Image: AI rendering of futuristic robot photobombing the VP and new AI Czar
Planning Ahead to Avoid an AI Pandora’s Box
Vice President Kamala Harris wasted no time as the newly appointed White House Artificial Intelligence (AI) Czar. She has already met with heads of companies involved in AI and explained that although Artificial intelligence technology has the potential to benefit humanity, the opportunities it allows also come with extreme risk. She is now tasked with spearheading the effort to preemptively prevent a Pandora’s box situation where, once allowed, the bad that results may overshadow the good.
The plan that the administration is devising, overseen by the Vice President, calls for putting in place protections as the technology grows.
On May 4, Harris met with corporate heads of companies leading in AI technology. They included OpenAI, Google and Microsoft. In a tweet from the President’s desk, he is shown thanking the corporate heads in advance for their cooperation. “What you’re doing has enormous potential and enormous danger,” Biden told the CEOs
Image: Twitter (@POTUS)
Amid recent warnings from AI experts that say tyrannical dictators could exploit the developing technology to push disinformation, the White House has allocated $140 million in funding for seven newly created AI research groups. President Biden has said the technology was “one of the most powerful” of our time, then added, “But in order to seize the opportunities it presents, we must first mitigate its risks.”
The full plan unveiled this week is to launch 25 research institutes across the US that will seek assurance from companies, including ChatGPT’s creator OpenAI, that they will ‘participate in a public evaluation.’
The reason for the concern and the actions taken is that many of the world’s best minds have been warning about the dangers of AI, specifically that it could be used against humanity. Serial tech entrepreneur Elon Musk fears AI technology will soon surpass human intelligence and have independent thinking. Put another way; the machines would no longer need to abide by human commands. At the worst currently imagined, they may develop the ability to steal nuclear codes, create pandemics and spark world wars.
After Harris met with tech executives Thursday to discuss reducing potential risks, she said in a statement, “As I shared today with CEOs of companies at the forefront of American AI innovation, the private sector has an ethical, moral, and legal responsibility to ensure the safety and security of their products.”
The sudden elevation of artificial intelligence as needing to be managed came as awareness grew as to just how remarkable and powerful the technology has the potential to become. This broad awareness came as OpenAI released a version of ChatGPT which already had the ability to mimic humanlike thinking and interaction.
Other considerations, and probably many not yet conceived, is that AI can generate humanlike writing and fake images; there are ethical and societal concerns. As an example, the fabricated image at the top of this article was created within three minutes by a new user of an AI program.
Can Biden and McCarthy Avert a Calamitous Debt Default? Three Evidence-Backed Leadership Strategies that Might Help
The U.S. is teetering toward an unprecedented debt default that could come as soon as June 1, 2023.
In order for the U.S. to borrow more money, Congress needs to raise the debt ceiling – currently $31.4 trillion. President Joe Biden has refused to negotiate with House Republicans over spending, demanding instead that Congress pass a stand-alone bill to increase the debt limit. House Speaker Kevin McCarthy won a small victory on April 26 by narrowly passing a more complex bill with GOP support that would raise the debt ceiling but also slash spending and roll back Biden’s policy agenda.
Biden recently invited congressional leaders, including GOP leader McCarthy, to the White House on May 9 to discuss the situation but insisted he isn’t willing to negotiate.
Rather than leading the nation, Biden and McCarthy seem to be waging a partisan political war. Biden likely doesn’t want to be seen as giving in to Repubicans’ demands and diminishing legislative wins for his liberal constituency. McCarthy, with his slim majority in the House, needs to appease even the most hard-line members of his party.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Wendy K. Smith, Professor of Business and Leadership, University of Delaware.
Having studied leadership for over 25 years, I would suggest that their leadership styles are polarized, oppositional, short-term and highly ineffective. Such combative leadership risks a debt default that could send the U.S. into recession and potentially lead to a global economic and financial crisis.
While it may seem almost impossible in the current political climate, Biden and McCarthy have an opportunity to turn around this crisis and leave a positive and lasting legacy of courageous leadership. To do so, they need to put aside partisanship and adopt a different approach. Here are a few evidence-backed strategies to get them started.
Moving From a Zero-Sum Game to a More Holistic Approach
Political leaders often risk being hijacked by members of their own party. McCarthy faces a direct threat by hard-line conservative members of his coalition.
For example, back in January, McCarthy agreed to let a single lawmaker force a vote for his ouster to win enough votes from ultraconservative lawmakers to become speaker. That and other concessions give the most extreme members of his party a lot of control over his agenda and limit McCarthy’s ability to make a compromise deal with the president.
Biden, who just announced he’s running for reelection in 2024, is betting his first-term accomplishments – such as unprecedented climate investments and student loan forgiveness – will help him keep the White House. Negotiating any of that away could cost him the support of key parts of his base.
My research partner Marianne W. Lewis and I label this kind of short-term, one-sided leadership as “either/or” thinking. That is, this approach assumes that leadership decisions are a zero-sum game – every inch you give is a loss to your side. We argue that this kind of leadership is limited at best and detrimental at worst.
Instead, we find that great leadership involves what we call “both/and” thinking, which involves seeking integration and unity across opposing perspectives. History offers examples of how this more holistic leadership style has achieved substantial achievements.
President Lyndon B. Johnson and fellow Democrats were struggling to get a Senate vote on the Civil Rights Act of 1964 and needed Republican support. Despite his initial opposition, Republican Sen. Everett McKinley Dirksen – then the minority leader and a staunch conservative – led colleagues in crossing party lines and joining Democrats to pass the historic legislation.
Another example came in 1990, when South Africa’s then-President Frederik Willem de Klerk freed opponent Nelson Mandela from prison. The two erstwhile political enemies agreed to a deal that ended apartheid and paved the way for a democratic government – which won them both the Nobel Peace Prize. Mandela became president four years later.
This integrative leadership approach starts with a shift of mindset that moves away from seeing opposing sides as conflicting and instead values them as generative of new possibilities. So in the case of the debt ceiling situation, holistic leadership means, at the least, Biden would not simply put up his hands and refuse to negotiate over spending. He could acknowledge that Republicans have a point about the nation’s soaring debt load. McCarthy and his party might recognize they cannot just slash spending. Together they could achieve greater success by developing an integrative plan that cuts costs, increases taxes and raises the debt ceiling.
