Chinese spy balloon has GOP saying no cuts to defense

Published

2 years ago

February 12, 2023

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A growing number of Senate Republicans are saying that President Biden and Speaker Kevin McCarthy (R-Calif.) should take defense spending cuts off the table in their negotiation over the debt ceiling.

The Republicans are digging in their heels after receiving a classified briefing on a Chinese spy balloon that floated over sensitive military installations.

“The entire civilized world should recognize that communist China is probably the greatest threat we’ve ever faced, more severe than Soviet Russia was because of its economic integration into the West,” said Sen. Tom Cotton (R-Ark.) after receiving a briefing from senior administration officials on the spy balloon. “We should take every step we can to try to reduce our dependency on China [and] try to build stronger military deterrence against them.

“I do not think that we should be talking about cutting the defense budget at all right now. If anything, substantial defense increases,” he said.

Defense cuts weren’t popular with most Republicans even before the controversy surrounding the Chinese spy balloon, which was shot down off the coast of South Carolina a week ago Saturday.

But the balloon controversy, which some see as underlining an aggressive stance from Beijing, has become a No. 1 reason to draw a line against defense cuts.

“Having a strong robust national security is essential to deterring bad behavior,” said Senate Republican Whip John Thune (R-S.D.). “I think it’s OK to try to find savings and do the audits and do all that sort of thing to become more efficient, but just willy-nilly saying we’re going to cut defense I think would be a mistake.” Sen. Tim Kaine says ‘ill-timed’ spy balloon was ‘incompetent’ move by China

Sen. Mike Rounds (R-S.D.) said “there is no way that we should be looking at defense cuts right now.”

“We’re probably going to need more and not less with regard to that. The primary responsibility of the Congress of the United States is the defense of our country and this one is a serious threat,” he said of China.

The tough GOP line on defense spending could make it even harder to reach a deal on spending cuts — which House and Senate Republicans are demanding as a price for raising the debt ceiling.

Democrats are against cuts to discretionary domestic spending and certainly do not want to reduce social spending if the Pentagon’s budget is not going to be touched.

President Biden has also drawn a line against cuts to entitlement programs such as Social Security and Medicare. McCarthy on Monday also pledged that cuts to Medicare and Social Security are off the table.

Senate Republicans had previously said they would leave the deficit reduction talks entirely to Biden and McCarthy, but it’s getting tough for them to stay out of it completely when there’s growing talk of the need for a new military buildup to counter China and Russia, which is beginning a new offensive in Ukraine.

“They believe in in strength,” Rounds said of China, noting that the Senate Armed Services Committee, on which he serves, has authorized the new B-21 stealth bomber. “We’re not going to be a pushover.”

He pointed out that a Chinese-owned company tried to set up a corn milling plant within 12 miles of Grand Forks Air Force base in neighboring North Dakota, which he called extremely suspicious.

Sen. Lindsey Graham (R-S.C.), another outspoken opponent of cutting defense funding, said he’s open to cutting wasteful programs within the Pentagon but he wants to redirect those savings to other defense-related priorities.

“I don’t mind reforming the Defense Department and doing away with certain programs. I want to apply it back into the Defense budget and put it in other areas. We need a bigger Navy,” he said.

“I don’t think anybody believes our Navy and our military footprint west of the international dateline is sufficient to deter China,” he said.

Republican lawmakers also say they’re not interested in cutting funding for veterans, law enforcement or border security, which doesn’t leave much on the table for Biden and McCarthy to discuss.

“Boy, I tell you they’re making their job very difficult,” said Bill Hoagland, a senior vice president at the Bipartisan Policy Center who previously served as the Republican staff director of the Senate Budget Committee.

“If you take entitlements like Medicare and Social Security off the table, you take defense off the table — obviously interest [payments] are off the table — what you’re left with is the safety-net programs [like the Supplemental Nutrition Assistance Program] and non-defense discretionary,” he said. “They’re making their climb up this hill even more difficult.”

Hoagland said that non-defense discretionary spending accounts for less than 15 percent of all federal spending.

