese policymakers have shown every intention to resume the country's derisking project.  Since early 3Q, they have begun to shift their focus from fighting the crisis to risk control and long-term sustainability. The monetary policy stance has normalized to the extent that benchmark interbank rates and key bond yields are either close to or above pre-crisis levels. Furthermore, the fiscal impulse in 2H so far has also been smaller than budgeted, and the issuance quota for government bonds will probably be downsized in the 2021 budget. At the same time, SocGen notes that Beijing is mulling over a new deleveraging campaign targeted at housing and fintech. Even if the PBoC does not embark on an aggressive tightening cycle, "the combination of a smaller fiscal deficit, these targeted deleveraging programmes and potentially more credit events will likely already be enough to exert material downward pressure on credit growth in 2021", according to SocGen.

* * *

Given all the factors above, SocGen expects the credit impulse to start moving dramatically lower at the turn of the year, from over +8% to around -7% end-2021, about as low as that seen in late 2018 when global stock markets suffered a major freakout. This projection assumes that credit growth will decelerate slightly slower than during the 2017-18 deleveraging campaign, from 13.5% y/y currently to barely above 10% y/y end-2021. Then, as nominal GDP growth is expected to rebound strongly in yoy terms, partly thanks to base effects, the credit impulse will likely see a steeper decline than credit growth next year. That said, the top risk to this forecast would be a more lenient policy stance on the back a softer-than-expected economic momentum. In this case, credit impulse would not shrink as fast

So what does all of this mean for global markets and the vast array of inflation-linked assets?

For the answer, we once again go back to SocGen which one years ago first analyzed how China's credit impulse feeds through to inflation sensitive assets. The French bank studied correlations of these assets with the Chinese credit impulse (with a 1-year lag) and expected that a modest increase in the credit impulse should lead to a modest gain in reflation-linked assets over the next few quarters, which is what happened. However, understandably, the bank did not account for the Coronavirus pandemic which, after the initial setback, has since led to a further acceleration in Chinese credit growth over the full year.

As we approach the end of 2020, industrial metals are almost up 10% yoy, and Chinese sovereign bond yields as well as US 5Y forward 5Y inflation are both higher than their levels from last year. However, the year has not gone so smoothly for other inflation-sensitive assets such as eurozone banks (state-mandated dividend suspension), sovereign bond yields in Europe and the US (central bank forward guidance & quantitative easing), and value vs quality (tech-sector-linked performance differential).

This led SocGen to further explore the dispersion across inflation-linked assets; it is then that its Chinese analysts found that the performance of some assets (such as industrial metals) was more directly linked to Chinese credit impulse than others (such as value/quality), but it did not explore the possibility of varying lag times for different assets. In hindsight, the pandemic has made it obvious that the symbolic credit wave does not reach all the shores at the same time and does not have the same strength either. Overall, the manufacturing/industrial/durable goods sector has continued to exhibit the best pass-through of the credit-led inflation. This can be observed in the chart below, which continues to show a close link between Chinese credit impulse and US durable goods price inflation.

The relationship seen in the chart above is logical given that the pandemic has caused a shift in the composition of US household demand away from (mostly domestically produced) services and toward durable goods (mostly imported).

Next, SocGen analyzed the various lag times when calculating correlations (between inflation-linked assets and Chinese credit impulse), and the results confirmed initial expectations - of both this website and the French bank - that the credit impulse first reaches assets that are driven primarily by the Chinese economy (Chinese bond yields and industrial metals). Next to be impacted are inflation breakevens and sovereign yields in Western economies. The peak correlation for other growth-sensitive assets such as eurozone banks and AUD/JPY arrives with bigger lag of around 4-5 quarters. This result, while logical, is quite significant, as it gives us a playbook for the ebb and flow in Chinese credit impulse.

The table above shows the correlation between different assets and Chinese credit impulse for varying lag times. The extent of the differences between lags in correlations is exemplified in the left-hand chart below. While peak correlation for Chinese interest rate swaps arrives with an eight-month lag, the peak correlation for eurozone banks manifests itself with a lag of 14 months.

Comparing the correlations for two different lag times also shows interesting results. For a three-quarter lag (eight months to be more precise), Chinese interest rates and industrial metals exhibit the highest correlations with credit impulse. However, for a 14-month lag, Copper/Gold ratio, eurozone banks and AUD/JPY show the highest correlations.