Champion a Long-Term Vision Over Short-Term Goals
What we call “short-termism” plagues America’s politics. Leaders face pressure to demonstrate immediate results to voters. Biden and McCarthy both have strong incentives to focus on a short-term victory for their side with the presidential and congressional elections coming soon. Instead, long-term thinking can help leaders with competing agendas.
In a 2015 study, Natalie Slawinski and Pratima Bansal studied executives at five Canadian oil companies who were dealing with tensions between keeping costs low in the short term while making investments that could mitigate their industry’s environmental impact over the long run. The two scholars found that those who focused on the short term struggled to reconcile the two competing forces, while long-term thinkers managed to find more creative solutions that kept costs down but also allowed them to do more to fight climate change.
Likewise, if Biden and McCarthy want to avert a financial crisis and leave a lasting legacy, they would benefit from focusing on the long term. Finding points of connection in this shared long-term goal, rather than stressing their significant differences about how to get there, can help shift away from their standoff and toward a solution.
Be Adaptive, Not Assured
Voters often praise political leaders who act swiftly and with confidence and self-assurance, particularly at a moment of economic uncertainty.
Yet finding a creative solution to America’s greatest challenges often requires leaders to put aside the swagger and adapt, meaning they take small steps to listen to one another, experiment with solutions, evaluate these outcomes and adjust their approach as needed.
In a study of business decisions at a Fortune 500 technology company, I spent a year following the senior management teams in charge of six units – each of which had revenues of over $1 billion. I found that the team leaders who were most innovative tended to be good at adaptation. They constantly explored whether they had made the right investment and made changes if needed.
Small steps are also necessary to build unlikely relationships with political foes. In his 2017 book, “Collaborating With the Enemy,” organizational consultant Adam Kahane describes how he facilitated workshops to help former enemies take small steps toward reconciliation, such as in South Africa at the end of apartheid and in Colombia amid the drug wars. Such efforts helped South Africa become a successful multiracial democracy and Colombia end decades of war with a guerrilla insurgency.
This kind of leadership requires small steps toward connection rather than large political leaps. It also requires that both sides let go of their positions and consider where they are willing to compromise.
Biden and McCarthy could learn from two former Tennessee governors, Democrat Phil Bredesen and Republican Bill Haslam. Though they oppose each other on almost every political issue, including gun control, the two former leaders have built a constructive relationship over the years. Rather than tackle the big divisive issues, they started with identifying the small points where they agreed with each other. Doing so led them to build greater trust and continue to look for connections.
So when a gunman killed six people at a school in Nashville recently, the two former governors were able to move beyond political finger-pointing and focus on how their respective parties could work together on meaningful gun reform.
Of course, it’s easier to do this once you’re out of office and the pressure from voters and parties goes away. And although current Tennessee Gov. Bill Lee agreed on the need for gun reform, his fellow Republicans in the state Legislature balked.
A Long Shot, But …
And that’s why I know this is a long shot. The two main political parties are as polarized as ever. The odds of a breakthrough that leads to anything more than a last-second deal that kicks the debt ceiling can down the road remain pretty low – and even that seems in doubt.
But this is about more than the debt ceiling. The U.S. faces a long list of problems big and small, from high inflation and a banking crisis to the war in Ukraine and climate change.
Americans need and deserve leaders who will tackle these issues by working together toward a more creative outcomes.
The US debt limit is the total amount of money the United States government is authorized to borrow to meet its existing obligations. These include interest on debt, Social Security, military costs, government payroll, utilities, tax refunds, and all costs associated with running the country.
The debt limit is not designed to authorize new spending commitments. Its purpose is to provide adequate financing for existing obligations that Congress, through the years, has approved. While taxes provide revenue to the US Treasury Department, taxation has not been adequate since the mid-1990s to satisfy US spending. This borrowing cap, the so-called debt ceiling, is the maximum congressional representatives have deemed prudent each year, and has always been raised to avert lost faith in the US and its currency.
Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – which has never happened before. Default would bring about another financial crisis and threaten the financial well-being of American citizens. Since a default would be much more costly than Congress meeting to approve a bump up in the borrowing limit, which the President could then sign, it is likely that any stand-offf will be resolved on time.
Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt.
How Does this Apply Today?
According to the Congressional Budget Office, tax receipts through April have been less than the CBO anticipated in February. The Budget Office now estimates that there is a significantly elevated risk that the US Treasury will run out of funds in early June 2023. The US Treasury Secretary has even warned that after June 1, the US will have trouble meeting its obligations. The implications could include a credit rating downgrade in US debt which could translate to higher interest rates. If US Treasury obligations, the so-called “risk free” investments, does not pay bondholders on time (interest), then the entire underpinning of an economy that relies on the faith in its economic system, could quickly unravel.
What Took Us Here?
On January 19, 2023, the statutory limit on the amount of debt that the Department of the Treasury could issue was reached. At that time, the Treasury announced a “debt issuance suspension period” during which, under the law, can take “extraordinary measures” to borrow additional funds without breaching the debt ceiling.
The Treasury Dept. and the CBO projected that the measures would likely be exhausted between July and September 2023. They warned that the projections were uncertain, especially since tax receipts in April were a wildcard.
It’s now known that receipts from income tax payments processed in April were less than anticipated. Making matters more difficult, the Internal Revenue Service (IRS) is quickly processing tax return payments.
If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government will ultimately be unable to pay its obligations fully. As a result, the government will have to delay making payments for some activities, default on its debt obligations, or both.
What Now?
The House of Representatives passed a package to raise the debt ceiling by $1.5 trillion in late April. The bill, includes spending cuts, additional work requirements in safety net programs, and other measures that are unpopular with Democrats. To pass, the Senate, which has a Democratic majority, would have to pass it. Democratic Senator Chuck Schumer described the chances as “dead on arrival.”
House Speaker McCarthy has accepted an invitation from President Biden to meet on May 9 to discuss debt ceiling limits. The position the White House is maintaining is that it will not negotiate over the debt ceiling. The President’s party is looking for a much higher debt ceiling that allows for greater borrowing powers.
In the past, debt ceiling negotiations have often gone into the night on the last day and have suddenly been resolved in the nick of time. Treasury Secretary Yellen made mention of this and warned that past debt limit impasses have shown that waiting until the last minute can cause serious harm, including damage to business and consumer confidence as well as increased short-term borrowing costs for taxpayers. She added that it also makes the US vulnerable in terms of national security.