He said that means there’s little chance Biden and Republican leaders will agree to a deficit reduction package of any significant size.

Other policy experts share that view.

“Whatever gets done will be a trim at best,” said Jim Kessler, the executive vice president for policy at Third Way, a centrist Democratic think tank.

“One out of every ten federal employees is a law enforcement official,” he noted. “Who are we cutting from the border or from the FBI or TSA? I think this gets hard.

“Governing is a lot harder than being in the opposition. Kevin McCarthy is going to learn that,” he said.

Sen. Rand Paul (Ky.), a leading Senate Republican budget hawk, said his GOP colleagues need to broaden the parameters of the negotiations if they’re going to have any meaningful impact on the deficit.

He said lawmakers who want to take defense cuts off the table “are just not serious about trying to do anything about the debt.”

“All spending would have to be on the table in order to have any kind of real hope of assessing the debt,” he said.

“This came up with the omnibus at the end of the year and the question was: ‘Which is more important for our national security, adding $45 billion in military spending or having a $31 trillion debt?’ From the perspective of fiscal hawks like myself, the $31 trillion in debt is more of a danger to our national security,” Paul said.

World

Asian stock markets tumble – with Hong Kong’s Hang Seng suffering worst fall for 28 years

Published

1 hour ago

April 7, 2025

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Asian stock markets tumble - with Hong Kong's Hang Seng suffering worst fall for 28 years

Asian stock markets have fallen dramatically amid escalating fears of a global trade war – as Donald Trump called his tariffs “medicine” and showed no sign of backing down.

Hong Kong’s Hang Seng index of shares closed down 13.2% – its biggest one-day drop since 1997, while the Shanghai composite index lost 7.3% – the worst fall there since 2020.

Elsewhere, Japan’s Nikkei 225 lost 7.8%, while London’s FTSE 100 was down 4.85% by 9am.

Tariffs latest – FTSE falls after Asian markets tumble

US stock market futures signalled further losses were ahead when trading begins in America later.

At 4am EST, the S&P 500 futures was down 4.93%, the Dow Jones 4.32% and the Nasdaq 5.33%.

Markets are reacting to ongoing uncertainty over the impact of President Trump’s tariff regime on goods imported to the US, which he announced last week.

Speaking on Air Force One on Sunday, Mr Trump said foreign governments would have to pay “a lot of money” to lift his tariffs.

“I don’t want anything to go down. But sometimes you have to take medicine to fix something,” he said.

The US president said world leaders were trying to convince him to lower further tariffs, which are due to come into effect this week.

“I spoke to a lot of leaders, European, Asian, from all over the world,” Mr Trump told reporters.

“They’re dying to make a deal. And I said, we’re not going to have deficits with your country.

“We’re not going to do that because to me, a deficit is a loss. We’re going to have surpluses or, at worst, going to be breaking even.”

Mr Trump, who spent much of the weekend playing golf in Florida, posted on his Truth Social platform: “WE WILL WIN. HANG TOUGH, it won’t be easy.”

Reality hits that trade war no longer just a threat

China’s announcement of its tariff retaliation came late afternoon on Friday local time.

Most Asian markets closed shortly after – and markets in China, Hong Kong and Taiwan were closed for a public holiday – meaning the scale of the hit did not play out until today.

This morning we are getting a sense of the impact. Dramatic falls across all Asian markets clearly signal a realisation a global trade war is no longer just a threat, but a reality here to stay, and a global recession could yet follow.

Up until Friday, China’s response to Donald Trump’s tariffs had been perceived as restrained and designed to avoid escalation, the markets had reacted accordingly.

But that all changed last week when Mr Trump’s new 34% levy on all Chinese goods was matched by China with an identical tax. Both sit on top of previous tariffs levied, meaning many goods now face rates in excess of 50%.

These are numbers that make most trade between the world’s two biggest economies almost impossible and that will have a global impact.

China has clearly decided any forthcoming pain will have to be managed, and not being seen to be cowed and bullied by Mr Trump is being deemed more important.