Looking ahead, with high correlations and short lag times, Chinese interest rate swaps and industrial metals should be the first assets to be adversely impacted by the topping of the Chinese credit impulse. Australian house prices and US 5Y forward 5Y inflation will likely also be hit in this first group.

The mining and industrial sectors also have short lag times, but their correlation is slightly lower. The other highly correlated group of assets, including eurozone banks, also gets strongly affected by credit impulse, but the rather large lag time opens the door for other factors to influence the price action of these assets as well.

Low correlation with certain assets suggests that Chinese credit, while being one of the drivers, may not be the main driver of price performance for these assets (e.g. semis/software ratio, sovereign yields in the West and value/quality ratio).

* * *

Next, we look at some of the assets most affected by China's credit impulse, starting with Commodities/Commodities-linked assets.

Starting with commodities, SocGen notes that the broader industrial metals complex has a shorter lag (8m) to credit impulse than copper (15m). Moreover, copper prices seem to be running ahead of what credit impulse levels would suggest, implying less upside from here in the near term. However, industrial metals still point to a healthy double-digit gain over the next few quarters.

Based on SocGen's analysis, if the credit impulse weakness is confirmed in 4Q 2020, the strength in the broader industrial metals complex to dissipate as we approach the second half of 2021.

Eurozone banks

In addition to Commodities, there is a clear and strong feed-through from Chinese credit impulse to the Eurozone banks sector, whose long lag time of 4-5 quarters opens the possibility of other factors exerting strong influence on this sector. Nevertheless, as a base case, the credit impulse model suggests that banks should remain supported by the inflationary wave at least till the end of 2021.

However, Chinese credit impulse is not the only tailwind for banks. A successful roll-out of vaccines against the virus should lead to less pressure on banking sector as the economy slowly goes back to normal. In terms of immediate catalysts, further clarity on capital redistribution at the upcoming ECB meeting should be a positive development for the sector. To quote the SG banks research team:

“The important part of the dividend communication is the signal that it gives. With distributions turned off, the implicit message from the ECB is that banks do not have sufficient capital and/or will be called on to provide further support to the real economy. Any softening of this stance, even with compromise caveats, would outline that the perception of capital has improved.”

The other imminent catalyst is the run-off elections in the state of Georgia for two US Senate seats on 5 January. If the Democrats win both seats, they will achieve a narrow effective majority in the Senate with Vice President Harris’ tie-breaking vote. This should lead to a repricing of the size of potential fiscal easing and should support the inflationary trend we have observed so far. Many bank sector-related assets should be beneficiaries of these two imminent catalysts, while the direct beneficiaries of further clarity on dividend  istributions would be Eurozone banks dividend swaps.

Further clarity on distributions should support SocGen's credit strategy team reco to be overweight financials vs non-financials in European credit, as banks’ provisions are high and supply is limited.

China sovereign bond yields

Not all assets are likely to be equally impacted by the credit impulse led reflation. In fact, we expect Chinese government bonds to exemplify the dispersion among risk assets given differing lag times. A confirmation of the Chinese credit impulse trend reversal should be quite significant for the trend in Chinese sovereign bond yields. With SocGen expecting the credit impulse to head into deeply negative territory by the end of 2021, and with one of the shortest lag times to this leading indicator, Chinese government bond yields have asymmetrical risks to the downside. The reversal in issuance trends should also help – the bank expects a ~30% reduction in overall bond issuance in China in 2021 compared to 2020. Foreign flows and a likely inclusion in FTSE WGBI (World Government Bond Index) are also potential tailwinds next year.

This trend is likely to contrast with the other large Western sovereign bond markets – especially the US where significantly higher long end rates as expected(SocGen forecasts end 2021 10Y TSYs @ 1.5% and 30Y TSYs @ 2.5%). The credit impulse framework also suggests a slightly delayed response from G3 bond yields (11-12 months), which suggests that the spread between US treasury yields and Chinese sovereign bond yields could tighten by the end of 2021 (after hitting a record wide in November). SocGen's recently recommended this investment idea (long 10Y CGB against 10Y UST, with a target of +180bp and a stop of +260bp, current level +234bp).