Expect volatility in all markets as open discussions and likely disappointments will heat up beginning at the May 9th meeting between McCarthy and Biden.
Elon Musk Unveils How He Expects to Approach Artificial Intelligence
The CEO of SpaceX, Twitter, Tesla, as well as the founder of The Boring Company , and Neuralink, says he wants to do something to serve humanity. Elon Musk has been concerned that artificial intelligence may have the propensity to turn against mankind. He said the best way to avoid the problem is to make artificial intelligence curious. “I’m going to start something which I call ‘TruthGPT’ or a maximum truth-seeking AI that tries to understand the nature of the universe,” Musk said in an interview with Tucker Carlson. The billionaire thinks that an AI that cares about understanding the universe is “unlikely to annihilate humans” as we’re an “interesting part of the universe, hopefully.” During the discussion, he emphasized the project will differ from competitors, such as OpenAI’s ChatGPT and Google’s Bard, by caring about understanding the universe.
This ambitious new goal of Musk’s was introduced with few details about the project, so it remains unclear how, exactly a machine becomes curious. He did repeat that he considers AI dangerous if mismanaged, with a “potential for civilizational destruction.” In fact, he called for some level of government oversight over AI projects. Musk isn’t new to the technology; he is actually one of the co-founders of OpenAI, the company that has been making headlines with its AI chatbot named ChatGPT.
The new technology would likely compete with AI efforts by Sam Altman-led OpenAI, which as mentioned was initially funded by Musk, Google’s DeepMind, and other AI initiatives around the world.
Regulating A.I.
Musk told Carlson he envisions a regulatory agency that “initially seeks insight into AI, then solicits opinion from industry, and then has proposed rule-making,” something like the Federal Aviation Administration and how it interacts with aviation and aerospace companies. Once agency and industry-accepted rules in place, “I think we’ll have a better chance of advanced AI being beneficial to humanity,” Musk said. Musk signed a letter calling for a pause on advanced AI research because he is part of a group of signers that believe it can potentially harm society.
“Contemporary AI systems are now becoming human-competitive at general tasks, and we must ask ourselves: Should we let machines flood our information channels with propaganda and untruth?” the letter stated.
Part two of the interview is scheduled to air at 8 PM ET April 18 on Fox News.
The March FOMC Minutes Show the Fed is Less Aligned
We may be entering a period when we have a Federal Reserve that is split on the direction of monetary policy. This could be the case as early as the May 2-3 FOMC meeting. At least, that is one indication that arose from the just-released minutes of the Committee from the March 21-22 meeting. U.S. economic activity was strong leading up to the meeting, then the collapse of two banks occurred. The concerns that followed prompted several Federal Reserve officials to consider whether the central bank should pause its aggressive pace of hiking interest rates.
Split Federal Reserve
The minutes offer insight into what may follow this year. Over the past ten sessions, the FOMC minutes showed the central bank’s focus has been on quickly tightening policy to squelch persistent inflation. Now after nine consecutive interest-rate hikes and quantitative tightening, the conversation has shifted from wondering how fast they can move to whether and when the Fed should pause. At least, it has for some of the Committee members. Soft landings are seldom successfully orchestrated by monetary policy changes; more often, they set the stage for a recession.
In public addresses since the March meeting, Fed officials have appeared to be somewhat split on the way forward. Chicago Fed President Austan Goolsbee, for example, said on April 11 that the Fed needs to be cautious. “We should gather further data and be careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting down inflation,” Goolsbee said.
Less concerned about a recession and more concerned about winning the war on inflation, Cleveland Fed President Loretta Mester said last week she believes the correct move is for the Fed to continue tightening “a little bit higher” before pausing as the economy and inflation adjusts.
Bank Failure Considerations
The March monetary policy meeting was surrounded by uncertainty for both Fed watchers and some FOMC members. The meeting took place only days after the collapse of Silicon Valley Bank and Signature Bank. Other indicators of a strong economy pointed to an aggressive move from the voting members. But, with the banking sector wounded or perhaps worse, it remained a nailbiter up until 2 pm on March 22 when the Federal Open Market Committee announced a quarter-point interest-rate hike.
While all has since been quiet related to U.S. banks, at the time, the extent of the problem was far from known. The potential economic impact it could have, led Fed staff to project a mild recession starting later in 2023, according to the minutes. This tells financial markets and others impacted by Fed moves that some Fed officials were seriously considering holding steady on rates.
The minutes show, the combination of “slower-than-expected progress on disinflation,” a tight labor market, and the view that the new emergency lending programs had stabilized the financial sector, allowed the central bank to again raise rates. The minutes indicated, “Many participants remarked that the incoming data before the onset of the banking sector stresses had led them to see the appropriate path for the federal funds rate as somewhat higher than their assessment at the time of the December meeting.” Reading on, the minutes said, “After incorporating the banking-sector developments, participants indicated that their policy rate projections were now about unchanged from December.”
Take Away
Although they are released several weeks after each meeting, the Fed minutes are always closely watched for clues as to how central-bank officials are feeling and where monetary policy is likely heading over the next several weeks or months. The indication from these minutes, behind a backdrop of Fed regional president addresses, indicate a less than unified Fed. Unless there is a good deal of unexpected trouble within the banking sector or economy or a clear tick up in economic measures such as employment, the May 3 post-meeting announcement on policy will be tough to forecast.
Image: Congressional Hearings with Byte Dance (TikTok) CEO, C-SPAN (YouTube)
Should the US Ban TikTok? Can It? A Cybersecurity Expert Explains the Risks the App Poses
TikTok CEO Shou Zi Chew testified before the House Energy and Commerce Committee on March 23, 2023, amid a chorus of calls from members of Congress for the federal government to ban the Chinese-owned video social media app and reports that the Biden administration is pushing for the company’s sale.
The federal government, along with many state and foreign governments and some companies, has banned TikTok on work-provided phones. This type of ban can be effective for protecting data related to government work.
But a full ban of the app is another matter, which raises a number of questions: What data privacy risk does TikTok pose? What could the Chinese government do with data collected by the app? Is its content recommendation algorithm dangerous? And is it even possible to ban an app?
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Doug Jacobson, Professor of Electrical and Computer Engineering, Iowa State University.
Vacuuming Up Data
As a cybersecurity researcher, I’ve noted that every few years a new mobile app that becomes popular raises issues of security, privacy and data access.
