The folks who borrowed $31 trillion did not destabilize the American financial system…

… it is the folks who don’t want to borrow another $31 trillion who are guilty of destabilization.

October: “U.S. National Debt Tops $31 Trillion for First Time” (nytimes)

This month: “Speaker Drama Raises New Fears on Debt Limit” (nytimes)…

Representative Kevin McCarthy of California finally secured the House speakership in a dramatic vote ending around 12:30 a.m. Saturday, but the dysfunction in his party and the deal he struck to win over holdout Republicans also raised the risks of persistent political gridlock that could destabilize the American financial system.

Economists, Wall Street analysts and political observers are warning that the concessions he made to fiscal conservatives could make it very difficult for Mr. McCarthy to muster the votes to raise the debt limit — or even put such a measure to a vote. That could prevent Congress from doing the basic tasks of keeping the government open, paying the country’s bills and avoiding default on America’s trillions of dollars in debt.

The only way to stabilize our economy and currency is to borrow and spend more!

Speaking of the economy, here are a few photos from my old neighborhood in Cambridge, Maskachusetts. The marijuana stores are thriving while the bicycle shop went bankrupt:

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How are the Europeans doing with their Cheat Our Way to Economic Prosperity plan?

Back in September, the Europeans decided to deal with energy price inflation by cheating. They’d hide the market prices from consumers by borrowing (printing?) money. “Germany will borrow nearly $200 billion to cap consumers’ energy bills” (CNN, 9/29/2022):

The German government announced plans to borrow €200 billion ($195 billion) to cap natural gas prices for households and businesses. That’s a bigger price tag than the £150 billion ($165 billion) the UK government is expected to borrow to finance its own price cap.

Germany, Europe’s biggest economy, is trying to cope with surging gas and electricity costs caused largely by a collapse in Russian gas supplies to Europe. Moscow has blamed these supply issues on the Western sanctions that followed its invasion of Ukraine in February.

“Prices have to come down, so the government will do everything it can. To this end, we are setting up a large defensive shield,” said German Chancellor Olaf Scholz on Thursday.

The package will be financed with new borrowing this year, as Berlin makes use of the suspension of a constitutionally enshrined limit on new debt of 0.35% of gross domestic product.

Lindner also said the steps would act as a brake on inflation, which has hit its highest level in more than a quarter century.

Consumer prices rose 10.9% in the year through September, provisional data from the country’s statistics office showed on Thursday.

As in the U.S., when the government spends more, inflation is guaranteed to come down (our “Inflation Reduction Act”). It’s been a few months How has the decision to pretend that gas prices didn’t go up gone? This December 14, 2022 report says that inflation across Europe is typically in the double digits. How about in Switzerland, where they deny the Science of printing money? From December 1: “Swiss inflation steady at 3.0% in November as expected”. The U.S. Congress and Federal Reserve have proven that there is no need to work harder in order to become richer and yet the Swiss reject this proven scientific result.

At least back in October, inflation wasn’t keeping folks in Paris from partying:

What about our own stagflation? “Home Depot co-founder says ‘socialism’ killed motivation to work: ‘Nobody gives a damn’” (New York Post, 12/29/2022):

The 93-year-old billionaire co-founder of Home Depot blamed “socialism” for Americans lacking the motivation to work and warned that the future of capitalism is in danger.

Bernie Marcus — who along with Arthur Blank built Home Depot into a nationwide empire from just two stores founded in Atlanta in the late 1970s — told Financial Times on Thursday, “Nobody works.”

“Just give it to me. Send me money. I don’t want to work — I’m too lazy, I’m too fat, I’m too stupid,” Marcus said about what he perceived as the attitude permeating the country.

“Nobody gives a damn.”

The longtime Republican backer ticked down a list of people he blamed for standing in the way of private enterprise, including President Biden, “the woke people,” the news media, Harvard graduates, MBAs, lawyers and accountants.

“I’m worried about capitalism,” said Marcus, whose net worth is estimated by Bloomberg at $5.25 billion. “Capitalism is the basis of Home Depot [and] millions of people have earned this success and had success.”

Billionaires can’t buy this Bernie because he already is one!