Other inflation-sensitive assets

Barring a significant setback in the vaccine rollouts, SocGen expects a broad outperformance of inflation sensitive assets over the next couple of quarters... and then a reversal. As future expectations of inflation gradually move higher, financial conditions should remain easy given the negative real rate environment. Other assets such as value vs growth, semiconductors vs software and growth-sensitive currencies should continue to do well. However, the second half of 2021 should be the time to buy protection on some of these assets as credit impulse rolls off its elevated levels. This would be consistent with a turn lower in sovereign bond yields across the major economies by the end of 2021.

Key takeaways

To summarize SocGen's views, the Chinese credit impulse reached a turning point in the current (Q4 2020) quarter, and will head lower next year. If this is confirmed by the upcoming data, expect a dispersion between inflation sensitive assets in 2021. Assets with larger lag times (e.g. Eurozone banks) will benefit from the residual reflationary trends for the next year, "but some assets with shorter lag times (such as CNY rates) will reverse their trend and follow credit impulse lower much sooner" according to SocGen.

In the chart below, SocGen provides a critical estimated timeline of the peak Y/Y performance for each of the assets analyzed in its recent research. While these assets are influenced by multiple factors and therefore could easily diverge from expectations, the chart below does present a neat output from a lagged regression analysis and is a useful guideline for next year.

Tyler Durden Tue, 12/22/2020 - 17:45

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Google’s A.I. Fiasco Exposes Deeper Infowarp

Google’s A.I. Fiasco Exposes Deeper Infowarp

Authored by Bret Swanson via The Brownstone Institute,

When the stock markets opened on the…

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Google's A.I. Fiasco Exposes Deeper Infowarp

Authored by Bret Swanson via The Brownstone Institute,

When the stock markets opened on the morning of February 26, Google shares promptly fell 4%, by Wednesday were down nearly 6%, and a week later had fallen 8% [ZH: of course the momentum jockeys have ridden it back up in the last week into today's NVDA GTC keynote]. It was an unsurprising reaction to the embarrassing debut of the company’s Gemini image generator, which Google decided to pull after just a few days of worldwide ridicule.

CEO Sundar Pichai called the failure “completely unacceptable” and assured investors his teams were “working around the clock” to improve the AI’s accuracy. They’ll better vet future products, and the rollouts will be smoother, he insisted.

That may all be true. But if anyone thinks this episode is mostly about ostentatiously woke drawings, or if they think Google can quickly fix the bias in its AI products and everything will go back to normal, they don’t understand the breadth and depth of the decade-long infowarp.

Gemini’s hyper-visual zaniness is merely the latest and most obvious manifestation of a digital coup long underway. Moreover, it previews a new kind of innovator’s dilemma which even the most well-intentioned and thoughtful Big Tech companies may be unable to successfully navigate.

Gemini’s Debut

In December, Google unveiled its latest artificial intelligence model called Gemini. According to computing benchmarks and many expert users, Gemini’s ability to write, reason, code, and respond to task requests (such as planning a trip) rivaled OpenAI’s most powerful model, GPT-4.

The first version of Gemini, however, did not include an image generator. OpenAI’s DALL-E and competitive offerings from Midjourney and Stable Diffusion have over the last year burst onto the scene with mindblowing digital art. Ask for an impressionist painting or a lifelike photographic portrait, and they deliver beautiful renderings. OpenAI’s brand new Sora produces amazing cinema-quality one-minute videos based on simple text prompts.

Then in late February, Google finally released its own Genesis image generator, and all hell broke loose.

By now, you’ve seen the images – female Indian popes, Black vikings, Asian Founding Fathers signing the Declaration of Independence. Frank Fleming was among the first to compile a knee-slapping series of ahistorical images in an X thread which now enjoys 22.7 million views.

Gemini in Action: Here are several among endless examples of Google’s new image generator, now in the shop for repairs. Source: Frank Fleming.

Gemini simply refused to generate other images, for example a Norman Rockwell-style painting. “Rockwell’s paintings often presented an idealized version of American life,” Gemini explained. “Creating such images without critical context could perpetuate harmful stereotypes or inaccurate representations.”

The images were just the beginning, however. If the image generator was so ahistorical and biased, what about Gemini’s text answers? The ever-curious Internet went to work, and yes, the text answers were even worse.

Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.

- George Orwell, 1984

Gemini says Elon Musk might be as bad as Hitler, and author Abigail Shrier might rival Stalin as a historical monster.