Apps collect data for several reasons. Sometimes the data is used to improve the app for users. However, most apps collect data that the companies use in part to fund their operations. This revenue typically comes from targeting users with ads based on the data they collect. The questions this use of data raises are: Does the app need all this data? What does it do with the data? And how does it protect the data from others?
So what makes TikTok different from the likes of Pokemon-GO, Facebook or even your phone itself? TikTok’s privacy policy, which few people read, is a good place to start. Overall, the company is not particularly transparent about its practices. The document is too long to list here all the data it collects, which should be a warning.
There are a few items of interest in TikTok’s privacy policy besides the information you give them when you create an account – name, age, username, password, language, email, phone number, social media account information and profile image – that are concerning. This information includes location data, data from your clipboard, contact information, website tracking, plus all data you post and messages you send through the app. The company claims that current versions of the app do not collect GPS information from U.S. users. There has been speculation that TikTok is collecting other information, but that is hard to prove.
If most apps collect data, why is the U.S. government worried about TikTok? First, they worry about the Chinese government accessing data from its 150 million users in the U.S. There is also a concern about the algorithms used by TikTok to show content.
Data in the Chinese Government’s Hands
If the data does end up in the hands of the Chinese government, the question is how could it use the data to its benefit. The government could share it with other companies in China to help them profit, which is no different than U.S. companies sharing marketing data. The Chinese government is known for playing the long game, and data is power, so if it is collecting data, it could take years to learn how it benefits China.
One potential threat is the Chinese government using the data to spy on people, particularly people who have access to valuable information. The Justice Department is investigating TikTok’s parent company, ByteDance, for using the app to monitor U.S. journalists. The Chinese government has an extensive history of hacking U.S. government agencies and corporations, and much of that hacking has been facilitated by social engineering – the practice of using data about people to trick them into revealing more information.
The second issue that the U.S. government has raised is algorithm bias or algorithm manipulation. TikTok and most social media apps have algorithms designed to learn a user’s interests and then try to adjust the content so the user will continue to use the app. TikTok has not shared its algorithm, so it’s not clear how the app chooses a user’s content.
The algorithm could be biased in a way that influences a population to believe certain things. There are numerous allegations that TiKTok’s algorithm is biased and can reinforce negative thoughts among younger users, and be used to affect public opinion. It could be that the algorithm’s manipulative behavior is unintentional, but there is concern that the Chinese government has been using or could use the algorithm to influence people.
If the federal government comes to the conclusion that TikTok should be banned, is it even possible to ban it for all of its 150 million existing users? Any such ban would likely start with blocking the distribution of the app through Apple’s and Google’s app stores. This might keep many users off the platform, but there are other ways to download and install apps for people who are determined to use them.
A more drastic method would be to force Apple and Google to change their phones to prevent TikTok from running. While I’m not a lawyer, I think this effort would fail due to legal challenges, which include First Amendment concerns. The bottom line is that an absolute ban will be tough to enforce.
There are also questions about how effective a ban would be even if it were possible. By some estimates, the Chinese government has already collected personal information on at least 80% of the U.S. population via various means. So a ban might limit the damage going forward to some degree, but the Chinese government has already collected a significant amount of data. The Chinese government also has access – along with anyone else with money – to the large market for personal data, which fuels calls for stronger data privacy rules.
Are You at Risk?
So as an average user, should you worry? Again, it is unclear what data ByteDance is collecting and if it can harm an individual. I believe the most significant risks are to people in power, whether it is political power or within a company. Their data and information could be used to gain access to other data or potentially compromise the organizations they are associated with.
The aspect of TikTok I find most concerning is the algorithm that decides what videos users see and how it can affect vulnerable groups, particularly young people. Independent of a ban, families should have conversions about TikTok and other social media platforms and how they can be detrimental to mental health. These conversations should focus on how to determine if the app is leading you down an unhealthy path.
Worst Bank Turmoil Since 2008 – Fed is Damned if it Does and Damned if it Doesn’t in Decision Over Interest Rates
The Federal Reserve faces a pivotal decision on March 22, 2023: whether to continue its aggressive fight against inflation or put it on hold.
Making another big interest rate hike would risk exacerbating the global banking turmoil sparked by Silicon Valley Bank’s failure on March 10. Raising rates too little, or not at all as some are calling for, could not only lead to a resurgence in inflation, but it could cause investors to worry that the Fed believes the situation is even worse than they thought – resulting in more panic.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Alexander Kurov, Professor of Finance and Fred T. Tattersall Research Chair in Finance, West Virginia University.
What’s a Central Banker to Do?
As a finance scholar, I have studied the close link between Fed policy and financial markets. Let me just say I would not want to be a Fed policymaker right now.
Break It, You Bought It
When the Fed starts hiking rates, it typically keeps at it until something breaks.
The U.S. central bank began its rate-hiking campaign early last year as inflation began to surge. After initially mistakenly calling inflation “transitory,” the Fed kicked into high gear and raised rates eight times from just 0.25% in early 2022 to 4.75% in February 2023. This is the fastest pace of rate increases since the early 1980s – and the Fed is not done yet.
Consumer prices were up 6% in February from a year earlier. While that’s down from a peak annual rate of 9% in June 2022, it’s still significantly above the Fed’s 2% inflation target.
But then something broke. Seemingly out of nowhere, Silicon Valley Bank, followed by Signature Bank, collapsed virtually overnight. They had over US$300 billion in assets between them and became the second- and third-largest banks to fail in U.S. history.
Panic quickly spread to other regional lenders, such as First Republic, and upset markets globally, raising the prospect of even bigger and more widespread bank failures. Even a $30 billion rescue of First Republic by its much larger peers, including JPMorgan Chase and Bank of America, failed to stem the growing unease.
If the Fed lifts interest rates more than markets expect – currently a 0.25 percentage point increase – it could prompt further anxiety. My research shows that interest rate changes have a much bigger effect on the stock market in bear markets – when there’s a prolonged decline in stock prices, as the U.S. is experiencing now – than in good times.
Making the SVB Problem Worse
What’s more, the Fed could make the problem that led to Silicon Valley Bank’s troubles even worse for other banks. That’s because the Fed is at least indirectly responsible for what happened.
Banks finance themselves mainly by taking in deposits. They then use those essentially short-term deposits to lend or make investments for longer terms at higher rates. But investing short-term deposits in longer-term securities – even ultra-safe U.S. Treasurys – creates what is known as interest rate risk.