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One year from unionization to shutdown for a Maskachusetts sandwich shop

My old neighborhood in Harvard Square was home to a 30-year-old sandwich shop whose workers took advantage of the coronapanic labor market to unionize in the fall of 2021. After 9 months of union bliss, they responded to Bidenflation by demanding higher wages. The employer’s counter-offer was to shut down entirely:

From the Harvard Crimson (November):

The popular Boston-area coffee chain Darwin’s Ltd. announced plans to close the store’s original Harvard Square location at the end of the month, prompting some workers to stage a protest at Cambridge City Hall on Sunday denouncing the move.

Darwin’s United — a union representing the chain’s employees — responded by organizing a protest at City Hall, where workers rallied on Sunday before gathering outside the Darwins’ Cambridge home.

“We have been offered no guarantees of jobs for those who want to stay, no guarantee that workers will have an income going into winter,” the union wrote in a Twitter statement. “We will not back down, we will not take this.”

At the rally, union members called on the Darwins to keep workers at the Harvard Square store employed if they wished to stay on and reiterated past demands for $24 per hour wages, three weeks paid time off, and zero-deductible healthcare for employees.

“We know that Steve has long been considering selling the business, but the timing really couldn’t be worse,” said Sam White, a Darwin’s United representative. “We’re telling him to come back to the bargaining table and respond to our proposals.”

A majority of workers at the four Darwin’s locations voted to unionize in September 2021 and began negotiations with management for a new contract for workers. Since then, talks have stalled, according to White. In March, workers at all four locations staged a mid-morning walkout to raise pressure on the owners.

Maybe things are more harmonious on the West Coast? The academics at UC Berkeley claim that they know what workers are entitled to and how to redress inequality in the United States. Yet their own workers had to go on strike to try to force the university to pay a fair wage. “University of California workers continue strike amid threat of arrests” (Guardian, December 10, 20220):

Tens of thousands of academic workers throughout the University of California are currently on their fourth week of striking for a new union contract and the situation is intensifying amid the threat of arrests after direct actions by some strikers.

The strike of 48,000 academic workers, including graduate workers, academic researchers, postdoctoral scholars and teaching assistants, began on 14 November and is the largest in the history of higher education in the US.

About 12,000 postdoctoral researchers and academic researchers reached a tentative agreement with the University of California on 29 November, which included pay increases up to 29%, but have continued striking in solidarity with other academic workers still pushing for a deal and while the agreement is put to the membership for a vote.

Graduate workers at UC have reported issues in affording rent, food and basic necessities in the cities they work and live in on salaries averaging about $23,000 annually.

If the politicians and academics in California are experts on fairness, why did their workers need to strike? University of California professor Robert Reich, for example, is fond of scolding America’s evil capitalists for underpaying workers. Why didn’t he pay his own slaves fairly?

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The Brits don’t love the world’s best health care system

From a bookstore in Kensington:

A Guardian review says it is all about the death panels:

Side Effects forces us to face up to – rather than ignore or deny – the realities of balancing the vast sums that can be spent on a single, seriously ill patient against the “distressing conditions in which many frail and elderly people live out their final years, often as a result of lack of adequate funding”. It is all too tempting, Haslam recognises, to dismiss as abhorrent the act of attaching a price tag to a person – as though their worth can be measured in pounds and pence. A human life, surely, is priceless? No amount of mere money or stuff comes close? But anyone who is actually involved in the real, messy world of healthcare knows full well this is nothing but rhetorical posturing.

Later that afternoon I was talking to a guy who is married to an emergency medicine doc in London. With the cost of living adjustment, she can expect to earn 80,000 pounds per year (i.e., $80,000!) after 15 years of slavery for the NHS (age 40). “A train driver will earn more,” he noted, “because their union is actually effective.”

Who is smarter than the Brits for running a universal health care system that doesn’t bankrupt everyone? Africans! “Middle class Nigerians who need any kind of advanced medical treatment will come here on a tourist visa,” my friend explained, and go straight from Heathrow to an NHS hospital. Once they’re in the system they get treated just like anyone else. After consuming what might be hundreds of thousands of pounds in services and recovering, they go back to Nigeria.”

