Ian Welsh – The horizon is not so far as we can see, but as far as we can imagine

For the first time, a Chinese model Kimi K3 has taken #1 on the Frontend Code Arena and is scoring at or near the frontier on other benchmarks.

And the majors are noticing:

there it is – microsoft will use kimi k3 to power their flagship copilot ai assistant saving up to 60% per token or $600M on every $1B spent on inference spend.

if microsoft chooses to self-host the model once Kimi open sources it on the 27th then this cost reduces even more… pic.twitter.com/BwrXXZvAim

— Ejaaz (@cryptopunk7213) July 20, 2026

Meanwhile Trump is talking about banning Chinese AI.

Alternatively, the smart lads at Open AI have a regulatory plan:

I would guess that the Trump Administration will at some point realize that their best strategy here would be to create large amounts of regulatory risk around the use of open-weight Chinese models. You don’t need to “ban open source” (one of the dumber motifs of AI policy discussion). You just need to direct every agency to issue soft law that creates FUD. “A Federal Reserve Advisory Bulletin found that there may be backdoors in Chinese AI models.” It needn’t be that well justified. You just create enough regulatory risk that every regulated enterprise backs off. You probably don’t want to create so much regulatory risk that you scare off the hyperscalers from serving Chinese models; this will just drive startups to sketchier providers. There’s a happy middle ground here. I’d assume they will do some version of this.

Even more fun, the Feds want to approve all AI releases and not allow everyone the full models.

The Trump administration has taken new steps to assert more control over the rollout of future artificial intelligence model releases by dictating which companies and entities are allowed access to the latest frontier models, two people familiar with the matter told CNBC…

….

This week, the administration launched its own program, dubbed “Gold Eagle,” aimed at collaborating with the private sector to find and fix cyber vulnerabilities.

The so-called clearinghouse would put the White House in charge of greenlighting which companies can access new AI models, according to a person familiar with the matter, who spoke on condition of anonymity in order to discuss information that is not public.

China is going to eat America’s lunch on this. If they ban Chinese AI (harder than it seems, given it’s open source) all that means is writing off the rest of the world. And since American models are handicapped, smaller American companies will be stuck with worse AI.

Since Chinese AI is far cheaper, as well, I’d expect American companies to set up subsidiaries overseas to use it, rather than be stuck with American AI.

The entire situation is a complete clusterfuck. Major companies have taken on serious debt in order to build data centers which have a lifespan of five to seven years, and often less (since new generations of GPUs are much better.) But the Chinese product is cheaper, open source, lacks nearly as much sovereign risk and I’ll bet multiple models will soon be about as good as Anthropic and OpenAI’s.

Where’s the business case that spending all these trillions of dollars is going to produce enough revenue from US AI to pay for all of it?

There isn’t one. It doesn’t exist.

And that means that, at least in America, this is an AI bubble. All bubbles burst and this will not be an exception. If the government bails them out it will be the last major US bailout.

This is also very likely one of the last major tech revolutions which will start in the US (which it did.) Going forward they China will produce the vast majority of them.

This is the endgame. The turning point where China obtains not just the industrial base but the absolutely undisputed tech lead. From now on China will like America in the 1950s — it’s where almost everything new is created, the dynamic center of the world, and soon people will be competing to move there, because everyone knows it is the future.

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America Doesn’t Have Enough Missiles To Fight Iran

By Ian Welsh

On July 20, 2026

27 Comments

Readers will remember that at the start of the Iran war I said that if it got serious, the Iranians would win, because they would run the US out of missiles, especially air defense missiles.

The math is simple. If Iran keeps firing, and the US/Israel does not take out the launchers and missile stockpiles in large numbers, Iran will run the US and Israel (it has its own variants, but the same supply issues) out of interceptors. At that point Iran hits everything it shoots at.

If Iran just keeps going long enough, it WILL win the war. The main danger is Iran’s leaders accepting a cease-fire too soon.

Well, confirmation from within the government:

“The U.S. is planning for a wider war,” said one U.S. official familiar with internal administration discussions, adding that the Pentagon was increasing the number of military aircraft in the region.

But the official, speaking on the condition of anonymity because they were not authorized to talk to the media, cautioned that the expansion of U.S. operations will be limited by dwindling stockpiles of air defense and long-range munitions and constraints on the ability to surge more troops and aircraft into the area because of battle damage.

“We do not have enough to safely sustain operations, and I don’t think the White House is aware of that,” the official said.