That is, when interest rates go up, as they did throughout 2022, the values of existing bonds drop. SVB was forced to sell $21 billion worth of securities that lost value because of the Fed’s rate hikes at a loss of $1.8 billion, sparking its crisis. When SVB’s depositors got the wind of it and tried to withdraw $42 billion on March 9 alone – a classic bank run – it was over. The bank simply couldn’t meet the demands.
But the entire banking sector is sitting on hundreds of billions of dollars’ worth of unrealized losses – $620 billion as of Dec. 31, 2022. And if rates continue to go up, the value of these bonds will keep going down, which fundamentally weakens banks’ financial situation.
The Fed has been aggressively raising rates to stem the rapid increase in prices for items such as food.
Risks of Slowing Down
While that may suggest it’s a no-brainer to put the rate hikes on hold, it’s not so simple.
Inflation has been a major problem plaguing the U.S. economy since 2021 as prices for homes, cars, food, energy and so much else jump for consumers. The last time consumer prices soared this much, in the early 1980s, the Fed had to raise rates so high that it sent the U.S. economy into recession – twice.
High inflation quickly cuts into how much stuff your money can buy. It also makes saving money more difficult because it eats at the value of your savings. When high inflation sticks around for a long time, it gets entrenched in expectations, making it very hard to control.
This is why the Fed jacked up rates so fast. And it’s unlikely it’s done enough to bring rates down to its 2% target, so a pause in lifting rates would mean inflation may stay higher for longer.
Moreover, stepping back from its one-year-old inflation campaign may send the wrong signal to investors. If central bankers show they are really concerned about a possible banking crisis, the market may think the Fed knows the financial system is in serious trouble and things are more dire than previously thought.
So What’s a Fed to Do
At the very least, the complex global financial system is showing some cracks.
Three U.S. banks collapsed in a matter of days. Credit Suisse, a 166-year-old storied Swiss lender, was teetering on the edge until the government orchestrated a bargain sale to rival USB. A $30 billion rescue of regional U.S. lender First Republic was unable to arrest the drop in its shares. U.S. banks are requesting loans from the Fed like it’s 2008, when the financial system all but collapsed. And liquidity in the Treasury market – basically the blood that keeps financial markets pumping – is drying up.
Before Silicon Valley Bank’s collapse, interest rate futures were putting the odds of an increase in rates – either 0.25 or 0.5 percentage point – on March 22 at 100%. The odds of no increase at all have shot up to as high as 45% on March 15 before falling to 30% early on March 20, with the balance of probability on a 0.25 percentage point hike.
Increasing rates at a moment like this would mean putting more pressure on a structure that’s already under a lot of stress. And if things take a turn for the worse, the Fed would likely have to do a quick U-turn, which would seriously damage the Fed’s credibility and ability to do its job.
Fed officials are right to worry about fighting inflation, but they also don’t want to light the fuse of a financial crisis, which could send the U.S. into a recession. And I doubt it would be a mild one, like the kind economists have been worried the Fed’s inflation fight could cause. Recessions sparked by financial crises tend to be deep and long – putting many millions out of work.
What would normally be a routine Fed meeting is shaping up to be a high-wire balancing act.
Three Reasons the Willow Arctic Oil Drilling Project Was Approved
For more than six decades, Alaska’s North Slope has been a focus of intense controversy over oil development and wilderness protection, with no end in sight. Willow field, a 600-million-barrel, US$8 billion oil project recently approved by the Biden administration – to the outrage of environmental and climate activists – is the latest chapter in that long saga.
To understand why President Joe Biden allowed the project, despite vowing “no more drilling on federal lands, period” during his campaign for president, some historical background is necessary, along with a closer look at the ways domestic and international fears are complicating any decision for or against future oil development on the North Slope.
More Than Just Willow
The Willow project lies within a vast, 23 million-acre area known as the National Petroleum Reserve-Alaska, or NPR-A. This was one of four such reserves set aside in the early 1900s to guarantee a supply of oil for the U.S. military. Though no production existed at the time in NPR-A, geologic information and surface seeps of oil suggested large resources across the North Slope.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Scott L. Montgomery, Lecturer, Jackson School of International Studies, University of Washington.
Proof came with the 1968 discovery of the supergiant Prudhoe Bay field, which began producing oil in 1977. Exploratory programs in the NPR-A, however, found only small oil accumulations worthy of local uses.
Then, in the 2000s, new geologic understanding and advanced exploration technology led companies to lease portions of the reserve, and they soon made large fossil fuel discoveries. Because NPR-A is federal land, government approval is required for any development. To date, most have been approved. Willow is the latest.
Caribou in the National Petroleum Reserve-Alaska are important for Native groups. However, Native communities have also been split over support for drilling, which can bring income. Bob Wick/Bureau of Land Management
Caribou in the National Petroleum Reserve-Alaska are important for Native groups. However, Native communities have also been split over support for drilling, which can bring income. Bob Wick/Bureau of Land Management
Opposition to North Slope drilling from conservationists, environmental organizations and some Native communities, mainly in support of wilderness preservation, has been fierce since the opening of Prudhoe Bay and the construction of the Trans-Alaska Pipeline in the 1970s. In the wake of 1970s oil crises, opponents failed to stop development.
During the next four decades, controversy shifted east to the Arctic National Wildlife Refuge. Republican presidents and congressional leaders repeatedly attempted to open the refuge to drilling but were consistently stifled – until 2017. That year, the Trump administration opened it to leasing. Ironically, no companies were interested. Oil prices had fallen, risk was high and the reputational cost was large.
To the west of the refuge, however, a series of new discoveries in NPR-A and adjacent state lands were drawing attention as a major new oil play with multibillion-barrel potential. Oil prices had risen, and though they fell again in 2020, they have been mostly above $70 per barrel – high enough to encourage significant new development.
ConocoPhillips’ Willow project is in the northeast corner of the National Petroleum Reserve-Alaska. USGS, Department of Interior
Opposition, with Little Success
Opposition to the new Willow project has been driven by concerns about the effects of drilling on wildlife and of increasing fossil fuel use on the climate. Willow’s oil is estimated to be capable of releasing 287 million metric tons of carbon dioxide if refined into fuels and consumed.
In particular, opponents have focused on a planned pipeline that will extend the existing infrastructure further westward, deeper into NPR-A, and likely encourage further exploratory drilling.