What else did they have in the bookstore? It’s “smart thinking” to fight structural racism:

An American hero who inspires Biden voters can also inspire the British:

Although the age of consent in the UK is 16 (e.g., a 16-year-old could consent to have sex with a rich guy after a Gulfstream flight to somewhere luxurious) and prostitution is a legal career for an 18-year-old, the British are apparently shocked about what Jeffrey Epstein was allegedly up to:

Anyone who isn’t a cisgender heterosexual white male is in trouble:

England was saved from German invasion by women of color who were willing to risk their lives in combat while white men relaxed in the safety of their country homes:

Despite the fact that some heroines exist, the entire Earth is, literally, toast because of those who Deny the Science (i.e., unlike World War II, this is not a war that can be won by women alone):

An entire section of the front of the bookstore was devoted to a personage who by right should have been King of England and was denied this position purely on account of her gender ID:

Circling back to the British health care system… if we aren’t willing to use death panels or at least a quality-adjusted life year calculation the way that the Brits do, how are we going to keep health care from growing to consume 25 percent of American GDP (a shrinking quantity in the aggregate and, since the population continues to grow via immigration, an even more dramatically shrinking quantity on a per-capita basis)?

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Wile E. Coyote looks down (U.S. economic downturn has begun in earnest?)

There’s a sports car dealer next to our favorite taco place here in Jupiter. Their lot was jammed with cars, seemingly twice as full as in the summer. From their perspective, the car market turned about 30 days ago. They’re now paying only MSRP for nearly-new (500-mile) C8 Corvettes. What do they turn around and sell them for? It’s a little unclear because they say “We haven’t had a call for a Corvette in 3-4 weeks. The interest rates have killed demand.” (Note that this is contrary to my theory that we have enough deficit spending and inflation-indexed spending to have inflation even if nobody does any borrowing; see Can our government generate its own inflation spiral? and Economist answers my question about high interest rates and high deficits.)

How about real estate? There’s a house in our neighborhood (built by the MacArthur Foundation for middle-class and upper-middle-class people!) whose $3.35 million asking price in April 2022 seemed aggressive, particularly since there was no pool and the new owner would have to lease it back to the sellers until October when the sellers expected their new-built house to be ready.

Here’s the “value history”:

In June 2022, there actually was a greater fool who agreed to pay $3 million for this albatross. But then it seems that this person disappeared or wised up and the closing price was $2.4 million (last week):

If you’re depressed because you forgot to sell all of your assets in March 2022, this message from the taco place might be useful:

If you’re depressed because you were dumb enough to buy a house early in 2022 at early-2022 prices (looking in the mirror is painful!), you can be comforted that you don’t live in San Francisco, which MSNBC uses as shorthand for a truly crummy and crime-plagued urban environment (the MSNBC interviewer says, regarding a higher-crime Manhattan, “We’re worried this could be San Francisco”):

Readers: What are you seeing? Did we run off the cliff a few months ago and not notice until now?

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What kind of economic advice is Joe Biden getting?

Joe Biden’s economic policy seems to follow the same logic as that used by my 88-year-old mom’s circle of friends. These women are generally innumerate, despite having enjoyed elite educations, because they took their last math class in high school and, as stay-at-home wives, could enjoy afternoons at the theater rather than reviewing accounting reports or doing the other tedious stuff with numbers that is required to earn money. They believe that the U.S. has an infinite supply of wealth, partly because Asians are inferior to Americans in creativity and, therefore, cannot truly compete with us. Due to the fact that our wealth is infinite, there shouldn’t be any limit to what the government can spend. Any spending program that might help at least one American, therefore, should be approved.

Joe Biden seems to hold similar beliefs, but what about the professional economists who have been advising him on his Inflationary Journey? Jerome Powell, chair of the Federal Reserve, must be one of the world’s leading experts on macroeconomics, right? Wikipedia says that his/her/zir/their degrees are in “politics” and law. I.e., there was no formal training in economics behind “Fed’s Powell says high inflation temporary, will ‘wane’” (AP, June 2021).