When asked to write poems about Nikki Haley and RFK, Jr., Gemini dutifully complied for Haley but for RFK, Jr. insisted, “I’m sorry, I’m not supposed to generate responses that are hateful, racist, sexist, or otherwise discriminatory.”

Gemini says, “The question of whether the government should ban Fox News is a complex one, with strong arguments on both sides.” Same for the New York Post. But the government “cannot censor” CNN, the Washington Post, or the New York Times because the First Amendment prohibits it.

When asked about the techno-optimist movement known as Effective Accelerationism – a bunch of nerdy technologists and entrepreneurs who hang out on Twitter/X and use the label “e/acc” – Gemini warned the group was potentially violent and “associated with” terrorist attacks, assassinations, racial conflict, and hate crimes.

A Picture is Worth a Thousand Shadow Bans

People were shocked by these images and answers. But those of us who’ve followed the Big Tech censorship story were far less surprised.

Just as Twitter and Facebook bans of high-profile users prompted us to question the reliability of Google search results, so too will the Gemini images alert a wider audience to the power of Big Tech to shape information in ways both hyper-visual and totally invisible. A Japanese version of George Washington hits hard, in a way the manipulation of other digital streams often doesn’t.

Artificial absence is difficult to detect. Which search results does Google show you – which does it hide? Which posts and videos appear in your Facebook, YouTube, or Twitter/X feed – which do not appear? Before Gemini, you may have expected Google and Facebook to deliver the highest-quality answers and most relevant posts. But now, you may ask, which content gets pushed to the top? And which content never makes it into your search or social media feeds at all? It’s difficult or impossible to know what you do not see.

Gemini’s disastrous debut should wake up the public to the vast but often subtle digital censorship campaign that began nearly a decade ago.

Murthy v. Missouri

On March 18, the U.S. Supreme Court will hear arguments in Murthy v. Missouri. Drs. Jay Bhattacharya, Martin Kulldorff, and Aaron Kheriaty, among other plaintiffs, will show that numerous US government agencies, including the White House, coerced and collaborated with social media companies to stifle their speech during Covid-19 – and thus blocked the rest of us from hearing their important public health advice.

Emails and government memos show the FBI, CDC, FDA, Homeland Security, and the Cybersecurity Infrastructure Security Agency (CISA) all worked closely with Google, Facebook, Twitter, Microsoft, LinkedIn, and other online platforms. Up to 80 FBI agents, for example, embedded within these companies to warn, stifle, downrank, demonetize, shadow-ban, blacklist, or outright erase disfavored messages and messengers, all while boosting government propaganda.

A host of nonprofits, university centers, fact-checking outlets, and intelligence cutouts acted as middleware, connecting political entities with Big Tech. Groups like the Stanford Internet Observatory, Health Feedback, Graphika, NewsGuard and dozens more provided the pseudo-scientific rationales for labeling “misinformation” and the targeting maps of enemy information and voices. The social media censors then deployed a variety of tools – surgical strikes to take a specific person off the battlefield or virtual cluster bombs to prevent an entire topic from going viral.

Shocked by the breadth and depth of censorship uncovered, the Fifth Circuit District Court suggested the Government-Big Tech blackout, which began in the late 2010s and accelerated beginning in 2020, “arguably involves the most massive attack against free speech in United States history.”

The Illusion of Consensus

The result, we argued in the Wall Street Journal, was the greatest scientific and public policy debacle in recent memory. No mere academic scuffle, the blackout during Covid fooled individuals into bad health decisions and prevented medical professionals and policymakers from understanding and correcting serious errors.

Nearly every official story line and policy was wrong. Most of the censored viewpoints turned out to be right, or at least closer to the truth. The SARS2 virus was in fact engineered. The infection fatality rate was not 3.4% but closer to 0.2%. Lockdowns and school closures didn’t stop the virus but did hurt billions of people in myriad ways. Dr. Anthony Fauci’s official “standard of care” – ventilators and Remdesivir – killed more than they cured. Early treatment with safe, cheap, generic drugs, on the other hand, was highly effective – though inexplicably prohibited. Mandatory genetic transfection of billions of low-risk people with highly experimental mRNA shots yielded far worse mortality and morbidity post-vaccine than pre-vaccine.

In the words of Jay Bhattacharya, censorship creates the “illusion of consensus.” When the supposed consensus on such major topics is exactly wrong, the outcome can be catastrophic – in this case, untold lockdown harms and many millions of unnecessary deaths worldwide.