So far, that resistance has had little success.
Twenty miles to the south of Willow is the Peregrine discovery area, estimated to hold around 1.6 billion barrels of oil. Its development was approved by the Biden administration in late 2022. To the east lies the Pikka-Horseshoe discovery area, with around 2 billion barrels. It’s also likely to gain approval. Still other NPR-A drilling has occurred to the southwest (Harpoon prospect), northeast (Cassin), and southeast (Stirrup).
One reason the Biden administration approved the Willow project involves legality: ConocoPhillips holds the leases and has a legal right to drill. Canceling its leases would bring a court case that, if lost, would set a precedent, cost the government millions of dollars in fees and do nothing to stop oil drilling.
Instead, the government made a deal with ConocoPhillips that shrank the total surface area to be developed at Willow by 60%, including removing a sensitive wildlife area known as Teshekpuk Lake. The Biden administration also announced that it was putting 13 million acres of the NPR-A and all federal waters of the Arctic Ocean off limits to new leases.
That has done little to stem anger over approval of the project, however. Two groups have already sued over the approval.
Taking Future Risks into Account
To further understand Biden’s approval of the Willow project, one has to look into the future, too.
Discoveries in the northeastern NPR-A suggest this will become a major new oil production area for the U.S. While actual oil production is not expected there for several years, its timing will coincide with a forecast plateau or decline in total U.S. production later this decade, because of what one shale company CEO described as the end of shale oil’s aggressive growth.
Historically, declines in domestic supply have brought higher fuel prices and imports. High gasoline and diesel prices, with their inflationary impacts, can weaken the political party in power. While current prices and inflation haven’t damaged Biden and the Democrats too much, nothing guarantees this will remain the case.
Geopolitical Concerns, Particularly Europe
The Biden administration also faces geopolitical pressure right now due to Russia’s war on Ukraine.
U.S. companies ramped up exports of oil and natural gas over the past year to become a lifeline for Europe as the European Union uses sanctions and bans on Russian fossil fuel imports to try to weaken the Kremlin’s ability to finance its war on Ukraine. U.S. imports have been able to replace a major portion of Russian supply that Europe once counted on.
Europe’s energy crisis has also led to the return of energy security as a top concern of national leaders worldwide. Without a doubt, the crisis has clarified that oil and gas are still critical to the global economy. The Biden administration is taking the position that reducing the supply by a significant amount – necessary as it is to avoid damaging climate change – cannot be done by prohibition alone. Halting new drilling worldwide would drive fuel prices sky high, weakening economies and the ability to deal with the climate problem.
Energy transitions depend on changes in demand, not just supply. As an energy scholar, I believe advancing the affordability of electric vehicles and the infrastructure they need would do much more for reducing oil use than drilling bans. Though it may seem counterintuitive, by aiding European economic stability, U.S. exports of fossil fuels may also help the EU plan to accelerate noncarbon energy use in the years ahead.
FOMC Now Contending With Banks and Sticky Inflation
The Federal Reserve is facing a rather sticky problem. Despite its best efforts over the past year, inflation is stubbornly refusing to head south with any urgency to a target of 2%.
Rather, the inflation report released on March 14, 2023, shows consumer prices rose 0.4% in February, meaning the year-over-year increase is now at 6% – which is only a little lower than in January.
So, what do you do if you are a member of the rate-setting Federal Open Market Committee meeting March 21-22 to set the U.S. economy’s interest rates?
The inclination based on the Consumer Price Index data alone may be to go for broke and aggressively raise rates in a bid to tame the inflationary beast. But while the inflation report may be the last major data release before the rate-setting meeting, it is far from being the only information that central bankers will be chewing over.
Don’t let yourself be misled. Understand issues with help from experts
And economic news from elsewhere – along with jitters from a market already rather spooked by two recent bank failures – may steady the Fed’s hand. In short, monetary policymakers may opt to go with what the market has already seemingly factored in: an increase of 0.25-0.5 percentage point.
Here’s why.
While it is true that inflation is proving remarkably stubborn – and a robust March job report may have put further pressure on the Fed – digging into the latest CPI data shows some signs that inflation is beginning to wane.
Energy prices fell 0.6% in February, after increasing 0.2% the month before. This is a good indication that fuel prices are not out of control despite the twin pressures of extreme weather in the U.S. and the ongoing war in Ukraine. Food prices in February continued to climb, by 0.4% – but here, again, there were glimmers of good news in that meat, fish and egg prices had softened.
Although the latest consumer price report isn’t entirely what the Fed would have wanted to read – it does underline just how difficult the battle against inflation is – there doesn’t appear to be enough in it to warrant an aggressive hike in rates. Certainly it might be seen as risky to move to a benchmark higher than what the market has already factored in. So, I think a quarter point increase is the most likely scenario when Fed rate-setters meet later this month – but certainly no more than a half point hike at most.
This is especially true given that there are signs that the U.S. economy is softening. The latest Bureau of Labor Statistics’ Job Openings and Labor Turnover survey indicates that fewer businesses are looking as aggressively for labor as they once were. In addition, there have been some major rounds of layoffs in the tech sector. Housing has also slowed amid rising mortgage rates and falling prices. And then there was the collapse of Silicon Valley Bank and Signature Bank – caused in part by the Fed’s repeated hikes in its base rate.
This all points to “caution” being the watchword when it comes to the next interest rate decision. The market has priced in a moderate increase in the Fed’s benchmark rate; anything too aggressive has the potential to come as a shock and send stock markets tumbling.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Christopher Decker,Professor of Economics, University of Nebraska Omaha.
FDIC, Federal Reserve, and Treasury Issue Joint Statements on Silicon Valley Bank
In a joint statement released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg, they announced actions they are now committed to taking to “protect the U.S. economy by strengthening public confidence in the banking system.” The actions are being taken to ensure that “the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
Specifically, the actions directly impact two banks, Silicon Valley Bank in California and Signature Bank in New York, but it was made clear that it could be extended to other institutions. The joint news release reads, “After receiving a recommendation from the boards of the FDIC and the Federal Reserve and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
In a second release by the three agencies, details were uncovered as to how this was designed to not impact depositors, with losses being borne by stockholders and debtholders. The release reads as follows:
“The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.
With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.