You will notice that I said the main mistake the Iranians could make was going to peace too soon. At least militarily speaking, there were diplomatic reasons to do so, since both Pakistan and China wanted a peace deal, and Pakistan has a defense pact with Saudi Arabia. Iran needed to prove that they had made all possible efforts, to continue receiving the support they need from China and to keep Pakistan out of the war.

There were also significant internal political reasons. What most people don’t understand is that the supreme leader almost never over-rides government consensus. Elijah Manjier is reliable on this (part behind a paywall). He has a lot of contacts in Iran, Hezbollah and Hamas.

The Leader of the Islamic Revolution, Sayyed Mojtaba Khamenei, never trusted the Memorandum of Understanding negotiated with Washington that was too good to be true. From the outset, he reportedly expressed reservations about American real and honest intentions and questioned whether the United States would ultimately implement its commitments. Nevertheless, despite his scepticism, he did not impose his personal assessment on the country’s political institutions or prevent the agreement from proceeding once it had secured substantial institutional support equivalent to the majority of the National Security Council voting.

In doing so, Sayyed Mojtaba Khamenei reportedly followed the political approach adopted by his assassinated father, Ayatollah Ali Khamenei, during the negotiations that produced the 2015 Joint Comprehensive Plan of Action. Although the late Ayatollah Ali Khamenei repeatedly warned that the United States could not be fully trusted, he allowed President Hassan Rouhani, Foreign Minister Mohammad Javad Zarif and the majority supporting them within the Supreme National Security Council to pursue the nuclear agreement because they believed diplomacy remained preferable to confrontation.

This position reflected a broader principle within Iran’s strategic decision-making system. The Leader establishes the general direction of national policy, but crucial security decisions are debated within institutions that include officials elected directly or indirectly by the population and their representatives, among them the president, the parliamentary speaker and senior government and military representatives. When a substantial institutional majority supports a particular course, the Leader permitted that collective judgement to be tested, even where it conflicts with his personal assessment of the risks involved.

However, the MOU’s failure strengthens those in the government who thought it was a waste of time.

The damage extends beyond the current political leadership. Future Iranian governments, regardless of their ideological orientation, will judge the risks of dealing with Washington against the combined experiences of the JCPOA and the more recent Memorandum. Even officials inclined towards negotiation may conclude that engagement carries prohibitive domestic costs unless future arrangements include enforceable guarantees, simultaneous implementation and mechanisms preventing one party from receiving concessions before abandoning its own obligations…

…Yet diplomatic options have not disappeared completely. The Memorandum itself showed that both sides remain capable of negotiating when the military, political and economic costs become sufficiently high. Any renewed process, however, would require a substantially different structure based on reciprocal implementation, verifiable sequencing, the release of assets alongside measurable Iranian steps, and guarantees sufficiently credible to survive political change in Washington or Tehran.

Manjier’s connected. I’d assume the last paragraph reflects what the Iranian government wants said about any possible new agreement.

Meanwhile in the war itself the Iranians are concentrating on taking out US bases, radars, supply depots, command/communications centers and so on. They’re systematically degrading the infrastructure the US uses. Note that they have started attacking in Jordan, which they had rarely done before. Jordan could be considered the “last shield” before Israel, and Israel’s basing of US assets is the next big goal, I suspect.

It seems clear that Iran is taking apart US logistics and command and control, and depleting weapon stocks faster than the US is doing this to Iran.

Again, the simple math.

Anything can happen in war, but I don’t see any way for the US to win this war if Iran stays the course, and we haven’t even included all the shortages coming down the line, especially now Ansar-Allah has closed another strait. The only people with serious leverage over Iran are China and Pakistan (and Pakistan’s is limited. There’s a deal, but they’d have mass riots if they tried to attack Iran. Pakistan’s population support for Iran polls around 80%.)

If America were even marginally competently run this would be the point where Congress would impeach Trump. He won’t admit defeat and oil stockpiles are running low. He has no viable part to victory, but keeps acting as if he does. He’s turning a military defeat into an economic catastrophe thru his delusional disconnect from reality, or perhaps because he’s being blackmailed. Whatever the reason for his behaviour, he needs to go. (Yes, I’m aware this won’t happen, that’s the point.)

In all my life, and I’m getting old now, I have never seen a stupider war or an American elite more determinedly detached from reality.