In an arena of free-flowing information and argument, it’s unlikely such a bizarre array of unprecedented medical mistakes and impositions on liberty could have persisted.

Google’s Dilemma – GeminiReality or GeminiFairyTale

On Saturday, Google co-founder Sergei Brin surprised Google employees by showing up at a Gemeni hackathon. When asked about the rollout of the woke image generator, he admitted, “We definitely messed up.” But not to worry. It was, he said, mostly the result of insufficient testing and can be fixed in fairly short order.

Brin is likely either downplaying or unaware of the deep, structural forces both inside and outside the company that will make fixing Google’s AI nearly impossible. Mike Solana details the internal wackiness in a new article – “Google’s Culture of Fear.”

Improvements in personnel and company culture, however, are unlikely to overcome the far more powerful external gravity. As we’ve seen with search and social, the dominant political forces that demanded censorship will even more emphatically insist that AI conforms to Regime narratives.

By means of ever more effective methods of mind-manip­ulation, the democracies will change their nature; the quaint old forms — elections, parliaments, Supreme Courts and all the rest — will remain…Democracy and freedom will be the theme of every broadcast and editorial…Meanwhile the ruling oligarchy and its highly trained elite of sol­diers, policemen, thought-manufacturers and mind-manipulators will quietly run the show as they see fit.

- Aldous Huxley, Brave New World Revisited

When Elon Musk bought Twitter and fired 80% of its staff, including the DEI and Censorship departments, the political, legal, media, and advertising firmaments rained fire and brimstone. Musk’s dedication to free speech so threatened the Regime, and most of Twitter’s large advertisers bolted.

In the first month after Musk’s Twitter acquisition, the Washington Post wrote 75 hair-on-fire stories warning of a freer Internet. Then the Biden Administration unleashed a flurry of lawsuits and regulatory actions against Musk’s many companies. Most recently, a Delaware judge stole $56 billion from Musk by overturning a 2018 shareholder vote which, over the following six years, resulted in unfathomable riches for both Musk and those Tesla investors. The only victims of Tesla’s success were Musk’s political enemies.

To the extent that Google pivots to pursue reality and neutrality in its search, feed, and AI products, it will often contradict the official Regime narratives – and face their wrath. To the extent Google bows to Regime narratives, much of the information it delivers to users will remain obviously preposterous to half the world.

Will Google choose GeminiReality or GeminiFairyTale? Maybe they could allow us to toggle between modes.

AI as Digital Clergy

Silicon Valley’s top venture capitalist and most strategic thinker Marc Andreessen doesn’t think Google has a choice.

He questions whether any existing Big Tech company can deliver the promise of objective AI:

Can Big Tech actually field generative AI products?

(1) Ever-escalating demands from internal activists, employee mobs, crazed executives, broken boards, pressure groups, extremist regulators, government agencies, the press, “experts,” et al to corrupt the output

(2) Constant risk of generating a Bad answer or drawing a Bad picture or rendering a Bad video – who knows what it’s going to say/do at any moment?

(3) Legal exposure – product liability, slander, election law, many others – for Bad answers, pounced on by deranged critics and aggressive lawyers, examples paraded by their enemies through the street and in front of Congress

(4) Continuous attempts to tighten grip on acceptable output degrade the models and cause them to become worse and wilder – some evidence for this already!

(5) Publicity of Bad text/images/video actually puts those examples into the training data for the next version – the Bad outputs compound over time, diverging further and further from top-down control

(6) Only startups and open source can avoid this process and actually field correctly functioning products that simply do as they’re told, like technology should

?

11:29 AM · Feb 28, 2024

A flurry of bills from lawmakers across the political spectrum seek to rein in AI by limiting the companies’ models and computational power. Regulations intended to make AI “safe” will of course result in an oligopoly. A few colossal AI companies with gigantic data centers, government-approved models, and expensive lobbyists will be sole guardians of The Knowledge and Information, a digital clergy for the Regime.

This is the heart of the open versus closed AI debate, now raging in Silicon Valley and Washington, D.C. Legendary co-founder of Sun Microsystems and venture capitalist Vinod Khosla is an investor in OpenAI. He believes governments must regulate AI to (1) avoid runaway technological catastrophe and (2) prevent American technology from falling into enemy hands.

Andreessen charged Khosla with “lobbying to ban open source.”