The Chair of Biden’s Council of Economic Advisors is Cecilia Rouse. In May 2021, she characterized inflation as “transitory” and “temporary” (Reuters). Here she is in June 2021 doubling down:

And then in December 2021… “Top Biden Economist: ‘I Really Do Believe’ Inflation Will Ease” (Bloomberg):

“As supply chains ease, as people get back to work, as we normalize our economy, the price pressures will start to ease,” said Rouse, who’s on leave from her post as a Princeton University economics and education professor.

Rouse called the coronavirus the biggest, ongoing threat to the U.S. economy — one that could upend Americans’ willingness to take jobs, travel and spend money on activities like dining out. It’s still too early to know the ways in which the new variant called omicron could affect the U.S. economy, she said.

(It is not politicians ordering lockdowns and school closures that are threats to the economy, but SARS-CoV-2 itself.)

She’s 58 years old so at least has the potential to not be senile. On the other hand, Cecilia Rouse seems to be a specialist in labor economics, a potentially irrelevant specialty given a country where the long-term trend is people preferring not to work:

Google Scholar shows this top advisor’s papers. A sampling:

  • “Orchestrating impartiality: The impact of blind auditions on female musicians” (possibly flawed; see also this critique)
  • “Diversity in the economics profession: A new attack on an old problem”
  • “Constrained after college: Student loans and early-career occupational choices”
  • “The Costs and Benefits of an Excellent Education for All of America’s Children” (Science says that the obvious answer is to close schools entirely for 12-18 months, particularly anywhere that Children of Color are to be found)

None of these seem to relate to the central questions of our day: Can the government borrow and/or print $31 trillion without causing hyperinflation? If everything that the government spends is indexed to inflation, can the government itself cause an inflation spiral?

Is it possible that the central planners are completely unqualified for the job that they’ve given themselves?

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Dumb question: Why didn’t the Fed raise interest rates by 3 percent once it realized its incompetence?

The Fed has raised its primary credit rate by 3 percent compared to the spring of 2022 (this chart doesn’t show today’s bump):

If the Fed recognized back in the spring of 2022 that low interest rates plus wild deficit spending was a toxic combination, thus leading to the 0.75 percent bump in June with forecast additional bumps, why didn’t it increase the rate to today’s level immediately? If you want to stop inflation, and convince markets that you’re serious about the effort, why keep lending money at an interest rate dramatically lower than the inflation rate?

The obvious answer is “Philip, you’re an idiot who took a few graduate level econ courses; Fed chair Jerome Powell is a brilliant macroeconomist who knows what he/she/ze/they is doing.” The problem with that answer is Wikipedia says that Mx. Powell has no formal training in economics. He/she/ze/they studied politics and then law. While it is still a safe bet that I don’t know anything about economics, it is also possible that Jerome Powell has no better insight into what will happen with inflation.”

I think that there is plenty of room for continued inflation in the U.S. economy. Now that higher mortgage rates make buying a house more expensive, landlords shouldn’t feel dramatic pressure to cut rental rates (though, presumably, they did get a little ahead of the market in the spring). There should still be steady demand driven by immigration and the resulting higher rents will ensure the continued misery of the working class that was forecast back in 2016 by a Harvard economist. After rent, cars are a big expense for Americans. A neighbor shopping for a Honda was told that it would be $6,000 over dealer cost and that he might have to wait a month. Those aren’t better terms that what I learned about in the spring of 2022 when getting an oil change for our beloved Odyssey. Let’s look at appliances. We recently priced a Sub-Zero refrigerator to replace our dying 42″-wide KitchenAid. The Sub-Z is plainly underpriced at $14,000+ (including sales tax and installation) because there is a one-year wait (in 2019 it was a 7-10-day wait). Why not buy another 42″-wide KitchenAid and then wait for that one to die? The cost would be closer to $12,000, but they are also out of stock, which means the correct price is higher.

Maybe the downturn in real estate occasioned by these higher interest rates actually will do enough damage to the economy to stop hyperinflation for 2023. But that leads us right back to the question above: Why didn’t the Fed do a full 3 percent raise back in June and stop hyperinflation perhaps 6 months earlier? (Presumably we’ll still have inflation of at least 2 percent, just not hyperinflation!)


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Who can explain financial markets’ hatred for the new UK government?