Week-end Wrap – Political Economy – July 19, 2026

By Tony Wikrent

On July 19, 2026

9 Comments

Week-end Wrap – Political Economy – July 19, 2026

by Tony Wikrent

War on voting

Letters from an American, July 11, 2026

Heather Cox Richardson, Jul y12, 2026

Meanwhile, on Friday a Pentagon official told Rebecca Turco of WJLA 7News in Washington, D.C., that National Guard troops will stay activated in Washington through Inauguration Day 2029 “until law and order are fully restored in our Nation’s Capital.”

“So,” Bill Kristol of The Bulwark commented. “[M]ilitary troops under the direct control of Trump and Hegseth will be on the streets of our nation’s capital for the rest of Trump’s term. The rationale—they’re here to help with a crime emergency—is laughable. But of course the real reason is ominous.”

Miller Labels Leftists a “Cancer” That World Must “Root Out” in Fascistic Speech

[Truthout, via Naked Capitalism 07-17-2026]

Representatives from 67 countries gathered in the U.S. on Thursday for a meeting called Rubio on the supposed “Resurgence of Political Terrorism.” In addition to Rubio and Miller, several U.S. officials spoke, including figures like Treasury Secretary Scott Bessent.

The remarks from top officials quickly made clear that the meeting’s purpose was to put forth a global offensive against people with left-wing beliefs….

Letters from an American, July 17, 2026

Heather Cox Richardson, Jul 18, 2026

Yesterday President Donald J. Trump, Secretary of State Marco Rubio, and deputy White House chief of staff Stephen Miller all threw the weight of the U.S. government behind a far-right conspiracy theory that says Trump and his loyalists are defending the United States of America against a communist takeover.

As Gil Duran of The Nerd Reich recalled today, two years ago, far-right influencer Jack Posobiec and co-author Joshua Lisec wrote a bestselling book called Unhumans: The Secret History of Communist Revolutions (and How to Crush Them). Trump ally and media guru Stephen Bannon wrote the introduction. Donald Trump Jr. blurbed the book, saying that it provided a playbook to deploy “immediately to save the West.” Then–Ohio senator J.D. Vance also blurbed the book, saying: “In the past, communists marched in the streets waving red flags. Today, they march through HR, college campuses, and courtrooms to wage lawfare against good, honest people. In Unhumans, Jack Posobiec and Joshua Lisec reveal their plans and show us what to do to fight back.”

Posobiec is a loyalist who worked to keep Trump in office after voters elected Democrat Joe Biden in 2020. He is known for courting controversy by promoting what Maya Oppenheim of the The Independent in 2018 called “wholly erroneous and debunked conspiracy theories,” including the infamous 2016 “Pizzagate” conspiracy theory that Democrats were operating a child sex ring in the basement of a Washington, D.C., pizza restaurant.

In Unhumans, Posobiec and Lisec argue that the United States is under siege by “the left,” which in their view means anyone from communists to “progressives.” “For the purposes of this book, we will call them the unhumans,” the authors write, because they “oppose everything that makes up humanity. As they are opposed to humanity itself, they place themselves outside of the category completely, in an entirely new misery-driven subdivision, the unhuman.”

Miller’s Ministerial: The Most Dangerous Speech Wasn’t Trump

Jim Stewartson, July 17, 2026 [MindWar]

While everyone focused on elections, Stephen Miller was putting the architecture in place to ensure they never matter….

… a few hours before Trump’s dud of a speech, Stephen Miller gave a “ministerial” to an international audience at the State Department that was nothing short of Third Reich plagiarism. If this had just been a rally speech, it would be extremely disturbing, but it went along with a simultaneously released document entitled “Trump Administration Unleashes Global Campaign to Crush Radical Left Terrorism.”

Put together, Miller’s speech and official policy document enshrine an overtly fascist, transnational program to persecute nearly anyone the regime wants in the name of “leftist terrorism.”

Here is a key section of Miller’s speech which is textbook dehumanization—the precise language Joseph Goebbels used to target Jews, communists, and Bolsheviks.

Miller draws a picture of the in-group as “morally superior,” ordered,” “beautiful,” and “normal.” The out-group on the other hand, identified as “leftists,” is “abnormal,” “scarred,” and “deformed.”….

Trump not violating any law

‘He who saves his Country does not violate any Law’

Trump Stuns By Saying ‘I Don’t Know’ When Asked Directly NBC’s Kristen Welker ‘Don’t You Need to Uphold the Constitution?’