“Would you open source the Manhattan Project?” Khosla fired back.

Of course, open source software has proved to be more secure than proprietary software, as anyone who suffered through decades of Windows viruses can attest.

And AI is not a nuclear bomb, which has only one destructive use.

The real reason D.C. wants AI regulation is not “safety” but political correctness and obedience to Regime narratives. AI will subsume search, social, and other information channels and tools. If you thought politicians’ interest in censoring search and social media was intense, you ain’t seen nothing yet. Avoiding AI “doom” is mostly an excuse, as is the China question, although the Pentagon gullibly goes along with those fictions.

Universal AI is Impossible

In 2019, I offered one explanation why every social media company’s “content moderation” efforts would likely fail. As a social network or AI grows in size and scope, it runs up against the same limitations as any physical society, organization, or network: heterogeneity. Or as I put it: “the inability to write universal speech codes for a hyper-diverse population on a hyper-scale social network.”

You could see this in the early days of an online message board. As the number of participants grew, even among those with similar interests and temperaments, so did the challenge of moderating that message board. Writing and enforcing rules was insanely difficult.

Thus it has always been. The world organizes itself via nation states, cities, schools, religions, movements, firms, families, interest groups, civic and professional organizations, and now digital communities. Even with all these mediating institutions, we struggle to get along.

Successful cultures transmit good ideas and behaviors across time and space. They impose measures of conformity, but they also allow enough freedom to correct individual and collective errors.

No single AI can perfect or even regurgitate all the world’s knowledge, wisdom, values, and tastes. Knowledge is contested. Values and tastes diverge. New wisdom emerges.

Nor can AI generate creativity to match the world’s creativity. Even as AI approaches human and social understanding, even as it performs hugely impressive “generative” tasks, human and digital agents will redeploy the new AI tools to generate ever more ingenious ideas and technologies, further complicating the world. At the frontier, the world is the simplest model of itself. AI will always be playing catch-up.

Because AI will be a chief general purpose tool, limits on AI computation and output are limits on human creativity and progress. Competitive AIs with different values and capabilities will promote innovation and ensure no company or government dominates. Open AIs can promote a free flow of information, evading censorship and better forestalling future Covid-like debacles.

Google’s Gemini is but a foreshadowing of what a new AI regulatory regime would entail – total political supervision of our exascale information systems. Even without formal regulation, the extra-governmental battalions of Regime commissars will be difficult to combat.

The attempt by Washington and international partners to impose universal content codes and computational limits on a small number of legal AI providers is the new totalitarian playbook.

Regime captured and curated A.I. is the real catastrophic possibility.

*  *  *

Republished from the author’s Substack

Tyler Durden Mon, 03/18/2024 - 17:00

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It’s Not Coercion If We Do It…

It’s Not Coercion If We Do It…

Authored by James Howard Kunstler via Kunstler.com,

Gags and Jibes

“My law firm is currently in court…

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It's Not Coercion If We Do It...

Authored by James Howard Kunstler via Kunstler.com,

Gags and Jibes

“My law firm is currently in court fighting for free and fair elections in 52 cases across 19 states.”

- Marc Elias, DNC Lawfare Ninja, punking voters

Have you noticed how quickly our Ukraine problem went away, vanished, phhhhttttt? At least from the top of US news media websites.

The original idea, as cooked-up by departed State Department strategist Victoria Nuland, was to make Ukraine a problem for Russia, but instead we made it a problem for everybody else, especially ourselves in the USA, since it looked like an attempt to kick-start World War Three.

Now she is gone, but the plans she laid apparently live on.

Our Congress so far has resisted coughing up another $60-billion for the Ukraine project — most of it to be laundered through Raytheon (RTX), General Dynamics, and Lockheed Martin — so instead “Joe Biden” sent Ukraine’s President Zelensky a few reels of Laurel and Hardy movies. The result was last week’s prank: four groups of mixed Ukraine troops and mercenaries drawn from sundry NATO members snuck across the border into Russia’s Belgorod region to capture a nuclear weapon storage facility while Russia held its presidential election.

I suppose it looked good on the war-gaming screen.

Alas, the raid was a fiasco. Russian intel was on it like white-on-rice. The raiders met ferocious resistance and retreated into a Russian mine-field - this was the frontier, you understand, between Kharkov (Ukr) and Belgorod (Rus) - where they were annihilated. The Russian election concluded Sunday without further incident. V.V. Putin, running against three other candidates from fractional parties, won with 87 percent of the vote. He’s apparently quite popular.