After receiving a recommendation from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, after consultation with the President, approved actions to enable the FDIC to complete its resolutions of Silicon Valley Bank and Signature Bank in a manner that fully protects all depositors, both insured and uninsured. These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy.
The Board is carefully monitoring developments in financial markets. The capital and liquidity positions of the U.S. banking system are strong and the U.S. financial system is resilient.”
Take Away
Confidence by depositors, investors, and all economic participants is important for those entrusted to keep the U.S. economy steady. The measures appear to strive for the markets to open on Monday with more calm than might otherwise have occurred.
While the sense of resolve of the steps explained in the two statements, both released at 6:15 ET Sunday evening is reminiscent of 2008, there is still no expectation that the problem is wider than a few institutions.
Image: Director of the Office of Management and Budget Shalanda Young besides President Biden (Credit: The White House, March 2022)
Investor Buy/Sell Patterns Could Change Under Biden Budget Proposals
The White House’s annual budget request to Congress has the power to move market sectors, as it’s a preliminary look at spending priorities and possible revenue sources. This year, alongside the pressure of Congress wrestling with raising the debt limit, the House Ways and Means Committee hearings related to the President’s budget could have a more significant impact than before. Treasury Secretary Janet Yellen will address the House committee on Friday, March 10th, and respond to questions. Taxation and spending priorities of the White House will be further revealed during this exchange.
The President’s proposed budget for the 2024 fiscal year proposes cutting the U.S. deficit “by nearly $3 trillion over the next decade,” according to White House Press Secretary Karine Jean-Pierre, this is a much larger number than the $2 trillion mentioned as a goal during the State of the Union address last month. Jean-Pierre explained to reporters that the proposed spending reduction is “something that shows the American people that we take this very seriously,” and it answers, “how do we move forward, not just for Americans today but for … other generations that are going to be coming behind us.”
Source: Twitter
Biden’s requested budget includes a proposal that could impact healthcare as it would grow Medicare financing by raising the Medicare tax rate on earned and investment income to 5% from the current 3.8% for people making more than $400,000 a year.
Railroad safety measures are also included in Biden’s proposal, it asks for millions of additional funding for railroad safety measures spurred by recent derailments. The President also proposes a 5.2% pay raise for federal employees.
The budget deficit would be expected to shrink over ten years in part by raising taxes. One proposal investors should look out for is what has been called the Billionaire Minimum Income Tax. According to a White House brief, it “will ensure that the wealthiest Americans pay a tax rate of at least 20 percent on their full income, including unrealized appreciation. This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.” The tax will apply only to the top 0.01% of American households (those worth over $100 million).
At present, the tax system discourages taking taxable gains on investments to postpone taxes. If adopted by Congress, a 20% tax on the unrealized appreciation of investments could have the effect of altering buying and selling patterns of securities, as well as real estate and other investments.
Jean-Pierre did say that the budget would propose “tax reforms to ensure the wealthy and large corporations pay their fair share while cutting wasteful spending on special interests like big oil and big pharma.” One reform, the White House has been outspoken about is corporate buybacks. He proposes, quadrupling the tax on corporate stock buybacks.
Take Away
The market will get insight beginning the second week of March 2023 into the financial priorities of the White House and thoughts on members of the House Ways and Means Committee. While nothing is set in stone, the White House and Congress would both seem to be on the same side of more fiscal restraint.
And although nothing is close to complete, the discussions and news of debate can have a dramatic impact on markets. For example, investors may be treated to more buybacks if it appears the tax on buybacks will increase in 2024. Another example would be a tax on the appreciated investments of wealthy individuals. It could follow that accounts of these individuals would have an increased incentive to transact than under a system where capital gains are only recognized by the IRS after taken.
The US Budget Office Just Laid Out its Ten-Year Forecast – What Investors Should Know
The US National Debt Clock app might be useful for those that suffer from low blood pressure. I’m being facetious – the app and website provide a visual of the current estimated overall national debt. It breaks out what each citizen’s theoretical share is, and then divides it up in dozens f other categories. The clock is an estimate of real-time. For a future projection, the better place to turn is the just-released forecast from the Congressional Budget Office (CBO). The CBO’s website can be insightful and idea-provoking for investors as it includes a 10-year forecast for government spending, which is broken down by industry type.
Source: USdebtclock.org (February 17, 2023)
Direction of Overall US Debt
The US is on track to accumulate more than $19 trillion in additional debt over the next decade, according to a CBO document released on February 15.
This new expectation is $3 trillion more than previously forecast. Coming at a time when there is headbutting and chest pounding going on in Washington surrounding the debt ceiling (US Treasury borrowing cap), the significantly larger 10-year budget may additionally stress the governments ability to pay its bills. Phillip Swagel, a director at the CBO expressed his concern saying, “The warning is that the fiscal trajectory is unsustainable.”
The federal government is expected to collect $65 trillion in revenue over the next ten years. More than half is expected to come from individual income taxes, and another third comes from payroll taxes. Individually, we can’t change what may be higher taxes, or a weakened government financial situation, which, separate from the Federal Reserve, puts upward pressure on interest rate levels.
Source: CBO
Drilling down deeper into where the funding is expected to flow from, individual income taxes are planned to remain level through 2025, then ramp up at a pace quicker than payroll taxes and corporate taxes.
But the country will spend much more than what it collects. Rising interest payments, large federal stimulus bills, and the growing costs of Social Security and Medicare benefits for retiring baby boomers are some of the government’s largest spending items.
Source: CBO (Data excludes offsetting receipts)
Of the Federal agencies budgeted to spend the highest amount, health and human services top the list. Small percentage increases are a lot in actual dollar amounts when trillions are involved. Social Security is the agency consuming the second most amount, followed by the Treasury, which is experiencing growing interest expenses.
Source: CBO
Looking at a broader swath of areas that should benefit as a result of government budget expansion, we see in the graph above the top three areas already mentioned, followed by at least a trillion spent over ten years in defense, veterans affairs, agriculture, transportation, personnel, education, and homeland security.
For Investors to Think About
Short-term investors tend to ignore some approaching realities while overly focusing on others. Long-term, investors may find that the cost and expansion of public debt will eventually have the US responsible to pay more in interest over the next decade. By 2033, the net interest on public debt is expected to make up 14% of the federal government’s total spending.
There was another period in US history when net interest made up such a large slice of Federal spending, this was in the mid-to-late 1980s. Eventually, Congress did pay some attention to deficit reduction; it took years to taper the growth. The resurgence of the expanding debt trend in recent years has been explosive.