But the scale of the retaliation will have further spooked the markets as it makes the prospect of negotiation and retreat increasingly unlikely.

Mr Trump added to the atmosphere of intransigence when he told the media on Sunday the trade deficit with China would need to be addressed before any deal could be done. The complete lack of concern from the White House over the weekend will also not have helped.

While smaller economies like Japan, South Korea, Cambodia and Vietnam are all lining up to attempt to negotiate, there are a lot of nations in that queue.

There is a sense none of this will be easily rectified.

On Saturday, US customs agents began collecting Mr Trump’s baseline 10% tariff.

Higher “reciprocal” tariffs of between 11% and 50% – depending on the country – are due to come into effect on Wednesday.

President Trump believes his policy will ultimately make the US richer, creating jobs and forcing companies to relocate more of their manufacturing to America.

However, his announcement has jolted economies around the world, triggered retaliatory levies from China and sparked fears of a global trade war.

Investors and world leaders are unsure whether the US tariffs are here to stay or a negotiating tactic to win concessions from other countries.

Richard Flax, chief investment officer at Moneyfarm, said: “I guess there was some hope over the weekend that maybe we would see this as part of the start of a negotiation.

“But the messages that we’ve so far seen suggest that the President Trump is comfortable with the market reaction and that he’s going to continue on this course.

Goldman Sachs has raised the odds of a US recession to 45%, joining other investment banks that have also revised forecasts.

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In the UK, Sir Keir Starmer has promised “bold changes” and said he would relax rules around electric vehicles as British carmakers deal with a new 25% US tariff on vehicles.

The prime minister said “global trade is being transformed” by President Trump’s actions.

Meanwhile, KPMG warned tariffs on UK exports could see GDP growth fall to 0.8% in 2025 and 2026.

The accountancy firm said higher tariffs on specific categories, such as cars, aluminium and steel, would more than offset the exemption on pharmaceutical exports, leaving the effective tariff rate on UK exports around 12%.

Yael Selfin, chief economist at KPMG UK, said: “Given the economic impact that tariffs would cause, there is a strong incentive to seek a negotiated settlement that diminishes the need for tariffs.

“The UK automotive manufacturing sector is particularly exposed given the complex supply chains of some producers.”

US

Texas: Second child with measles dies as US outbreak spreads

Published

1 hour ago

April 7, 2025

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Texas: Second child with measles dies as US outbreak spreads

A second child in Texas with measles has died as the outbreak of the childhood disease reached nearly 500 cases in the state, officials have said.

The unvaccinated schoolgirl, who had no underlying health conditions, died on Thursday in hospital from measles pulmonary failure, the Texas Department of State Health Services said.

She was being treated for complications from the illness, a spokesperson for University Medical Center Children’s Hospital in Lubbock said in an email.

The girl was recently diagnosed with the viral disease, NBC, Sky’s US partner said, quoting from the hospital’s statement issued on Sunday.

Two children have now died in Texas since an outbreak of measles in late January in Gaines County, where the vaccination rate is about 82%, below the 95% believed to ensure those who cannot be vaccinated are safe.

An adult in New Mexico is also suspected of having died from measles, NBC said, calling the deaths the first from the disease in the US for 10 years.

US President Donald Trump, speaking to reporters on Air Force One on Sunday, said that, if the outbreak continues, his administration will “have to take action very strongly”.

How to avoid spreading or catching measles

Measles is spread when an infected person breathes, coughs or sneezes.

A rash usually appears a few days after the cold-like symptoms. The rash starts on the face and behind the ears before spreading to the rest of the body.

A person is infectious from when they first have symptoms (around four days before the rash appears) until four days after they get the rash.

There are things people can do to reduce the risk of spreading or catching measles.

Do: Wash hands often with soap and warm water. Use tissues when coughing or sneezing. Throw used tissues in the bin.

Don’t: Do not share cutlery, cups, towels, clothes, or bedding.

Information from NHS website

US Health and Human Services Secretary Robert F Kennedy Jr, identified the child as eight-year-old Daisy Hildebrand and said he visited Texas on Sunday to comfort the child’s family.