Joe DePaolo, May 4th, 2025

Dr. John Gartner: Trump is “the most pure incarnation of evil that I have ever encountered” (video)

Dean Obeidallah, July 18, 2026

… Dr. Gartner explained that he meant that very much from a clinical point of view, explaining that Dr. Erich Fromm had studied Hitler and coined the term “the essence of evil.” Fromm explained that “evil” from this perspective is not a supernatural force but a severe psychological pathology.

And when you see what Fromm said next you will see Donald Trump. Fromm explained this essence of evil was marked by a dangerous combination of extreme self-absorption, sadism, destructiveness, and a lack of empathy or conscience. It was also Fromm who created the term “malignant narcissism”—which many apply to Trump today.

But it’s the “evil” part of this that really stuck with me. As Dr. Gartner noted, Trump is a sadist who “gets pleasure from chaos, and destruction, and fear, and damage, and death.” He continued on, stating, “Every indication is that when Trump first started bombing Iran, he was gleeful and talking about, you want to see the fun and showing people the videos of the blowing up targets and talking about it like he was having fun.” ….

After Killings, Homan Says There Will Be ‘More Bloodshed’ Unless Dems ‘Shut Their Mouth’ About ICE

Stephen Prager, July 16, 2026 [CommonDreams]

… Instead of trigger-happy agents, he said that anti-ICE “rhetoric” from Democrats was to blame for the recent killings.

“It all goes back to the Dems who want to continually attack ICE and tell people to evade them and tell people don’t comply, tell people to resist, and tell people ICE isn’t a real law enforcement agency,” Homan said.

“You and I talked about this a year-and-a-half ago, Laura,” he continued. “I said, if the hateful rhetoric didn’t stop, there would be bloodshed.”

“I’m saying it right now,” Homan said. “There’s still going to be more bloodshed unless they shut their mouth and let ICE enforce the laws that they enacted.”

Open Thread

By Ian Welsh

On July 18, 2026

33 Comments

Use to discuss topics unrelated to recent posts.

Xi Lays Out His Principles for AI Development

By Ian Welsh

On July 17, 2026

15 Comments

There were rumors recently that China was going to put export restrictions on AI. That now seems… unlikely. Here are the principles Xi laid out:

First, adhering to the principle of openness and win-win cooperation while boosting innovation-driven development. Xi highlighted the importance of encouraging open-source, openness, collaboration and sharing to facilitate technological innovation, industrial development and scenario-based application of AI. (My emphasis.)

Second, strengthening risk awareness and ensuring that AI is secure and controllable. Stressing the need to ensure that AI is always under human control, Xi urged all sides to jointly oppose overstretching the national security concept in the field of AI or placing one country’s security over that of others.

Third, encouraging inclusiveness and promoting mutual learning among civilizations. AI development and its application should not erode or undermine the diversity of world civilizations or the uniqueness of cultures of different countries, according to Xi.

Fourth, advocating solidarity and improving global governance. The important role of the United Nations should be recognized, Xi said, calling for further alignment and coordination on AI development strategies, governance rules and technical standards.

I’ve predicted, for a couple years now, that Chinese AI models will be the main models used in most of the world, including in much of the West, assuming they aren’t banned outright, because they’re open and cheap. Costs of running them are about twenty times lower than the US frontier models made by OpenAI and Anthropic. They’re almost as good, and they aren’t that far behind.

The problem with US models is not just that they’re expensive (though that’s huge, there are tons of reports of AI use being cut back) but that they are CLOSED: meaning you can easily be cut off, or have prices raised, or have the model changed on you with no recourse. Open models you can adapt the model, you can run it on your own servers, or various server companies can, will and do run them for you on their servers which you rent.

It’s clear that Xi gets this, and thus that the CPC understands it as well. Open Source isn’t a liability, there’s a reason why Linux runs most of the world’s servers: closed tech is the liability. Open Source is the advantage.

Notice the second bit: on AI always being under control. I wonder if Xi is thinking of Israel and the US for military targeting and how that has possibly contributed to hitting civilian targets like schools. (Possibly because Israel and the US are run by psychopaths and I bet they’d do it anyway. But no human in the loop may make it even worse.)

The third principle is about avoiding US (and Chinese) cultural hegemony. A nice thought, and open source certainly could be adapted to different nations and cultures, so that AI models aren’t all giving the same generic results.

Finally, the fourth principle. I’ve always found it interesting just how much China plays up the United Nations. I don’t know if the respect is genuine, but the words are consistent. Honestly, I think the UN should move its main HQ out of America. America’s been pulling stunts like denying diplomats visas. Not sure if it should go to China (though if it did Shanghai or Hong Kong seem like good fits) but they’d be better stewards than the US, and in any case, if the UN is going to be in the most important great power, that’s now China. (That said, I’d favor something more neutral. Perhaps Singapore.)