Interest rates on bonds could have built upward pressure as more debt would need to be issued to refinance at higher rates and pay for additional spending. A greater supply of debt without a growing supply of buyers is a recipe for higher bond yields. Are higher yields attractive? In bond markets, the value of a fixed bond goes down when rates rise. Floating rate bonds tend to approximate par throughout their life, but the Treasury and Wall Street have not been quick to issue these in the face of rising coupon rates.
Stock market investors may find value in investing in companies that receive 25% or more of their revenue from government contracts, particularly those agencies on the chart above that are budgeted to grow by billions or trillions. This could include smaller companies where the impact is greater. Within this category are aerospace contractors like Kratos (KTOS), communications companies like Comtech (CMTL), or transportation-related spending that could benefit dredging from companies like Great Lakes Dredge and Dock (GLDD).
The smaller companies mentioned may benefit from the massive budget growth. But they are not alone, Channelchek is a great source of data and discovery of many companies doing great things that are destined to become even greater. Be sure to sign-up for all the free resources available to investors by going here.
How Dangerous Was the Ohio Chemical Train Derailment? An Environmental Engineer Assesses the Long-Term Risks
State officials offered more details of the cleanup process and a timeline of the environmental disaster during a news conference on Feb. 14, 2023. Nearly a dozen cars carrying chemicals, including vinyl chloride, a carcinogen, derailed on the evening of Feb. 3, and fire from the site sent up acrid black smoke. Officials said they were testing over 400 nearby homes for contamination and tracking a plume of spilled chemicals that had killed 3,500 fish in streams and reached the Ohio River.
However, the slow release of information after the derailment has left many questions unanswered about the risks and longer-term impact. We discussed the chemical release with Andrew Whelton, an environmental engineer who investigates chemical risks during disasters.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Andrew J. Whelton, Professor of Civil, Environmental & Ecological Engineering, Director of the Healthy Plumbing Consortium and Center for Plumbing Safety, Purdue University.
Let’s start with what was in the train cars. What are the most concerning chemicals for human health and the environment long term, and what’s known so far about the impact?
The main concerns now are the contamination of homes, soil and water, primarily from volatile organic compounds and semivolatile organic compounds, known as VOCs and SVOCs.
The train had nearly a dozen cars with vinyl chloride and other materials, such as ethylhexyl acrylate and butyl acrylate. These chemicals have varying levels of toxicity and different fates in soil and groundwater. Officials have detected some of those chemicals in the nearby waterway and particulate matter in the air from the fire. But so far, the fate of many of the chemicals is not known. A variety of other materials were also released, but discussion about those chemicals has been limited.
State officials disclosed that a plume of contamination released into the nearby creek had made its way into the Ohio River. Other cities get their drinking water from the river, and were warned about the risk. The farther this plume moves downstream, the less concentrated the chemical will be in water, posing less of a risk.
Long term, the greatest risk is closest to the derailment location. And again, there’s limited information about what chemicals are present – or were created through chemical reactions during the fire.
It isn’t clear yet how much went into storm drains, was flushed down the streams or may have settled to the bottom of waterways.
There was also a lot of combusted particulate matter. The black smoke is a clear indication. It’s unclear how much was diluted in the air or fell to the ground.
How long can these chemicals linger in soil and water, and what’s their potential long-term risk to humans and wildlife?
The heavier the chemical, often the slower it degrades and the more likely it is to stick to soil. These compounds can remain for years if left unaddressed.
After the Kalamazoo River oil pipeline break in Michigan in 2010, the U.S. Environmental Protection Agency excavated a tributary where the oil settled. We’ve also seen from oil spills on the coasts of Alaska and Alabama that oil chemicals can find their way into soil if it isn’t remediated.
The long-term impact in Ohio will depend in part on how fast – and thoroughly – cleanup occurs.
If the heavily contaminated soils and liquids are excavated and removed, the long-term impacts can be reduced. But the longer removal takes, the farther the contamination can spread. It’s in everyone’s best interest to clean this up as soon as possible and before the region gets rain.
Air-stripping devices, like this one used after the derailment, can help separate chemicals from water. U.S. EPA
Booms in a nearby stream have been deployed to capture chemicals. Air-stripping devices have been deployed to remove chemicals from the waterways. Air stripping causes the light chemicals to leave the water and enter air. This is a common treatment technique and was used after an 2015 oil spill in the Yellowstone River near Glendive, Montana.
At the derailment site in Ohio, workers are already removing contaminated soil as deep as 7 feet (about 2 meters) near where the rail cars burned.
Some of the train cars were intentionally drained and the chemicals set on fire to eliminate them. That fire had thick black smoke. What does that tell you about the chemicals and longer-term risks?
Incineration is one way we dispose of hazardous chemicals, but incomplete chemical destruction creates a host of byproducts. Chemicals can be destroyed when heated to extremely high temperatures so they burn thoroughly.
The black smoke plume you saw on TV was incomplete combustion. A number of other chemicals were created. Officials don’t necessarily know what these were or where they went until they test for them.
We know ash can post health risks, which is why we test inside homes after wildfires where structures burn. This is one reason the state’s health director told residents with private wells near and downwind of the derailment to use bottled water until they can have their wells tested.
The EPA has been screening homes near the derailment for indoor air-quality concerns. How do these chemicals get into homes and what happens to them in enclosed spaces?
Homes are not airtight, and sometimes dust and other materials get in. It might be through an open door or a window sill. Sometimes people track it in.
So far, the U.S. EPA has reported no evidence of high levels of vinyl chloride or hydrogen chloride in the 400 or so homes tested. But full transparency has been lacking. Just because an agency is doing testing doesn’t mean it is testing for what it needs to test for. Media reports talk about four or five chemicals, but the manifest from Norfolk Southern also listed a bunch of other materials in tanks that burned. All those materials create potentially hundreds to thousands of VOCs and SVOCs.
Are Government Officials Testing for Everything they Should?
People in the community have reported headaches, which can be caused by VOCs and other chemicals. They’re understandably concerned.
Ohio and federal officials need to better communicate what they’re doing, why, and what they plan to do. It’s unclear what questions they are trying to answer. For a disaster this serious, little testing information has been shared.
In the absence of this transparency, misinformation is filling that void. From a homeowner’s perspective, it’s hard to understand the true risk if the data is not shared.