Pictures were published of him at the girl’s funeral in Seminole, northwest Texas.

In a post on X, Mr Kennedy, a vaccine sceptic who says it should be a personal choice, said vaccines are nonetheless the best protection against the illness.

He said the MMR (measles, mumps, rubella) vaccine is “the most effective way to prevent the spread of measles”, confirming that, as of Sunday, there were 642 confirmed cases of measles in the US, 499 of those in Texas.

The Texas Department of State Health Services said, as of Friday, 481 cases of measles had been confirmed, a rise of 14% in a week.

They include six infants and toddlers at a Lubbock day care centre that tested positive in the past two weeks.

Two of those children are among 56 people who have been treated in hospital for measles in the area since the outbreak started, NBC said, quoting health officials.

Measles is one of the most contagious viruses for humans. In serious cases, infections can cause complications including pneumonia, encephalitis, dehydration and blindness.

The Texas Department of State Health Services described it as a “highly contagious viral infection, which can cause life-threatening illness to anyone who is not vaccinated”.

Early symptoms can include a fever, cough and a runny nose, developing into a red-brown rash and high temperature.

Environment

Elon Musk sets the stage for Tesla to bail out Twitter/xAI at an insane valuation

Published

1 hour ago

April 7, 2025

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Elon Musk sets the stage for Tesla to bail out Twitter/xAI at an insane valuation

Elon Musk, who already suggested Tesla invest in xAI, is now setting the stage for the public company under his control to grossly overpay for xAI, a private company under his control that just absorbed Twitter (X).

Anyone invested in a mutual fund that owns Tesla shares could be about to bail out Musk and his billionaire friends.

At $44 billion, Musk knew he was overpaying for Twitter and tried to back out of the deal.

Within a year of Musk taking Twitter private, Fidelity Investments, which invested in Musk’s Twitter acquisition, revalued its investment as being down 65% from its purchase price.

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A year later, in October 2024, Fidelity valued Twitter, X by now, at just $10 billion.

That’s not surprising since Musk had Twitter take on $12 billion in debt as part of the take-private deal, and revenue fell by roughly half under his leadership.

To take Twitter private, Musk personally financed the deal with $25 billion of his own and his existing stake in Twitter, $12 billion in debt, and about $7 billion in investment from his friends.

As of October, most of that equity was gone, but Musk wasn’t about to let a loss slide on his record.

In 2023, he launched xAI, a private company under his control that develops AI products. Tesla investors are suing him for breach of fiduciary duty and resource tunneling over the founding of xAI since he had previously stated that Tesla would be a big player in AI and simultaneously threatened not to build AI products at Tesla if he didn’t get more control of the company, but let’s put that aside for now.

When raising money for xAI in 2023, Axios reported on how Musk might use the AI company as a “plan B to save Twitter” and Musk responded:

“I have never lost money for those who invest in me and I am not starting now.”

Who are these people who invested in Twitter with Musk? There’s a long list, but two of the biggest investors are Prince Alwaleed bin Talal, a Saudi Arabian billionaire and head of Kingdom Holding Company, and Larry Ellison, billionaire co-founder of Oracle. Both are close friends of Musk.

VC firms Andreessen Horowitz and Sequoia Capital, Qatar’s sovereign wealth fund, the highly controversial crypto exchange Binance, and the previously mentioned Fidelity Investments have also invested in the deal.

By the end of 2024, those people were basically writing down 80% of their investment in Twitter, as per Fidelity.

However, a few months later, in March 2025, X was somehow valued back at $44 billion as part of a “so-called secondary deal.” Some took this information as news that X had turned around, but many were skeptical that the valuation could have gone from $10 billion to $44 billion in just 5 months.

Sure enough, we quickly learned that the new valuation had little to do with improved financials at X and was instead based on Musk pushing for xAI to buy X at $45 billion through an all-stock acquisition. A company’s valuation is only what someone is willing to pay for it and Musk was willing for xAI to “pay” $45 billion.