China just keeps coming across as smarter, more strategic and more human than the West. It’s sad, in a way, but it is what it is.

And I remain convinced that Chinese AI will be the winner over American.

Manipulating Numbers Rather Than Logistics (Oil Version)

By Ian Welsh

On July 16, 2026

32 Comments

If you’ve been following oil prices since the Iran war started you’ve probably been surprised at how low prices have often been. I certainly was, at first.

The issue is fairly simple: most governments are worried about the price of oil, and not the supply of oil. So they’ve taken various measures to keep prices low. Some of those have been manipulative financial and some of them have been massive releases of oil from reserves.

IEA chief Fatih Birol told Bloomberg that a historic 400-million-barrel emergency release, equal to roughly 2.5 million barrels a day, helped push oil prices down by $20.

The price of oil, though, isn’t really the issue. One part of it is refinery capacity. A fair bit went off line in the Middle East, but ironically, even more in Russia. Why is Russia systematically destroying ever gas station in Ukraine? It’s retaliation for constant hits on Russian refineries.

Marathon Petroleum’s own management flagged on the Q1 earnings call that roughly 6 million barrels per day of global refining capacity is offline, about 6% of the world total. Ukraine’s drone campaign against Russian refineries is the largest single piece, but Middle Eastern facilities inside the Persian Gulf export corridor, and Chinese refiners voluntarily throttling to preserve inventory, add to the shortfall.

As a result Russia is no longer exporting diesel. And even though oil prices are low, gasoline prices are not as low as one would expect, because short refinery capacity means this:

Amusingly the Europeans and Americans have been encouraging Ukraine to hit refineries.

Now you may think “but America is an excess oil producer.”

Yeah, but it doesn’t matter. What matters is refineries and the type of crude oil involved. We aren’t just talking about gasoline, diesel, jet fuel and bunker fuel (ships), we’re talking about fertilizers, sulfuric acid (used for amazing amounts of processes) and so on. This cascades out into medicine (your aspirin for example), packaging, semiconductor production (hey, even higher prices) and whatnot.

But with rare exceptions (hello, China, again) most governments have not managed the actual supply situation.

In a rational economy prices and supply of crucial goods would be managed. For example farmers would get fertilizer and diesel at subsidized prices. Truckers shipping important goods would get subsidized diesel. Drug manufacturers would get guarnteed supplies (though not subsidized in most cases, they make tons of profits, just force them not raise prices.)

Rational governments would say “OK, what parts of the economy are actualy important (food, medicine, transport)?” and act to protect those parts of the economy, and would ration and subsidize those goods.

Instead our elites manipulate the price numbers and make the actual physical situation worse as they do so, by not allowing high prices to lower use and by not allocating key parts of the economy what they need at reasonable prices. Oh, and by releasing absurd amounts from the reserve to manipulate prices rather than using the reserve for actual necessities. They’re so used to an economy where just manipulating prices seems like all you need to do because there’s a global market with surplus. They don’t know how to handle an economy with actual, genuine shortages.

Anyway, as best I can tell if the Strait stays closed we are now weeks to about two months away from actual physical shortages in the first world. (They’ve already hit in the developing world.)

Then the fall harvest comes in and we get terrible numbers from that, and food prices surge.

This is the stupidest war of my entire lifetime and I’m old enough that this includes Vietnam, which was stupid beyond belief, but not one-tenth as moronic as the Iran war. A war of complete choice which the US has lost, won’t admit it has lost and is in danger of running the world into a decade long depression.

If it stops now or soon, it will suck, but we’ll get thru. But if Trump dismantles Iranian infrastructure like he’s threatened (by no means sure, this is Trump, but also not impossible, this is Trump) the Iranians have said they will respond by dismantling Gulf infrastructure: that means refineries that will take years and years to rebuild. Oil fields. Facilities producing helium. A decade of not enough fertilizer.

There is a real goddamn economy and if this happens, a lot of people will DIE due to famines and fuel shortages. Tens of millions. Maybe much more. You can’t just take 20 to 30% of the world’s supply of key resources offline and think “it’ll all be OK, the market will sort it out.”

I mean, the market will, sort of. But along the way will be a LOT of deaths and suffering

If the US had an even remotely operational governing system Trump would be impeached and removed in record time. He’s a fiasco, and he’s one itchy trigger finger away from being a catastrophe.