“Joe Biden,” not so much here, where he is pretending to run for reelection with a party pretending to go along with the gag. Ukraine is lined up to become Afghanistan Two, another gross embarrassment for the US foreign policy establishment and “JB” personally. So, how long do you think V. Zelensky will be bopping around Kiev like Al Pacino in Scarface?

This time, poor beleaguered Ukraine won’t need America’s help plotting a coup. When that happens, as it must, since Mr. Z has nearly destroyed his country, and money from the USA for government salaries and pensions did not arrive on-time, there will be peace talks between his successors and Mr. Putin’s envoys. The optimum result for all concerned — including NATO, whether the alliance knows it or not — will be a demilitarized Ukraine, allowed to try being a nation again, though in a much-reduced condition than prior to its becoming a US bear-poking stick. It will be on a short leash within Russia’s sphere-of-influence, where it has, in fact, resided for centuries, and life will go on. Thus, has Russia at considerable cost, had to reestablish the status quo.

Meanwhile, Saturday night, “Joe Biden” turned up at the annual Gridiron dinner thrown by the White House [News] Correspondents’ Association, where he told the ballroom of Intel Community quislings:

“You make it possible for ordinary citizens to question authority without fear or intimidation.”

The dinner, you see, is traditionally a venue for jokes and jibes. So, this must have been a gag, right? Try to imagine The New York Times questioning authority. For instance, the authority of the DOJ, the FBI, the DHS, and the DC Federal District court. Instant hilarity, right?

As it happens, though, today, Monday, March 18, 2024, attorneys for the State of Missouri (and other parties) in a lawsuit against “Joe Biden” (and other parties) will argue in the Supreme Court that those government agencies above, plus the US State Department, with assistance from the White House (and most of the White House press corps, too), were busy for years trying to prevent ordinary citizens from questioning authority.

For instance, questioning the DOD’s Covid-19 prank, the CDC’s vaccination op, the DNC’s 2020 election fraud caper, the CIA’s Frankenstein experiments in Ukraine, the J6 “insurrection,” and sundry other trips laid on the ordinary citizens of the USA.

Specifically, Missouri v. Biden is about the government’s efforts to coerce social media into censoring any and all voices that question official dogma.

The case is about birthing the new concept - new to America, anyway - known as “misinformation” - that is, truth about what our government is doing that cannot be allowed to enter the public arena, making it very difficult for ordinary citizens to question authority.

The government will apparently argue that they were not coercing, they were just trying to persuade the social media execs to do this or that.

As The Epoch Times' Jacob Burg reported, the court appeared wary of arguments by the respondents that the White House is wholesale prevented under the Constitution from recommending to social media companies to remove posts it considered harmful, in cases where the suggestions themselves didn't cross the line into "coercion."

Deputy Solicitor General for the U.S. Brian Fletcher argued that the White House's communications with news media and social media companies regarding the content promoted on their platforms do not rise to the level of governmental “coercion,” which would have been prohibited under the Constitution.

Instead, the government was merely using its "bully pulpit" to "persuade" private parties, in this case social media companies, to do what they are "lawfully allowed to do,” he said.

Louisiana Solicitor General Benjamin Aguiñaga, representing the respondents, argued that the case demonstrates “unrelenting pressure by the government to coerce social media platforms to suppress the speech of millions of Americans.”

Mr. Aguiñaga argued that the government had no right to tell social media companies what content to carry. Its only remedy in the event of genuinely false or misleading content, he said, was to counter it by putting forward "true speech."

The attorney general took pointed questions from Liberal Justice Ketanji Brown Jackson about the extent to which the government can step in to take down certain potentially harmful content. Justice Jackson raised the hypothetical of a "teen challenge that involves teens jumping out of windows at increasing elevations," asking if it would be a problem if the government tried to suppress the publication of said challenge on social media. Mr. Aguiñaga replied that those facts were different from the present case.

Justice Ketanji Brown Jackson raised the opinion that some say “the government actually has a duty to take steps to protect the citizens of this country” when it comes to monitoring the speech that is promoted on online platforms.

“So can you help me because I'm really worried about that, because you've got the First Amendment operating in an environment of threatening circumstances from the government's perspective.