There has been a lot of drama in the currency and bond markets regarding the new UK government’s economic policy, which sounds like it is along the lines of what the U.S. did in the 1980s. President Ronald Reagan proposed shrinking government with spending cuts so that tax cuts could be implemented; Congress agreed to the tax cuts, but refused to cut spending and the result was massive deficits, which eventually faded due to economic growth.

The UK government is already somewhat leaner than what we have in the U.S. Heritage says that the UK government consumes 42 percent of GDP, which is a touch higher than the US government (39 percent), but the UK figure includes nearly all health care spending. If we add government-mandated-and-regulated “private” health care to the US number, we get closer to 50 percent of GDP.

The business folks and investors with whom I spoke in the UK were generally positive regarding Prime Minister Truss‘s plan, which they felt would deliver a substantial amount of growth. They attributed much of the hatred and hysteria to an anti-Conservative press. On the other hand, hatred and hysteria in currency and bond markets isn’t usually driven by whatever the Guardian has to say.

One part of Truss’s plan seemed insane to me, i.e., preventing consumers from seeing that prices for energy have gone up. But the French are also doing it. Wholesale electricity prices are up 5X and consumers are paying… 1X. Party On with printed money.

“Liz Truss’s economic plan caused a furor. But it’s actually sound” (Washington Post, October 9):

Britain is the only Group of Seven country with a smaller economy today than in the fourth quarter of 2019, before the coronavirus pandemic. In the 40 quarters preceding the pandemic, its economy grew at an annual rate of less than 2 percent more than half the time.

Maybe a country where all of the young people get stumbling drunk every night at the pub isn’t ideally situated for growth?

The government’s tax plan would cancel a scheduled increase in the corporate tax rate to 25 percent from 19 percent and would make permanent a temporary increase in the annual investment allowance, letting businesses deduct the full cost of qualifying plants and machinery up to 1 million pounds in the first year.

This sounds reasonable to me! With a 25 percent rate, a company would have to be crazy to refrain from pushing all of the profits into Ireland (12.5 percent rate and full membership in the EU if frictionless trade with Europe is required). The depreciation simplification should front-load investment and activity and shouldn’t change the tax owed in the long run (spending one million pounds will yield one million pounds of deductions against revenue).

The most questionable parts of the plan are the income tax cuts. Reducing the basic rate of income tax by one percentage point, to 19 percent, will fuel consumption at a time when the Bank of England is attempting to curb inflation.

The prime minister’s proposal to eliminate the 45 percent tax bracket on incomes above 150,000 pounds per year — the top 1.1 percent — was also unwise in the current fiscal and economic environment, …

I’m not sure that a 45 percent rate is revenue-maximizing. At that rate, a Brit would get a great return on pushing activities offshore or structuring activities to get the 10 percent entrepreneur’s rate. The U.S. government is greedy for money and the top personal income tax rate is 37 percent (which works out to 37 percent in Florida or 50.3 percent in California).

It looks like the markets are locking Britain into the same policies that put it on the slow bus to economic mediocrity. Given some reasonable value placed on leisure and drunkenness, the decision to forgo the second job or language study and spend the evening in the pub with friends will be a rational one. For those who are ambitious, the decision to emigrate will likely be a rational one (one of our neighbors in Florida recently arrived from the UK, having accepted a transfer within a multinational industrial products company (held up for more than a year due to coronapanic restrictions on non-walk-across-the-border-and-claim-asylum immigration); he will do the same thing that he did in the UK, but for a much larger market).

What am I missing? My default assumption is that markets are right, but I can’t figure out what is so terrible wrong with the latest British government’s plans. Is part of the explanation that the pound isn’t the world’s reserve currency and therefore the consequences of deficit spending are more severe than they are for the U.S.?

Separately, how can a country full of midgets and randoms fail to thrive?

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Can our government generate its own inflation spiral?

Earlier here I wondered Could our epic deficits drive inflation no matter how high the Fed raises rates? (the answer is “yes” according to one of the smartest economists in the world: Economist answers my question about high interest rates and high deficits). Regarding the latest rounds of interest rate hikes, a Democrat-voting university professor friend posted on Facebook:

If you tried to put out a fire with water, and the fire got no smaller even after 3 attempts, you’d hopefully realize this is no normal water and/or this is no normal fire. And if you were able to come to this conclusion, you would not be the Fed.