In late March, Musk announced that xAI had acquired X in a deal valuing xAI at $80 billion and X at $45 billion, while xAI would take on X’s $12 billion debt.

The world’s richest man was not shy about highlighting the controversial self-dealing here:

It’s worth noting that xAI had raised only $12 billion at a $40 billion valuation with virtually no revenue as of December 2024, and now it’s a $125 billion company, based entirely on Musk’s valuation, with $12 billion in debt.

How does Tesla plays into this?

Musk has promised Tesla shareholders that the Twitter acquisition would be good for the company. That was after he sold tens of billions of dollars worth of Tesla stocks to buy Twitter – sending Tesla’s stock crashing.

Tesla shareholders haven’t really seen a return on that yet unless you count a brief surge in stock price after Trump was elected, with the help of Musk and X, but the stock has since erased all those gains since Trump came into office.

Now, xAI is the plan B.

Last summer, Musk suggested that Tesla invests $5 billion in xAI, but that was before the company acquired X. Musk will need shareholder’s approval for a deal between xAI and Tesla, which would happen at Tesla’s shareholders meeting – generally held in June.

Now, Tesla’s CEO, who has been complaining about his eroding control of Tesla after selling shares to buy Twitter, has greatly inflated the value of xAI through this acquisition of X ahead of the potential investment.

Musk has also discussed Tesla integrating Grok, xAI’s large language model, into its products, specifically its electric vehicles.

A post on X this weekend suggested that this might be happening soon:

ChatGPT, OpenAI’s LLM, has already been integrated in many vehicles, including from the Volkswagen Group, Peugeot, and Mercedes-Benz.

Electrek’s Take

The grift never stops. As I have been saying for years, Musk is not equipped to be an executive of a public company, and this is just the latest example.

If all these entities were private, and he was taking his affluent private investor friends on a ride, I wouldn’t have any problem with this, but Tesla is a public company included in many ETFs and mutual funds. Many people own Tesla stocks without even knowing.

But as Musk said himself, he doesn’t let people who invested in him lose money. Does that include Tesla investors?

I don’t think it does anymore.

There’s an argument to be made that Tesla shareholders should already own Musk’s stake in xAI. That’s what the breach of fiduciary duty lawsuit is about. Musk said that Tesla was “a world leader in AI’ and said that AI products would be critical to the company’s future.

Then, he starts a private AI company and threaten Tesla shareholders that he will not build AI products at Tesla if he doesn’t get more than 25% control over the company. That’s a clear breach of fiduciary duties to Tesla shareholders as the CEO of Tesla, but it will likely take years to solve this through courts.

In the meantime, Musk is pushing for Tesla to invest in xAI, which is now valued at $125 billion – a number completely made up by Musk.

Grok is not a bad product, but it ranks below OpenAI’s ChatGPT and Google’S Gemini in most AI rankings. It also relies too heavily on information from X, which is far from reliable. Most experts see xAI as being way behind OpenAI and other AI companies, which are already generating significant revenue.

Now, I doubt Musk will still push for a $5 billion investment from Tesla. I don’t think that Musk will want Tesla to spend 15% of its cash position on this amid delcinign earnings and a very difficult macroeconomic situation.

I wouldn’t be surprised to see Musk pushing for Tesla to invest in xAI as part of a stock deal.

The timing would be good for Musk. Tesla’s current brand issues, lower deliveries, crashing earnings have led to a much lower share price on top of the crashing US stock market. If Tesla’s share price is lower, Musk can get more shares for his made-up valuation of xAI.

Musk likely owns more than 50% of xAI post X acquisition. A stock deal would virtually result in him getting half of the Tesla stocks that are part of the deal – boosting his stake in Tesla, which has been his goal since selling his stake to buy an overpriced Twitter.

In short, Musk sold Tesla stocks to buy an overpriced Twitter, regretted it and threatened Tesla shareholders to get more shares. Now, he might get Tesla shareholders to pay for the acquisition again at the same ridiculous valuation.

The craziest thing about all of this is that I bet Tesla shareholders are going to approve this scheme.

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