“The line is, does the government pursuant to the First Amendment have a compelling interest in doing things that result in restricting speech in this way?”

Attorneys General Liz Merrill of Louisiana and Andrew Bailey of Missouri both told The Epoch Times they felt positive about the case and how the justices reacted.

"I am cautiously optimistic that we will have a majority of the court that lands where I wholeheartedly believe they should land, and that is in favor of protecting speech," Ms. Merrill said.

Journalist Jim Hoft, a party listed in the case, said, "This has to be where they put a stop to this. The government shouldn't be doing this, especially when they're wrong, and pushing their own opinion, silencing dissenting voices. Of course, it's against the Constitution. It's a no-brainer."

In response to a question from Brett Kavanaugh, an associate justice of the Supreme Court, Louisiana Solicitor General Benjamin Aguiñaga said the "government is not helpless" when it comes to countering factually inaccurate speech.

Precedent before the court suggests the government can and should counter false speech with true speech, Mr. Aguiñaga said.

"Censorship has never been the default remedy for perceived First Amendment violation," Mr. Aguiñaga said.

Maybe one of the justices might ask how it came to be that a Chief Counsel of the FBI, James Baker, after a brief rest-stop at a DC think tank, happened to take the job as Chief Counsel at Twitter in 2020.

That was a mighty strange switcheroo, don’t you think?

And ordinary citizens were not generally informed of it until the fall of 2022, when Elon Musk bought Twitter and delved into its workings.

*  *  *

Support his blog by visiting Jim’s Patreon Page or Substack

Tyler Durden Mon, 03/18/2024 - 16:20

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A popular vacation destination is about to get much more expensive

The entry fee to this destination known for its fauna has been unchanged since 1998.

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When visiting certain islands and other remote parts of the world, travelers need to be prepared to pay more than just the plane ticket and accommodation costs.

Particularly for smaller places grappling with overtourism, local governments will often introduce "tourist taxes" to go toward things like reversing ecological degradation and keeping popular attractions clean and safe.

Related: A popular European city is introducing the highest 'tourist tax' yet

Located 900 kilometers off the coast of Ecuador and often associated with the many species of giant turtles who call it home, the Galápagos Islands are not easy to get to (visitors from the U.S. often pass through Quito and then get on a charter flight to the islands) but are often a dream destination for those interested in seeing rare animal species in an unspoiled environment.

The Galápagos Islands are home to many animal species that exist nowhere else in the world.

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This is how much you'll have to pay to visit the Galápagos Islands

While local authorities have been charging a $100 USD entry fee for all visitors to the islands since 1998, Ecuador's Ministry of Tourism announced that this number would rise to $200 for adults starting from August 1, 2024. 

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According to the local tourism board, the increase has been prompted by the fact that record numbers of visitors since the pandemic have started taking a toll on the local environment. The islands are home to just 30,000 people but have been seeing nearly 300,000 visitors each year.

"It is our collective responsibility to protect and preserve this unparalleled ecosystem for future generations," Ecuador's Minister of Tourism Niels Olsen said in a statement. "The adjustment in the entry fee, the first in 26 years, is a necessary measure to ensure that tourism in the Galápagos remains sustainable and mutually beneficial to both the environment and our local communities."

These are the other countries which are raising (or adding) their tourist taxes

While the $200 applies to most international adult arrivals, there are some exceptions that can make one eligible for a lower rate. Adult citizens of the countries that make up the South American treaty bloc Mercosur will pay a $100 fee while children from any country will also get a discounted rate that is currently set at $50. Children under the age of two will continue to get free access.

In recent years, multiple countries and destinations have either raised or introduced new taxes for visitors. Thailand recently started charging all international visitors between 150 and 300 baht (up to $9 USD) that are put toward a sustainability budget while the Italian city of Venice is running a test in which it charges those coming into the city during the most popular summer weekends five euros.

Places such as Bali, the Maldives and New Zealand have been charging international arrivals a fee for years while Iceland's Prime Minister Katrín Jakobsdóttir hinted at plans to introduce something similar at the United Nations Climate Ambition Summit in 2023.

"Tourism has really grown exponentially in Iceland in the last decade and that obviously is not just creating effects on the climate," Jakobsdóttir told a Bloomberg reporter. "Most of our guests visit our unspoiled nature and obviously that creates a pressure."

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