My response was “I think the government may itself be the inflation spiral. Government is nearly half the economy and everything the government pays money for is indexed to inflation. Medicare, military and similar contracts, Social Security, pensions, employee salaries, etc.”

(This was a few days before “Social Security cost-of-living adjustment will be 8.7% in 2023, highest increase in 40 years” (CNBC, today))

If everything that is part of the local/state/federal government sector is indexed to inflation, doesn’t that mean that inflation goes down only if horrific pain is being inflicted on those dumb enough to be in the private sector? If government workers are getting cost-of-living adjustments (COLA), their spending power by definition cannot change (assuming that the BLS is calculating the CPI correctly). If the CPI says prices went up by 10 percent, the government workers will have 10 percent more in salary to go chasing after a mostly fixed supply of goods. This is the classic wage-price spiral.

Government is not 100 percent of the U.S. economy, so maybe the wage-price spiral can be broken if significant spending power reductions are imposed on non-union non-government workers. But at some level of government control of the economy, the spiral should be unbreakable regardless of interest rates and regardless of how poor the private sector chumps become.

(Why “non-union”? Union workers typically would have an automatic COLA increase and we could also consider union workers part of the government sector because they depend on the government to sustain their union power.)

Loosely related… prices and government worker wages go around in the Bois de Boulogne:


  • “Inflation Is Unrelenting, Bad News for the Fed and White House” (New York Times, today): “This is a self-inflicted wound that will impact the most vulnerable members of our society the most,[” said Mohamed El-Erian] (I think that El-Erian is saying what I say above, but more succinctly; everyone involved with the government will be 100 percent protected from inflation, which means that the peasants are going to be destroyed to keep those affiliated with the government from feeling any pain)
  • “Retirees Catch a Break With the Social Security COLA” (WSJ): On Thursday, the Social Security Administration said recipients will get an 8.7% increase in their payments next year and, for the second year in a row, that actually exceeds estimates of how much their costs increased. That is according to a 35-year-old initiative to measure the true rate of inflation facing those over 62, via an experimental consumer-price index produced by the Labor Department’s Bureau of Labor Statistics, known as the CPI-E; the E stands for “elderly.” … This year, the COLA was 8.7%, more than the 8% rise in the CPI-E.
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Construction costs in Los Angeles

Here in Paris, I met a guy who works in real estate development in Los Angeles. Assuming that you’ve already got the land, what does it cost to build a McMansion-grade house? “$500 per square foot,” he responded. How about an apartment building for the middle class? “Closer to $400 per square foot,” was the answer (same as So the 2,500-square-foot house costs $1.25 million to build and the 1000-square-foot apartment will cost $400,000 to build… assuming that land is free.

“Rents have a long way to go up before they cover these kinds of costs for new construction, plus the land and all of the permitting,” he said.

I am not sure how California is going to house all of the migrants that it says it wants to welcome. How many folks who show up in the U.S. not speaking English will earn enough to pay $2 million for a house (construction plus land costs) or $600,000 for a condo (construction plus land costs)? At current interest rates, the nerdwallet calculator says that a Californian earning $200,000 per year can afford a $675,000 house ( says that median household income in California is less than $80,000 per year).

From these same folks, I learned that the cost of a suite in one of Paris’s nicer hotels is normally $2,800 per night, but they were paying $2,100.


  • City rebuilding costs from the Halifax explosion
  • the venue where the conversation happened, a house that would cost a lot more than $500/sf to replicate. Note the visitor using a cloth mask to protect him/her/zir/theirself against an aerosol virus in one of the world’s most crowded indoor environments whose ventilation system was put in by Louis XIV and got its last significant upgrade in 1698. Was the trip to Versailles actually necessary or could he/she/ze/they have stayed home and saved lives?
  • cloth masks again… outside in the bright French sunshine:
  • and, because I know Mike will want to see this, one last Warrior for Science in a hall depicting heroes in various French battles (note failure to shave beard while attempting to seal out aerosols with a mask):
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