Our Carefully Designed Hell Society

By Ian Welsh

On July 15, 2026

14 Comments

I was amused, in a “oh for fucks sake” way today when I found out that over 80% of workers experience anxiety on Sunday, thinking about return to work on Monday.

Then on Monday heart attacks spike. Thirteen to twenty-five percent higher than normal depending on the study.

Work is anything you do due to coercion. If you wouldn’t do the job if you didn’t need the money, then you’re being coerced by what Max called the whip of hunger. (These days also homelessness.) This is different from being a hunter-gatherer: nature didn’t deliberately set up a system where if you don’t work you die, it’s accidental. And hunter-gatherers are famous for not working when they have a surplus. (To be fair this is partly because it’s hard to store surplus, but many such societies actually forbid creating large private surpluses, as they understood where that leads.)

Now work because it’s truly necessary is fine, but as we all know, and as the late Graeber pointed out, something close to half of jobs are “bullshit jobs”. They either don’t need to be done, or they make the world actively worse. (That would include 90% of people working in finance, for example.)

What Graeber found is that people with “real” jobs, even janitors, might be unhappy, but they were a lot less unhappy than those in bullshit jobs making equivalent wages, because at least they felt like their job really needed to be done.

But this is a pattern that goes beyond jobs. The suicide pattern of teenagers is instructive: suicides drop a lot during summer vacation.

They also dropped during the Covid shutdowns, which I predicted at the time.

Because school sucks. You spend all day doing boring things that teacher tells you to. In the US at least you don’t even learn much, with massive rates of illiteracy because you aren’t really being taught (if that was the goal, it could be achieved much faster and more effectively) you’re being conditioned to do what your told, when your told, to give teacher what they want in the way teacher wants, and to keep your mouth shut when not called on.

You’re being turned into a good little wage slave. It takes years of coercive conditioning to make humans willing to put up with wage slavery and creating those people is the job of schools and teachers. Professors put the finishing touches on those who will wind up being senior wage-slave supervisors or otherwise entrusted with minor bits of power and expected to use it in the interests of the masters.

Adults have heart attacks because work sucks so much. Kids kill themselves.

We created this, as a species. We did this to ourselves. Is there truly no better way we can come up with?

Everyone Misses Second Largest Drive Of Core Inflation—Memory Chips

By Sean Paul Kelley

On July 14, 2026

16 Comments

~by Sean Paul Kelley

Just about everyone has missed the second largest driver of core inflation (after petroleum) the Fed must reckon with. The insanely high prices and going higher of memory, you know, RAM, DRAM, SDRAM and the like. We’ll call it ‘chipflation.’

Chris Barber, CEO of a Baltimore based firm that helps small companies with IT says:

“RAM chips that sold for $100 six months ago are an “insane” $300 now, so customers may be better off just buying a new computer. “Parts themselves are just completely out of control,” Barber says. “This is the worst increase I’ve ever seen.”

That kind of price rise all but guarantees inflation, even using Fed based hedonics (don’t ask).

And Bloomberg says:

“Software and computer accessories, which usually trend cheaper as technology improves, were up a record 14.5% in May from a year earlier while the cost of electronic components for producers soared 27%. The memory squeeze will add 0.4 percentage point to headline inflation before it eases.”

I think Bloomberg understates how much pressure “chipflation” is going to increase Core PCE inflation.

Take Apple’s recent price hikes. They are 100% due to the increase in the price of memory.

Does the Fed really have a grip? Because “chipflation” will certainly increase in weight in meaesures like Core PCE inflation:

“Technology hardware (such as laptops, phones, and peripherals) historically acted as a deflationary force. Skyrocketing memory costs have reversed this trend. Analysts at Wolfe Research estimate that rising memory and storage costs alone can add noticeable basis points to Core PCE inflation.”

Why has “chipflation” flown so far under the radar at this point? One word: hedonics.

I’ll let Reuters explain:

“Historically, hedonic models accounted for inflation by concluding that if a computer costs the same but processes data twice as fast, the consumer receives an implicit price decrease. Under chipflation, downstream hardware companies (like PC, smartphone, and appliance makers) are choosing to raise prices for devices that offer similar or identical capabilities to previous generations in order to protect margins. This severely slows down the historical trend of increasing “utility per dollar.”

And now this essential model to keepin inflation low is more and more useless. So, the Fed now has to deal with a private credit crisis—deflationary, an energy shock—inflationary and now this inflationary clusterfuck.

Talk about a trifecta!